UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (due of earliest event reported) October 16, 2006
Commission file number: 0-29346
FRMO CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3754422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
320 Manville Road, Pleasantville, NY 10570
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 632-6730
Item 8.0 Other Events
Proposed Stock Dividend
On September 28, 2006 the Registrant's wholly-owned subsidiary, Fromex Equity
Corp. ("Fromex") filed a Registration Statement (Form 10) to register Fromex's
Common Stock, par value $.01 per share ("Common Stock") pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act.")
The Registrant filed a Current Report (Form 8-K) on October 3, 2006 to inform
its shareholders of the Form 10 filing and where it may be reviewed on the
Commission's website.
Pursuant to Section 12(g) of the Exchange Act, Fromex's Registration Statement
will become effective sixty days after filing with the Commission or within such
shorter period as the Commission may direct. The 60th day is Monday November 27,
2006. In view of this estimated timetable the Board of Directors of the
Registrant has fixed a record date of the close of business on December 8, 2006
for the distribution to Registrant's shareholders of one (1) share of Fromex
Common Stock for each fifty (50) shares of the Registrant's common stock then
outstanding. The issuance of the stock dividend is scheduled to be made on
December 28, 2006 and will amount to approximately 720,000 shares or 5% of the
14,400,000 shares of Fromex Common Stock owned by the Registrant.
Filing of Fromex's Quarterly Report
On October 16, 2006 Fromex filed with the Securities and Exchange Commission,
Fromex's Second Quarter Report showing its Balance Sheet at August 31, 2006 and
operations for the three and six month periods ended August 31, 2006 (Form
10-QSB). This Report may be viewed on the Commission's website (www.sec.gov)
under the Filings and Forms (EDGAR) section. The unaudited summary Balance Sheet
of Fromex at August 31, 2006 shows:
Assets
Cash and cash equivalents $1,073,611
Accounts receivable from parent 137,009
Intangible assets, net of accumulated
amortization 231,667
----------
Total Assets $1,442,287
==========
Liabilities $ 118,800
----------
Stockholder's Equity
Common stock - $.01 par value
Issued and outstanding owned
by FRMO Corp. - 14,400,000 shares $ 144,000
Capital in excess of par value 1,009,375
Retained earnings 170,112
----------
Total stockholder's equity 1,323,487
----------
Total liabilities and stockholders' equity $1,442,287
==========
Fromex's summary Statements of Income from its FRMO 10 Registration
Statement and Form 10-QSB for the periods ended August 31, 2006 show:
Period August 31, Three Months Six Months
2005 (Inception) to Ended May 31, Ended August 31,
February 28, 2006 2006 2006
(Audited) (Unaudited) (Unaudited)
-------------------- -------------------- --------------------
Total Revenue $ 117,013 $ 162,073 $ 299,082
Total Costs and expenses 52,959 33,251 66,560
-------------------- -------------------- --------------------
Income from operations 64,054 128,822 232,522
Interest Income 1,316 1,376 7,131
Income before provision -- -- --
for income taxes 65,370 130,198 239,653
Provision for income taxes (23,000) (59,300) (111,911)
-------------------- -------------------- --------------------
Net Income $ 42,370 $ 70,898 $ 127,742
==================== ==================== ====================
Earnings per share -
primary and fully diluted:
Shares of common stock outstanding 14,400,000 14,400,000 14,400,000
Net income per share $ 0.003 $ 0.005 $ 0.009
The following Notes to Financial Statements in the Fromex 10-QSB Report
for the quarterly period ended August 31, 2006 (unaudited) relate to the
organization and proposed spin-off of Fromex Common Stock (Note 1) and the basis
of the presentation of Fromex's financial statements (Note 2), which include
disclosures relating to FRMO Corp. (the Registrant and parent of Fromex).
1. Organization of the Company
Fromex Equity Corp. (the "Company" or "Fromex") was incorporated in the State of
Delaware on August 31, 2005 as a wholly owned subsidiary of FRMO Corp. ("FRMO").
Fromex has a fiscal year ending on the last day of February, as does its parent
company FRMO. As of February 28, 2006 Fromex had 14,400,000 shares of common
stock, par value $.01 per share, issued and outstanding all of which are owned
by FRMO, for which it paid $144,000 and contributed $700,000 to Fromex's paid in
capital.
Spin-off of Fromex
On August 31, 2005, FRMO filed Form 8-K with the Securities and Exchange
Commission disclosing the formation of Fromex and the intended distribution to
FRMO shareholders of 5% of the Fromex shares. In subsequent Form 8-K information
filings it was announced that the timing and precise form of the spin-off would
be postponed until a better procedure was identified for resolving the problem
created by the new accounting rule (EITF 03-16). That rule, which was effective
from and after September 1, 2004, mandated a change in the accounting policy for
reporting revenue from FRMO's 8.4% interest in Kinetics' Advisers, LLC
("Kinetics") from the cost (cash) method to the equity (accrual) method, as
reported in FRMO's Form 8-K dated June 16, 2005. For a variety of reasons,
including the Kinetics practice, as a private company, of using the cash-basis
method of accounting and the difficulty of securing audited and accrual-basis
financial statements suitable for a public reporting company, FRMO could not
itself report accrual-basis financial statements.
On December 9, 2005 the Board of Directors of FRMO authorized the preparation of
the Form 10 Registration Statement for the shares of common stock of Fromex
pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange
Act"). Said Registration Statement was filed with the Securities and Exchange
Commission on September 28, 2006. The Board of Directors of FRMO has adopted
resolutions to distribute, [20] business days after the date on which this
Registration Statement becomes effective, to its shareholders as of the close of
business on [December 8, 2006] or such later date as may be determined based on
said effective date (the "record date"), one share of Fromex common stock for
each 50 shares of FRMO common stock then outstanding. FRMO has 36,137,774 shares
of common stock presently outstanding which means that approximately 720,000
shares of Fromex common stock (taking into consideration the payment of cash for
fractional shares) will be distributed, representing 5% of the 14,400,000 shares
of Fromex issued and outstanding.
2. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with Regulation S-B promulgated by the Securities and Exchange Commission.
Accordingly they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, the accompanying
unaudited financial statements contain all adjustments (consisting only of
normal recurring items) necessary to present fairly the financial position as of
August 31, 2006; results of operations for the six months and three months ended
August 31, 2006; and cash flows for the six months ended August 31, 2006. For
further information, refer to the Company's financial statements and notes
thereto included in the Company's Form 10 for the year ended February 28, 2006.
The balance sheet was derived from the audited financial statements as of that
date. Results of operations for interim periods are not necessarily indicative
of annual results of operations.
Effective December 1, 2005, Fromex entered into a contract with FRMO to perform
consulting and management services to FRMO for which FRMO has agreed to pay
Fromex ten (10%) percent of the cash receipts which FRMO receives from its
customers during the term of the agreement (The "Consulting Agreement"). The
term of the Consulting Agreement is from December 1, 2005 until February 28,
2007 and for each twelve (12) month period thereafter unless terminated or
amended by an instrument in writing signed by both parties on or before January
15 preceding the end of a respective term.
Fromex's services include the administrative aspect of FRMO's business
activities such as operations, bookkeeping, personnel responsibilities and
periodic consulting with the FRMO's chief financial officer, but do not include
the research, business development activities or the services rendered by FRMO
itself to its customers, which produce FRMO's cash receipts. FRMO shall pay to
Fromex as its compensation an amount equal to 10% of total cash receipts that
FRMO receives from its customers during the term of the Consulting Agreement.
Said compensation is based only on the money received by FRMO in each three (3)
month period beginning December 1, 2005 and shall not include a percentage of
any receivable or accrual until the amount is actually received by FRMO. The
payment of such compensation shall be made on or before the close of the month
following the end of said three month period.
The first accounting period is the three months which commenced December 1, 2005
and ended February 28, 2006, for which Fromex received $117,013 on March 24,
2006 based on the following cash receipts of FRMO in that quarterly period. In
addition the FRMO cash receipts in the first six months of Fromex's current
fiscal year, namely from March 1, 2006 to August 31, 2006 were as set forth
below:
FRMO's Cash Receipts From: 12/1/05 - 2/28/06 3/1/06 - 8/31/06
--------------------------- ------------------- -------------------
Kinetics Advisers' Hedge Funds $ 959,311 $ 1,825,505
Kinetics Paradigm Mutual Fund 174,332 695,767
Sub - Advisory Fees 0 317,935
Other Fees 36,491 151,617
------------------- -------------------
Total $ 1,170,134 $ 2,990,824
=================== ===================
10% payable to Fromex $ 117,013 $ 299,082
=================== ===================
FRMO's cash receipts have been increasing in its last two fiscal years, which
are set forth below to illustrate its growth, but past performance is no
guaranty of future results:
FRMO's Cash Receipts From: 3/1/04 - 2/28/05 3/1/05 - 2/28/06
------------------------------ ------------------ ------------------
Kinetics Advisers' Hedge Funds $ 274,728 $ 1,978,026
Kinetics Paradigm Mutual Fund 118,394 410,020
Sub-Advisory Fees (9,335) 74,770
Other Fees 134,308 142,925
------------------ ------------------
Total $ 518,095 $ 2,605,741
================== ==================
Fromex did not receive 10% of the cash receipts in those two fiscal years except
for the last quarter of Fiscal February 28, 2006 as shown above.
The business of FRMO, on which Fromex receives its 10% of cash receipts, is as
an intellectual capital firm. FRMO's research and business development
activities focus on the analysis of public companies within a framework of
identifying investment strategies and techniques that reduce risk. Its business
includes the identification of assets, particularly in the early stages of the
expression of their ultimate value, and the participation with them in ways that
are calculated to increase the value of the interest of FRMO's shareholders.
Such assets include, but are not limited to, those whose value and earnings are
based on intellectual capital.
FRMO's fees derive from assets managed by other parties based on the research of
the Horizon Research Group, directed by the same principals who are the officers
of FRMO. The three programs significant to FRMO's fees are:
(i) Kinetics Advisers' Hedge Funds. FRMO has an 8.4% equity interest,
which it acquired for common stock, in Kinetics Advisers' LLC, which controls
and provides investment advice to hedge funds which were small when FRMO
acquired its interest but which have been expanding dramatically.
(ii) Kinetics Paradigm Mutual Fund. FRMO acquired for its common stock
100% of the research fees to which Horizon Research Group is entitled from the
open-end mutual fund Kinetics Paradigm Fund (trading symbol WWNPX). That fund
was small when the acquisition was made but it has grown significantly based on
its performance. Kinetics Paradigm Fund was assigned a five-star rating by
Morningstar, Inc. in May 2003, the first time it became eligible for rating, and
has continued to receive that highest Morningstar rating since May 2003 to date.
(iii) Sub-Advisory Fees. On June 1, 2004, FRMO acquired for common stock
a one-third interest in the Sub-Advisory Fee Revenue that Horizon Asset
Management, Inc. receives in its sub-advisory program for a large investment
firm. Under this program, Horizon Asset Management, Inc. provides investment
advisory services to certain clients of the investment firm, its fees being
calculated on the basis of assets under management.
FRMO's fees which are received under these three programs, and therefore
Fromex's 10% share of the cash receipts therefrom, are based on the assets under
management. The approximate net asset levels for these three programs at
specific dates are presented below.
Asset Levels in Millions (000,000 omitted)
---------------------------------------------
December 31, December 31, August 31,
Program 2004 2005 2006
----------------------------- ------------- ------------- -------------
Kinetics Advisers' Hedge Funds $ 960 $l,600 $ 2,241
Kinetics Paradigm Fund 125 525 1,537
Sub-Advisory Program 100 685 1,215
------------- ------------- -------------
Total $ 1,185 $ 2,810 $ 4,993
============= ============= =============
FRMO also receives other fees from three sources: from a consulting agreement
with a hedge fund that pays FRMO for access to consultation with FRMO's
officers, from a consulting agreement with a smaller investment firm and from a
small interest in the subscription revenues of an investment research
publication. These three sources of cash receipts have been small and are not
expected to be significant in FRMO's future revenue stream.
Business Activities of the Company.
While the foregoing 10% interest of Fromex in FRMO's cash receipts constituted
all of Fromex's revenue from inception on August 31, 2005 to August 31, 2006,
future revenues are expected to be derived from Fromex's new business
development activities, one of which has already been launched, and one which is
in the planning stage.
(i) Horizon Global Advisers, LLC is a registered United States
investment adviser organized in Delaware ("Horizon Advisers") and acts as the
investment manager for Horizon Global Advisers Fund, plc ("Horizon Fund") which
has been established as an open-ended variable capital investment company
incorporated with limited liability in Ireland. The Horizon Fund is constituted
as an umbrella fund insofar as its share capital will be divided into different
series of shares with each series of shares representing a separate portfolio of
assets, and comprising a separate sub-fund (a "Fund") of the Horizon Fund. The
first of said sub-funds, Horizon Opportunistic Value Fund, has been listed for
trading on the Irish Stock Exchange. Horizon Advisers has commenced operations
and managed over $81 million in assets as of August 31, 2006. It is anticipated
that Horizon Advisers will receive management fees from Horizon Fund based on
assets under management. FRMO owns 60% of Horizon Advisers and will receive 60%
of the fees distributed by Horizon Advisers. FRMO transferred and assigned to
Fromex for $250,000, a 66 2/3% revenue interest in those fees as and when
received by FRMO in perpetuity. FRMO contributed the $250,000 to Fromex as
additional paid-in-capital.
(ii) Croupier Offshore Fund, Ltd. is the second new development in which
Fromex hopes to participate (the ("Croupier Fund"). This is a hedge fund
recently incorporated under the Companies Law of the Caymen Islands. Horizon
Asset Management, Inc. ("Horizon Management") serves as the investment manager
and is responsible for managing the portfolio of the Croupier Fund. The
investment objective of this hedge fund is to achieve long-term capital
appreciation.
Horizon Management is a New York corporation registered as an investment adviser
with the SEC under the Advisers Act of 1940. Horizon Management has entered into
a placement agreement with UOB Global Equity Sales, LLC, a New York limited
liability company ("UOB Global Equity") to provide marketing services, investor
relations and support services related to the Croupier Fund. UOB Global Equity
is a registered broker-dealer and a member of the United Overseas Bank Group.
As of August 31, 2006 the Croupier Fund had a very modest amount of assets under
management. Fromex is negotiating with Horizon Management to acquire a revenue
interest in the net fees it will receive from the Croupier Fund. There is no
assurance, however, as to when or if this will be accomplished.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FRMO CORP.
----------------------------
(Registrant)
By Steven Bregman
----------------------------
Steven Bregman, President
Date: October 23, 2006