Thérèse Byars - Corporate Secretary Steven Bregman - President, CFO and COO Murray Stahl - CEO

Thank you, Melissa. Good afternoon, everyone.

My name is Thérèse Byars, and I’m the Corporate Secretary of FRMO Corp. We appreciate all of you joining us for today’s 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 a forecast of future events or a guarantee of future results. 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. Web site at www.frmocorp.com.

Today’s discussion will be led by Murray Stahl, Chairman and Chief Executive Officer of FRMO Corp. and by Steven Bregman, President and Chief Financial Officer.

They will review key points related to the second quarter earnings and will answer selective questions that have been submitted in advance. A summary transcript of this call will be posted on the FRMO Web site in the coming weeks.

With that, I’ll turn the discussion over to Steven Bregman.

Good afternoon. Steven Bregman.

Thank you for joining us. I’ll start with a few observations about the financial statements.

As usual I have a feeling there really isn’t an awful lot that’s apparent on the financial statement that needs much discussion or explication, because the nature of our business is such that it's plain enough that we have a balance sheet with substantial investments and with no substantive obligations, that the investments will typically earn something in a given year at certain characteristics. We have the interest in the two interests' equity and revenue in Horizon Kinetics and those will have their behaviors' and that’s pretty straight forward.

It doesn’t speak to what the ultimate value of some of the strategic investments would be or how that will affect earnings. One might look at a balance sheet and look at book value and consider a price and try to put some multiple on observable earning streams and I have a feeling that most of you are familiar with that.

It raises some questions about what you think the earnings stream is really worth and so forth and so on. And we have some questions that were given to us before the meeting and we’ll speak to those.

But let me cover some of the plain practical points on the balance sheet such as they are. They're not really where the ultimate growth of Horizon FRMO Corp.

will occur other than to discuss some of the strategic investments. So what we have here is I guess some major points on the balance sheet that shareholders equity is up about -- just about 11% to 10.98% per share versus prior November 2013 versus November 2014.

On the components of that, you might notice that retained earnings only up about 5.3% per share, but then there's large increases in accumulated other comprehensive income, which is up about 40% or $1.1 million or so. And that relates to about $4 million, which is about 41% increase.

And that has to do with certain accounts which are credited directly to shareholders equity and don’t pass through the income statement. You get a peek into some of those by looking at some of the investments of the balance sheet.

So under current assets, if you look at other investments available for sale, the difference between cost and market value is about $24 million, whereas in November 2013 the difference between cost and market value was only by $18 million. If you go further down under current liabilities, we have that interesting line security sold not yet purchased, which relates to a kind of permanent or quasi permanent short position across a structurally effective ETF and the proceeds there, and parenthetically its $6.2 million, whereas the market value was $1.9 million, so $4.3 million difference.

That’s core profits not yet realized. Whereas last year, November 2013, the difference was $3.3 million, that’s an million dollar increase and the other investments available for sale recovery above is about a $6 million difference.

So those are earning portions of the balance sheet, call it, that don’t show up in earnings, but certainly show up in shareholders’ equity changes. What an exercise like that candidly speak to is what earnings might be from strategic investments as opposed to balance sheet investments.

I'm going to defer to Murray to talk about some of those. Even if we weren’t asked the questions, some of the questions we were asked, they actually speak to those issues.

So I guess many of our listeners are clued into difference. Among those will be the line item investment in [indiscernible] stock exchange.

There is an investment in South Lasalle Partners on the balance sheet for a certain amount of money. It’s not an enormous amount in terms of the total balance sheet.

And of course there are investments in Horizon Kinetics and the participation of Horizon Kinetics. So for any of those, it will be the strategic value or return on intellectual capital or the kind of returns that an indexed product, or an exchange can produce, which really has very little to do with balance-sheet values.

So certainly [ph] see an awful lot that simply appears on the balance sheet that’s otherwise remarkable. I’ll take a -- I'll dispense with a, kind of a narrow question.

There was a question as to -- someone asked at the -- what the percentage of stock ownership is held by officers and directors? And I’ll tell you that it is roughly 76%.

And I'm not aware if there are any major sales. I do believe there have been some purchases in the last year with two parties.

That’s the answer to that.

So, I am going to do three things. Particularly what the three things are that I'm going to do, I am going to tell you, warn you, I have a little bit of a cough.

I may have to pause the cough try to minimize it but it’s to some degree in my control. So three things that I'm going to do today is; one it touches a little bit on the questions but do it year first is I'm going to talk about strategically what we’re trying to accomplish.

And when you hear it, you get nice sense at least in relation to one of the questions. When we get to the questions I'll elaborate.

Secondly, I am going to talk about a variety of initiatives and actions that we’re going to take; and then thirdly of course I'm going to answer the various questions which have been submitted in advance. Again, what are we trying to do?

We’re not trying to be a classical financial company in terms of raising a tremendous amount of assets. That’s really not a way to maximize profitability, because there are so many expenses attached to the management of assets and not just people expenses.

There are platform fees and marketing expenses and so on and so forth and then they’re all discretionary. They're non-discretionary, meaning you just have to pay them.

And depending on what the size of that is in relation to the assets that I mentioned, that determines your profitability. I'm going to try and do that.

We’re trying to build optionality. Meaning that for really, almost irrelevant, maybe actually irrelevant expenditures, things that no one really notices, we’re trying to build the possibility of a lot of revenue share.

Some people call it royalty income. I won’t resist that definition.

But it’s not really a royalty in the sense of some of the planned and there is royalty to produce and beginning an old royalty, because that’s just particularly passive position. We’re not passive, we’re active.

We’re actually designing things. So the world is moving towards indexation and it’s like on the way, but in the primary development indexation winning and maintaining it.

And why do I say that? This doesn’t mean that we’re at end of raising money and indices.

I don’t mean we in the sense of firm. I mean we in the sense of the plural we, the whole everybody out there in the world.

What's happening on traditional indices is the exposure -- the fees are literally classic. So for the exposure that you get, it's just exposure.

The marginal cost of providing it is almost nothing and the fee is going to be almost nothing to press that now, but ultimately. So the future belongs to people operate at the fringes, who create interesting risk reward trade-offs.

And that’s an area that we excel in because, we’ve been in the interest business for many years. But really you might think of the major investment is intellectual capital.

And with, that let me talk about various things we’re doing. We’re doing and you can decide if they’re intriguing or not.

And just bear in mind that these are the things I can talk about now. There are things in development that it wouldn’t wise to talk about for several reason, that if we believe we have a good idea, then we may not have a good idea.

If we believe we have a good idea, then we have to implement it. It would be foolish to talk about it on the open line, somebody can hear it and say what a wonderful idea, I’ll do that first.

So, the minor point first. You’ll observe our balance sheet cash increasing.

Essentially that’s -- we're monetizing I think our closed end funds. Closed end funds are largely bond funds.

Occasionally you will find an insignificant or almost insignificant, every closed end fund we're involved in, they’re basically closed end bond funds. So why are we doing it?

I talked about in the shareholder letter. So it won’t be a levered point but the risk reward in bonds is as bad it’s ever been.

All you have to do is take the 10 year treasury, key it into a bond calculator say what if, and I'm not predicting anything, because I know what happened to rates, rates were go up 25 basis points a year for the next 12 years, it would ultimately be 300 basis points higher, that will be a horrible market for bonds, and we don’t want to have that. On the other hand, if we’re taking in the income, we're paying tax on it, in the best case scenario, we can’t possibly earn a real return of capital, nothing that’s after tax is meaningful to us.

So we’re taking a risk for no real reward. We have to alter that posture, doing it gradually.

So at the time of the annual reports when we started, and gradually we’ve been implementing it. So at the end of November, we have $35.7 million of cash.

Increasing cash is largely that. We’ve continued subsequent to November, and we’ll be continuing it.

It may well be for certain tax reasons we may leave the certain number of closed end bond funds in the portfolio. It wouldn’t be a lot, there may be some things.

Bear in mind that we brought these the fall of 2008 and early 2009 largely and there was crisis in the fixed income. So we got in the good prices.

However over the years, as bonds appreciate, the funds realized gains, we had taxable income passed out to us, and now in a position to liquidate a lot of those investments at a tax advantageous level is what we’re doing. So that’s that.

That’s our channel, which is physical capital. And we're going to redeploy that capital at some point.

I’ll talk in a second on when's the deployment. Let’s talk about the underlying investment management firm, what we’ve been doing.

You observed a fund we have called the Kinetics Multi-Disciplinary Fund. It’s designed to be a low volatility fund.

Now it’s multi-disciplinary. It’s not a bond fund.

You have bonds in it. It has options in it.

You do all sorts of interesting option strategies. The idea is to come up with, using the modality of options really to come up with some payable risk reward characteristics using the income of bonds and flexibility of options, briefly deliver a mix or two.

Usually it's stocks and options that are mixed. And there is not a lot of marginal expense associated with once you get past breakeven.

We have roughly $133 million in that fund. Do the job.

Hopefully that could be a big fund and add a lot to our revenue. So that’s an idea.

The marginal cost of running it shouldn’t increase much. Marginal revenue should increase hopefully to a portion of it and that compares of the higher salary and things like that in success mode.

So, if all goes well, it need not go well, but if it does, there will be a lot of more revenue and the shareholders of Horizon Kinetics get some of that. And as owners of the revenue share will get some more of that and the number will be where it's going to be.

That’s the idea, the optionality. We’re working on and we should be able to launch shortly an emerging market ETF.

I personally think it’s very cool. It’s a different way of investing in merchant markets.

I’ve alluded to that at different time periods and it’s basically very easy to go. And we’ll see how it works.

Obviously it has no assets right now. We’ve created, alongside our wealth index and partnership with Virtus [ph], you will see that that wealth index is up to roughly $140 million.

Not in the last annual meeting, but in the meeting before, I guess would be call it not even a year and half ago. In February it will be year and a half.

A year and half ago we had $7 million in excess with the management. Now we have $140 million.

If that were in ETF, it’s actually technically non-ETF, actually mutual fund, it would rank somewhere in the top 600 or 700 ETF. There are roughly 700 ETFs.

We’ve done something that really doesn’t get done. We launched the fund in non-ETF action and we’ve made a meaningful addition to assets under management of that.

If it goes up, it’s not a lot in the way of expenses. It goes up either in unit value or by esoteric management, that should contribute to the revenue share and the earnings we get through Horizon Kinetics.

It's also watched only reasonably in international numbers, only have $5 million expense. It’s reasonable and we’ll see how that goes.

But it's the same idea, just operating outside the United States and inside the United States. We’re going to do an international spill off index.

We have a domestic spill off index. We offer only in swaps, going to be international index.

It's kind of interesting because they have a tendency to produce a lot of FX returns. And I am not aware of anybody who does anything in international spin off.

We just literally a couple of days ago got our license to buy Indian securities. Meaning securities in the nation of India in Asia.

There are plenty of Indian funds and indices. What you’ll obverse, they’re all centered around the biggest 50 companies.

They Indians, they call it Nifty 50. And the primary way of investing in the Indian index is the Nifty 50 index.

And it’s literally called Nifty 50. And you might be aware those were market historians that the last time, at least in America they called something a Nifty 50, didn’t work out too well.

And that’s really the point about indexation that we’re clarifying to the handful really, some numbers of hundreds of liquid security -- major liquid securities around the world. And the whole world is in that and there's an enormous number of securities that I wouldn't say they’re illiquid.

They’re just not the primary engines of liquidity. Now with people of differentiate their view and un-differentiate their efforts and express that view in so far as they can in same securities, bizarre sort of things happen.

To give you one example, you might have noticed, not very many days ago Swiss franc in one day rose 3% in value. I'm not expert in currencies, but just consider this: the Swiss government knew that the Swiss franc was a very coveted security.

Why was it a coveted security? Because for whatever reason people believe only a certain percentage in Swiss franc assets is a hedge against uncertainty.

So Swiss franc is a hard currency. That's true or not, when everyone starts doing it, maybe anticipation crisis, you never make it to the crisis because the action collectively bullfires, drives up the price.

The Swiss government didn’t like that very much. So the Swiss government for some months paid their security de facto to the Europe.

And the fact [indiscernible] strength that you need to, to hold the Swiss franc level at the predetermined euro level. That would run for a month.

Also the Swiss government realized that there is almost no end to demand for the Swiss franc. So in the prior six months the Swiss franc against the dollar fell by 27%.

Why? Because they pegged the euro.

And when they unpegged it, meaning that Swiss National Bank, this is Central Bank, decided not to print up any more or print up aggressively any more Swiss francs, the currency rose 3% one day. That is the whole time period to an end, you were down 27% and in one day you were up 3%.

Doesn’t strike me as a victory. If you were sure of the Swiss franc because you want to be sure the euro, because they were pegged, you have a true problem in your hands and a number of firms actually wiped out by that.

So the point is the intent is to limit the controlled volatility. Whoever reacts in the same way, there is never controlled volatility.

There will be enhanced volatility, is anyone going to see for the prices. We’re trying to get away from that.

As matter of fact is far away as I possibly can. I'll mention a few other things.

We made investments subsequent to November 30th in a company called Winland Electronics. There is a 13G that we filed, should be able to see roughly 15% of Winland Electronics.

And there is some people that we know. One of them was actually employed in our firm, that owned about 30%.

So obviously they might say we have a little bit of influence with Winland Electronics, Winland Electronics is a company that makes electronic monitors. So for example if you want to know remotely what the temperature is in the refrigerator they have device to do that, and many other interesting devices.

It’s a tiny market cap. It has a fairly decent sized cash balance, not hard cash balance, but relative to the small sort of company, actually the cash balance is profitable.

So there are literally hundreds of companies like that and a profitable company in some ways you might say innovative company, are balance sheet rich and therefore asset rich companies, it’s small and outside the ambit of professional investment. And we hope we’ll be able to do more investments like that.

We certainly can't guarantee it, but understand this is an investment outside the orbit of financial services. So we don’t want to get you -- we don’t want to give you the idea that we’re going to stay limited to financial services, because it isn’t the case.

And hopefully if our owners agree, we expect to show the Winland Electronics investment as a separate line item under long-term investments. So can’t guarantee that will happen.

The owners have to hurry but actually I’d like to represent it each and monitor that. And hopefully there would be other long-term investments like that as well.

And if we ever missed -- I didn’t talk about the Bermuda Stock Exchange, anything [indiscernible] which is also our strategic investment. So Bermuda first, if I recall at the end of April that year made the investment in Bermuda, totally in the investment about nine months.

Bermuda you might not know, is the largest factor in Insurance-Linked Securities, what they call ILS. And if you look on the Bermuda Stock Exchange website, you will see from the beginning of May which is more or less when we made the investment to the end of the year December 31st, I may be off by 1% or 2%, so don’t quote me, but you can verify this by looking at website, I believe the total volume of ILS that goes through Bermuda is up 28%.

That market is growing enormously, maybe a 1% or 2% less, I don’t remember the number, I didn’t look but today but it’s not going to change. That’s the number.

So Insurance-Linked Securities are very important, because it’s an asset class where few who realize and very few people even talk about. The insurance companies of the world, you could argue are undercapitalized in that if some horrible event were to happen, I hope it never happens but to equate, the California earthquake.

Its untimely clear that insurance companies have enough capital to deal with a really calmative [ph] event. So to spread their risk around, the issue insurance waiving period, why don’t they issue equity?

Because it over links to bond market. It shows you how the bond market really distorts everything and indexation distorts the distortion.

Insurance companies basically take us from that risk and return for some amount of float and that’s the money largely in bonds, not always true, but usually true. You can’t make a lot of money in bonds right now.

So what could you do in theory? In theory you could issue more equity.

And while we issue more equity when the earnings from the portfolio of a typical insurance company is low, they don’t usually have big evaluations, not usually going to be [indiscernible] transaction. Another way of doing it is borrow money.

If you're borrowing money instead of getting the money through equity and permit cap, you are borrowing the money for a long period of time. Paying a higher interest rate is true, the higher interest rate is tax deductible and if something happens, the holder of the ILS, Insurance-Linked Security is liable for some of your losses.

So basically what are you doing, you’re hedging the equity on your balance sheet. So if there really were a horrible event, it wouldn’t go down as much as you think.

It's basically a very roundabout way of raising permanent capital. You may think that shareholders equity isn’t permanent capital, but it isn’t if it hasn’t been claimed against you, because there could be a draw down there.

So let me tell you a way of raising money and from the point of view of people will buy it, it’s a bond and say what you will of that, there is some risk in it but these risks are not correlated with typical risks in the bond market. And from the point of view that people buy it, they have a higher interest rate.

Actually it’s potentially higher interest rate and a diversified security portfolio. In principal both sides are happy.

So that’s a rapidly growing thing. And that’s the interesting thing about small exchanges.

You only need one or two good ideas if it's successful on a very small market capitalization. You can make a lot of money.

Now you should be aware that we adjust the cost basis of our investment in the Bermuda Stock Exchange by the amount of money. The firm actually makes our share of the amount of money it makes.

So we start our investment to be in May 2014. You’ll see our cost basis between May and November sub $75,000 when we own not far from 40%.

You can now get an idea of what the earnings in Bermuda Stock Exchange have been and you can be on almost 40%, and when you look at our basis you can see how much the thing is valued, and basically -- the first number basically represents our investment at true cost, because at that time we didn’t have a lot of time to make a lot of money. We have made investment in that.

So, we’re very pleased what’s happening in Bermuda. Hopefully more good things can happen.

So kudos to Greg Wojciechowski, the team in Bermuda and Bermuda Government for making it possible to develop this market. And we are hopeful of greater things to go.

In the case of Minneapolis Grain Exchange, what we have to do is look at the website. You will see it's -- basically calendar 2014 is record volume.

Difficult 2014, which end ends in August is record volume. And the volume continues to grow, the open interest continues to grow, not every day but the general trend is definitely up.

You can debate what that should grow to? I personally attribute indexation and now commodities are an asset class that uses diversifier.

Look how small the change is and how much it really adds to the earnings. And there is always the possibility, as any of our change investments.

It maybe something else [indiscernible]. If it were to happen we’ll be digging from earnings.

If it doesn’t happen it doesn’t disrupt the progress being made. And I say that only because it illustrates the basic principle of optionality.

We’re trying to build optionality. We’re building for optionality inside the index and building optionality in our investments.

Winland Electronics in principle could be making investments in companies similar to them. There is optionality economy of scale there.

There is the various funds where optionality is self-evident, through exchange investments, the optionality is less evident but nevertheless there. Because basically it’s an economy scale gain.

So marginal cost will go in higher levels of volume whereas multiple selling products or one more or less goes to borrowing. So that’s the way we’re thinking about it.

And we’re not finished by long shot, building optionality.

So the Canadian Pacific properties maybe intercepted, making self-more efficient than they have excess real estate that used to be associated with their operations. But if you think of places like the Manhattan where they have these rail road yards in the west side, the Hudson River, which can be developed, Canadian Pacific has properties like that, can be 40 or 70 acre properties in or near big city centers, that properly developed could be enormous developments.

Could take decades to develop, but they’re quite large, particularly in relation to Dream.

So it’s optionality. And it’s optionality.

That’s what we’re trying to do, un-correlate optionality, maybe that’s a better way to say. To un-correlate optionality to portfolio, we have un-correlated optionality at balance sheet, we have un-correlated optionality in the very strategic past.

And after a while you may not think of us as very suited or not, but even fools get lucky once or twice. And we may have been lucky in that regard.

So I think that takes care at least all the questions that were submitted in writing. And I guess unless Steve you have some further remarks you want to make, that kind of, if you have more questions of course, we invite you to submit them.

I apologize for not doing this in the usual online way, but understand that it’s created some problems in that various transcripts of these calls have appeared which actually are not accurate and which I have to control the process a little bit better. But we invite your questions.

We welcome your questions. We’ll do everything we can to answer your questions.

If there are things that we can permissively disclose under various rules under which we’re governed and we’re not disclosing it, we would be delighted to consider disclosing it. So let us know if there’s information you want.

And with that, I might be exhausting my voice, exhausting your patience. So with that I thank you once again for attending our call.

And I thank you once again for your interest in the Corporation. And of course we're going to repeat this in following days and we look forward to your questions at that time and hopefully we got some more proceedings long time.

So thank you very much and good afternoon.