Good morning, and welcome to 180 Degree Capital Corp.'s First Quarter 2020 Financial Results and Second Quarter 2020 Development Update Call. This is Daniel Wolfe, President, Portfolio Manager of 180 Degree Capital. Kevin Rendino, our Chief Executive Officer and Portfolio Manager, and I would like to welcome you to our call this morning. [Operator Instructions]I would like to remind participants that this call is being recorded, and I will be referring to a slide deck that we have posted on our Investor Relations website at ir.180degreecapital.com under Financial Results.Please turn to Slide 2 that contains our safe harbor statement. This presentation may contain statements of a forward-looking nature relating to future events. Statements contained in this presentation that are forward-looking statements are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. These statements reflect the company's current beliefs, and a number of important factors could cause actual results to differ materially from those expressed herein.Please see the company's filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties associated with the company's business that could affect the company's actual results, Except as otherwise required by federal securities laws, 180 Degree Capital Corp. undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.I would now like to turn the call over to Kevin.

Thank you, Daniel, and good morning, everyone. Daniel, I assume you can hear me. We're in different locations.

Yes.

Good. Thanks. First, let me say, I hope all of you are doing well, and staying safe and healthy through this crazy time. I've missed seeing many of you live and in person over the last 2 months. I hope that changes sooner rather than later. But of course, and in the meantime, following this call, if you want to talk, feel free to text, e-mail or call at your convenience.In the meantime, let's highlight 4 significant topics for this call on Slide #3. First, as always, we'll review the second quarter; second, we're going to talk about our April performance of our public holdings; third, we'll mention the very material takeover of 1 of our portfolio companies, a life science company; and finally, fourth, we'll discuss a very significant win in our quest to manage outside capital.It wasn't pretty for the market for reasons I certainly don't have to mention, and we suffered along as well. For the quarter, our NAV declined just over 30%. And while that bested the Russell Microcap decline of 32% in the Russell Microcap Value Index of 35%, it was nevertheless disappointing.In my March letter, I mentioned at the time that our public performance was better than the market, and our private portfolio was outperforming our public holdings. While that stayed true to the end of the quarter, we actually lost an additional 500 basis points from the time I wrote that March letter to the end of the quarter. As of this location, extreme market volatility certainly affected our holdings right through the close of March 31.Our public portfolio hindered our NAV by $0.51 a share, and the largest decreases in value occurred in Quantum, Franchise Group, Alta. Those are 2 names, Franchise Group and Alta, we'll talk about in new holdings. Potbelly in electronics also hurt.We did have 1 stock that generated a positive return as long-standing holding, Adesto was taken over by Dialog Semiconductor in the middle of the quarter, and we sold the remaining stock following that announcement. We initiated 2 new core positions, as I mentioned, Alta and Franchise Group. Unfortunately, we did so right before the market began to cave. Daniel will mention our Franchise Group in just a little bit.On the private side, our portfolio declined by $0.41 a share, led by D-Wave, AgBiome, EchoPixel, HALE and TARA. Daniel will come back with a discussion of the private portfolio in a little bit. We started the quarter with cash representing 20% of the public holdings and ended the quarter by reducing cash to 10% of the public holdings portfolio.As I said in my March letter and in my letter to shareholders that is posted on our website last night, we spent the last two months stress-testing our portfolio and trying to ascertain the financial damage we can expect to have impacted our holdings. The risks vary company by company, with some having the potential to be more effective than others.Our goal is truly not to worry about what the stock prices have done, but ensure that the ones that we do own will make it to the other side of this economic meltdown caused by COVID-19. We will have more specifics on each of our public holdings in a couple of slides.It should be noted that our view has been and continues to be that the virus will dictate the length and the magnitude of this economic collapse we are experiencing. While it is our view that complete normalcy will not return until there is a vaccine in place, we also believe that social distancing we have done over the last two months would enable reduced infections, fewer cases, fewer hospitalizations and allow the economy to begin some sort of start up. That's sort of where we are today. What we don't know, as we exit our homes, is if the virus will rear its ugly head again with spiking cases. We do need testing, and we could use some therapeutics.I know what Howard Marks said in the recent letter is dead on. He said, "These days, everyone has the same data regarding the presence and the same ignorance regarding the future." I'm certainly not a scientist and I'm not an epidemiologist, and all we are doing is watching the number of new cases each and every day to see how much the virus is actually being contained. You have access to the same information that I have.And we are driving portfolio decisions off of that data. What we are doing is continuing to analyze with great rigor, the companies that we own. We have permanent capital. We don't have to sell unless we are doing so for fundamental reasons, and we will certainly be here on the other side of this crisis, with hopefully, a basket of stocks that, not only will endure, but will outperform.Post the close of the March quarter, I offer that in the month of April, our public portfolio advanced nearly 19%, which was a full 300 basis points better than the benchmark, so that was good to see how our stocks reacted as the market started to recover. The biggest news that we have to share is our - 1 of our life science portfolio holdings was taken out at a significant premium to our NAV.We will be putting almost $5 million of cash on our balance sheet when the deal closes, hopefully this month, and with the release of the escrow thereafter. As we have secured access to - and we have secured access to nearly $81 million of potential royalty payments over the next 10 years or so. We will have to, of course, time weight and probability weight the stream of royalties. But I can tell you that some of them will be paid earlier, are significant and offer real potential to occur.With the cash we are putting on our balance sheet at last sale, the market is now valuing our private portfolio at next to nothing. I'll go through a sum of the parts exercise near the end of this call, but I can tell you that I find it preposterous that the market views our private portfolio is worthless.We have shown in the last 3 years to how 3 monetizations - how many of them are worth not only what our NAV is at the time, but potentially more. We also have other health care companies that may benefit from the COVID-19 epidemic, and some of the remarks that we took this quarter may be reversed, I emphasis the word may. Certainly not a promise, but it is a possibility.Finally, we have spoken about our desire to gain access to outside capital, and we were able to receive a mandate to manage a $25 million portion of a publicly-traded company's pension plan. We were able to do this because our long-term track record on the public side has been quite extraordinary since we started, and you know as well as I do that the only way to gain the trust of institutions is to show an ability to create alpha. We will continue to seek and find other mandates. Next slide, please.Here is a chart of our NAV since we started. What's sad is all the great work of 3 years were severely impacted in 1 quarter. Of course, at this moment, our NAV has already covered a sizable chunk of this quarter's - past quarter's losses. Next slide, please.On Slide 5, you see the discount our stock trades at relative to our NAV. We have always believed the more liquid our balance sheet was, the easier it would be for investors to value our business and the closer we would get to NAV. As we have built up our cash and liquid securities from 16% of assets, when I was a Board member to nearly 50% today, the market still has not giving us credit for the transformation of our business.While it's disappointing on so many levels, we also know trying to make sense out of today's market melee and the extraordinary dislocation is probably not the best time to analyze what the market thinks of our equity. We know we are on the right path and we know the discount will narrow.On Slide 6, here are the - our usual source of changes to our NAV slide. In this quarter, starting with a $3.06 in NAV, we lost $0.51 from our public holdings, $0.42 from our private portfolio and had $0.01 of expenses. We end at $2.12. It should be noted that a portion of bonuses paid has a deferment element to them that only gets paid out if we continue to grow our business. In this quarter, we had a sizable reversal of last year's deferral bonus.I said this before, and I'll say it again, if we do well and shareholders do well, then we would expect that our management team to do well. And if the opposite happens, bonuses can disappear to 0, and that's certainly what happened this quarter.On the next slide, this is our source of change from the time we have started. Despite the market being down from start to finish 18%, our public holdings have returned an over 100% return, resulting in $0.67 addition to our NAV. During that same period of time, our private portfolio was down $0.48, with the bulk of that occurring this quarter. With expenses, including a restructuring charge totaling $0.41, you end at $2.12.On Slide 8, this will go through the specific holdings of most of our portfolio. We sold - on Quantum first, we sold 10% of Quantum in Q4 and another 20% at $7.50 earlier in Q1. Then the company announced that its hyperscaler customer, AWS, would stop receiving shipments of new products, which not only hurt Quantum's Q4, it could delay future shipments until the second half of 2020.The company still maintained its EBITDA, but COVID would cause the market to overly punish this company, especially because it has some debt. Many of Quantum's revenues are service and royalty recurring, and they are mission-critical to the entire media industry through their tape solutions. They also offer the federal government the right products, enabling them to manage their storage capacity.We expect a new credit agreement in mid-May, and this management team has already steered this company away from a nasty accounting scandal and delisting. They know how to manage their business. They have the right solutions and product road map to be the premier tape provider for those industries that use it. And the hyperscalers need Quantum. Ensuring we own quality management has always been our biggest focus, and there's no greater management team that we admire more than Quantum. We reversed course later in the quarter and bought the stock as the meltdown took hold.I'll skip over Franchise Group, as Daniel will say a few words about this new position in just a little bit, other than to say, when the stock was in the mid-20s, we participated in a PIPE deal at $17 a share. What I - at the time, I thought we were getting a great price, and then, of course, COVID happened and the market rolled over and Franchise got hit as well. But Daniel will talk about that.Alta hurt by $0.07. It's a new company having emerged from a B. Riley spec. It's a dealership business that sells forklifts and construction equipment that was obviously impacted by COVID. The company has a razor-razorblade model. They sell new equipment at low margins to build a rental and services business that has high margins. They have an experienced team whose business model and liquidity will certainly enable them to get through this crisis. We did buy more after participating in our original PIPE. If there ever is an infrastructure bill that shows itself as part of the massive fiscal stimulus we've already seen, Alta will certainly benefit from that.On the next slide, you see Potbelly billing and Lantronix. Some companies feel the effects of a crisis more than others. And I'd say Potbelly, which is a restaurant business, is certainly feeling greater effects than other companies. Our investment thesis centered around either getting a recovery in their comps in 2021 or we would look to get more involved, given we already have filed a 13D.The good news was the first two months of the year actually showed comps up 2.5%, and they were on their way to having their best positive comp since the fourth quarter of 2016. COVID obviously hasn't helped. Full-scale restaurants that sell liquor have been decimated, but all restaurants have been hit. 24% of Potbelly is delivery, that will help. They have some drive-through capabilities, that will certainly help. And they also offer curbside pickup at most of their locations, and that should help.We stress tested their business to be down 75% this quarter and 50% in the next 2. They could survive the year based on that stress test. That said, while they haven't reported Q1, I highly doubt their business is as bad as our models would suggest. They started this meltdown with zero debt, and they drew down their credit facility to enable them to help weather the storm.They hired a CFO who we like an awful lot. We haven't added to the name as we aren't naive to the short-term risk that exists for a restaurant company in this environment, but we'll look to see what they have to say when they report their Q1.Lantronix is run by former COO of Microsemi, Paul Pickle. They lowered their numbers due to supply chain issues and a slowdown because of COVID, the stock cratered to $1.95 from $3.55 starting point. Then last week, they actually upped their guidance given they have infrastructure products sold for use by enterprises who are building out video capabilities in this world of all of us staying home. The stock recovered. We bought 20% more of what we owned at $2.11. I guess while I'm worried about everything, I'm not all that worried about Lantronix. I'm confident this company will emerge just fine. Next slide, please.On Slide 10, please note my earlier comments about selling our remaining position in Adesto, run by a great management team who saw some weakness in their business coming, and they were able to sell their company to Dialog, was really a great achievement by that management team. Maven and Synacor have their own set of issues as advertising has screeched to a halt. Maven relies on advertising for its Sports Illustrated business.And with no sports, there is clearly less advertising. Maven does have a single platform, which is the answer to major media companies' cost problems who - in running their own digital assets, which are bleeding. Maven may be able to acquire properties as major media companies look to reduce their cost structures. Maven still needs to get its full numbers audited, and hopefully, an uplift occurs this year.Synacor has a publishing advertising business that certainly will be heard as CPMs are falling rapidly. They have a software business that we feel is incredibly undervalued by the market. As most of you know, I'm acting Chairman of the company, so I need to manage my comments on Synacor appropriately.On the next slide, you'll see our public stock performance over the quarter by each individual name. You'll see our performance, as I've said, was down 30.8%.On the next slide, you'll see our performance as we started by individual names, since we started. In total, against the backdrop of the Russell Microcap Index being down 18%, we were actually up 114%, and it's certainly not a misprint. It actually is our performance. We're proud of it, and it's been the reason why we're able to go to market and receive mandates like we did with the $25 million pension fund.On the next slide, here's our public stock picking over various time lines as well as our NAV growth. While this quarter was brutal, it was slightly better than the industries. The 1, 3 and since inception, we have significantly outperformed, as you can see on this chart. As I've said earlier, this actually is the chart that enable us to attract outside capital. Our Graham and Dodd value constructive activism has certainly worked in the last 3 years, and we hopefully will work in the next 3 years.On the next slide is our pie chart slide that we show the mix of assets on our balance sheet. Over time, we hope to grow the cash and liquid securities portfolio a percentage of the total. While that number decreased this quarter given our public holdings underperformed their private holdings, this number is forecasted to move well into the 50s again, approaching 60 to an all-time high, given the life science monetization that we expect to have happen this quarter.On the next slide, more specifics around our April performance. As I said, 18.9%. You certainly never know how the market is going to trade, let alone between now and the end of the quarter, let alone today. But I do take some comfort that as the market has improved, we have improved better by over 300 basis points to the Russell Microcap Index and 500 basis points to the Russell Microcap Value Index.Daniel?

Thank you, Kevin.As we discussed previously, and as Kevin mentioned previously, our 2 new public positions in Q1 2020 are Alta Equipment Group and Franchise Group. We spoke in detail about Alta Equipment Group on our last call, so I'll focus on FRG today.FRG is a leading North American operator and acquirer of franchised and franchisable businesses that uses its operating expertise to drive cost efficiencies and revenue synergies to grow its brands. On a combined basis, FRG currently operates over 4,400 locations, predominantly in the U.S. and Canada.FRG's businesses include: American Freight, which is a retail chain offering brand name furniture, mattresses and home accessories at discount prices; Sears Outlet, which is actually called - now called the American Freight Outlet, is a retailer primarily focused on in-store and online access to discounted appliances, apparel, mattresses, sporting goods and tools; Liberty Tax offers professional income tax preparation services online and at office locations throughout the U.S. and Canada; Buddy's Home Furnishings is a specialty retailer, which franchises and operates rent-to-own stores that lease durable goods; and The Vitamin Shoppe, which is a specialty retailer offering a comprehensive assortment of nutritional goods and solutions.FRG has a scalable franchise model with a growing portfolio of platforms and business lines. It also has the ability to cross-sell new and existing brands across the current franchisee base, with opportunities for expansion throughout opportunistic M&A. FRG combines centralized overhead, shared services and vendor-franchisee relationships across the portfolio to provide significant cost synergies and operating leverage as it portfolio expands. It is an asset-light business structure with a high anticipated product margins and strong predictable cash flow profile.FRG's management team is led by its CEO, Brian Kahn, and it has deep operational, financing and franchising experience. The company is also focused on generating positive free cash flow and returning capital to shareholders through dividends.As Kevin mentioned, we purchased shares of FRG in a PIPE transaction at an effective cost of $17 a share which at the time was a significant discount, approximately 30% to the current share price. Like our initial investment in ALTG, this 1 had the unfortunate timing of coming slightly shortly before the onset of the COVID-19 pandemic. Our investment thesis centered around 2020 estimates, which resulted in enterprise value to revenues of around 0.5x enterprise EBITDA of about 0.48, non-GAAP EPS of - a PE multiple of about 6.8 and a 5.8% dividend yield. Again, that was before the COVID-19 pandemic.FRG issued a press release yesterday discussing the state and performance of its businesses. The stay-at-home and shelter-in-place orders have primarily been limited to the company's American Freight and Vitamin Shoppe brands. Liberty Tax was impacted by the extension of the IRS filing deadline. While there were clearly negative impacts at the part of the company's businesses, others performed well during the period. Specifically, a rapid shift in customer sentiment towards the immune system support and general wellness allowed The Vitamin Shoppe to have positive comparable same-store sales in the first quarter as compared to the first quarter of 2019.The American Freight Outlet and Buddy's Home Furnishing businesses had very few store closures and performed close to their individual plans, largely due to a spike in refrigeration demand, combined with both businesses' flexible payment options. The company published estimates - estimated results for the first quarter that included non-GAAP EPS of $1.25 to $1.58 and adjusted EBITDA of 100 - of $83 million to $103 million.Please turn to Slide 17. This slide lists our 10 largest legacy privately held holdings by value as of the end of the quarter. The declines in value of our private portfolio companies due to specific events that occurred during the quarter as well as impacts to business - to each businesses from the COVID-19 pandemic.These impacts were ongoing as of the valuation date and impacted each company's business in different ways. It is uncertain whether these impacts will be short-term and whether the businesses be able to recover in full along with valuations or if they will be long-lasting and result in additional negative impacts to value in future quarters. It is possible, though, as businesses recover, we could be increasing their values.While certain of our portfolio companies were negatively impacted by COVID-19, we believe others are well-positioned to provide valuable diagnostic and modeling capabilities that could lead to material growth for those companies in future quarters. On April 10, 2020, ORIG3N received an Emergency Use Authorization from the Food and Drug Administration for its novel COVID-19 diagnostic test. ORIG3N's high-throughput automated test capabilities position the company for meaningful growth as it seeks to address this ever-increasing market need for COVID testing.Additionally, Essential Health Solutions is leveraging its diagnostic and health data management system to create a COVID-19 digital passport for corporations and other uses. This product is a combination of identification, verification, symptomatic review and an integration of diagnostic test results to create an electronic verification, which is medically reviewed, that an employee is safe and able to return to work.In last quarter's shareholder letter, we stated while we desire to shepherd our existing private portfolio to exits or to explore opportunities to sell our positions in those companies, we have the luxury of being able to sell our private holdings when we believe it makes sense for shareholders rather than being forced to do so to survive. The remaking of our business and the significant cash and liquid securities portfolio that we have built mean we do not have to sell anything.This ability allowed us to benefit from the acquisition of 1 of our life science private portfolio companies by an undisclosed party that is currently expected to close in mid to late Q2. This acquisition is a meaningful event for 180 Degree Capital and to shareholders and to be honest, it caught us completely by surprise following the end of first quarter of 2020.Please turn to Slide 18. The acquiring company and the terms of the deal are confidential, so we can only speak to what 180 will receive from the transaction. We will receive $4.4 million in cash at closing, and approximately $400,000 in additional proceeds will be held escrow for 1 year from the date of closing. We will be - also be eligible to receive approximately $81 million in potential future payments for the achievement of clinical- and sales-related milestones.The value of this position at the end of Q1 2020 was approximately $2.2 million. We currently estimate the first milestone payment could occur in 2 to 3 years, and subsequent milestone payments could occur at various points over the subsequent - over subsequent 10 to 15 years.The timing and likelihood of the acquirer achieving these milestones is highly uncertain. And if these milestones are achieved, the timing may be materially different than our current estimates. In addition, simultaneously with the closing of transaction, the company will spin out certain assets to a new entity. We will own shares of this new entity.Please turn to Slide 19. As we have noted in previous letters, we have dramatically reduced our cost structure under our new strategy. In 2016, before our funds changed in investment focus and management team, our operating expenses, including stock-based compensation and interest outstanding debt averaged approximately $1.3 million per quarter. For Q1 2020, our operating expenses equaled approximately $470,000.This amount included a reversal of the deferred portion of the 2019 bonus of approximately $317,000, as Kevin mentioned. We note that this deferred bonus could be reinstituted in the future quarter at the discretion of the Compensations Committee of our Board of Directors. On an ongoing basis, our operating expenses were up 1% versus Q1 of 2019.Please turn to Slide 20 and 21. We continue to anticipate the reductions in our operating expenses as a percentage of net assets will be based on growth in our net assets rather than reductions in our expenses. This past quarter, the material decline in our net assets increased our expense ratio, even with the reversal of the accrual of - for the deferred portion of the 2019 bonuses.The positive events in Q2 2020, discussed previously, will help reduce this expense ratio as of next quarter. We remain committed to treating every dollar of shareholder money with utmost care and consideration. It is much easier for us to grow NAV when the expense hurdle rate is where it is today.I will now turn the call back over to Kevin.

Thanks, Daniel, very much.On the sum of the parts chart, is on Slide 22. We've shown this before, and here's the snapshot from not only this quarter, but earlier this week. The main takeaway for me is given where we are today and given the life sciences deal that Daniel just discussed, that we've announced and almost - and hopefully will close, the entirety of our private portfolio now carries the value of next to nothing, zero, at our stock price on May 4 when we were writing our script for this call.Just alone, AgBiome has a book value of $0.43. And not only are we very strong believers in that agricultural company and confident in our NAV, we think it's going to be worth a lot more over time. It's in the right place, in the right time, in the right growth industry of ag. There simply is a lack of appreciation for this portfolio and its ability from time to time to show real accretive monetization.The portfolio this quarter has been derisked just due to the market. And some - when and when the world gets back to work, any of the names that we're written down may be written back up, and some are benefited from COVID treatment. And hopefully, we can see increases to their value from that.As Daniel said earlier, 1 of the reasons why we set up this structure the way we didn't changed, was we never wanted to be forced to sell things. And if we hadn't generated the kind of gains that we've had on the public side, we would have been forced to sell many of our private holdings at distressed prices. And I know many of you have asked, have you ever tried to sell the portfolio in it's entirety.The answer to that is yes, but the conversations that we've had with folks are laughable. We just had conversations this quarter, and I just can't even - I can't even have a straight face with some of these folks that are trying to pick us off. And we're not going to sell this portfolio for the sake of selling this portfolio. And for reasons like the life sciences company that we mentioned today, HZO and Mersana in the last 2 years, potentially others like AgBiome, maybe D-Wave, ORIG3N, TARA, Essential, they're worth more than 0. Heck, the $81 million royalty stream that we now have is worth more than 0. From an accounting perspective, it's worth more than zero. And many of those streams that Daniel mentioned, sure, you have to time weight them, you have to probability weight them.But many of them are pretty achievable, and I'm pretty caustic when it comes to analyzing royalty streams. But I know what they're based on, and I think many of them are going to be achieved by us. And I'm not going to sell that stream for the sake of selling it if no one's going to pay us fair value. This portfolio is not worth 0, and that's what the market has said it's worth. And to me, that's laughable. So that's it. I'll get off my soapbox.The quarter was rough, no doubt about it. We've moved on. We've had a number of big wins since the quarter, the life sciences. April was a good month for public holdings. And obviously, we've attracted our first big win by getting a mandate to manage $25 million of a public company's pension plan. We are off to a really good start in Q2. And it gave us great pride to have received that mandate to manage $25 million in this environment. We believe in what we're doing, and you're seeing that in the ownership of our management team, that we believe - not only do we believe in what we've been doing, we've been putting our money to work by buying 180 stock with our own assets.Permanent capital makes our day-to-day job a lot easier than if we were trying to navigate these difficult waters with redemptions or liquidations. I used to manage an open-end mutual fund. I still have friends that do that. I talk to them all the time. It's not easy. My job is easier than their job because they have to come in every single day. And in this market, not only did they have to analyze what they own, they have to sell because somebody told them they have to sell. And that's rough for really, really good managers. We don't have that problem. We've got permanent capital, and that's why I'm convinced, and that's why I know that we'll be here on the other side.I do hope all of you stay safe. Next week is our Annual Meeting, May 14, I think, at 10:00, so we can do this all over again, if you want. But for now, why don't we, Daniel, we'll take - open it up for some questions.

[Operator Instructions] Adam. Go ahead.

Good to hear that everybody's safe and sound in this environment. Hopefully, you can hear me okay, in that we're all sort of - totally virtual.

We can.

Okay. Three topics I was hoping you could cover quickly. One is on the life sciences monetization. The second is on the new third-party management win. And then the third is on liquidity for TURN overall.On the life sciences monetization, will you all be exploring opportunities to sell the royalty stream there or your participation in the royalty stream there to third-party funds, as a way of delivering tangible cash, to be able to redeploy on the public side?

Yes. How's that for a short answer?

Perfect. And do you have a sense for the time line for that? Kevin, I know it's all continued on closing of the sale of the underlying company. But presumably, you're going to shop that fairly patiently as the overall macro environment will hopefully improve here.

Adam, we'll treat that the way we've treated our private portfolio holdings. Look, we're - everything is for sale at a price. And if we don't get the price that we want, as Daniel and I said, we don't have to sell and we won't. It's really black and white. We put a value on what we think these businesses are worth.Certainly, we have an NAV for what these businesses are worth today. And if somebody wants to offer us anything close to that, we'll listen. If somebody wants to offer us $0.20 on the dollar, and we believe in this particular case that the royalty payments are actually going to come to fruition, then we're not going to sell them.Now I will say the royalty stream, to your point, enables us - this is not like selling a private holding. The royalty stream, you can sell to various private equity funds, to - there's a lot of different paths there. We haven't even literally - we got to - first, we have to close. And we haven't even given a thought of how we're going to go back doing M&A yet.

No, fair enough. Obviously, as you say, they're all kinds of third-party funds ranging from life sciences, dedicated funds to royalty, funds in health care broadly, who are in that business, and...

By the way, our first call will be to the acquiring company.

Right. If we could turn to topic 2 then, the third-party new money management, I agree, is very impressive in this environment. How is the sort of potential other mandates pipeline looking presently?

So we had - so we're going to go to market now. We've been preparing to go to market by organizing dex and the rest, but we really haven't tested the waters the way we're going to test the waters now. And so I think I'll have a better health report on that next quarter. I don't really have much to talk to you about today other than we've done a ton of work in making sure that when we go to market, we've got the right story to tell, we've got the right pitch deck. And the rest, it enabled us to win this pension account very quickly, which was awesome.I suspect when we go to market, we'll find folks that are more risk-averse than others, which is totally acceptable. I'd tell you, the only money that we want are people that truly understand what we do, which is a little different than my old job, where on the retail side, of running a $10 billion mutual fund, you never really know who owns your fund. I mean you know a lot of the FAs and you know a ton of the shareholders, but some sort of have your - believe in what you're doing and others just own it because it's - I don't know, it's a name, it's Merrill, it's a fund.We'll have some really cool engaging conversations with folks, and I really want people to really want to own what we're doing because I just need investors aligned with our thinking. So - and that's not easy. The small cap, Russell Microcap activism is not for everybody. So we'll have to find the pockets of people that actually want to commit capital to our space.

But it's not a natural style box at the same time. It's obviously really worked and should work for a lot of reasons, we all believe it. Is - are the economics return there more like an alternative fund structure/hedge fund structure? Or do they look more like a traditional open-end mutual fund?

Alternative fund.

It's great.

But I don't - this is not 50 basis point money. I'm not even sure that Daniel and I want a management fee, which is actually the selling point. If we can't make money for people, we don't want to get paid. If we can't make money for people, then we don't want to get paid. And the management fee is not going to move the needle 1 way or the other, and we don't care about it.So we're more interested in the carry than we are on the management fee. We're not - and by the way, sort of call to capital kind of money also, I don't want any money unless we have good ideas. Like I truly think that investors have failed over the years. And I struggled at times. When I - back in the day in Merrill, we only follows you after you do well and leaves after you've done poorly, right? Like it's just so counterintuitive to how I think about investing. And there were so many times that, where the money came flooding in when I didn't want it, and where I would struggle to find value.And of course, the definition of a bare market is you run out of money before you run out of good ideas. So everything that I'm doing for TURN are the things that I couldn't do with BlackRock. And 1 of those things is I don't want money if we don't have the ideas for it. So if no 1 is going to be sending us $50 million, and I'm just going to invest because it's here. It's going to come only in a call to capital kind of structure.

Okay. That sounds good. And then finally, in terms of TURN's overall liquidity, it seems like - and I don't want to put words in your mouth, but it seems like you're targeting a hold around $3 million-ish in cash in the current uncertain environment to more or less be able to fund your more's worth of operating expenses. Is that a fair thing for us to think about? That, that's going to be sort of your ongoing approach for the cash position upturn going forward.

We had this question on our Board meeting - in our Board meeting on Monday. And the answer to that is yes. Could you run the cash to 0? I guess. I mean we have liquid securities, we can sell other things. But I think it's prudent, and I think, hopefully, most of you by now know that I'm fairly prudent and cautious and conservative in ensuring that we don't jeopardize this institution and our ability to manage permanent capital.And so yes, keeping sort of 1 year's expenses, operating expenses on hand is kind of how we think about it. Now could you run it down to $2 million if you've got a good idea? Sure but we probably want to run it right back to $3 million. I don't know if that's the best way to think about it, but that's how Daniel and I have thought about it. And our Board sort of agrees with it.

It seems prudent given the macro background.

Brian. Go ahead.

I have couple of questions. On the life sciences monetization or expected monetization, if it's the company I'm thinking of from the - or looking at on the holdings report, it looks like you have a pretty substantial gain on your cost. And if that is the case, that will be applied to some of the net loss carryforward that you guys have, and they'll basically drop right down NAV, all the profit?

That is correct, Brian.

Daniel?

Yes, that is correct. We have substantial still capital loss and operating loss carryforwards that we can use to offset expenses. It's actually a really important and great point, and I'm glad you brought it up, in the fact that we are basically the - as we monetize these investments and as we have generated gains on the public portfolio, it all drops to the bottom line of the NAV. We do not have - we will not have tax exposure for the most part, most likely for a material period of time as we continue to work through those loss carryforwards.

Great. Then second, congratulations on the pension account win. Can you describe - or if you have a handle on this sort of thing already, what sort of incremental expenses TURN will have, both nonrecurring and recurring, from building out the requirements to manage that account? I think I saw that you guys have a couple of hurdles to get through first, like establishing an RAA with the SEC.

Yes.

So it's negligible, but - go ahead, Daniel.

Yes. It's a great - another great question. Given that we're already a heavily regulated entity, for the most part, all of the requirements of running and being a registered investment adviser, we already operate under. We already have all the compliance. We already have all of the infrastructure to be able to meet the requirements of the Advisers Act. And so they will be fairly negligible. And we have the capacity, in-house and everything to do what we need also with the consultants that we work with already.

Great. And then the fees that you guys earned from the SMA business, is that the sort of thing that would go to using up some of the net operating losses? So I mean, again, just another sort of thing that's going to drop pretty much right down to NAV?

That's the - that is the impact, yes.

It's another 180 that I think is - maybe it's our own fault, but properly misunderstood by the marketplace. It's not paying taxes, and because of the woes and the errors of the past. And we get to capitalize on that. And that's worth a lot, as you know, Brian.

Yes, trust me. Not lost on me. I think it's a topic of conversation that we have, pretty much every time we talk. No, that's great...

Not having to worry about selling things because of taxes and not having to worry about redemptions and liquidations makes our job infinitely easier than others.

[Whitney], go ahead.

I have a couple of - well, three questions. My first question is, what do you expect - would you like all the questions at first? Or would you like to answer them sequentially?

We can do sequentially if it makes it easier for you.

Yes, it probably makes it easier. First question, what do you expect to be the challenges and differences between the new $25 million pension portfolio and TURN?

Challenges. I guess the challenge is - well, the difference is you've got a new audience of folks that are going to be analyzing your performance, and we don't have a long history with them as we have with folks like yourself or Brian or Adam who called and asked questions today. Honestly, the challenges are finding the right stock. There's no - we're not going to - there is no difference. We're going to treat that portfolio the way we treat TURN. And it will give us the capacity to get bigger when we want to get bigger if we can.One of the downsides of the closed-end fund - we talk about permanent capital all the time, but permanent means permanent. It's not like - we get more money in, so an open-end mutual fund when they're doing well, we'll have money pouring in. That's great for them. We struggle with that, that's why our cash is $3 million. If we had $50 million 1.5 months ago, we could have invested all of it or a good portion of it. We don't have that, so this will enable us to get bigger in certain names. But I really don't think there's going to be a big difference. Daniel, I don't know if...

I completely agree with what you just said.

So do you expect...

Give us just 6 months to 9 months. And then we can tell you. Before you do something, you can have all these opinions on what you think is going to take place, but I'm the type of person that only really tries to give opinions after the facts. In other words, let's see how it goes, and then I'll be honest about and transparent about the differences. I just don't know right now.

Okay. Two question sort of related to the job of this pension portfolio. Have you reconsidered the possibility of having sort of an open architecture SPV into which people would put money on the anticipation that investments would take place and with a fresh pool of capital?

Daniel, I'm not sure I understand. In terms of what?

We've been allocated a portion of this pension fund, which is bigger than $25 million, by the consultant. And we're - okay, I'm sorry.

I'm not asking - I'm moving on to a separate question, which is, have you considered offering a structure like an SPV, like you've done in the past for the purpose of unknown but future opportunities?

Yes. So we - I think - so the answer is, we definitely always consider these types of things. We can't - because of security laws, we can't go into detail on any sort of specifics related to raising of private capital, privately-managed capital and everything like that. So - but I think Kevin said it earlier well, which is we don't - our anticipation and our goal is that this mandate of managing a separate account, this is - this fund for the pension fund is not in a specific - in a private fund vehicle, so managing a separate account, is only the beginning of what we believe and what we - our goal is to attain in terms of collectively having in terms of capital under management through a variety of different structures. But unfortunately, we can't speak specifically about any of the efforts until those efforts are completed in a public forum.

Okay. My last question is, I noticed some call options in the portfolio. What was the strategy on that? And do you expect to be doing more options business?

So any - is that the - Daniel, is that the put cost spread or no?

Yes, that's the cost spread for the IWM call spread that we did earlier in the Q.

Dan - we've had varying degrees of success and failure trying to hedge the portfolio. I think last year in 1 quarter, we did it, and we won. This quarter, we did it, and we didn't win. Believe it or not, we were actually trying to call it - sort of a little bit of a bottom and some sort of straddle. So it's - we're not talking about big dollars by any stretch of the imagination.Sometimes, I would love to be able to hedge the portfolio, and the only way to do that is with options. But it's not - this is not an option strategy. We're not making - we're not buying add the money puts or add the money calls. We're not taking undue risk. They're all done with the intention of sort of limiting our upside and downside when we do them, so there's no unlimited exposures that we're ever going to put in place here.

Sam, go ahead.

Good job in a tough market. Now tell me, on the proxy, as far as the reverse split, at this point, have you heard from potential shareholders that if this is achieved, you will be getting new money into the funds?

Well, we can't get any money into the fund unless we do an offering at or above NAV. Well, we - I guess we can do it below, but that would require shareholder approval.

I misspoke. I meant that you will attract new shareholders with the reverse split. Has this been an indication that there are shareholders that - of people that would like to buy if the split is achieved?

So we've gotten a mixed bag in terms of our - or two things: one, the discussion we had last quarter about return of capital, that was met with a show of force by folks who were - who some were incredibly bothered by the notion that we would give them money back because they wanted us to manage the permanent capital in the way that we have for the last 3 years, so that was an interesting dialogue; and on the reverse stock split, look, I had a conversation with an incredibly-thoughtful, highly-intelligent, big shareholder this morning who thought that reverse stock split to are for inept companies that are hurting and have bad news and don't work. And that's, for the most part, hard to argue against. That's sort of in the history of companies that have done reverse stock splits.On the other hand, I heard from - I mean super incredibly, also intelligent, thoughtful and big shareholders who are like, yes, do it. First of all, you have too many shares outstanding. Second of all, your stock is less than $5, I can't - my clients can't buy it. You're not an operating company. Everyone knows you're doing a good job. You're not broken. You're not fixed. It's incumbent upon the marketplace to actually see you for what you are, which is your book value. And if you couple it with good news, that's fine.But so - they were proponents of it. So quite frankly, we'll look at the votes, and we'll talk about them next week when we get the votes back for the reverse stock split. I don't know what we're going to do. We would like to have less shares in the marketplace, but we're not going to reverse stock split to the point where we have too little shares. And with our stock having done what it - what it's done, sort of 1 for 3 was my thought process, and that barely gets you back to where you need to be.So Sam, a long-winded way of saying, I don't know what we're going to do. We've gotten both sides of the argument. The 1 person this morning said to me, I don't care what you do, but if you can grow your book value by basically $0.50 a - this is his words not mine, it looks like your book value is up $0.50 or so from the time you reported the March quarter, that's what I care about. So all this other stuff, the reverse stock split is just a discussion of math. What we care about is posting better quarters than the 1 we just posted. So...

Well, my opinion is, I voted in favor of the reverse split to give you the option. And you're a different animal than most. Most people do the reverse just to stay in place. And in essence, my feeling is you will attract more different type of shareholder with the reverse that have been willing to ignore TURN. And hopefully, that is the case. I'm not sure it is. We'll find out what you do and what happens. But as long as you perform, you're going to attract more people, and you'll have an option, more options. Good luck, keep doing what you're doing.

Thank you so much. You would probably voted on the Mount Rushmore of Harris & Harris/180 Degree shareholders. So it's always good to hear from you every quarter.

Brian, you have a follow-up question? Go ahead.

I do. And you may have indirectly answered this already. But for the SMA, or any SMA that you do in the future that has a performance fee, is that the sort of thing that you're going to realize on a per-investment basis? Or would it be annually? Would there be like an escrow period where performance fees could be reversed?

Daniel?

Yes, that's a great question again. So obviously, these are all negotiated contracts and advisory agreements with any of the entities. But I think the way to generally think about it is, if there's a - and you can see with our SPVs that we've done in the past, the SPVs like the TST SPV. We didn't recognize carried interest until there was a return of capital to shareholders because it was a specific investment, a specific opportunity.For other SMAs, whether they're ongoing management of capital or other types of structures where we'll be managing capital, I think the way to think about it is that it would be more of an annual basis, sort of similar to how we operate 180 Degree Capital as well to try to keep everything pretty similar. I think that's generally a good way to think about it.And you'll see in our financial statements, I mean, we do not recognize carried interest on any managed capital until it's actually realized under the new accounting standards. 606 here, that's 1 of the things that got implemented, was that if there is a potential for reversal of that, call it revenue, then you're not supposed to recognize it until there is no potential for a reversal. And so that's how we operate. So as you look at our financials and you look at contribution of any potential future carried interest, it would be, once it's realized, to our NAV rather than on a quarterly basis.

Got it. Okay. No, that's helpful in clarifying because I was worried that this sort of thing might cause a lot of noise, both in the form of a knife that cuts both ways on the quarterly results that could kind of distort what you're doing.

It's a great point. And the answer - you're absolutely right, the answer is it will not.I see no further questions in the queue.

Okay. So thanks. Look, this has been a tough period for everybody. I hope everyone has weathered the storm. The virus does have an expiration date. I don't know if it's January, but the expiration date will come with the vaccine. We're going to start to get back to work and try and get back to some sense of normalcy. We're going to be as vigilant as ever on the portfolio, ensuring that we own companies that are doing whatever they need to do to get through this.Temporary dislocation becomes permanent dislocation when you lose the ability to fight another day. And whether it's companies like Bear Stearns and Lehman Brothers in the last crisis, there's going to be companies that don't make it through this as well. And other companies that are going to have to recap to such an extent that they dilute shareholders, and they're just not - shareholders are just not going to get paid. And the cost of surviving is going to be that recapitalization.TURN has put itself in a position where we can be the ones that are doing the recapping as opposed to being recapped. And what that means is there's be many small micro-cap companies that are going to need some liquidity to get through this. And if we can find those select names, knock on the door and say, here's our cash, here's our money, we would love to own a bigger stake with you, and here's the price and the cost at which you can get our money, those opportunities are going to exist. They existed in '08.And I expect over the next few months, they're going to continue to exist. And we are positioned to take care - to take advantage of that trend. It's nice to be the recapper as opposed to the 1 getting recapped.So I hope everyone hangs in there. Again, our Annual Meeting is next - on May 14, 10 a.m. We'll share the results of the vote with you at that time. You know where to find us if you have any follow-up questions and hope everyone stays safe and healthy. Thank you.

Thank you, everyone. You can now disconnect.