FRMO Corp | Investing along Murray Stahl & Steve Bregman

FRMO Corporation (OTCMKTS: FRMO) is the publicly traded investment vehicle of Murray Stahl and Steve Bregman. FRMO Corp owns a significant stake in Horizon Kinetics, an asset management company, controlled by Stahl and Bregman as well as various other smaller investments.

The company was originally incorporated in Delaware in 1993. In 2001, FRMO spun off its operations and Stahl and Bregman took over the shell. Since that time, FRMO has focused its activities on making strategic investments in public and private companies and providing investment-related advisory services.


FRMO Corp Write-ups


The Origin of FRMO Corp.

A company called FRM Nexus (which stood for Food Services, Real Estate Development and Medical Financing) was formed in 1993. On August 31, 2000, FRM filed Form 8-K with the Securities and Exchange Commission, disclosing its intention to spin-off all its operating assets to its shareholders.

The disclosure also announced a change of control, with Kinetics Asset Management and a group represented by Murray Stahl and Steve Bregman taking over the reins. The spin-off was completed on January 21, 2001. On November 29, 2001, the company changed its name to FRMO Corp.

FRMO stands for Financial Risk Management Organization.

Murray Stahl and Steve Bregman

Murray Stahl and Steve Bregman came from the asset management industry. They were involved in Horizon Research Group and Kinetics Asset Management, both operationally and through ownership:

Murray Stahl: Let me explain a little bit about who I am. I started in this business in 1978, so I date myself somewhat. I started at Bankers Trust Company, which is now actually part of Deutsche Bank. I started as a lowly computer programmer. I became an industry specialist, you could say a stock analyst. Then they made me a portfolio manager of a fund. I eventually ran 3 funds. I was on the bank’s investment strategy committee.

16-year career, my life is going great. Then some of my colleagues suggested that I should start my own company. So we quit to start our own company. Then called Horizon Asset Management. In 1994, now Horizon Kinetics.”

– From Murray Stahl’s Presentation on Value Creation from Value Destruction

After the Spin-Off, the newly named FRMO Corp was basically a shell with $10,000 in cash and 1,800,000 shares of common equity ($0.00056 per share).

Subsequently, the company issued new shares in a private placement. In total, 34,200,000 shares of common stock were issued for $3,258,000 ($0.095 per share). 28,8 million of those shares were issued to the Stahl Bregman group. The transaction is pretty interesting for two reasons. Firstly, Stahl and Bregman overpaid for their FRMO stock ($0.095 vs $0.00056 in NAV of existing shares). Secondly, they didn’t actually pay for the shares upfront but payed with future cash flows they would receive from their stake in Kinetics:

The 28,800,000 shares were issued to the Stahl Bregman Group on January 23, 2001 but are held in escrow and delivered as paid at the rate of ten cents ($.10) per share. The Stahl Bregman Group is obligated to pay to FRM the after tax amount (fixed at 54% of the dividend) of all dividends they receive from Kinetics until the total $2,880,000 has been paid. The Stahl Bregman Group expects the $2,880,000 to be paid to FRM in about five years. The installment payments depend on actual future dividends received from Kinetics.

FRMO Corp 2001 Annual Report

Then they went to work.

Intellectual Capital

Murray Stahl and Steve Bregman explained their vision with FRMO Corp. in the company’s letter to shareholders in 2002:

All of our assets are examples of intellectual capital. The level of business activity can be increased without the creation of expenses. FRMO merely provides a management expertise. The firm in its first year has built a foundation. Its next challenge is to build a structure upon this foundation. Management will be engaged in this effort in the course of the next year.

– From the FRMO Corp. 2001 Letter to Shareholders (June, 2002)

In the first year of operation, FRMO Corp. made various agreements with other investment managers and investment vehicles. This included:

  • FRMO received a 7.71% interest in Kinetics Advisors in exchange of 315 shares of FRMO common stock and a 2% interest in the subscription fees of a Horizon Research Group publication called The Convertible/High Yield Arbitrage Report in exchange for 50 shares of FRMO common stock.
  • One of the most important deals for FRMO was an acquisition of research service fees that Horizon Research Group received from The New Paradigm Fund (later renamed the Paradigm Fund) in exchange for 80.003 shares of FRMO common stock. At the time, the fund had less than $11 million in assets under management.
  • FRMO also acquired research service fees from Horizon Research Group from a fund called the Middle East Growth Fund in exchange for 3,456 common shares.
  • An agreement whereby Stahl and Bregman would provide consulting services to Santa Monica Partners LP in exchange for $21,600 per year. Santa Monica is, to this day, a shareholder in FRMO.
  • Various other fee sharing deals.

By the end of February 2002, the balance sheet of FRMO Corp. consisted of intangible assets that included the fee & carried interest-sharing agreements and a grand total of $83 thousand in cash. 

FRMO Corp Balance Sheet 2002
At the end of February 2002, FRMO Corp had $83,000 in cash and $161,068 in total assets.

 

Horizon Kinetics

FRMO Corp’s principal investment is its stake in Horizon Kinetics, which consists of ownership interest and a revenue sharing interest. Horizon was co-founded by Murray Stahl and Steven Bregman, who are officers and principal stockholders of the Company. Horizon is an investment advisory and independent research firm, the research activities serving primarily institutional investors.

Horizon provides an in-depth analysis of information-poor, under-researched companies and strategies to identify the complex or overlooked situations that can offer an advantage to the investor.

Kinetics Funds

Kinetics Asset Management LLC serves as investment adviser to Kinetics Mutual Funds, Inc., a series of nine mutual funds with combined assets under management of $1.5 billion as of June 30, 2018.

The Funds’ investment team is led by Peter Doyle and Murray Stahl. The investment team consists of 17 seasoned investment professionals that have an average tenure of 15 years with the Firm and 25 years in the industry. The firm and employee invest significant capital alongside its investors.

Horizon Kinetics Hard Assets

Horizon Kinetics Hard Assets is a New York limited liability company formed by Horizon, and certain officers, principal stockholders and directors of the Company for the purpose of investing in companies that own ‘hard assets’ with intrinsic value such as commodities including oil, natural gas, precious metals as well as land assets including industrial and commercial real estate, and other similar assets.

Investments in Exchanges

Stahl and Bregman favour, what they refer to as, Croupier Business Models or companies that serve as intermediaries between buyers and sellers. FRMO Corp holds stakes in several exchanges for securities and other financial instruments. Current holdings include:

  • The Bermuda Stock Exchange (BSX)
  • Minneapolis Grain Exchange (MGEX)
  • OneChicago, LLC
  • CNSX Markets, Inc.
  • Miami International Holdings, Inc.
  • National Stock Exchange Holdings, Inc

Investments in Cryptocurrencies

Through both FRMO directly and indirectly through various Horizon Kinetics portfolios, FRMO holds an interest in cryptocurrencies and cryptocurrency mining operations. FRMO Corp acquired 353 shares of Digital Currency Group, Inc. for $76,261 on February 26, 2016.

Winland Holdings (WELX)

FRMO Corp owns 15% of the outstanding shares of Winland Holdings (WELX). Winland was originally named Winland Electronics, as the operating company specialises in environment monitoring solutions and sensors. In 2018, Winland changed its structure by moving Winland Electronics to a subsidiary and changing the name of the holding company to Winland Electronics. Subsequently, the holding company has begun investing in bankruptcy claims and corporate claims.