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

Thank you, Lisa. Good afternoon, everyone.

This is Thérèse Byars speaking, 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. website at www.frmocorp.com.

Today’s discussion will be led by Murray Stahl, Chairman and Chief Executive Officer and Steven Bregman, President and Chief Financial Officer. They will review key points related to the 2017 first quarter earnings.

A summary transcript of this call will be posted on the FRMO website in the coming weeks. And now, I’ll turn the discussion over to Steven Bregman.

Good afternoon. As you might noticed in the last several review such as this there is lots and lots for me to say and the reason isn’t by accident, well also recall that when we supervise the structure in transactions between FRMO Corp.

and Horizon Kinetics not all that long ago the FRMO’s earnings or revenues really come as a percentage of the Horizon Kinetics revenues, so that’s what that is. And then the equity in Horizon Kinetics that’s what that is.

Now most of the changes when we will see in a conventional sense booking and income statement of the balance sheet, [indiscernible] is not much of significance, so if you saw your revenues this time equally – you will see that the August quarter revenues, consultancy and advisory fees are down about 27% and that’s the way we function of the fact that there is less AUM at Horizon Kinetics and if you took the August 2016 assets under management compare it to the August 2015 AUM, it’s actually down 27% that’s that. So, what else is going on?

On an average weighted basis half but really 52% of the assets between this August and prior year’s August is in cash and cash equivalent. In that sense the fact that that retained earnings are up 5% is not bad, but really there is not much going on as far as the supervision and observation that’s really going on the biggest changes I see in the balance sheet and you might in terms of line items are that in this quarter’s balance sheet you will see investments in premier investments under [indiscernible] investment in little currency group and investments in CNSX markets and investments in Miami International Holdings, Inc., and there are perhaps additional investments in areas that aren’t shown in line items.

And that’s where for the moment that’s where new investing is being done on this some you can see and some you can’t see but in terms of future optionality that’s where active investments are providing for future optionality and of course is the cash because cash is almost like the ultimate source of optionality as you never know what will come before you. So, we only have that much to offer early than that and because what I’m really saying is that it’s worth current investment going on now obvious and not obvious and where future co-option come from that’s most of the key take is how much you’re going to find from an accountancy with the balance sheet income statement, so that is my preparation for Murray to speak about the portfolio.

Murray?

Thank you Steve. So I’m going – remarks on the two parts, it’s the minor things I’ll talk about first and the reason they’re minor is because the major points I want to make ironically there is shoulders actually submitted questions that are pretty good and touch more or less on the major points I want to make.

So either I did a very bad job in the annual meeting and it was luckily shoulders to figure out what the main points are and there I think questions of course I’ll answer them or did a very good job and now people know what the main points are and they did ask the questions, I’m sure it’s the former not the latter mainly. Let’s start with minor points.

So as always with the balance sheet because it is really important the cash $3 million, so we made what kind of return on equity you’re going to held if you’re going to carry $15 million in cash. And as you know for that couple of years doing the mostly possible end get cash balance as high as we possibly can because of the narrowing of the opportunity set of that thing in our own measure counts we’ve been carrying a fair amount of cash which some people find disconcerting and it certainly doesn’t help you in raising asset, these people conclude that you don’t like your own opportunity set which to a degree is kind of true and therefore they say we’re not going to use the cash, we don’t see that opportunity use, we will take the money away, we will go to place where they their opportunity is very well.

Ironically even though we have a lot of cash, look at some of the portfolios we actually have remarkably good performance because we’re going back to our roots in other words. We historically, we trained ourselves to invest all the money which is trusted to us and we do right now is, we basically invest what we think can be invested, down phase in cash and in other senses we don’t even bill on the cash balances, no it’s not something it’s going to make your [indiscernible] resilient, but we think it's a right thing to do.

And that's the right thing to do from an ethical point of view, it's actually right thing to do from the performance point of view because you are focusing on the things you really think are opportunities and with regard to cash as the strategic asset it's available, redeployed when opportunities call for it. So that's one thing.

The other thing that worthwhile pointing out is point out the security so short and as usual there is big gain. It's actually a bigger gain than you see because the range of instrumentality use we are using past dependent EPS, I will come more when we will talk about in next session.

But basically, we are using a greater range instrumentalities and some of those instrumentalities have the options and expiration date and when we realize – the realization of the profit actually comes at the point of option expiration or shortly therefore, therefore we use to keep instrumentality of how much money we made over the years and I guess we can still do it, but it now requires an accountant to do it. You can't do it by looking at the balance sheet.

So basically, in our measures we funded a lot of investments wholly in this area and as far as we are concerned this is a fertile area to invest in and the amount we commit will fluctuate from time to time for variety of reasons not least to achieve, sometimes we have no choice because of the option expiration. We have to close positions and therefore the proceeds end up going into the cash rather than figuring the note of proceeds because no longer sure to be our proceeds once you close the position even though the cash might remain on the balance sheet.

So there is that. And then, I just want to take note even though we say the opportunities set is narrowed, in a certain sense there were things that we had as [indiscernible] are worthwhile paying attention and I normally unquote tension to initial funds but now I am going to do it and what I am going to call attention to is the Kinetics Multi-Disciplinary Fund which is a really interesting fund and it's actually starting its assets.

And I think deservedly so one of the things we do, we unfortunately we never really talked about a lot and why because Steve and I never really played a big role in marketing until last 90 days. Now we are starting to talk about.

Basically the Multi-Disciplinary Fund is, those people know, it's a bond fund that an opportunistic moments can self put options and cut the premium assuming we don't get put on things. Right now we are not doing very much of that.

But on the bond side we do some very interesting things. There are whole series of bonds that technically we are not investing grade rated but I think there is very little prospect of negative product events in them and the bonds are callable.

But they may call provisions. And they are very unlikely to be called in the foreseeable futures.

Just too expensive to do so where it doesn't make a lot of sense. And we are running with three to four year average maturity which is LIBOR investments roll down the incurve and will a bond that actually provides really robust rated return with the opportunity for more with actually fairly short maturity structure which could be pretty good if rates went up.

But we never really talked about. Now we started talking about, raise some money.

I don't want to give the idea that it's going to change our proper law statement but there will be more of things of this type that we will be talking about in the future. Those are sort of minor things.

The minor things is we basically return to our routes where we were in 2006-2007 that we are concerned, opportunistic investors and we are not going to hold ourselves to model or standard, we will be eclectic when that's called for and we are putting our own money into these investments and if we have a lot of cash in client accounts, we have a lot of cash in our own capital as well. So all we are doing is we are eating our own cooking.

We don't ask anybody doing thing that we are not prepared to do as well. So that's the minor point.

Now the major things. And they all include questions.

So actually I forgot one minor point which is not even so minor almost forgot, so under the various investments I should have mentioned the exchanges. So for us they are strategic investments.

And the idea is the way with the future whether it comes in the form of consolidation or come to the form of new assets classes we think is going to be the small changes. So it's a minor point but I just wanted to touch on.

We go in the website on the Minneapolis Grain Exchange with the investment that's held in South LaSalle Partners for those who might recall they did their first carbon emissions crate trade the other day, which is not something we’re able to talk about until recently, but if it works out and hopefully it will work out, it won’t be wheat anymore solely, it will be wheat than carbon emission crates. And carbon emission crates can ultimately be like a very unique and robust active class that has a correlation energy obviously but it's completely different thing.

And you can use in, some people even argue, it's you can use it as a socially conscious investment. So it's just an example of what’s possible in exchanges early at but it's a brand new asset class and might prove to be very important.

So I just mentioned that. I guess that really concludes the minor points.

Now to the major things, so some questions, I will read the questions and I will talk about them. So what happened to HK hard assets LOC this no longer shows up as current asset?

Well what happened is it got bigger. The reason to begin with it doesn't show up as a current asset.

It's actually in other investments and the reason it's in other investments and not disclosed in separate line item is because we are now consolidating that investment. So what you will see is in number.

It's in other investments. And to the extent that not all the money in HK hard assets is FROM’s property on liability side, there is a contra non-controlling interest at least on this balance sheet of $4,619,000 which represents the amount of money that other people and really other people if myself and Steve and the other Verizon partners so that's what HK hard assets.

You want to know more about it we probably should disclose more and we will but you will find it in note four on pages 13 to 14. There is little on 13 and bulk of it is on 14.

Unfortunately, it doesn't tell you as much as we would like but you can see the figures what we have. According to this we have 7.38% interest in HK hard assets as of August 31, 2016.

The fair market value acquainted as document $437,000 so if you took $437,000 and divide it by 0.0738 you would get to the market value of HK hard assets such that subsequent to we have putting more money in and it's actually being bigger and that's actually not I don't want to mislead you that's not the size of the fund, funds is actually bigger right now but it's just us. There is a lot of interesting things to be done in certain types of hard assets but let me elaborate.

Ordinarily, a hard asset which usually relates to commodities some people may call it an alternative asset. We don't call it an alternative asset.

So just discuss something may or not be [indiscernible]. We don't regard it as alternative asset.

Why? Because any assets especially if it's a corporation, if the securities do well the corporation will issue more shares sooner or later because they want to get low access – low cost of access to low cost capital.

So in that sense, the corporation in a certain way is almost like a little bit of an adversary because all want to corporation do well and can't blame them for opportunistically issuing securities if you are an owner that's not always your best interest. Although, if they can issue securities cheaply enough maybe did.

But an alternative assets one where it's a rare asset and they are not likely to access the capital investment. Therefore, in the long run the behavioral characteristics is based on the certain scarcity value.

That's kind of what we are looking for. Scarcity value of hard asset in scarcity value of corporate structure that's very unique and actually not replaceable.

And there is not a lot of round but there is some of around and we have been making some investments. Also from time to time and we have said this before told the idea of raising outside capital for that and we are still working on that and hopefully one day that will actually occur, at the moment it's just us.

Reason for consolidating is, we want to give a sense of the capital that's available to us. We look at this document you will see 117 balance sheet I should actually say, you will see 117 plus million dollars of total asset which I think is actually record and it really doesn't tell you how much is actually available to us because we have invested in certain funds that are [indiscernible] invested.

Those funds in addition to the un-invested portions had access to credit lines which we never used. And the point of fact FRMO is very subsidiaries have access to credit lines we never used.

So what we will end up I am doing it right now, there is quite a lot of capital available to us. So we began to sense of what our accumulating bank power is, how much is growing.

It's actually growing quite considerably and we can – it's an important part of a balance sheet for us and to understand why let's just go to next question and maybe that will give you some sense of it. So the question is as follows.

Steve Bregman’s view recently at grand institutional investor forum index the care – artificially influencing the evaluation mini launcher and [indiscernible] as FRMO has a time frame for when there is evaluation gap might be calibrate and what might be the catalyst? So excellent question.

So obviously, we don't know the answer to that but it occurs to us that from a societal point of view, obviously the danger is if we re-calibrate all of a sudden and went to something call normal fee, when these things happen, they’ve really got a normal fee, they always go beyond normal fee with some extreme evaluation which is why as a very good investor you pile up all those cash and wait for it but it's this time around it may be far more complicated. We are in process of writing some other research to elaborate that.

Some research I will share with you right now. So it might not be calibrate and the reason it might not be calibrate I will give you a couple of statistics.

There is website called national debt clock, it's actually usdebtclock.org and to go on there is a whole series of cash statistics and the number of core attention to is there is a figure for total debt of the America. So where that everything come United States Treasury Securities, the main securities do mortgages to the loans, credit cards or loans you name it and it actually comes to $66.5 trillion.

And as a footnote to that, I was writing about this the other day, and in my handwritten work I used this figure $66.4 trillion. And the several days that I left, from the day I actually wrote this hasn't been published yet but I actually wrote this.

It's actually $100 billion more which will tell you how serious the problem is. Now on this website you will also see another piece of information.

And that's the total interest that's paid on that sum, meaning the total debt. And that total interest paid is near as can be calculated by these sources and by the way these sources of data they are record-able sources like the source for the total debt to the United States it actually comes in Federal Reserve.

You can Google with it but it's accurate number anybody has so we don't get the Federal Reserve we get up on this website which in terms gets to the Federal Reserve. So the total interest assessed on an annual basis as far as we know it's from this website is $2.517 trillion.

That's trillion with T just like the total debt. Trillion with a T.

So crudely take a 2.517 divide 66.5 and in round numbers you are going to have interest rate of 3.79% so obviously short term treasury yield basically nothing, credit card debt is very expensive, rate is. 3.79%.

Now the website actually has forward looking function and a backward looking function called the time machine. So if you click forward a couple of years let’s say 2020 assuming everything is confirmed and who knows it really does, the total debt should not far from $79 trillion.

Let's just make believe lot of people say that with 25 basis points a year increase over three years and making believe 2016 is over. We are in 2017 something a little bit of liberty but not much let's say in 36 months or there about interest rate is 3% higher and let's just assume the yield curve retains its current shape.

So everything is just 3 percentage or 300 basis points either. So we wouldn't be paying 3.79% on debt, in principal we are paying 6.79% except we wouldn't have $66.5 trillion of debt we would have as near as it can be calculated $79 trillion of debt.

So what’s 6.79% of $79 trillion well I won’t tell you. You can figure out yourself.

It's a lot of money. So much money does it happen to be it would easily be more than 20%, 25% actually at GEP.

In the GEP grow or grew as people forecast it will by 2% or 3% a year. And you could argue, I’m not sure people would argue on this because I am not a global macroeconomic theorist but if they raise rates maybe it will cause recession or maybe it would happen anyway.

I have no idea what's going it's going to happen or not. What I am telling you is from time to time it happened and if it did happen and it took a year or two to resolve it might not be $20 trillion.

It might be 18, might be I don’t know, maybe even at 17 or 16 trillion and then we have got big trouble. So why give you this whole elongated macroeconomic analysis when we are not macroeconomic analysts.

The idea being because the catalyst ordinarily for re-calibration of excess evaluation and indexes is interest rates and they are not in a position to really raise the interest rates. So what might happen is interest rates might not go up.

And they don't go up in excess might not re-calibrate. So then you ask what might happen?

And what might happen is what happened in 19th century that the returns on most assets they are just going to be unsatisfactory. And there are a handful of things in 19th century that had spectacular rates of return and lots of things that had less than mediocre rates of return so just by today in our world, you see in our world looking at the index lens because the actions of government in the last number of decades lowering interest rates around the world this go stimulus, lowering taxes, doing all sorts of things it was possible to have an index.

Have a well diversified portfolio when not everything went up but most things went up. Now the government really loosing that faculty we might be in a world where not very many things go up at all.

Only few things go up. So we are able to have funds so you can see some mutual funds.

They are very robust rates of return. We have the highest cash balances we have had in years.

Because you don't need robust rated portfolio and maybe definitely you just need handful of good things, you can actually have a lot of cash and still have a very good rate of return. Historically that wasn’t possible in the stimulus world more or less everything went up to varying degrees some more in the market, some less on the market rates return.

So cash would vary rates of return. Cash might not be lowering the rate of return.

So the thing might drive most investments fundamentals and the fundamentals might not be so good not because the companies are really bad, most of the big companies are index, they dominate the industries and which is good thing but the bad part of it is they saturate their industries. They saturate their industries, they dominate them.

There is not a lot of possibility of gain a lot of revenue additionally from the places they are in. So re-calibration so to speak might just be the people come to realization at the index we will just provide an inadequate rate of return.

Not even inadequate rate of return I don't mean to say inadequate rate of return, relative to the risk that one takes by the index just going to be inadequate rate of return. There is just not going to be a lot of money if it's any money at all.

And basically what happens is nothing. Three months on the index goes down a few percent or the index goes up a few percent and we look back retrospectively you just won’t see a lot happening.

And that might be the environment we are in and it's really horrendous environment for most people because most people don't have the faculty to be eclectic or be concerned or put it other way if we opened ourselves up to the world, there will be a limited number of people than we can even invite in because we have a limited number of ideas. So, it might end up being golden age for the active manager and the problem of the active manager is not going to be raising assets.

Problem of the active manager is going to be turning away assets because use won’t be able to serve very many people. They will have set of investments that you have a lot of expertise in and you will have big percentage of those investments and very few people are going to be able to duplicate you.

It could be a zero and 20 world. It could be zero and 20 world.

And for our specialty things that's what we charge now, the everyday low price zero and 20. We actually charge nothing on cash balances.

We charge nothing on investments. We charge 20% of the – specialty for any clients who happen to be – if they are able to establish an account on Sunday, you get a better deal but it's hard to do.

I guess it is. Okay.

Next question. I hope that gives you an idea of what we are working on.

So we are not working on mere gathering of assets. We are working on being faithful to accretive, constrained and collective investments or win the crowd because as you can see the crowd has problems.

And we don't want to grow vertically in the sense that pile on ever more assets on management in the phase of the limit number of ideas, we want to grow horizontally meaning we have set of ideas it might be a multidisciplinary fund. It has a certain capacity of X, wherever that number happens to be.

When we approach that capacity we move on to next set of ideas. It might be entirely different investment.

So you are seeing some of that happening right here. And some of that is HK hard assets which is separate and distinct from some of the things we have done historically.

I hope that gives you a sense of what’s going to happen in indexation. I don't think there is going to be a day when everything is right.

We might be living with generation or two but basically nothing is right simply hard stock here and there. But the investors can't see at the moment.

It's like the fog of war plus all this natural pattern spotting. You turn on the radio in the morning and they see a pattern that the certain industry group has been moving up strongly lately and then you have few people offer few interesting words about that.

There always seems something is going on. But if you don't have the training or the expertise to step back and understand structurally what's really at work, years to go by, decades to go by if we realize nothing is happening.

And one other thing which is worthy of note in the field of indexation which is the fees are collapsing. The LIBOR nexus are down to 3 basis points.

So yes, people can raise trillions of dollars in assets under management and to what end? They are always going to be expensive.

It's not going to serve the clients well. It’s not going to serve the orchestrates in the index as well.

The big problem the whole thing is getting big problematic and all I can tell you is we are very happy to be away from that area and in some of the things we did there were certain business lines like year ago we were in the options business. And we had $450 million in assets under management and we sold that business.

But we are glad to be away from it at least that part of it. There would be a role in indexation, it’s not going smart, it's going to be a completely different kind of indexation.

So we will tell you about and I am in process to writing about. So when it comes out you can all get that paper.

Anyway another question. In your research for optionality could you talk about the opportunities set in the global context FRMO assets are mostly US eccentric and wonder whether you are seeing excellent opportunities overseas, please comment.

To begin with our going back to our roots, is staying within our own circle confidence meaning our knowledge base. So we don't want to give you idea and we never will give you idea that we are expert on everything.

The indexation phenomena which is basically narrowed greatly the opportunity set it's a worldwide phenomena. It's true in the far east as is in the United States and it's true in the United States as it's in Europe.

It's basically for everywhere. So the opportunity set has narrowed everywhere.

We have better knowledge in the United States than we have other places. And we don't shy away if we can do international investing.

If we had expertise in that particular area and understood the laws that covered that investment and sometimes that's the case. But more likely or not we are going to have more knowledge in [ICS] and Canada.

We are going to have outside business in two countries and therefore you are likely to see less things outside of the United States of America than you are inside United States of America, but I don't want to say we are never going to do one. But time to time we do it.

And it will happen. But I say it's also as a market much deeper and richer even Canada is much more deeper and richer market than many of the countries around the world where market tend to very narrow and hierarchy more to indexation influence than the American market so I wouldn't expect to see a tremendous shift in assets outside United States.

And then there is issue of the currency and if it was just United States it was putting up all this money we might be interested in foreign currencies but the various other countries seem to be vying with the United States which is going to be the champion currency issuer it doesn’t seem there is any advantage on the other currencies and their interest rates are even lower than United States rates given how low the United States rates is so our so I wouldn't expect to see that much but you never know. We are leaving the door open but don't expect to see things.

That gives the overview of what’s going on and there are obviously things that we are working on which hopefully can be shared with you shortly. Not a lot about I can say right now.

But I think that when you find out about you will be pleased with results and you will find it very interesting. So I think that covers my prepared remarks.

And Steve is that –

There are even perhaps transactions that have occurred but we can't -- financial statements yet. So we are not free to speak about them.

Right. So anyway so with that of course we thank you once again for your support and for paying attention to what we have to say and if there is anything we can do to provide you with more information to the extent that we are allowed to do it or happy to do it we want to be as transparent as possible.

So I kind of apologize the way the HK hard assets is consolidated. It's all done in the GAAP method and our goal was to provide more information not less information so I guess you have to know where to look and talks about other information we can provide, we can provide we are happy to do it and let us know.

Just choose email or something and with that we thank you once again and thanks for your support and we will rephrase this in about 90 days for next quarterly meeting.

Yes 90 days give or take. Thank you.

Thank you. I think that's –