Frmo Corp

Good afternoon, everyone. This is Therese Beyer speaking, and I'm the Corporate Secretary of FRMO Corp. Thank you for joining us on this call. The statements made on this call apply only as of today. The information on this call should not be construed to be a recommendation to purchase or sell any particular security or investment fund. The opinions referenced on this call today are not intended to be assumed that it should not be assumed that any of the security transactions referenced today have been or will prove to be profitable, or that future investment decisions will be profitable or will equal or exceed the past performance of the investments. For additional information, you may visit the FRMO Corp website at www.frmocorp.com. Today's discussion will be led by Murray Stahl, Chairman and Chief Executive Officer. He will review the key points related to the fiscal 2025 second quarter earnings. And now I'll turn the discussion over to Mr. Stahl.

Okay, thank you, Suarez. Thanks for joining us everybody today. So first off, let me explain why my colleague, Mr. Bregman, is not with us today because he came home from vacation and found a pipe burst in his home, and there's no heat in his home as well. And it's pretty cold out there, and there's a lot of work that needs to be done to repair that, which my understanding is very little has been done so far. So he has his own headaches. So we can excuse him, and I will be doing the call. Hope you don't mind. And let's turn our attention then to FRMO. So I'll start with just some highlights. of these recently released financial statements that may not be entirely obvious, even though you can find some of this information in the footnotes. To begin with, so you're probably aware that Horizon Kinetics is now a publicly traded company. So you'll see on our balance sheet, investment in Horizon Kinetics Holding Corporation, formerly Horizon Kinetics LLC at November, and you'll see it's carried at $16.2 million. It's important to state that is done via the equity method. That's not done via the market value method. So you took the market capitalization of Horizon Kinetics and multiplied by a proportional ownership This is not the number you're going to get. You're going to get a bigger number. So I just want to make that clear to everybody. Also, in case it isn't clear, no matter what Horizon Chemex does in terms of its revenue, we've been keeping this revenue participation at cost. And all I'll say is there are alternative ways to value it. I just want to point out that we carry it at cost. Now, some other things. The column I refer to sometimes, security sold short, and you'll see proceeds of $10.8 million plus, market value over $1 million. We are shorting, selling short, path-dependent ETFs. And you can tell how much we sold short in the quarter because all you have to do is compare November 30th Security sold short to the May 31st number. You can compare the market values. So these path-dependent ETFs are really dysfunctional. And sometimes they go against you, and that happens sometimes on our balance sheet. But in the pulse of time, they will gradually and inexorably make their way to zero. And you can see the unrealized profit we have. and that has contributed in no small measure to our cash balance and we're going to keep doing that. It's not a big part of our strategy, but it's a very lucrative thing and we keep doing it. Now, right under that, you'll see this deferred tax liability. A little of the deferred tax liability relates to that. A lot of the deferred tax liability relates to these securities we own that we just never sold. And part of the deferred tax liability relates to where we are, FRMO, physically located, our place of domicile. And if our place of domicile were different, it's possible that number could be lower, maybe even considerably lower. Can't promise anything, but That's something that we are in the process of studying. As a matter of fact, five minutes before this call took place, I was involved in a conversation relating to that and expressed my views on that subject. So we'll see what we can do about that. Now, there's some other things that don't readily appear on a balance sheet, and they don't give you a lot of information about the footnotes. In the footnotes, I'll just mention two of them. And one of them is Winland. In Winland, you'll be aware, as of the quarter end, for us this is 1130, we had 1,946,677 shares of Winland. We purchased more since the end of the quarter. So we own, in round numbers, this is not exact, of course, we own about 40% of Winland. And one of the things we're doing is we buy stock in the open market. We also make... direct equity investments in Winland. Now, we're doing it with a view to not just increasing our ownership as an economic purpose. It's worthwhile to explain what the economic purpose is. We are changing considerably the way we mine. There are two dimensions to the way we mine. I'm not going to go into the mining technology too much, other than to say that If we ever get above 50% of Winland, Winland's going to be a reporting company, and we're going to tell you a lot more about what's going on in Winland. In any event, the shares, which are used to buy equipment, the shares are issued on day one. The equipment takes some number of months to break even. In our specific case, what we're buying, we're going to break even in, depending on the breaks, eight or nine months. So the dilution is immediate because the shares are there. It takes eight or nine months to make up for it, and then we progress. The objective being that the number of coins we have per share should be increasing. That's really, really important. That's the thing that I want to stress. Why should anyone buy a mining company? In preference to... an ETF. There's only one reason. Because an ETF, the number of coins per unit because of the fees are going to be going down. So you can mine and you can get the number of coins per unit or per share if you prefer to go up. That makes the corporate form a better way of accumulating Bitcoin than ETF. That's the object of the exercise. That's what we're doing. We're doing the exact same thing in consensus mining. You'll note in the footnotes we have a small investment in consensus mining. It is to be hoped that consensus mining will be publicly traded, listed, and reporting. I'm told, don't hold me to this because I'm told by my legal advisors, that we should be traded in... about 30 days. Whether that's true or not, time will tell, but that's where it is. The way and manner which consensus differs from Winland is consensus has not issued any shares in a very long period of time. So as we are improving our mining technology, there's no shares issued, the expense of which has to be overcome. So the full benefit of any changes in technology are realized by your shareholders with an immediacy, literally that day, as opposed to what would happen in Winland where it takes a certain number of months. That being said, that's the only considerable difference, the only considerable difference, matter of fact, the only material difference between the mining strategies. Exactly what they're doing technologically is the same. We're trying to keep it within reason the capitalization of both companies. So you don't favor one relative to the other. And they're both doing exceedingly well. As I said before, if we ever get to the point where Fermo owns 50% or more of Winland, we will be consolidating Winland. Winland will become a reporting company, and you'll be able to see a lot more than you currently see. So there's a lot of fun things happening in the world of cryptocurrency mining that hopefully you'll be learning about shortly. One other thing I'd like to point out, that our book value per share, and our book value is a record, so that when I say book value, I'm referring to the line that's entitled, shareholders' equity attributable to the company, $413.6 million, divided by number of shares outstanding. We have a book value, and that's a hard book. of $9.39 a share. There's a lot of things going on at FMO that you really can't express in a book value. The things we said about cryptocurrency are just one important part of it. And as far as the investments we have, you can observe them. You can see what's going on. You probably have some questions about those. And when I find out about them, I'll answer it. But that's the overview. So everything is going reasonably well, and we're going to do our best to make it a lot better. So with that, Therese, I hope that's an adequate introduction of what we're doing. And maybe you could read me these questions, and I will endeavor to answer each and every one of them.

I'll be happy to. Your first question is consistent with the thesis on my acts. Has management ever looked at a box exchange and the symbol is A, B, X, X, F like Frank?

A, B, you said FF? What is that symbol?

A, B, X, X, like X, right? Frank, F. A, B, X, X, F.

can't say. I'm familiar with it. Never really looked at it. So what I will do is I'll make a note and I'll look at it. Next time we get together, I'll have an informed opinion for you. At the moment, I don't have an informed opinion.

So we'll see what I learn about. Okay.

Would you please provide an update, current status, of the company's investment in the Miami Future Exchange and possible path to profitability?

Well, I can't comment on what profit or lack thereof there is in MIACs or the Miami Futures Exchange. All I can tell you is the futures business in general, for everybody, is a very profitable business. exchanges for just about everybody is very profitable. Some firms have more profitability than others, but they're basically very profitable businesses. The reason they're very profitable businesses, the incremental revenue, which is the growth you get, goes right to the bottom line. There sometimes are incremental investments you have to make, but they're not really huge incremental investments. So the path to IPO, It's really a question of when you want to do it. So you'll be aware until just about now, the IPO market, this only relates tangentially to my ex, but the IPO market has not been very robust. The reason the IPO market is not very robust is that the world investment is dominated by indexation. So an IPO rarely... qualifies for inclusion in an index. Has happened, but it's very, very rare. So when active managers, or in the era when active managers dominated investing, initial public offerings were highly sought after. Now, initial public offerings, there are some successful ones, but they're more the exception that proves the rule. So you have to pick your moment. You're going to have a window, and you want that window to be such that you get the valuation you think you deserve, and that's all I can say about the IPO. The market has not been all that robust. If you look at my acts and the press releases, 90% of what you need to know about the company is right there. So the greater volume you have, the better it is for the exchange. And you can see that even though it doesn't hit record volume every month, it hits it a lot of months.

So you can get a pretty good indication that things are going pretty well. So what's next, Therese?

The next comes from someone who professes his questions with, As of sending this email, we are holders of over 10,000 shares of FRMO. We kindly request the following be addressed on the conference call this afternoon. Please provide a current book value update as of January 17, 2025 versus November 30, 2024. Okay.

Well, I gave November a number I can't give you. I'll tell you why I can't give it to you. I can't give you the January 17th number. And I'll tell you why I can't give it to you, although I wouldn't mind giving it to you. Because of the revenue share I referred to. So FMO is on November, is on a May fiscal year. So November is a quarter. Horizon Kinnex is on December quarter. And sometimes Horizon gets annual performance fees because horizon has not disclosed its earnings yet they have not calculated what if any performance fees they have and therefore in order to give you the book value i would have to know with some degree of precision what the performance fees are if indeed there are any performance fees so i have to disclose things about horizon that Horizon is not yet in a position to disclose. So they gave you that number. And since Horizon is not in a position to disclose it, I can't disclose it. So I can't calculate the book value so much as I would like to. So I just can't give you the January 17 number. It's just the way it is. I would put the FMO shareholders who are on this call listing a number. And if I... would give you that number I'd put them at an advantage relative to Verizon shareholders that may or may not be on this call and you can understand that would be legally very problematic so I can't do it but it's not me that's the legal system we live in and I have to obey the rules so that's whether it's fortunate or not that's the way it is

Thank you. Please provide color on the most optimal approach to ascertain mark-to-market value on positions in the Horizon Kinetics managed funds and ETFs, which are not included in your direct and indirect public securities and crypto holdings. The strong increase to $18.66 in book value from $11.43 last quarter was clearly linked to increases in asset positions beyond rises in LandBridge and TPL and crypto holdings. It would be helpful for some review on how investors should model accordingly.

Okay, so I got a lot to say about that subject. The first thing is, it was a press release that you're reading from, and I don't think that was a press release that should have been released. I'll explain why in just one second. And there was an update to that that I don't think was correct either, and I'm going to write it myself. So when that initial press release, when there's a sentence in there that says $18 plus in book value on a fully-lid basis, that's not correct. And the reason it's not correct is because it's not, in the accounting sense, correct to take the book value, which is the same, which is a synonym for shareholders' equity, and divide by the number of shares, roughly 44 million, and come up with that number. The reason is because roughly half that figure doesn't belong to the shareholders of Verizon. So when somebody makes that statement, somebody is basically inadvertently giving one the impression that the The entirety of the book value belongs to the shareholders. So here's the number of the shareholders that belongs to the shareholders. It's $413.6 million. Non-controlling interest, $407.8 million. What that is is it's funds that FRMO controls and under accounting rules, it's required to consolidate. So, but... That doesn't belong to the shareholders. And you'll see in all the earnings releases and these financial statements, we back it out. So we're following the accounting rules. We consolidate for reporting purposes, and we back out. So if you take the roughly 44 million shares outstanding and you divide it into 413.6 million shares, you come up with $9.39 in round numbers and book value. That's our book value. That's the number that you should be focusing on. It's not 18 plus dollars. So I just want to correct that, even though an effort was made to correct it. And I'm going to write myself a new press release, and I'll make it crystal clear. But I want to make it crystal clear right now. That's the number. Now, the thrust of your question is, so what are the determining positions? Well, the determining positions are the ones that are released that really are top five holdings. This is Texas Pacific, obviously. There are two crypto positions. Now there are two crypto. There used to be one. It used to be the Grayscale Bitcoin Trust, GBTC. They did a spinoff of what they called Bitcoin Mini, BTC. So there are those two positions. There's Miami International Holdings.

And there's Winland. Those are the big positions.

And there's some other crypto. So the interplay of all those things, plus the increase or decrease in our cash balance, that determines our book value. There's some fee income we get from Ryzen, and that's a determining factor. But those are the variables. There's some other securities holdings. They're relatively small. but there aren't any other hidden positions of note. There are many other positions, but they're not substantial. And while they may be rounding errors in book value, that's all they are at the moment, rounding errors in book value.

So that's what you should be focusing on. So I hope I've made that clear.

I believe you did. Okay, OTC pink sheet designation and quotation transparency. With respect to FRMO's pink sheet status, what is required to uplist to either OTCQX? Well, I think that's a typo. What is to uplist to OTCQX? And is management open to moving forward with the same? If not, why not? If OTC's uplist is not an option, At a minimum, proper quotation is important to investor transparency and desirability. The cost to add level two quotes to pink sheet listed companies is about $4,500 annually. Is there any valid reason why FRMO cannot add this service without delay to better service the investment community? So that's two parts to the question.

Okay. Well, it's really very simple. There's no good reason why. not to uplist. We are working on an uplist. When you finally get the information that we have uplisted, I have no doubt you're going to be very pleased with the actions that we take. So we want to. We're working on it. See, then your question would be, well, what's taking so long? And I hope you can see we had to bring Horizon public. We We're working with Winland. We're doing cryptocurrency. We're trying to do consensus mining, get that public. We've got a lot of things going on. And I hate to admit it, but we can only do so many things at one time. Each individual enterprise has slightly different issues. They're not all that complicated, but they're slightly different issues. And you would be astonished at that. things that you think are very, very minor in disclosure items, the regulators think they're significant and we have to get information. You would think we have every single piece of information at our fingertips and sometimes it actually takes weeks to get the requisite information. We have to submit to one authority and that authority has to submit it to another authority And sometimes months go by before we get an answer as to whether our submission is adequate. And if it's not adequate, we need to get some more information. And that's what takes so long. So we're doing it for a variety of companies. We just haven't undertaken the complexity of simultaneously doing it for the others. So I made allusion to consensus mining. I was told, and I'm sure it's accurate, that it'll be trading in 30 days. I need to also tell you that's not the first time I've been told it's going to trade in 30 days. So let's say the flesh is willing, but there are just things we have to do and we live in a world of regulations. We have to comply with them and it's easier said than done. I hope that's an adequate explanation other than the fact that we got a lot of things going on. But we'll get to it and it will be done.

Next, ongoing purchases of various public companies, such as TPO, continue without regard to valuation, such as the run-up into the S&P 500 inclusion. What is the strategy to purchase public company shares more opportunistically at lower valuations? For example, Berkshire's Discipline currently on display only paying a certain premium to intrinsic value when repurchasing shares. Yet, Berkshire continues to purchase Oxy, O-X-Y, as it is deemed a fair value. Both are opportunistic and active versus passive, systematically, systemically similar purchases.

Okay.

So, I would hate to compare Afromo to Berkshire Hathaway because we wouldn't compare favorably, but in any event, To answer your question directly, when you're outside and you say, why don't we purchase more opportunistically in relation to intrinsic value, it's not entirely evident to the outside world what the intrinsic value is. Because my position, I can't really tell you all that much about the intrinsic value, but I can tell you this. So you see how the world is moving towards what the world says is artificial intelligence, and what I say is high-order computation. It's a big difference, and if somebody asks the question, I'll go into what the difference is, but I prefer to use the terminology high-order computations. High-order computation requires enormous amounts of electric power, unbelievable amounts of electric power. And electric power requires a generation source. So let's just go through some of the choices, and I'll tell you how people discuss it conventionally. I'll give you some insight in how we look at it, and that'll let you figure out what the intrinsic value might well be. So, in terms of the conventional sources of power, people will say, well, we have choices between coal generation, which is not very environmentally friendly, and of course, we have natural gas fire generation, and we have nuclear, and people will talk about the differences as if they're different technologies. In the outside world, it really does appear to have different technologies, and they have their advantages and disadvantages. But inside, that's not true. Because the common feature of nuclear and coal, natural gases, they're all thermal generations technologies. What does that mean? That means is, in order... To produce power, which you do in any of those technologies, you heat water. You boil water to create water vapor, steam. The steam flows through a turbine. It turns the blades of a turbine. And the rotational motion of the turbine generates electric power. So the limiting factor is water. And I'll give you a statistic. A typical, let's say, a one gigawatt power plant is going to use much more than 500,000 gallons of water a minute. Now, when I say use, I don't mean consume. I mean make use of. A lot of that water can be reused. But not all the water can be reused because you'll know, or you'll probably know, in accordance with the laws of thermodynamics, there's no such thing as 100% energy conversion. It doesn't exist in the world. So, and I'm just giving you a number for luster purposes, it's not even that good. If you were making use of 500,000 gallons of water a minute, 50,000 gallons are going to evaporate. Probably more than that, let's say 50,000 gallons a minute. Now take that 50,000 and divide that number by 42. And you're going to get a number of something like 1,190. And by the way, I don't have a calculator. I'm doing this in my head. So 1,190 roughly... barrels of water a minute? Well, there is 60 minutes in an hour. So you multiply 1190 by 60. You can get a number. And there are 24 hours a day. So take that number and multiply 24. And there are 365 days a year. And you're going to need that much water. Except if you stay that calculation, you're going to be wrong. And the reason you're going to be wrong is we're back to the laws of thermodynamics. You can't power a one gigawatt data center with one gigawatt of thermal generation. The reason is because the generation facility has to go down for scheduled maintenance, and sometimes it goes down for non-scheduled maintenance. So you might need twice as much. So now you're gonna need two gigawatts, let's say. This is just for lustre purposes. The actual number is worse. Well, now take the number you got and multiply by two. That's how many barrels of water you need. This is one, one gigawatt data center, except that's not good enough. And the reason it's good enough, because back to our old friend, the laws of thermodynamics, there's no such thing as 100% energy conversion. So the electric power that's coming through the cable is much greater than the electric power, or let's say the rated electric power capacity of all the equipment you have in a data center. And the ratio of difference is usually greater than 1.5. So you have to take that Now, two gigawatts are multiplied by these 0.15. The actual number is more like 1.54. You get the 3.08. So that's how much water you need. And we're not even talking about the water you need for cooling the data center. But they haven't built data centers yet. Now, a normal resource like oil or gas, it could be in the ground at really great quantity. but it's finite. Eventually, it's going to run out. Water is forever. So what's going to happen is the water that you're going to be providing is going to go on for as long as the data centers. So what's the intrinsic value of that? You can't see it in your financial statement. The reason you can't see it in a financial statement is because the data center hasn't been built. All you know is there's a certain amount of water flowing, which is possible use for another purpose, but it isn't being used for that purpose yet, but it has enormous intrinsic value. So how can you leave that out of the calculation? You can't. So that's an important consideration. So looking from the outside, if you're not thinking about things like that, you're going to get a very, very bizarre idea of what intrinsic value frame these things really is. So I hope I've at least given you a little tutorial about things that are happening in the world of water. Water is an unbelievably valuable resource. And look throughout the S&P 500 and how many companies can you find that have the ability to access enormous quantities of water? And I don't think you're going to find very many.

So, I hope that gives you an orientation of where we are.

Okay. The next one first says, congrats on all of your successes, including the very meaningful growth in book value per share. My question is, what additional levers can the FRMO management team to accelerate the creation of incremental value for shareholders?

Well, let's just say we're doing some things. Some of it I've described in the cryptocurrency. Some of it I've alluded to that we might uplist. And when we have the bandwidth to uplist, that'll be something But there are a lot of interesting possibilities in cryptocurrency. And there are a lot of interesting possibilities just in the world of data centers and that kind of stuff. And that's what we're working on. And we're trying to increase our exposure to that. We have some interesting investments that at the moment are small, but we are increasing them gradually in some measured pace. And one day they'll be big enough to talk about. So we're doing stuff.

Okay, the next one refers to book value. Again, I'll allude back to your comments that this number is not correct to you. The FRMO book value is now reported at $18.66 per share on a fully diluted basis. The current stock price as of January 16th is in the approximate $10 to $11 range. Does this mean that the marketplace is valuing the company at about a 40% discount? If so, has management considered buying stock in the open market both to capture immediate financial value as well as support the stock price at a higher value which would benefit shareholders? If the company has been purchasing stock in the open market, what will the company do with the shares? Hold them as treasury stock or cancel the shares?

Okay, well, I sort of addressed this earlier and I can understand why white people read that press release and think our book value is over $18 a share, but I'll just stress again, our book value is not 18 plus dollars a share. Our book value is $9.39 a share. You can see what our trading price is, and our hard book value, as calculated, is the shareholder's equity attributable to the company That comes off the balance sheet. It's $413.6 million approximately, divided by the approximate 44 million shares outstanding. That comes to roughly $9.39. That is our book value. So I apologize for the way the press release is worded, but I guess in the future I'll write it. And I'll rewrite this one. and eliminate any ambiguity, but unfortunately it went out. So we have to deal with that. Apologies again, but hopefully it won't happen again. $9.39, that is our book value. So we haven't bought any stock back for the company.

Okay. The company has expanded the board of directors, adding three directors in October 2021, an additional director in November 2024, and then just announced a new director in the past week. Can you please discuss what strategic perspectives these new directors have contributed to the direction of the company that are being implemented?

Well, I'll speak in general terms. So basically, we would like to uplist FMO. We think there's a lot of great things going on in FMO. And if you're going to uplist, one of the things you have to have is you have to have what is arguably a fully independent board. It's one of the many things you have to do. So we had the opportunity to do it. And we decided to, this is the time, do it. You don't have to do it all in one day. and we didn't do it all in one day. And these are people who bring in different disciplines as far as other asset classes, legal, accounting, that line of country, just to make the board as strong as we possibly can in preparation for the day, hopefully not long coming, that we will be able to list. All that being said, at the end of the day, It's the management that has to do a certain amount of work, and we need the bandwidth to do it. So if there's anybody who didn't do what they're supposed to do, I guess you have to say it's me.

Okay. Given that a strategic goal of the company has been discussed on past conference calls is to acquire a controlling interest in Linlund, How do you consider just doing a tender offer to acquire the requisite number of shares that would get the company to its stated goal much quicker? If not, does the company have a higher strategic priority?

Well, what we need to do is we need to – we're in the process, both in consensus and Winland, we're improving, I think, greatly – the mining protocol. I think I've covered this in prior calls. When you buy equipment, there are a lot of things that can happen and not all of them are good. So equipment can become technically obsolete by new innovation. We don't want to do everything in one fell swoop because we might be confronted with some equipment that we inadvertently bought that is becoming immediately obsolete. So you want to make relatively small purchases of equipment in exchange for small numbers of shares. I know it takes longer to do it that way, but it's for everybody's safety because these things can happen. So far, we've been doing this a lot of years, we've been able to avoid those pitfalls by doing it this way. So I'd hate to accelerate the process with the view of accomplishing our strategic goal, and then full victim to an equipment cycle that we just didn't see coming because we were too focused on just getting to a requisite control interest. So I apologize for doing it the slow way, but it is the safe way, and I think it's best for all the shareholders. That's the way we're doing it.

Okay, there are two questions. I'll just combine them. They're asking about what investment A in note four is. And that's basically it. Could you comment on its nature as an income-producing asset?

It's very simple. We have two big investments that they call investment A and investment B. And when we do our release of our individual holdings, anybody can see that We only have two really tremendous holdings, and they are TPL and the GBTC, or otherwise known as a Bitcoin ETF. That's what it is. So it's no great secret. I don't know why they say that, but that's what they say. And I guess that's the standard way you write financial documents. They're a little bit obscure, but that's why we have this call. I tell you what it means.

A net income realized in Q2 was a significant increase from the prior quarter and prior year. Might such income be continually realized in the coming quarters, or was such performance idiosyncratic in nature?

Well, the performance is attributable largely, but not entirely, to the performance of Texas Zik, and the performance of Bitcoin. So I don't know quarter by quarter what the performance is going to be, but as far as I'm concerned, we're gonna hold those securities. I should warn you, it's possible that those could decline in value. And if you go back enough quarters, you'll see we lived through a number of declines. And at the moment, the plan is to hold the securities, but so far we haven't experienced or the client like we had historically, but it could happen. But we think it's in the best interest of everyone to hang on to these securities. So we're hanging on to these securities. Those are the two securities, and that's largely what contributed to the net income as reported. And I should say the word realized. We didn't realize it in the accounting sense. A realization event would be if we sold them and got cash for them. We still have them. We didn't sell anything. We didn't get any cash for them. So it appreciates. So we're marking to market as required by an accounting guidelines. We didn't realize. If we had realized, we'd have to take and pay a certain amount of taxes, which we really don't want to do. that $78 million deferred tax liability. At the moment, it's a theoretical abstraction. We're not paying it, so we are actually earning a return on $78 million that, technically speaking, belongs to various entities of the government. And we don't have to pay them until we actually have a realization of it.

So I hope that addresses that.

Would you please explain again the mechanism by which miners decide to buy slash sell Bitcoin or machines? For example, if a miner believes Bitcoin is going to increase in value, I believe you said they would sell coins to buy machines to get Bitcoin at a cheaper price and vice versa. Or do I have this the wrong way around? I know you've explained this before, but would you mind doing so again in more detail? I'm trying to understand the way that the Bitcoin mining system and other similar cryptos are self-equilibrating systems.

Okay, I'll then do it. No problem doing it. I'll just say at the outset that what the question refers to is I frequently make reference and presentations to the self-equilibrating nature of Bitcoin. The reason I make that reference is sometimes people say, well, If a whole series of Bitcoin ETFs are going to be launched and if they're going to raise a lot of money and all this Bitcoin is going to be locked into the ETFs, there will be a diminution of supply and demand is increasing and, of course, the price of Bitcoin up. And that's actually not going to happen. Before we get to the explanation, a minor reason, which I know we don't touch on, why it doesn't happen is because that Bitcoin is not locked up in ETFs. can we be gotten to? First of all, the ETF is a public trade security. It could be sold. And if the Bitcoin ETF were sold and nobody wanted to buy the Bitcoin ETF, the ETF had no alternative but to put Bitcoin back on the market. So the premise that Bitcoin is stuck in the ETF is a fallacious one. But that's a minor reason and a major reason. So say Bitcoin were to rise in value Whatever the reason is. Let's say Bitcoin in next 10 minutes doubled in price. So if Bitcoin doubled in price, the first thing that would happen is that it's much more profitable to mine than it was before. So you have two choices, always in Bitcoin. You can buy Bitcoin in the open market or you can mine Bitcoin. Now, it's possible that the Bitcoin mining equipment could rise in value too, but everybody in the world of Bitcoin knows there's a halving coming. At the moment, that halving is 1,100 plus days away, but it's still a halving. What does that mean? That means the block reward you're going to get from mining Bitcoin in 1,100 and some odd days is going to be cut in half. That's why they call it the halving. So Bitcoin were to double, it makes absolutely no sense to pay twice as much for a machine because it's not going to have the same profitability in 1100 or so days. So you would have to make it, it might go up in the rig, the mining device might go up in value, but it's not going to go up at the rate the Bitcoin went up for reasons that now you understand. So, it would be possible to, instead of buying a Bitcoin, buy rigs and produce the Bitcoin. Because the miners have to contend with the having, and the people who buy Bitcoin don't have to think about it, really. And there will be arbitrage. It would be cheaper to buy rigs and create Bitcoin than it is to buy Bitcoin in the market. So some people, whenever they come to the conclusion that Let me sell my now doubled Bitcoin and buy rigs. And they were selling Bitcoin and buying rigs. The price would equilibrate. And that's why it's a self-equilibrating mechanism. It was designed to be self-equilibrating. So you couldn't have these bizarre moves in supply and demand like you do in money and Conventionally, because there are shortages of money, there is an oversupply of money, which causes inflation, or what happens in commodities with oil or gold or silver. So whoever it was, whatever team it was that designed Bitcoin, thought this through extremely carefully. So if you read the original Satoshi working papers on Bitcoin, you will get the sense that this was thought through very, very carefully over a long period of time. And the equilibration features of this were inserted deliberately.

So I hope that's an adequate explanation. Yes.

In the previous call, Mr. Stahl mentions that regarding the Bitcoin network and its security, quote, the last thing we want is scalability, end quote. If scalability is not desirable for the Bitcoin protocol, and if Bitcoin is not meant for small transactions, what is management's vision for what Bitcoin should ultimately be used for, say, 10 years from now?

Well, let's... divided into two parts. Here's what my personal view, I don't think Bitcoin should be designed for the following. If you want to go to the supermarket and buy a loaf of bread, that's not what Bitcoin is for. So it's not for grocery shopping. It's not for paying your ordinary bills. It's not for going to movies. It's not for going out to dinner. It's not for any of that. It's designed to be a store of value. And there are other coins that could conceivably be designed for minor transactions. One possibility might be Litecoin. Another possibility might be Bitcoin Cash. Another possibility might be Dogecoin. Another possibility might be Solana. Those are all possibilities and maybe it's gonna be all of them. So the designers of Bitcoin, what they didn't want is they didn't want the large financial firms to dominate Bitcoin mining. So the way they provide for that is they limited the block size. If you limited the block size, They put a limit on number of transactions you could do in a 10 minute interval. Now, in principle, in a computer science sense, you can increase the block size tenfold, you can increase the block size a hundredfold, you can increase it a thousandfold. It's possible to do that. It's not difficult. It's just that whenever presented with the opportunity, To increase the block side, like in the Bitcoin forks, as in the case of Bitcoin Cash or Bitcoin Gold or Bitcoin SV, 99%, maybe more than 99% of Bitcoin holders refuse to take the fork seriously. So in the case of Bitcoin Cash, which is the most popular one, Bitcoin Cash has a market capitalization That's something like, this is a round number, but it's not far from the reality. It's inaccurate, but it's not far inaccurate. It's about a half of 1% of the mining network of Bitcoin. But Bitcoin Cash is a much bigger block size. So people want it. They'll do it. But they obviously don't want it because we don't want a system that's dominated by by a handful of financial firms because we've already had that. It's created all sorts of incentives to make rules around money that do not favor the average person. That's what goes on as far as the block size debate goes. So I'm one of the people, the 99 plus percent, who agree that block size should remain Now, just because there are a small number of transactions, it does not follow that it will not be a big market. How can we establish that? Well, look at the art market. So how frequently does a Van Gogh painting trade or a Monet painting or a Picasso painting? And all that liquid, really. You can go months, sometimes years, and no example trades. And yet, the art market is a tremendous market. And it happens to be a store of value. And for the people that are in the art market, they seem to be very satisfied that it functions well as a store of value. You don't need a lot of trading activity. The people who know what the art is worth... When the art comes on the market, they're invited to bid on the art, and it generally gets sold. So it's sufficiently liquid for the purposes of the people that store value via that modality. Now, Bitcoin, having said all that, I don't want to leave you the impression that Bitcoin is illiquid. So I write about this all the time. So if you want to measure liquidity of Bitcoin in dollars, in U.S. dollars, which I think is the way to measure it, you don't want to measure it in coins. The reason I want to do it that way is I want to compare it to the stock market. So I don't want to compare the number of coins that trade in Bitcoin to the number of shares that trade, let's say, Apple, which is the biggest stock in the S&P, because they're in commensurable quantities. But you can give them a common denominator with dollars. So believe it or not, Trading volume measured in dollars on a daily basis of Bitcoin is considerably greater than trading volume measured in dollars of Apple, which is the most liquid stock and the biggest stock in the S&P 500. So Bitcoin trades with a volume that's considerably larger than Apple. I think that's adequate for the purposes of most people. And you can verify that this very minute if you want, because you can key in the following website, bitinfocharts.com. And if you scroll down a number of columns, you will see the 24-hour volume of Bitcoin, last 24 hours. And I didn't look it up today, so I don't know what that number is going to be. And The market traded today, and you can see what the dollar volume of Apple, you can take the price of Apple, multiply by the number of shares traded today, you can get today's trading volume. The only difference is, well, two differences. The first difference is Bitcoin is bigger, considerably bigger. The second difference, Bitcoin trades 24 hours a day, seven days a week. Apple trades only on business days, between the hours of 9.30 and 4. You tell me which one is more liquid. It's very, very, very liquid. It doesn't need to be used by a pack of chewing gum to get liquid, as anybody can clearly see. Now, by the way, another thing I'll tell you. So that number you're going to see on bitinfocharts.com, which is a big number, that's uneven. the full trading volume of Bitcoin because that number only refers to the amount of Bitcoin that changed hands on the blockchain. There's a lot of Bitcoin that changes hands not on the blockchain. So if I have a Bitcoin in Coinbase and you want to buy my Bitcoin and you have an account in Coinbase, Coinbase is going to move my Bitcoin to your account, your cash to my account, and it's never going to go on the blockchain. and it counts as a trading volume. So if you really want to get that figure and look at the real volume, which is the volume you should compare Apple with, you should key in the following database, coinmarketcap.com, and Bitcoin is the biggest market cap. So you scroll over to the right, and you'll see the last 24-hour trading volume, and you'll see it's an enormous number. And it should satisfy needs liquidity For anyone, and I believe, and please correct me if I'm not right, it has more trading volume than just about anything in the S&P 500.

Next number, I think.

The next is also Bitcoin related. Why are we still in the Bitcoin mining business? The price of Bitcoin has gone up over 100 times. in the past seven to eight years or so. If Murray believes that Bitcoin will still appreciate by some X-level factor in the future, can he opine on if he still thinks that mining will offer a better return than simply buying Bitcoin and holding it for the same period of time?

Well, it should be self-evident that mining has already offered a big return because all you really have to do Well, you can't see it, but if you were to see it, we know what the shareholder's equity of Winland is, and we know what the market value of Winland is. And Winland trades at four times plus book value. So the reason it does that is because there are now less than 1.2 million coins that can be mined.

So the idea of just...

purchasing coins eventually is going to be problematic because the people who want to own the coins will then might trade them. It's going to be hard to accumulate a tremendous value of Bitcoins. You'll do a lot better if you simply have a corporation and you increase the number of coins you have per share of the corporation as opposed to buying a Bitcoin ETF and having the number of coins per unit ETF That's what will happen because the only asset it has is Bitcoin. There's going to be a fee. The fee might be very small, but still a fee. So the number of units per share, no matter how much money that Bitcoin ETF raises, the number of units per share is going to be in decline in the exact same way as the number of ounces of gold you have in a gold ETF is always in decline. It may not be much. But that's what's happening. So if you imagine if you had a business and you were in gold business, you would increase the number of ounces of gold you had per share. Wouldn't that be better? And one day someone's going to do that. So far, no one has. Although some years ago, there was a corporation that tried it. They were very successful at it, but ended up getting bought out.

Another Bitcoin question. Now that Bitcoin ETFs have been approved, the discount to net asset value has largely gone from GBTC or any other ETF. Without this discount, it would seem like there is little reason for FRMO, who has a long-term view of Bitcoin's value, to not simply hold real or direct Bitcoin now. for example, to capture the additional call optionality of any future hard forks. Is there any reason to continue buying Bitcoin through ETFs?

Well, in point of fact, we really haven't bought much Bitcoin via ETFs, even though we have bought certain days a very tiny amount. And most of the Bitcoin that we've been accumulating is has been through Winland shares.

And Winland's mining. So we are doing it. But rather than buy it, we prefer to make it.

Okay. With the FRMO stake in Winland nearing ever closer to 51%, how would FRMO manage Winland better or differently than it is being managed now once FRMO is officially in control? That is, What changes would FRMO make at Winland that would make it better under FRMO ownership than at present? What does FRMO plan to do differently to compete with every other Bitcoin mining operation? And how does management reason about the competitive landscape of Bitcoin miners globally and among other miners strictly within the U.S.?

Okay, a couple of parts there. Number one, Winland is more or less being run the way we'd like it to be run right now, so we own greater than 50%. It's not gonna change in any material way. It's gonna keep doing what it's doing. It just might do it on a larger scale, but it's gonna keep doing what it's doing. So that's the first point. Second point is, what are we doing that's different than the other miners? I can assure you, we're doing something that's very, very different than the other miners are doing. There are, I think, 12 publicly traded mining companies, and what we're doing is considerably different. So all I can say is because ConsenSys is doing the same thing, ConsenSys is getting ready to be publicly traded, I just can't say that much about it. But keep your eyes on ConsenSys, and you'll really see some interesting things. So once it's publicly traded, we'll have the ability to talk more freely. You'll see what we're doing that's different. And I think you're going to find it to be pretty creative.

With TPL's earnings multiple now trading near historical all-time highs, can management give some commentary on how they believe the company's growth prospects justify the present earnings per share multiple and how they generally model the business and reason about its valuation? I'd note that the recent multiple expansions starting around 2023 up to today has occurred while quarterly earnings per share has remained rather static. It is understood that TPL has many advantages and that valuation heuristics do not capture the full picture of the company. But I am curious about how management inventories and models TPL's advantages and ultimately translates those assets and advantages into expected cash flows. to the stock such that management can be confident in continually averaging into the stock, even at current prices, as can be seen in the recent violence?

Okay. So when we say management, I just want to make it clear, we're talking about FMO management, not TPL management. So I don't want to in any way speak for the TPL management. We're just speaking for ourselves. So one of the earlier questions I went through the analysis of water. What is technology as a percent of the S&P 500? It's obviously a very big number. Some of the technology in the S&P 500 is not even in the technology sector. It's actually in the communication sector. It's even in the consumer sector. insofar as Amazon Web Services, part of Amazon, obviously competes with Google, obviously competes with Microsoft, which is in the information technology sector, Google is in the communication sector, and so on and so forth, and Meta Technologies, aka Facebook, is also in the communication sector. So arguably, the technology sector is way over 40% of the S&P 500. And the consensus view is that's going to grow at double digit amounts. And because of this data center movement. So as I answered the question previously, there is a limiting factor in data centers. You need a lot of water. And there aren't too many places to get the water. So that water is going to be used. There's no doubt that that water is going to be used. So You can't simply take the P ratio of TPL or the other company known as Lambridge that's in the same business and say, well, it's overvalued because if you do that, you're valuing the water at zero. You can't value the water at zero because if you do, you're making a colossal mistake. So you have to come up with some kind of value. So the way I did it in this exercise was, assume there is a data center somewhere in the Permian Basin. And that exercise, if you really want to go through it in detail, I don't want to do it again because you can read a transcript, but I went through, it doesn't matter what the power source is, it's always going to be a thermal plant. Now people could say thermal plant could be coal, thermal plant could be nuclear, thermal plant could be natural gas fired. At the end of the day, you've got to boil water. So people will say, well, but what about wind? What about solar? And it can never be a tremendous source. One reason is because those technologies are area dense. You have to cover a lot of it. Nobody wants to live in the middle of a bunch of windmills. If you have to cover a lot of area, And it's just very expensive to do that. Same is true of solar. But much more importantly than that, they're variable sources of power. I don't mean they're variable in the sense that when it's dark, you don't have the sun and you can't use solar and data centers require a 24-hour time period. I mean it's variable in that the intensity of the sunlight when you have sun is different than at different hours of the day. One reason is the inclination of the sun with the Earth is at a different angle, and that will reduce or increase the intensity. Secondly, you could have haze. Sometimes, even on a sunny day, you have some intermittent cloud cover. You may say, well, it's only a cloud cover of 15 minutes. What difference does that make? Actually, it makes a really big difference. The reason it makes a big difference is Because the United States electric grid is designed to run at 60 hertz. So solar is a very big part of the mix. And some clouds appear in the sky for 15 minutes. And there's a drop off in the amount of solar energy you produce. You don't have the natural gas or fossil fuel fired generation on continually. to immediately take up the slack, the drop in power, the older circuit breakers are going to kick in, and you're going to have power failure. Why are the circuit breakers going to kick in? Because the power drops because there's cloud cover 15 minutes. When the clouds dissipate, which could be in five minutes, the power is going to surge, and it's going to damage the equipment. All the circuit breakers are going to kick in. So the system is designed to make sure that doesn't happen. So whenever you have solar, you have to have a fossil fuel backup. It has to be immediate demand. So either the power plant has to be on. So nuclear, for example, it takes many, many... If you can't just push a button and turn on a nuclear power plant, it takes a while to heat up the water. Same is true of coal. Natural gas, because of its properties... You can do faster, but even that you can't do immediately. So what you need is you need to have the power plant on even though you're not using it. That's called a spinning reserve. So what is the point of saying I'm using solar power? And technically, you're right. You're actually powering your data center on solar, but you're running a spinning reserve, a parallel wind or coal or nuclear. You're not actually drawing the current. But you're producing the power. So what are you actually doing? There's just certain physical realities that we have to understand exist. So if you want to have data centers, you need a lot more power. If you want to have a lot more power, you need a lot more water. So you show me where in the S&P, or even at the S&P, you can get those quantities of water. Because I would be very interested to find them, because I haven't been able to find them, and I've been looking for many, many years. So you have something which is extraordinary. But at the moment, it's not applied data centers. Another question that someone might ask me, that I'm gonna ask myself, and then answer, maybe I'll preempt the question, is what if they don't build a data center on your land what difference does that make you still need a water and there's no landowner that's going to have enough water to service what's needed the example i gave earlier in this presentation which i would hate to repeat because we'll take 15 minutes not that i wouldn't want to repeat it i just don't want you here late at night um You don't need the data center. You can do very well if you never had a data center on your property. And by the way, the data from the data center, you have to have access to communications into the data center and communications out of the data center. One thing I didn't cover is I didn't cover the right-of-way or easement on the fiber optic cables, which is another source of earnings.

So the greater the geographical extent of your land, the greater the easement is going to be.

So if you have it, you're just looking at a price-earnings ratio. It's like having a piece of land in midtown Manhattan. It's just a raw piece of real estate. It happens once in a while. You walk by, and there's a lot. Sometimes, to get a little bit of revenue, you'll see the owner of that plot will turn it into parking. It's actually parked some cars on it. So if you looked at what this owner of property would carry the market value relative to the little revenue they're getting from cars, you would say, well, this piece of property is trading at a P of 200 times earnings. Why wouldn't you sell it and go to something cheaper? And the answer is, because it's not being applied to its best use. One day there's going to be a structure on that property. The property is in a key location. You can't ever duplicate that. So why would you ever sell it to buy a lesser property?

So I hope I've addressed the question.

Sorry for the prolonged answer.

I think the next question has to do with location and I will read it. How much of TTL and LandBridge's strategic value comes from its particular physical location along the Texas-New Mexico border versus, say, intelligent operation which could theoretically be copied by well-funded competitors or from the particular quality of their mineral acreage of which better deposits could theoretically be discovered elsewhere in the US. For example, in California, if the politics there were ever to change. That is, how critical is the position along the Texas-New Mexico border to the value of TPL and LandBridge? And are there other private or public competitors that can just as easily facilitate competing land use agreements with TPL and LandBridge's potential customers? Is it the scale of contiguous land tracts that make their assets unique? I'm trying to get an idea of the competitive landscape for TPL and LandBridge's land operations and who management sees as the company's most significant public and private comps. I think you touched on the answer already.

Yeah, I think I did. So let's just do it this way because a lot of parts of that. So as far as contiguous versus non-contiguous, There's advantages and disadvantages to each. So if you're contiguous and you want to do something, you don't have to ask your neighbor. You can just do it. So that's good. On the other hand, if you're not contiguous and some potential customer needs a lot of water, even if the water isn't being bought from you, It's going to cross your land if you have a huge geographical extent. You can get a piece of it anyway. So there's an advantage to being non-contiguous if you have a big enough geographical extent. And to be near the Texas and Mexico border is a pretty good thing. Why? Because in Mexico, it doesn't allow anyone to dispose of produced water in the ground. So that produced water comes to... And one of two things is going to happen to it. Either it's going to be disposed in the ground so you can get money for putting water in the ground and your costs are not zero, but they're so close to zero, you might as well call them zero. Great business. Or you're going to get what's called beneficial reuse, which is ways we figured out to recycle it and use it for another purpose. Like, for example, the water component of a power plant. Either way, it's pretty good. So now, Texas versus California, there's no comparison. And it's not, before you reach conclusion, I'm not a big fan of the state of California, but I have to say that not everything you do is entirely illogical. There's considerable oil deposits In Southern California, it's heavy oil. So there are different kinds of oil. The oil in Venezuela is heavy oil. It's like bitumen. It's thick like tar. The oil in Canada around Fort McMurray is the same thing. So you're not extracting it in the way you might think. You're mining it. You're heating up what they call a big hydrocracker. And it's almost like a refinery. Matter of fact, it is, in a sense, a refinery. And that's the sort of things you'll have to do in California. So if you want to exploit the oil deposits in Southern California, it's got to look something like the oil deposits in Canada. And if you ever visit it, you don't want. California to look like those areas of Canada, or there are very few people in California that would like or tolerate California to be turned into what those areas of Canada look like. And I don't think it's likely to happen. There may be here and there, if the government were to relent, some projects that get approved. It's not likely to happen in the short run, but it could theoretically happen. But it's not going to be a rival with Texas. Another issue is just Get some geological maps and compare the other oil-bearing regions of the United States, like Denver, Julesburg, or North Dakota, or even Oklahoma, with the Delaware Basin, to look at the depth. It's 14 benches or 14 strata. It's not even a comparison. So for a very long period of time, maybe several centuries, that's going to account for the bulk of the oil production in the United States of America. The land sits astride the El Capitan aquifer. So it's water that really comes from the Rocky Mountains, like an underground river.

And how many of those are you ever going to find?

There is one like it in California, in central California, which you've never heard of. It's called Lake Tulare. There's no such thing on the map as Lake Tulare. It's an underground lake. And it's a prolific source of water. And that's why California, believe it or not, is so prolific in agriculture. Could that theoretically be used for another purpose? Sure it could, if you didn't want to grow all the produce that you grow in Central California. And if you didn't grow it, well then, for produce and vegetables, we're going to pay a lot more money. So would the country tolerate that level of inflation in food? I don't know. I doubt it, but time will tell. So that's another possible source. It's not as good as Texas, but it's a possible source of water. But I don't think it's likely that it's going to get exploited anytime soon.

So I hope that addresses that.

Okay, last question. In the previous shareholder call, management made comments dismissing the idea that ETFs have a limited price impact on stock prices when viewed from a creation redemption lens, for example, as concluded in Vanguard's, quote, a drop in the bucket, unquote, study. Instead, management advised to look at the total AUM magnitude and overall trading activity of ETF shares themselves as a measure of their effects on the underlying stocks. Could management help walk us through and understand by what mechanism the trading of ETF shares on the secondhand market of whatever total AUM magnitude causes price impact on the underlying individual stocks when ETF share creations and redemptions are not involved. That's our last question.

So let's just start with the S&P 500. There are three big S&P 500 ETFs. There's the S&P SPDR, SPY. There's iShares S&P 500, IVV. And there is the Vanguard S&P 500, VOD. add the assets under management of those three ETFs together, and in round numbers, I'm not doing it. I'm not looking at anything. I'm just doing it in my head. You're not far from $2 trillion with a T. Let's look at the trading volume. How many shares did they trade, let's say, of S&P Spider? It's a tremendous number. So, there has to be a trading impact because the price of any member of the S&P 500 inside the ETF has to be the same as the price outside the ETF. Has to be. So people are trading, let's say there were no, for the S&P spider, there are no redemption baskets created and no contribution baskets created for the day, but there's tremendous number of shares traded. to say that it has no effect on price. So where does the price come from? That it only comes from, so Apple is trading, and Amazon is trading, and Nvidia is trading, and that generates the price of those securities, but they're trying to tell me that the trading of the aggregation of those securities in the ETF, which is even bigger, has no impact on the price? So if I want to buy one share in NVIDIA, I will impact the price. Maybe not a lot, but I'm impacting the price. Maybe it's to the 20th decimal point, but I'm impacting the price. So all the hundreds of millions of shares that are traded of those ETFs containing NVIDIA and containing Apple and Microsoft and all the other things, they have no impact on the price whatsoever. How can that be? because one side had no impact on the price and the other side had only impact on the price, then there would be an arbitrage.

So to avoid an arbitrage, both groups have to have the same impact on the price. As you can clearly see when you just look at the volume. And by the way, a lot of the volume

of the ETFs is tracking the volume of the shares.

They're trading in step with each other.

So Apple is, I think, 6.6% of the S&P and Nvidia might be 6.3 and Microsoft is a similar number.

At the end of the day,

the sum of the parts, at four o'clock, the sum of the parts have to equal a whole. So the unit value of the S&P is struck, and the unit value is struck every second of every day. It has to be the same thing as the individual securities, not counting the index. It can't be any different.

So that's how I would explain it. Hope it's coherent. I believe it is.

Thank you. And that was our last question. So if you would like to sum it up or have closing remarks.

Okay. I'll just say you've been listening to me for almost two hours. It's been great questions, and I enjoy answering them. And I apologize for the confusion. In the press release, I just want to stress again, our book value is not $18 plus. Our book value right now is $9.39. So you have to look at the shareholders' equity attributable to the company. That's the key line, and that's $413.6 million. You divide by roughly 44 million shares. That's the number you should look at. So we are consolidating, and... That's just the way you do the accounting. But that's our book value. And we'll try to make the press release clearer in the future. So thanks for listening, everybody. And we'll, of course, reprise this in another 90 days or so. And I really look forward to the questions sent. Thanks so much. Bye-bye.

The conference has ended.

You may now disconnect.