Frmo Corp

Good afternoon, everyone. This is Therese Byard 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 funds. The opinions referenced on this call are not intended to be a forecast of future events or a guarantee of future results. It should not be assumed that any of the securities 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 frmocorp.com. Today's discussion will be led by Mr. Murray Stahl, Chairman and Chief Executive Officer, and Mr. Stephen Bregman, President and Chief Financial Officer. They will review key points related to the 2025 third quarter earnings. There was an error in the press release that the number for presenters on this call was sent out to our public. And I just wanted to ask if you received that number and would you please mute your line so that we can hear Mr. Stahl and Mr. Breslin clearly. Thank you so much. And now I'll turn the discussion over to Mr. Stahl.

Okay. Thanks, Therese. Thanks, everybody, for dialing in and having patience with us. It's a little technical issue. And so we'll begin with some conceptual things. The balance sheet, the earnings, I think they speak for themselves. The numbers are self-evident. I think the thing to do is to give you an idea of how we look at these numbers, and we look at these numbers a little bit differently than you might look at these numbers with the spreadsheets. You'll observe, of course, we release our holdings, and that's of securities, of cryptocurrencies, our big holdings, you know what those are. What we do is we separate out the digital assets and we're not looking at the balance sheet and the holdings holistically like you might. So let me tell you how we look at them. So you'll see on the balance sheet there's roughly $13.7 million of digital assets primarily Bitcoin. Those are coins that we mined over the course of time. You'll see about $1 million of digital mining assets. Those are mining rigs, which we use to mine digital assets. And then you'll notice we own 1,997,007 shares of Winland as of February 28th. We own a little bit more now because we resumed buying it. after I hate it is because of our 10B5 program. Those assets, in our humble opinion, can't be viewed as mere holdings. And the reason is the purpose of putting cryptocurrency mining into a corporation and viewing it as a business is that the digital assets will increase numerically. That's a separate question from valuation. It will increase numerically, meaning the number of Bitcoin we have will increase as a consequence of the mining. The other Bitcoin investment trust securities and others that we have, a lot of that is in the funds. There's nothing wrong with having them in the funds. And we hope and certainly expect They'll appreciate in value. But the only way we're going to have more of those securities is if we buy more. They can grow in price. They can grow in value. They can't organically grow. But in the world of mining, your digital assets can organically grow. That's the purpose of what happens in Woodland. So if you have two agglomerations, of digital assets and one agglomeration is it just net asset value because it can only grow in price. The other can grow in price, of course, but it can also grow numerically. We believe that should trade at a premium to net asset value. If it didn't trade to a premium net asset value, there'd be an arbitrage between the two. How much are premium and asset value? One can debate. But you can see because Windland is a public trade security, it actually trades at a premium to the value. And that's one of the reasons that we are undertaking to expand it in the manner in which we're going about that. So that's a salient difference. I think it needs to be reflected upon. Another minor point in this regard is we are in the process of buying some more Windland in HK hard assets one, which we never did before. This will increase our prorata ownership of Winland, but now we've gotten to the point where there's a fair amount of cash flow in HK hard assets one, and we'd like to make use of that. And so our investment in Winland, in theory, if we keep doing that, we'll grow a little faster. Somebody is ruffling some papers, so if you can kindly mute your phone, it'll help everybody. Thank you so much. Anyway, that's the idea. The goal of Winland and the goal of FRMO is to show that a digital mining business is far superior to an ETF. So basically, if you're interested in cryptocurrencies, you can obtain cryptocurrencies two ways, and only two ways. You can buy it. You can make it. Making it I think this is self-evident, but it's worthwhile pointing out, making it is a lot more difficult than buying it. So nobody is going to go through the effort of buying it, of manufacturing or making it, if there is an advantage to doing so. And there is such an advantage. It's just not well recognized. um in the world of assets and the simple reason for that is that cryptocurrency is really a brand new asset and the world is still learning about cryptocurrency i think in due course um the world's going to view cryptocurrency mining in a very very different way than it views it right now another way another thing i should point out is that um what we do in winland in terms of mining is very very different than what the other publicly traded cryptocurrency mining companies do in their work. So to give you an idea, if you were to buy the top of the line Bitcoin mining rig today, just bought it and plugged it in and paid for electric power at the going rate, it'd be very hard to get a payback profit before the halving. It's another way of saying after the halving, that machine or that device will not be profitable. So you have to do some pretty creative things to make the thing work. In other words, it's effort. In due course, consensus mining is gonna be a publicly traded security and in due course hopefully we'll have more windland and we'll be able to disclose more of what those companies doing um for now just let's leave it at this and i think um you'll be pleasantly um surprised by what's happening in both those companies it's an important part of what fmo is doing in its transition to a cryptocurrency business um historically i talked about the various businesses we wanted to get into and um for various and sundry reasons, which I won't repeat, we ended up excluding a lot of things and we ended up with cryptocurrency. So some exciting things are happening there and it's worthwhile talking about it. Now let's shift gears and talk a little bit, if we can, about Horizon. So Horizon is also kind of a turning point. So to give you a story, I think I did this in one or two other presentations. So, Horizon, I think this is true of just about every value-oriented investment company, investment manager, not just Horizon. The period of time roughly 2007 to roughly 2024 was a very difficult one for active managers because of the rise of indexation. Now, why should indexation, indexes existed before 2007, why should indexation have been uniquely problematic in that time period. In order to illustrate that, I'm going to read you some numbers. And forgive me for taking a few minutes to read them, but I think it illustrates more than the verbal analysis could illustrate. So basically, what happened in that time period is the big, large, multinational companies were able to dramatically lower their tax rates. in ways that domestic companies, in other words, companies that we would ordinarily buy, just weren't able to do. So I'll read you a name of a company, the tax rate currently, the tax rate as it was in 2007. And I think there are 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 of these. And I think these 14 companies represent in round numbers about a third of market capitalization S&P 500. And this will tell you a lot of what you need to know about indexation. Starting with Apple, Apple, of course, the biggest company S&P, current tax rate, 14%. 2007 tax rate, 30.19%. Microsoft, current tax rate, 17.7%. 2007 tax rate, 30.03%. NVIDIA, this is the only one where the tax rate actually went up. Current tax rate, 12.3%. 2007, 9.37%. Amazon, current tax rate, 10.3%. 2007 tax rate, 27.88%. Meta platforms. Well, I can't go back to 2007 because it wasn't even a publicly traded company. So I found the earliest data I could go back to that was publicly traded, which is 2010. Meta platforms currently, 12% tax rate. 2010, in this case, tax rate. 39.88%. Bet, formerly known as Google, current tax rate 17.6%. 2007 tax rate, 25.91%. Broadcom, another interesting example, current tax rate is zero. 2007 tax rate, zero. Tesla, current tax rate, 15.7%. Tesla, going back as far as I could, 2008, tax rate is irrelevant because I have no profits. Netflix, current tax rate, 12.4%. 2007 tax rate, 39.95%. Eli Lilly, current tax rate, 12.5%. 2007 tax rate, 23.81%. Visa, current tax rate, 17.4%. 2007 tax rate, 39.82%. MasterCard, Current tax rate, 14.1%. MasterCard, 2007 tax rate, 35.01%. Coca-Cola, current tax rate, 18.6%. 2007 tax rate, 24.03%. Johnson & Johnson, current tax rate, 11.7%. 2007 tax rate, 20.36%. So how did tax rate remain the same? the earnings would not have grown nearly as much, and obviously the companies wouldn't have done as well. Will the tax rate go back to what it was historically? I personally think not, but it's certainly possible. But a more relevant question is, can the tax rate continue to decline as declined from 2007 to 2024? I think not. And I think not because it would be an absurdity to have the bulk of the S&P paying no taxes. I don't even think it's politically tolerable. So there's a huge change happening in the world of investing that favors greatly the stock pickers. So in principle, an index investor was merely investing in a diversified portfolio of companies. But in practice, an index investor was really investing in a, in quotation marks, sort of tax shelter, which can't continue to be a tax shelter at the same rate. It is arguable that taxes might remain as low as they are right now, perhaps even go lower. The reasons for the decline in tax rate is not your main conversation. I just don't want to belabor it. But if you want to ask in the Q&A, I'll go into it in great detail why it ended up this way. These are right out of the SEC filings. So I think it's more important just to enumerate them and talk about the consequences rather than talk about why it happened. It just happened. It just can't continue at the same rate. And therefore, the non-index investments are likely to do better than indexation. Just that, because now that advantage being eliminated and the advantage of continuing to lower tax rates and maybe quite possibly running in reverse, now the relative advantage moves to the active manager. Two other things I'd like to talk about, indexation that gives an active manager like Horizon a big advantage as opposed to the disadvantage it had for a very long period of time. Next thing I'd like to talk about is the reconceptualization of small cap investing. So to put it in its simplistic terms, most simplistic terms, if you want to define small capitalization, the best way to do it is the way the Russell indexes do it. So the top 1000 mark capitalizations, that's the Russell 1000 index. The next 2000 mark capitalizations in sequence are the Russell 2000. It doesn't get any simpler than that. Now within the thousand companies, Surely, there will be a number of companies that just don't do well. Their returns of capital will decline. It always happens. Some will decline to losses. Others will not decline to losses. But if they decline enough, their stock prices will follow, and they will be purged, so a position in the Russell 1000 index. So what happens to them? They go to Russell 2000 index. Similarly, there'll be a certain number of companies and a determined number of companies that excel in the Russell 2000, and their stock prices will rise commensurately, and those companies will graduate, so to speak, into Russell 1000. So the Russell 1000 has a mechanism for purging itself of its worst performers. The Russell 2000 has a mechanism of purging itself from its best performers. But a wonderful performing stock in the Russell 1000 will just trade a higher price. If it keeps trading a higher price, it'll always be the Russell 1000. The Russell 1000 will not purge itself of its best performing members like the Russell 2000. But of course, the Russell 2000, like any index, will have companies that have deteriorating returns on capital. Their stock prices will decline. But how can they be purged? There's no place to which they can be purged. Therefore, what happens over time is the Russell 2000 index, the small capitalization index, the index that the active manager's draw their expertise from, those are ones that are least efficient stocks, at least in principle, those indexes will build up over time a large number of companies that just have low returns of capital. As a consequence, that ultimately, if there's enough buildup, that ultimately will affect the returns index. And if you looked at last decade, the returns index, you will see they're not very robust. Certainly not very robust in relation to the 1000. Of course, the 1000 has all the tax advantages. Of course, all the companies that I mentioned are in the 1000. So it's a problem. If you're an active manager and you want your portfolio to look something different than the index, there's a structural disadvantage that's now about to turn into an advantage. There's another problem. which has to do with another competitive asset class, private equity. So private equity, at least in so far as I can determine, there's about $7 trillion of money in private equity. If you follow that asset class, one of the things you'll notice is that in the last several years, the number of exits, which I'll define momentarily, has declined by about 85%. What is an exit? An exit is a monetization. of a private equity position. Now, an exit can be, a monetization can be, another company just buys the private equity. That happens. But what actually more frequently happens, at least historically, is those private companies become public once again. They become monetized. And this has become very problematic in recent years. Why is it problematic? Because if the money gravitates indexation, as it has gravitated to indexation over many years. Bringing a company public, it can't get itself into the index or it can't be put into the index until it trades for a certain amount of time. And that constitutes what's known as seasoning. It has to be seasoned. So for example, to qualify for inclusion in the S&P 500, security not only has to have sufficiently large market capitalization, but it has to trade for a certain period of time without being the index. So that requires a constituency of buyers. And what can a constituency of buyers be? It has to be non-indexed buyers. But non-indexed buyers have been losing capital to the index buyers. So how can a greater and greater number of private equity securities be monetized, so to speak, in the equity capital markets with an investor base that is shrinking due to loss of assets under management to indexation. It's very difficult to do. And the same seasoning process applies to the small capitalization securities as well. So there is this illiquidity backdrop in private equity. Ultimately, is going to cause some type of a problem because private equity exists ultimately for one reason, which is to realize profits, and that requires a monetization event. And the structure of securities market unintentionally and inadvertently, no one planned it this way, doesn't allow for that. So all those stresses and strains added together We're a very favorable investment climate for an active manager like Horizon. And one final point is the amount of competition, because of what happened over the years, has been greatly reduced. So Horizon is in, as a business, is in the best position it's been in in probably 18 years. And of course, you're aware that Horizon is now a publicly traded security and It has much more disclosure than it had in the past. Anyone can read documents and see what that's all about. So we're in a really, really interesting time period for the kind of investing that we do. And that's a thought primarily I want to leave you with. There's one other minor point that I want to touch on the balance sheet before I'll turn it over to my colleague, Steve. He might have some comments, which is I always or usually ask you to take note of an item on our liability side, which is our short sale position. And I would invite you to compare the cost to the market value. And what we basically do is we continually short path dependent ETFs. In an efficient market, path dependent ETFs shouldn't even exist, but they do. Path dependent ETFs are basically destined to decline in price. So it's a perfect short. And ultimately, you get margin release. That margin release contributes to our cash. So you can see a difference between market and cost. That difference basically ended up in our cash balance. That's how we built up our cash balance over the years. So it's really important to keep track of that. It's a business in and of itself. And I think it's a unique business. So with that, I'll just ask you, Steve, do you have any... I think you want to add to what I said?

No, not yet. Not yet.