UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended September 30, 2021

 

 

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from ________ to _________

 

Commission File Number 001-33034

 

FREEDOM HOLDING CORP.

(Exact name of registrant as specified in its charter)

  

Nevada

 

30-0233726

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

Esentai Tower” BC, Floor 7 77/7 Al Farabi Ave Almaty, Kazakhstan 

 

050040

(Address of principal executive offices)

 

(Zip Code)

 

+7 727 311 10 64

(Registrant's telephone number, including area code)

 

Securities registered under Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common

FRHC

The Nasdaq Capital Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes      No ☒

 

As of November 4, 2021, the registrant had 59,534,712 shares of common stock, par value $0.001, issued and outstanding.

 

 

 

 

FREEDOM HOLDING CORP.

FORM 10-Q

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION

 

Pages

 

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

 

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2021 and March 31, 2021

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income for the Three and Six Months Ended September 30, 2021 and 2020

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2021 and 2020

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended September 30, 2021 and 2020

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

9

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

37

 

 

 

 

Item 3.

Qualitative and Quantitative Disclosures About Market Risk

 

56

 

 

 

 

Item 4.

Controls and Procedures

 

59

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

60

 

 

 

 

Item 1A.

Risk Factors

 

61

 

 

 

 

Item 6.

Exhibits

 

62

 

 

 

 

Signatures

 

63

 

 
2

Table of Contents

 

FREEDOM HOLDING CORP.

 

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

 

 

September 30, 2021

 

 

March 31, 2021

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$740,425

 

 

$698,828

 

Restricted cash

 

 

359,828

 

 

 

437,958

 

Trading securities

 

 

974,481

 

 

 

736,188

 

Available-for-sale securities, at fair value

 

 

1

 

 

 

1

 

Brokerage and other receivables, net

 

 

317,124

 

 

 

64,801

 

Loans issued

 

 

32,647

 

 

 

11,667

 

Fixed assets, net

 

 

20,506

 

 

 

18,385

 

Intangible assets, net

 

 

9,016

 

 

 

9,785

 

Goodwill

 

 

7,894

 

 

 

7,868

 

Right-of-use asset

 

 

16,471

 

 

 

13,262

 

Other assets, net

 

 

22,066

 

 

 

19,902

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$2,500,459

 

 

$2,018,645

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Securities repurchase agreement obligations

 

$537,277

 

 

$426,715

 

Customer liabilities

 

 

1,219,364

 

 

 

1,163,697

 

Trade payables

 

 

51,071

 

 

 

22,304

 

Current income tax liability

 

 

33,964

 

 

 

14,843

 

Securities sold, not yet purchased – at fair value

 

 

14,867

 

 

 

8,592

 

Loans received

 

 

3,456

 

 

 

3,373

 

Debt securities issued

 

 

58,246

 

 

 

68,443

 

Lease liability

 

 

16,298

 

 

 

13,249

 

Deferred income tax liabilities

 

 

5,896

 

 

 

4,385

 

Deferred distribution payments

 

 

8,534

 

 

 

8,534

 

Other liabilities

 

 

8,107

 

 

 

8,839

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

1,957,080

 

 

 

1,742,974

 

 

 

 

 

 

 

 

 

 

Commitments and Contingent Liabilities (Note 20)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Common stock - $0.001 par value; 500,000,000 shares authorized; 59,534,712 and 58,443,212 shares issued and outstanding as of September 30, 2021 and March 31, 2021, respectively

 

 

59

 

 

 

58

 

Additional paid in capital

 

 

110,717

 

 

 

104,672

 

Retained earnings

 

 

464,920

 

 

 

208,628

 

Accumulated other comprehensive loss

 

 

(31,816)

 

 

(36,046)

 

 

 

 

 

 

 

 

 

TOTAL EQUITY ATTRIBUTABLE TO THE COMPANY

 

 

543,880

 

 

 

277,312

 

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

 

(501)

 

 

(1,641)

TOTAL SHAREHOLDERS’ EQUITY

 

 

543,379

 

 

 

275,671

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$2,500,459

 

 

$2,018,645

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

 
3

Table of Contents

 

FREEDOM HOLDING CORP.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND STATEMENTS OF OTHER COMPREHENSIVE INCOME (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

 

 

Three months ended

September 30,

 

 

Six months ended

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and commission income

 

$116,534

 

 

$54,277

 

 

$213,940

 

 

$97,616

 

Net gain on trading securities

 

 

175,252

 

 

 

8,302

 

 

 

185,152

 

 

 

17,386

 

Interest income

 

 

20,063

 

 

 

4,948

 

 

 

38,140

 

 

 

9,197

 

Net gain on foreign exchange operations

 

 

1,622

 

 

 

3,020

 

 

 

434

 

 

 

2,772

 

Net loss on derivative assets

 

 

(656)

 

 

(837)

 

 

(715)

 

 

(846)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REVENUE, NET

 

 

312,815

 

 

 

69,710

 

 

 

436,951

 

 

 

126,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and commission expense

 

 

22,968

 

 

 

20,021

 

 

 

44,832

 

 

 

29,790

 

Interest expense

 

 

16,185

 

 

 

4,699

 

 

 

30,457

 

 

 

8,443

 

Operating expense

 

 

36,569

 

 

 

15,867

 

 

 

66,888

 

 

 

30,293

 

Provision for impairment losses

 

 

366

 

 

 

1,044

 

 

 

659

 

 

 

666

 

Other expense/(income), net

 

 

653

 

 

 

(68)

 

 

664

 

 

 

(95)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL EXPENSE

 

 

76,741

 

 

 

41,563

 

 

 

143,500

 

 

 

69,097

 

NET INCOME BEFORE INCOME TAX

 

 

236,074

 

 

 

28,147

 

 

 

293,451

 

 

 

57,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(31,562)

 

 

(4,584)

 

 

(37,231)

 

 

(9,189)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

204,512

 

 

 

23,563

 

 

 

256,220

 

 

 

47,839

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Net (loss)/income attributable to non-controlling interest in subsidiary

 

 

(20)

 

 

(127)

 

 

(72)

 

 

296

 

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

 

$204,532

 

 

$23,690

 

 

$256,292

 

 

$47,543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME/(LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment relating to available-for-sale securities disposed of in the period, net of tax effect

 

 

-

 

 

 

-

 

 

 

-

 

 

 

71

 

Foreign currency translation adjustments, net of tax effect

 

 

930

 

 

 

(10,919)

 

 

4,230

 

 

 

(2,286)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME BEFORE NON-CONTROLLING INTERESTS

 

$205,442

 

 

$12,644

 

 

$260,450

 

 

$45,624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Comprehensive income/(loss) attributable to non-controlling interest in subsidiary

 

 

(20)

 

 

(127)

 

 

(72)

 

 

296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

 

$205,462

 

 

$12,771

 

 

$260,522

 

 

$45,328

 

BASIC NET INCOME PER COMMON SHARE

 

$3.44

 

 

$0.40

 

 

$4.33

 

 

$0.82

 

DILUTED NET INCOME PER COMMON SHARE

 

$3.44

 

 

$0.40

 

 

$4.33

 

 

$0.82

 

Weighted average number of shares (basic)

 

 

59,510,976

 

 

 

58,358,212

 

 

 

59,220,800

 

 

 

58,358,212

 

Weighted average number of shares (diluted)

 

 

59,510,976

 

 

 

58,462,138

 

 

 

59,220,800

 

 

 

58,460,058

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
4

Table of Contents

 

FREEDOM HOLDING CORP.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

 

 

For the six months ended

 

 

 

September 30,

2021

 

 

September 30,

2020

 

 

 

 

 

 

 

 

Cash Flows (Used In)/From Operating Activities

 

 

 

 

 

 

Net income

 

$256,220

 

 

$47,839

 

Adjustments to reconcile net income from operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,634

 

 

 

1,655

 

Noncash lease expense

 

 

2,221

 

 

 

3,302

 

Change in deferred taxes

 

 

1,458

 

 

 

1,465

 

Stock compensation expense

 

 

6,722

 

 

 

1,055

 

Unrealized gain on trading securities

 

 

(35,616)

 

 

(263)

Net loss on derivatives

 

 

-

 

 

 

885

 

Net change in accrued interest

 

 

(18,187)

 

 

(328)

Allowances for receivables

 

 

659

 

 

 

666

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Lease liabilities

 

 

(2,355)

 

 

(3,188)

Derivative assets

 

 

-

 

 

 

(2,311)

Trading securities

 

 

(174,133)

 

 

(156,896)

Brokerage and other receivables

 

 

(249,416)

 

 

(48,257)

Loans purchased from microfinance organization

 

 

(19,474)

 

 

-

 

Loans sold to microfinance organization

 

 

2,860

 

 

 

-

 

Loans issued

 

 

(4,259)

 

 

501

 

Other assets

 

 

(863)

 

 

(804)

Customer liabilities

 

 

30,493

 

 

 

361,634

 

Current income tax liability

 

 

19,101

 

 

 

3,847

 

Trade payables

 

 

29,316

 

 

 

84,777

 

Securities sold, not yet purchased – at fair value

 

 

6,695

 

 

 

-

 

Other liabilities

 

 

(217

 

 

1,457

 

Net cash flows (used in)/from operating activities

 

 

(146,141)

 

 

297,036

 

 

 

 

 

 

 

 

 

 

Cash Flows (Used In)/From Investing Activities

 

 

 

 

 

 

 

 

Purchase of fixed assets

 

 

(3,903)

 

 

(2,129)

Proceeds from sale of fixed assets

 

 

160

 

 

 

271

 

Proceeds from sale of available-for-sale securities, at fair value

 

 

-

 

 

 

6,437

 

Prepayment on acquisition

 

 

(3,341

 

 

(4,170)

Consideration paid for Zerich Capital Management

 

 

-

 

 

 

(7,110)

Cash, cash equivalents and restricted cash received from acquisitions

 

 

-

 

 

 

27,991

 

 

 

 

 

 

 

 

 

 

Net cash flows (used in)/from investing activities

 

 

(7,084)

 

 

21,290

 

 

Cash Flows From/(Used In) Financing Activities

 

 

 

 

 

 

Proceeds from securities repurchase agreement obligations

 

 

109,016

 

 

 

138,149

 

Proceeds from issuance of debt securities

 

 

-

 

 

 

1,991

 

Repurchase of debt securities

 

 

(10,134)

 

 

(8,196)

Repayment of loans received

 

 

69

 

 

 

-

 

Exercise of options

 

 

119

 

 

 

-

 

Net cash flows from/(used in) financing activities

 

 

99,070

 

 

 

131,944

 

 

Effect of changes in foreign exchange rates on cash and cash equivalents

 

 

17,622

 

 

 

(28,451)

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

(36,533)

 

 

421,819

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD

 

 

1,136,786

 

 

 

129,805

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

 

$1,100,253

 

 

$551,624

 

 

 
5

Table of Contents

 

FREEDOM HOLDING CORP.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

 

 

For the six months ended

 

 

 

September 30,

2021

 

 

September 30,

2020

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$7,823

 

 

$6,498

 

Income tax paid

 

$23,719

 

 

$3,389

 

 

 

 

 

 

 

 

 

 

Supplemental non-cash disclosures:

 

 

 

 

 

 

 

 

Operating lease right-of-use assets obtained/disposed of in exchange for operating lease obligations during the period, net

 

$6,263

 

 

$1,406

 

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:

 

 

 

September 30,

2021

 

 

September 30,

2020

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$740,425

 

 

$443,439

 

Restricted cash

 

 

359,828

 

 

 

108,185

 

Total cash, cash equivalents and restricted cash shown as in the statement of cash flows

 

$1,100,253

 

 

$551,624

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
6

Table of Contents

 

FREEDOM HOLDING CORP.

 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(All amounts in thousands of United States dollars, except share data, unless otherwise stated)

 

 

 

Common Stock

 

 

Additional

paid in

 

 

Retained

 

 

Accumulated other comprehensive

 

 

Non-controlling

 

 

 

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

loss

 

 

interest

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance At June 30, 2021

 

 

59,474,712

 

 

$59

 

 

$106,833

 

 

$260,388

 

 

$(32,746)

 

$(1,693)

 

$332,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

4,561

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,561

 

Sale of Freedom UA shares

 

 

-

 

 

 

-

 

 

 

(796)

 

 

-

 

 

 

-

 

 

 

1,212

 

 

 

416

 

Exercise of options

 

 

60,000

 

 

 

-

 

 

 

119

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

119

 

Translation difference

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

930

 

 

 

-

 

 

 

930

 

Net income/(loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

204,532

 

 

 

-

 

 

 

(20)

 

 

204,512

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance At September 30, 2021

 

 

59,534,712

 

 

$59

 

 

$110,717

 

 

$464,920

 

 

$(31,816)

 

$(501)

 

$543,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance At March 31, 2021

 

 

58,443,212

 

 

$58

 

 

$104,672

 

 

$208,628

 

 

$(36,046)

 

$(1,641)

 

$275,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

1,031,500

 

 

 

1

 

 

 

6,722

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,723

 

Sale of Freedom UA shares

 

 

-

 

 

 

-

 

 

 

(796)

 

 

-

 

 

 

-

 

 

 

1,212

 

 

 

416

 

Exercise of options

 

 

60,000

 

 

 

-

 

 

 

119

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

119

 

Translation difference

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,230

 

 

 

-

 

 

 

4,230

 

Net income/(loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

256,292

 

 

 

-

 

 

 

(72)

 

 

256,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance At September 30, 2021

 

 

59,534,712

 

 

$59

 

 

$110,717

 

 

$464,920

 

 

$(31,816)

 

$(501)

 

$543,379

 

  

 
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FREEDOM HOLDING CORP.

 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(All amounts in thousands of United States dollars, except share data, unless otherwise stated)

 

 

 

Common Stock

 

 

Additional

paid in

 

 

Retained

 

 

Accumulated other comprehensive

 

 

Non-controlling

 

 

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

loss 

 

 

interest

 

 

Total 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance At June 30, 2020

 

 

58,358,212

 

 

$58

 

 

$103,415

 

 

$90,188

 

 

$(29,270)

 

$(1,849)

 

$162,542

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

530

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

530

 

Translation difference

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,919)

 

 

-

 

 

 

(10,919)

Net income/(loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23,690

 

 

 

-

 

 

 

(127)

 

 

23,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance At September 30, 2020

 

 

58,358,212

 

 

$58

 

 

$103,945

 

 

$113,878

 

 

$(40,189)

 

$(1,976)

 

$175,716

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance At March 31, 2020

 

 

58,358,212

 

 

$58

 

 

$102,890

 

 

$66,335

 

 

$(37,974)

 

$(2,272)

 

$129,037

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

1,055

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,055

 

Reclassification adjustment relating to available-for-sale investments disposed of in the period, net of tax effect

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

71

 

 

 

-

 

 

 

71

 

Translation difference

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,286)

 

 

-

 

 

 

(2,286)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

47,543

 

 

 

-

 

 

 

296

 

 

 

47,839

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance At September 30, 2020

 

 

58,358,212

 

 

$58

 

 

$103,945

 

 

$113,878

 

 

$(40,189)

 

$(1,976)

 

$175,716

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

NOTE 1 – DESCRIPTION OF BUSINESS

 

Overview

 

Freedom Holding Corp. (the “Company” or “FRHC”) is a corporation organized in the United States under the laws of the State of Nevada that through its operating subsidiaries provides financial services including retail securities brokerage, research, investment counseling, securities trading, market making, retail banking, corporate investment banking and underwriting services in Eurasia. The Company is headquartered in Almaty, Kazakhstan, with supporting administrative office locations in Russia, Cyprus and the United States. The Company has retail locations in Russia, Kazakhstan, Ukraine, Uzbekistan, Kyrgyzstan, Azerbaijan and Germany. The Company also owns an agency only institutional broker dealer registered with the U.S. Securities and Exchange Commission (“SEC”). The Company’s common stock trades on the Nasdaq Capital Market.

 

The Company owns directly, or through subsidiaries, the following companies:

 

 

·

LLC Investment Company Freedom Finance, a Moscow, Russia-based securities broker-dealer (“Freedom RU”);

 

·

LLC FFIN Bank, a Moscow, Russia-based bank (“Freedom Bank RU”);

 

·

JSC Freedom Finance, an Almaty, Kazakhstan-based securities broker-dealer (“Freedom KZ”);

 

·

Freedom Finance Global, PLC, an Astana International Financial Centre-based securities broker-dealer, (“Freedom Global”);

 

·

Bank Freedom Finance Kazakhstan JSC, an Almaty, Kazakhstan-based bank (“Freedom Bank KZ”);

 

·

Freedom Finance Special Purpose Company LTD, a Nur-Sultan, Kazakhstan-based company (“Freedom SPC”);

 

·

Freedom Finance Commercial LLP, a Kazakhstan-based company (“Freedom Commercial”);

 

·

Freedom Finance Europe Limited, a Limassol, Cyprus-based broker-dealer (“Freedom EU”);

 

·

Freedom Finance Technologies Ltd, a Limassol, Cyprus-based IT development company (“Freedom Technologies”);

 

·

Freedom Finance Germany GmbH, a Berlin, Germany-based tied agent of Freedom EU (“Freedom GE”)

 

·

UK Prime Limited, a London, United Kingdom-based company tied agent of Freedom EU (“Prime UK”);

 

·

LLC Freedom Finance Uzbekistan, a Tashkent, Uzbekistan-based broker-dealer (“Freedom UZ”);

 

·

LLC Freedom Finance Azerbaijan, an Azerbaijan-based financial educational center (“Freedom AZ”);

 

·

Prime Executions, Inc., a New York City, New York-based agency only institutional brokerage (“PrimeEx”); and

 

·

FFIN Securities, Inc., a Nevada corporation (“FFIN”).

  

 
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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

As of September 30, 2021, the Company owned a 9% interest in LLC Freedom Finance Ukraine, a Kiev, Ukraine-based broker-dealer (“Freedom UA”). The remaining 91% interest in Freedom UA is owned by Askar Tashtitov, the Company’s president. Due to recent changes to Ukrainian regulations to further restrict foreign ownership of registered Ukrainian broker-dealers, in July 2021 the Company was required to sell 23.88% of its equity interest in Freedom UA to Mr. Tashtitov, reducing the Company’s direct ownership interest in Freedom UA to 9%. In April 2019 the Company entered into a series of contractual arrangements with Freedom UA and Mr. Tashtitov that obligate the Company to guarantee the performance of all Freedom UA obligations and provide Freedom UA sufficient funding to cover all operating losses and net capital requirements, enable the Company to receive 90% of the net profits of Freedom UA after tax, and require the Company to provide Freedom UA the management competence, operational support, and ongoing access to the Company’s significant assets, necessary technology resources and expertise to conduct the business of Freedom UA. The Company accounts for Freedom UA as a variable interest entity (“VIE”) under the accounting standards of the Financial Accounting Standards Board (“FASB”). Accordingly, the financial statements of Freedom UA are consolidated into the financial statements of the Company.

 

The Company’s subsidiaries are participants on the Kazakhstan Stock Exchange (KASE), Astana Stock Exchange (AIX), Moscow Exchange (MOEX), Saint-Petersburg Exchange (SPBX), the Ukrainian Exchange (UX), the Republican Stock Exchange of Tashkent (UZSE), the Uzbek Republican Currency Exchange (UZCE) and are members of the New York Stock Exchange (NYSE) and Nasdaq Stock Exchange (Nasdaq).

 

Unless otherwise specifically indicated or as is otherwise contextually required, FRHC, Freedom RU, Freedom Bank RU, Freedom KZ, Freedom Global, Freedom Bank KZ, Freedom SPC, Freedom Commercial, Freedom EU, Freedom Technologies, Freedom GE, Prime UK, Freedom UZ, Freedom AZ, PrimeEx, and FFIN are collectively referred to herein as the “Company”.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Accounting principles

 

The Company’s accounting policies and accompanying condensed consolidated financial statements conform to accounting principles generally accepted in the United States of America (U.S. GAAP).

 

These financial statements have been prepared on the accrual basis of accounting.

 

Basis of presentation and principles of consolidation

 

The Company’s consolidated financial statements present the consolidated accounts of FRHC, Freedom RU, Freedom Bank RU, Freedom KZ, Freedom Global, Freedom Bank KZ, Freedom SPC, Freedom Commercial, Freedom EU, Freedom Technologies, Freedom GE, Prime UK, Freedom UZ, Freedom AZ, PrimeEx, and FFIN. All significant inter-company balances and transactions have been eliminated from the consolidated financial statements.

 

 
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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

Consolidation of variable interest entities

 

In accordance with accounting standards regarding consolidation of variable interest entities (“VIEs”), VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability. VIEs must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.

 

Use of estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that the estimates utilized in preparing its financial statements are reasonable and prudent. Actual results could differ from those estimates.

 

Revenue recognition

 

Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services promised to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. A significant portion of the Company’s revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as loans and investment securities, as these activities are subject to other U.S. GAAP guidance discussed elsewhere within these disclosures. Descriptions of the Company’s revenue-generating activities that are within the scope of ASC Topic 606, which are presented in the Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income as components of non-interest income are as follows:

 

 

·

Commissions on brokerage services;

 

·

Commissions on banking services (money transfers, foreign exchange operations and other); and

 

·

Commissions on investment banking services (underwriting, market making, and bondholders’ representation services).

 

 
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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

  

Under Topic 606, the Company is required to recognize commission fees when they are probable and there is not a significant chance of reversal in the future. The Company recognizes revenue in accordance with this core principle by applying the following steps:

 

 

·

Step 1: Identify the contract(s) with a customer - A contract is an agreement between two or more parties that creates enforceable rights and obligations.

 

·

Step 2: Identify the performance obligations in the contract - A contract includes promises to transfer goods or services to a customer. If those goods or services are distinct, the promises are performance obligations and are accounted for separately.

 

·

Step 3: Determine the transaction price - The transaction price is the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The transaction price can be a fixed amount of customer consideration, but it may sometimes include variable consideration or consideration in a form other than cash. The transaction price also is adjusted for the effects of the time value of money if the contract includes a significant financing component and for any consideration payable to the customer. If the consideration is variable, an entity estimates the amount of consideration to which it will be entitled in exchange for the promised goods or services. The estimated amount of variable consideration will be included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

 

·

Step 4: Allocate the transaction price to the performance obligations in the contract - An entity typically allocates the transaction price to each performance obligation on the basis of the relative standalone selling prices of each distinct good or service promised in the contract. If a standalone selling price is not observable, an entity estimates it. Sometimes, the transaction price includes a discount or a variable amount of consideration that relates entirely to a part of the contract.

 

·

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation - An entity recognizes revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). The amount of revenue recognized is the amount allocated to the satisfied performance obligation. A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). For performance obligations satisfied over time, an entity recognizes revenue over time by selecting an appropriate method for measuring the entity’s progress toward complete satisfaction of that performance obligation.

  

Interest income

 

Interest income on loans issued, trading securities and reverse repurchase agreement obligations are recognized based on the contractual provisions of the underlying arrangements.

 

Loan premiums and discounts are deferred and generally amortized into interest income as yield adjustments over the contractual life and/or commitment period using the effective interest method.

 

Unamortized premiums, discounts and other basis adjustments on trading securities are generally recognized in interest income over the contractual lives of the securities using the effective interest method.

 

 
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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

Derivative financial instruments

 

In the normal course of business, the Company invests in various derivative financial contracts including futures. Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently re-measured to their fair value at each reporting date. The fair values are estimated based on quoted market prices or pricing models that take into account the current market and contractual prices of the underlying instruments and other factors. Derivatives are carried as assets when their fair value is positive and as liabilities when it is negative.

 

Loans

 

The Company’s loan portfolio is divided into three portfolio segments: credit card, mortgages and retail banking loans. Credit card consists of loans provided to individuals and businesses through the cards. Mortgage loans consist of loans provided to individuals to purchase real estate, which is used as collateral for the loan. Retail banking loans consist of unsecured loans provided to individuals.

 

Loans Acquired

  

All purchased loans are initially recorded at fair value, which includes consideration of expected future losses, at the date of the loan acquisition. To determine the fair value of loans at the date of acquisition, the Company estimates the discounted contractual cash flows due using an observable market rate of interest, adjusted for factors such as probable default rates of the borrowers, and the loan terms that a market participant would consider in determining fair value. In determining fair value, contractual cash flows are adjusted to include prepayment estimates based upon historical payment trends, forecasted default rates and loss severities and other relevant factors. The difference between the fair value and the contractual cash flows is recorded as a loan premium or discount, which may relate to either credit or non-credit factors, at acquisition.

   

The Company accounts for purchased loans under the accounting guidance for purchased financial assets with credit deterioration when, at the time of purchase, the loans have experienced a more-than-insignificant deterioration in credit quality since origination.

 

The Company recognizes an allowance for credit losses on purchased loans that have not experienced a more-than-insignificant deterioration in credit quality since origination at the time of purchase through earnings in a manner that is consistent with originated loans. The policies relating to the allowance for credit losses on loans is described below in the “Estimate of Incurred Loan Losses” section of this Note.

 

 
13

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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

Estimate of Incurred Loan Losses.

 

The allowance represented management’s current estimate of incurred loan losses inherent in the Company’s loan portfolio as of each balance sheet date. The provision for credit losses reflected credit losses the Company believed had been incurred and would eventually be recognized over time through charge-offs.

 

Management performed a quarterly analysis of the Company’s loan portfolio to determine if impairment had occurred and to assess the adequacy of the allowance based on historical and current trends as well as other factors affecting credit losses. The Company applied separate calculations of the allowance for its credit cards, mortgages and retail loan portfolios. Based on the adopted methodology, the Company estimated the probability of default based on historical default rates, adjusted for certain macro indicators, such as GDP, average exchange rates, unemployment rate and real wage index. Loss given default is calculated based on the collateral coverage of the loans. The Company’s allowance for loan losses consisted of two components that were allocated to cover the estimated probable losses in each loan portfolio based on the results of the Company’s detailed review and loan impairment assessment process: (i) a component for loans collectively evaluated for impairment; and (ii) an asset-specific component for individually impaired loans.

 

The component of the allowance related to credit card, mortgages and retail banking loans that the Company collectively evaluated for impairment was based on a statistical calculation and on its historical loss experience for loans with similar risk characteristics and consideration of the current credit quality of the portfolio. The asset-specific component of the allowance includes smaller-balance homogeneous credit card and retail banking loans whose terms have been modified in a troubled debt restructuring and larger-balance nonperforming, non-homogeneous commercial banking loans. The Company generally measured the asset-specific component of the allowance based on the difference between the recorded investment of individually impaired loans and the present value of expected future cash flows. In addition to the allowance, the Company also estimated probable losses related to contractually binding unfunded lending commitments.

 

Functional currency

 

Management has adopted ASC 830, Foreign Currency Translation Matters as it pertains to its foreign currency translation. The Company’s functional currencies are the Russian ruble, European euro, U.S. dollar, Ukrainian hryvnia, Uzbekistani som, Kazakhstani tenge, Kyrgyzstani som, UK pound sterling and the Azerbaijani manat, and its reporting currency is the U.S. dollar. For financial reporting purposes, foreign currencies are translated into U.S. dollars as the reporting currency. Monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive loss”.

 

Cash and cash equivalents

 

Cash and cash equivalents are generally comprised of certain highly liquid investments with maturities of three months or less at the date of purchase. Cash and cash equivalents include reverse repurchase agreements which are recorded at the amounts at which the securities were acquired or sold plus accrued interest.

 

 
14

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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

Securities reverse repurchase and repurchase agreements

 

A reverse repurchase agreement is a transaction in which the Company purchases financial instruments from a seller, typically in exchange for cash, and simultaneously enters into an agreement to resell the same or substantially the same financial instruments to the seller for an amount equal to the cash or other consideration exchanged plus interest at a future date. Securities purchased under reverse repurchase agreements are accounted for as collateralized financing transactions and are recorded at the contractual amount for which the securities will be resold, including accrued interest. Financial instruments purchased under reverse repurchase agreements are recorded in the financial statements as cash placed on deposit collateralized by securities and classified as cash and cash equivalents in the Condensed Consolidated Balance Sheets.

 

A repurchase agreement is a transaction in which the Company sells financial instruments to another party, typically in exchange for cash, and simultaneously enters into an agreement to reacquire the same or substantially the same financial instruments from the buyer for an amount equal to the cash or other consideration exchanged plus interest at a future date. These agreements are accounted for as collateralized financing transactions. The Company retains the financial instruments sold under repurchase agreements and classifies them as trading securities in the Condensed Consolidated Balance Sheets. The consideration received under repurchase agreements is classified as securities repurchase agreement obligations in the Condensed Consolidated Balance Sheets.

 

The Company enters into reverse repurchase, repurchase, securities borrowed and securities loaned transactions to, among other things, acquire securities to leverage and grow its proprietary trading portfolio, cover short positions and settle other securities obligations, to accommodate customers’ needs and to finance its inventory positions. The Company enters into these transactions in accordance with normal market practice. Under standard terms for repurchase transactions, the recipient of collateral has the right to sell or repledge the collateral, subject to returning equivalent securities on settlement of the transaction.

 

Available-for-sale securities

 

Financial assets categorized as available-for-sale (“AFS”) are non-derivatives that are either designated as available-for-sale or not classified as (a) loans and receivables, (b) held-to-maturity securities or (c) trading securities.

 

Listed shares and listed redeemable notes held by the Company that are traded in an active market are classified as AFS and are stated at fair value. The Company has investments in unlisted shares that are not traded in an active market that are also classified as investments AFS and stated at fair value (because Company management considers that fair value can be reliably measured). Gains and losses arising from changes in fair value are recognized in other comprehensive income and are included in accumulated other comprehensive loss, with the exception of other-than-temporary impairment losses, interest calculated using the effective interest method, dividend income and foreign exchange gains and losses, which are recognized in the Condensed Consolidated Statements of Operations and Statements of other Comprehensive Income. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments’ revaluation reserve is then reclassified to Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income.

 

 
15

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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

Trading securities

 

Financial assets are classified as trading securities if the financial asset has been acquired principally for the purpose of selling it in the near term.

 

Trading securities are stated at fair value, with any gains or losses arising on remeasurement recognized in revenue. Changes in fair value are recognized in the Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income and included in net gain on trading securities. Interest earned and dividend income are recognized in the Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income and are included in interest income, according to the terms of the contract and when the right to receive the payment has been established.

 

Investments in nonconsolidated managed funds are accounted for at fair value based on the net asset value (“NAV”) of the funds provided by the fund managers with gains or losses included in net gain on trading securities in the Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income.

 

Debt securities issued

 

Debt securities issued are initially recognized at the fair value of the consideration received, less directly attributable transaction costs. Subsequently, amounts due are stated at amortized cost and any difference between net proceeds and the redemption value is recognized over the period of the borrowings using the effective interest method. If the Company purchases its own debt, it is removed from the Condensed Consolidated Balance Sheets and the difference between the carrying amount of the liability and the consideration paid is recognized in the Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income.

 

Brokerage and other receivables

 

Brokerage and other receivables are comprised of commissions and receivables related to the securities brokerage and banking activity of the Company. At initial recognition, brokerage and other receivables are recognized at fair value. Subsequently, brokerage and other receivables are carried at cost net of any allowance for impairment losses.

 

 
16

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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

Derecognition of financial assets

 

A financial asset (or, where applicable a part of a financial asset or a part of a group of similar financial assets) is derecognized when all of the following conditions are met:

 

 

·

The transferred financial assets have been isolated from the Company - put presumptively beyond the reach of the Company and its creditors, even in bankruptcy or other receivership.

 

·

The transferee has rights to pledge or exchange financial assets.

 

·

The Company or its agents do not maintain effective control over the transferred financial assets or third-party beneficial interests related to those transferred assets.

  

Where the Company has not met the asset derecognition conditions above, it continues to recognize the asset to the extent of its continuing involvement.

 

Impairment of long-lived assets

 

In accordance with the accounting guidance for the impairment or disposal of long-lived assets, the Company periodically evaluates the carrying value of long-lived assets to be held and used when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the fair value from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows, discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost of disposal.

 

Impairment of goodwill

 

As of September 30, 2021, and March 31, 2021, goodwill recorded in the Company’s Consolidated Balance Sheets totaled $7,894 and $7,868, respectively. The Company performs an impairment review at least annually unless indicators of impairment exist in interim periods. The impairment test for goodwill uses a two-step approach. Step one compares the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value exceeds the estimated fair value, step two must be performed. Step two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess. In its annual goodwill impairment test, the Company estimated the fair value of the reporting unit based on the income approach (also known as the discounted cash flow method) and determined the fair value of the Company’s goodwill exceeded the carrying amount of the Company’s goodwill. The goodwill value as of September 30, 2021, increased compared to March 31, 2021, due to foreign exchange currency translation.

 

The changes in the carrying amount of goodwill as of March 31, 2021, and for the quarter September 30, 2021, were as follows:

 

Balance as of March 31, 2021

 

$7,868

 

 

 

 

 

 

Foreign currency translation

 

 

26

 

 

 

 

 

 

Balance as of September 30, 2021

 

$7,894

 

 

 
17

Table of Contents

 

FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

Income taxes

 

The Company recognizes deferred tax liabilities and assets based on the difference between the financial statements and tax basis of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.

 

Current income tax expenses are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. The Company accounts for income taxes using the asset and liability approach. Under this method, deferred income taxes are recognized for tax consequences in future years based on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements at each year-end and tax loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable for the differences that are expected to affect taxable income.

 

The Company will include interest and penalties arising from the underpayment of income taxes in the provision for income taxes (if anticipated). As of September 30, 2021, and March 31, 2021, the Company had no accrued interest or penalties related to uncertain tax positions.


The Global Intangible Low-Taxed Income (“GILTI”) provisions of the Tax Reform Act require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company has presented the deferred tax impacts of GILTI tax in its consolidated financial statements as of September 30, 2021 and 2020.

 

Financial instruments

 

Financial instruments are carried at fair value as described below.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. Fair value is the current bid price for financial assets, current ask price for financial liabilities and the average of current bid and ask prices when the Company is both in short and long positions for the financial instrument. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange or other institution and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

 

 
18

Table of Contents

 

FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

Leases

 

The Company adopted ASU No. 2016-02, “Leases (Topic 842)”, which requires leases with durations greater than twelve months to be recognized on the balance sheet.

 

Operating lease assets and corresponding lease liabilities are recognized on the Company’s Consolidated Balance Sheets. Refer to Note 19 - Leases, within the notes to condensed consolidated financial statements for additional disclosure and significant accounting policies affecting leases.

 

Fixed assets

 

Fixed assets are carried at cost, net of accumulated depreciation. Maintenance, repairs, and minor renewals are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range between three and seven years.

 

Segment information

 

The Company operates in a single operating segment offering financial services to its customers in a single geographic region covering Eurasia. The Company’s financial services business provides retail securities brokerage, research, investment counseling, securities trading, market making, corporate investment banking, underwriting, complementary banking services and retail banking services to its customers. The Company generates revenue from customers primarily from fee and commission income and interest income. The Company does not use profitability reports or other information disaggregated on a regional, country or divisional basis for making business decisions.

 

Recent accounting pronouncements

 

In June 2016 the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which introduced an expected credit loss methodology for the impairment of financial assets measured at amortized cost basis. That methodology replaces the probable, incurred loss model for those assets. In November 2019, the FASB issued ASU 2019-10 “Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)”. The FASB developed a philosophy to extend and simplify how effective dates are staggered between larger public companies (bucket one) and all other entities (bucket two). Those other entities include private companies, smaller public companies, not-for-profit organizations, and employee benefit plans. Under this philosophy, a major update would first be effective for bucket-one entities, that is, public business entities that are SEC filers, excluding entities eligible to be smaller reporting companies (SRCs) under the SEC’s definition. The Master Glossary of the Codification defines public business entities and SEC filers. All other entities, including SRCs, other public business entities, and nonpublic business entities (private companies, not-for-profit organizations, and employee benefit plans) would compose bucket two. For those entities, it is anticipated that the FASB will consider requiring an effective date staggered at least two years after bucket one for major updates. At the date when ASU 2016-13 was issued, the Company was an SRC and according to ASU 2019-10, qualifies for bucket two. Accordingly, ASU 2016-13 and ASU 2017-12 are effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact that ASU 2016-13 and 2017-12 will have on its consolidated financial statements and related disclosures.

 

 
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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

In January 2021 the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies that certain optional expedients and exceptions in Table of Contents link FASB Accounting Standards Codification (ASC) Topic 848, Reference Rate Reform, for contract modifications and hedge accounting apply as well to derivatives that are affected by the changes in interest rates used for margining, discounting or contract price alignment (i.e., the discounting transition). Examples of such use include (1) rates used in interest rate swaps to compute the cash flows for the swap’s variable leg, (2) interest rate indexes used to discount the future cash flows of a derivative instrument to determine its fair value, and (3) the compensation or the interest amount earned on margin payments (i.e., contract price alignment). The amended guidance in ASU No. 2021-01 is effective immediately for all entities. The guidance may be applied on (1) a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or (2) a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of ASU No. 2021-01 through the date that financial statements are available to be issued. If any of the amendments are applied for an eligible hedging relationship, adjustments resulting therefrom must be reflected as of the date that the election is applied. The Company’s adoption of the provisions of ASU No. 2021-01 had no significant impact on the Company’s consolidated financial statements.

 

In May 2021 the FASB issued Accounting Standards Update No. 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of the Emerging Issues Task Force (EITF) , which amends the FASB Accounting Standards Codification (ASC or the “Codification”) to provide explicit guidance, and, thus, reduce diversity in practice, on accounting by issuers for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange. This amendment provides that for an entity that presents earnings per share (EPS) in accordance with Topic 260, the effects of a modification or an exchange of a freestanding equity-classified written call option that is recognized as a dividend should be an adjustment to net income (or net loss) in the basic EPS calculation. The amended guidance becomes mandatorily effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, and should be applied prospectively to modifications or exchanges occurring on or after the effective date. The Company is currently evaluating the impact that ASU 2021-04 will have on its consolidated financial statements and related disclosures.

 

 
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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

In August 2021 the FASB issued Accounting Standard Update No 2021-06 “Presentation of Financial Statements (Topic 205), Financial Services — Depository and Lending (Topic 942), and Financial Services — Investment Companies (Topic 946)” which amends various SEC paragraphs pursuant to the issuance of SEC Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses. SEC issued Final Rulemaking Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, which modified the disclosure and presentation requirements concerning acquisitions and disposals of businesses. Primarily, the new rules amended (1) Rule 1-02(w) of Regulation S-X, Definition of Terms Used in Regulation S-X, Significant Subsidiary, (2) Rule 3-05 of Regulation S-X, Financial Statements of Businesses Acquired or to Be Acquired, (3) Rule 8-05 of Regulation S-X, Pro Forma Financial Information (which covers smaller reporting companies), and (4) Article 11 of Regulation S-X, Pro Forma Financial Information. In addition, new Rule 6-11 of Regulation S-X, Financial Statements of Funds Acquired or to Be Acquired, covering acquisitions specific to investment companies, was added. Corresponding changes were made to other Regulation S-X rules, various Securities Act and Securities Exchange Act rules, and Forms 8-K and 10-K. Compliance with the amended rules is required from the beginning of a registrant’s fiscal year commencing after December 31, 2020 (i.e., the mandatory compliance date). Acquisitions and dispositions that are probable or consummated after the mandatory compliance date are required to be evaluated for significance pursuant to the amended rules. Early compliance is permitted, provided that all the amended rules are applied in their entirety from the early compliance date. ASU No. 2021-06 amends SEC material in the Codification to give effect to Release No. 33-10786. The new rules apply to fiscal years ending on or after December 15, 2021 (i.e., calendar-year 2021). Early voluntary compliance is allowed. Note that the rescission of Industry Guide 3 is effective on January 1, 2023. ASU No. 2021-06 amends SEC material in the Codification to give effect to Release No. 33-10835. The Company is currently evaluating the impact that ASU 2021-06 will have on its consolidated financial statements and related disclosures.

 

NOTE 3 – CASH AND CASH EQUIVALENTS

 

As of September 30, 2021, and March 31, 2021, cash and cash equivalents consisted of the following:

 

 

 

September 30,

2021

 

 

March 31,

2021

 

 

 

 

 

 

 

 

Current accounts with brokers

 

$190,385

 

 

$94,494

 

Securities purchased under reverse repurchase agreements

 

 

164,240

 

 

 

248,946

 

Accounts with stock exchanges

 

 

149,361

 

 

 

98,521

 

Current accounts with commercial banks

 

 

90,886

 

 

 

75,903

 

Current accounts in clearing organizations

 

 

50,312

 

 

 

83,194

 

Current account with National Bank (Kazakhstan)

 

 

37,628

 

 

 

36,726

 

Current account with National Settlement Depository (Russia)

 

 

26,496

 

 

 

28,215

 

Petty cash in bank vault and on hand

 

 

22,970

 

 

 

25,830

 

Current account with Central Bank (Russia)

 

 

7,975

 

 

 

6,930

 

Current account with Central Depository (Kazakhstan)

 

 

172

 

 

 

69

 

Total cash and cash equivalents

 

$740,425

 

 

$698,828

 

 

As of September 30, 2021, and March 31, 2021, with the exception of funds deposited with banks in the United States which may qualify for FDIC insurance up to $250,000, cash and cash equivalents were not insured.

 

 
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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

As of September 30, 2021, and March 31, 2021, the cash and cash equivalents balance included collateralized securities received under reverse repurchase agreements on the terms presented below:

 

 

 

September 30, 2021

 

 

 

Interest rates and remaining contractual maturity of the agreements

 

 

 

Average interest rate

 

 

Up to 30 days

 

 

30-90 days

 

 

Total

 

Securities purchased under reverse repurchase agreements

 

 

 

 

 

 

 

 

 

 

 

 

Corporate equity

 

 

0.39%

 

 

141,873

 

 

 

-

 

 

 

141,873

 

Non-US sovereign debt

 

 

1.20%

 

 

11,582

 

 

 

10

 

 

 

11,592

 

Corporate debt

 

 

3.16%

 

 

10,775

 

 

 

-

 

 

 

10,775

 

Total securities sold under repurchase agreements

 

 

 

 

 

$164,230

 

 

$10

 

 

$164,240

 

  

 

 

March 31, 2021

 

 

 

Interest rates and remaining contractual maturity of the agreements

 

 

 

Average interest rate

 

 

Up to 30 days

 

 

30-90 days

 

 

Total

 

Securities purchased under reverse repurchase agreements

 

 

 

 

 

 

 

 

 

 

 

 

Non-US sovereign debt

 

 

1.07%

 

$101,258

 

 

$-

 

 

 

101,258

 

Corporate debt

 

 

4.42%

 

 

94,562

 

 

 

-

 

 

 

94,562

 

Corporate equity

 

 

2.76%

 

 

51,564

 

 

 

-

 

 

 

51,564

 

US sovereign debt

 

 

0.50%

 

 

1,562

 

 

 

-

 

 

 

1,562

 

Total securities sold under repurchase agreements

 

 

 

 

 

$248,946

 

 

$-

 

 

$248,946

 

 

The securities received by the Company as collateral under reverse repurchase agreements are liquid trading securities with market quotes and significant trading volume. The fair value of collateral received by the Company under reverse repurchase agreements as of September 30, 2021, and March 31, 2021, was $181,330 and $272,586, respectively.

 

NOTE 4 – RESTRICTED CASH

 

Restricted cash for the periods ended September 30, 2021, and March 31, 2021, consisted of:

 

 

 

September 30,

2021

 

 

March 31,

2021

 

 

 

 

 

 

 

 

Brokerage customers’ cash

 

$349,097

 

 

$427,233

 

Deferred distribution payments

 

 

8,534

 

 

 

8,534

 

Reserve with Central Bank of Russia

 

 

2,109

 

 

 

1,758

 

Guarantee deposits

 

 

88

 

 

 

433

 

Total restricted cash

 

$359,828

 

 

$437,958

 

 

As of September 30, 2021, and March 31, 2021, the Company’s restricted cash included the cash portion of the funds segregated in a special custody account for the exclusive benefit of its brokerage customers, as well as required reserves with the Central Bank of the Russian Federation which represents cash on hand balance requirements. Restricted cash also included a deferred distribution payment amount, which is a reserve held for distribution to shareholders who have not yet claimed their distributions from the 2011 sale of the Company’s oil and gas exploration and production operations of $8,534. This distribution is currently payable, subject to the entitled shareholders completing and submitting to the Company the necessary documentation to claim his, her or its distribution payments. The Company has no control over when, or if, an entitled shareholder will submit the necessary documentation to claim their distribution payment. The entire deferred distribution payment amount was held in cash at September 30, 2021, and March 31, 2021. A Company shareholder entitled to a portion of the distribution amount died before claiming the distribution. As a result of disputes between the individual’s putative heirs and potential owners of an entity that also claimed through the shareholder, the Company has been unable to determine who is legally entitled to receive the distribution payment. The putative estate asserted claims in Utah state court seeking payment of the distribution. The Company counterclaimed for interpleader and other claims and seeking a determination from the court as to who is rightfully entitled to receive the distribution payment. On October 5, 2021, the court granted the Company’s motion to dismiss, dismissing all claims by both parties without prejudice because plaintiffs failed to follow proper procedures and therefore the court lacked jurisdiction. For additional information regarding this matter see Part II, Item 1 Legal Proceedings of this quarterly report on Form 10-Q.

 

 
22

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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

NOTE 5 – TRADING AND AVAILABLE-FOR-SALE SECURITIES AT FAIR VALUE

 

As of September 30, 2021, and March 31, 2021, trading and available-for-sale securities consisted of:

 

 

 

September 30,

2021

 

 

March 31,

2021

 

 

 

 

 

 

 

 

Corporate debt

 

$618,428

 

 

$334,763

 

Non-US sovereign debt

 

 

261,442

 

 

 

333,619

 

Corporate equity

 

 

70,377

 

 

 

47,340

 

Exchange traded notes

 

 

17,028

 

 

 

9,638

 

US sovereign debt

 

 

7,206

 

 

 

10,828

 

Total trading securities

 

$974,481

 

 

$736,188

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$1

 

 

$1

 

Total available-for-sale securities, at fair value

 

$1

 

 

$1

 

 

As of September 30, 2021, the Company held debt securities of two issuers which individually exceeded 10% of the Company’s total trading securities - the Kazakhstan Sustainability Fund JSC (BBB credit rating) in the amount of $417,450 and Ministry of Finance of the Republic of Kazakhstan (BBB- credit rating) in the amount of $199,070. As of March 31, 2021, the Company held debt securities of two issuers which individually exceeded 10% of the Company’s total trading securities - the Ministry of Finance of the Republic of Kazakhstan and the Kazakhstan Sustainability Fund JSC in the amounts of $293,451 and $193,677, respectively. 

 

The Company recognized no other-than-temporary impairment in accumulated other comprehensive income.

 

The fair value of assets and liabilities is determined using observable market data based on recent trading activity. Where observable market data is unavailable due to a lack of trading activity, the Company utilizes internally developed models to estimate fair value and independent third parties to validate assumptions, when appropriate. Estimating fair value requires significant management judgment, including benchmarking to similar instruments with observable market data and applying appropriate discounts that reflect differences between the securities that the Company is valuing and the selected benchmark. Depending on the type of securities owned by the Company, other valuation methodologies may be required.

 

Measurement of fair value is classified within a hierarchy based upon the transparency of inputs used in the valuation of an asset or liability. Classification within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

 
23

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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

The valuation hierarchy contains three levels:

 

·

Level 1 - Valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets.

·

Level 2 - Valuation inputs are quoted market prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets, and other observable inputs directly or indirectly related to the asset or liability being measured.

·

Level 3 - Valuation inputs are unobservable and significant to the fair value measurement.

  

The following tables present securities assets in the Condensed Consolidated Financial Statements or disclosed in the Notes to the Condensed Consolidated Financial Statements at fair value on a recurring basis as of September 30, 2021, and March 31, 2021:

 

 

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

 

 

September 30, 2021 using

 

 

 

Weighted Average

 

 

 

 

Quoted Prices in Active Markets for Identical Assets

 

 

Significant Other Observable Inputs

 

 

Significant Unobservable Units

 

 

 

Interest Rate

 

 

Total

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt

 

 

8.3%

 

$618,428

 

 

$618,050

 

 

$-

 

 

$378

 

Non-U.S. sovereign debt

 

 

7.88%

 

 

261,442

 

 

 

259,480

 

 

 

-

 

 

 

1,962

 

Corporate equity

 

 

-

 

 

 

70,377

 

 

 

19,710

 

 

 

50,291

 

 

 

376

 

Exchange traded notes

 

 

-

 

 

 

17,028

 

 

 

17,028

 

 

 

-

 

 

 

-

 

U.S. sovereign debt

 

 

1.6%

 

 

7,206

 

 

 

7,206

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total trading securities

 

 

 

 

 

$974,481

 

 

$921,474

 

 

$50,291

 

 

$2,716

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

 

 

 

 

$1

 

 

$-

 

 

$-

 

 

$1

 

Total available-for-sale securities, at fair value

 

 

 

 

 

$1

 

 

$-

 

 

$-

 

 

$1

 

 

 
24

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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

 

 

 

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

 

 

 

 

March 31, 2021 using

 

 

 

Weighted Average  

 

 

 

 

 

Quoted Prices in Active Markets for Identical Assets

 

 

Significant Other Observable Inputs

 

 

Significant Unobservable Units

 

 

 

Interest Rate

 

 

Total

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt

 

 

9.22%

 

$334,763

 

 

$334,403

 

 

$-

 

 

$360

 

Non-U.S. sovereign debt

 

 

8.06%

 

 

333,619

 

 

 

333,619

 

 

 

-

 

 

 

-

 

Corporate equity

 

 

-

 

 

 

47,340

 

 

 

28,630

 

 

 

1

 

 

 

18,709

 

U.S. sovereign debt

 

 

1.68%

 

 

10,828

 

 

 

10,828

 

 

 

-

 

 

 

-

 

Exchange traded notes

 

 

-

 

 

 

9,638

 

 

 

9,638

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total trading securities

 

 

 

 

 

$736,188

 

 

$717,118

 

 

$1

 

 

$19,069

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

 

-

 

 

$1

 

 

$-

 

 

$-

 

 

$1

 

Total available-for-sale securities, at fair value

 

 

 

 

 

$1

 

 

$-

 

 

$-

 

 

$1

 

 

The table below presents the valuation techniques and significant level 3 inputs used in the valuation as of September 30, 2021, and March 31, 2021. The table is not intended to be all inclusive, but instead captures the significant unobservable inputs relevant to the determination of fair value.

 

Type

 

Valuation Technique

 

FV as of

September 30,

2021

 

 

FV as of

March 31,

2021

 

 

Significant Unobservable Inputs

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate equity

 

DCF

 

$-

 

 

$18,408

 

 

Discount rate

 

 

10.6%

 

 

 

 

 

 

 

 

 

 

 

 

Estimated number of years

 

9 years

 

Corporate debt

 

DCF

 

$374

 

 

$360

 

 

Discount rate

 

 

16.5%

 

 

 

 

 

 

 

 

 

 

 

 

Estimated number of years

 

9 years

 

Corporate equity

 

DCF

 

$380

 

 

$301

 

 

Discount rate

 

 

18.5%

 

 

 

 

 

 

 

 

 

 

 

 

Estimated number of years

 

9 years

 

Non-US sovereign debt

 

DCF

 

$1,030

 

 

 

-

 

 

Discount rate

 

 

13.3%

 

 

 

 

 

 

 

 

 

 

 

 

Estimated number of years

 

6 months

 

Non-US sovereign debt

 

DCF

 

$932

 

 

 

-

 

 

Discount rate

 

 

13.8%

 

 

 

 

 

 

 

 

 

 

 

 

Estimated number of years

 

1 year

 

Total

 

 

 

$2,716

 

 

$19,069

 

 

 

 

 

 

 

 

As of September 30, 2021, shares of SPBX held by the Company were transferred from level 3 to level 2. During the six months ended September 30, 2021, market trades of SPBX shares were executed in the market, and market data for these shares became available.

      

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months ended September 30, 2021, and the year ended March 31, 2021:

 

 

 

Trading

securities

 

 

Available-for-sale securities

 

Balance as of March 31, 2021

 

$19,069

 

 

$

1

 

Reclassification to level 2

 

 

(18,408)

 

 

-

 

Purchase of investments that use Level 3 inputs

 

 

1,965

 

 

 

-

 

Revaluation of investments that use Level 3 inputs

 

 

90

 

 

 

-

 

Balance as of September 30, 2021

 

$2,716

 

 

$1

 

 

 
25

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FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

 

 

Trading

securities

 

 

Available-for-sale securities

 

Balance as of March 31, 2020

 

$11,259

 

 

$1

 

Sale of investments that use Level 3 inputs

 

 

(2)

 

 

-

 

Purchase of investments that use Level 3 inputs

 

 

834

 

 

 

-

 

Revaluation of investments that use Level 3 inputs

 

 

6,978

 

 

 

-

 

Balance as of March 31, 2021

 

$19,069

 

 

$1

 

 

The table below presents the amortized cost, unrealized gains and losses accumulated in other comprehensive income, and fair value of available-for-sale securities as of September 30, 2021, and March 31, 2021:

 

 

 

 

 

September 30, 2021

 

 

 

 

 

Assets measured at amortized cost

 

 

Unrealized loss accumulated in other comprehensive income/(loss)

 

 

Assets measured

at fair value

 

 

 

 

 

 

 

 

 

Equity securities

 

$1

 

 

$-

 

 

$1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of September 30, 2021

 

$1

 

 

$-

 

 

$1

 

 

 

 

 

 

March 31, 2021

 

 

 

 

 

Assets measured at amortized cost

 

 

Unrealized loss accumulated in other comprehensive income/(loss)

 

 

Assets measured

at fair value

 

 

 

 

 

 

 

Equity securities

 

$1

 

 

$-

 

 

$1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2021

 

$1

 

 

$-

 

 

$1

 

 

NOTE 6 – BROKERAGE AND OTHER RECEIVABLES, NET

 

Brokerage and other receivables as of September 30, 2021, and March 31, 2021, consisted of:

 

 

 

September 30,

2021

 

 

March 31,

2021

 

 

 

 

 

 

 

 

Margin lending receivables

 

$308,256

 

 

$58,095

 

Receivables from brokerage clients

 

 

4,134

 

 

 

4,199

 

Long-term installments receivables

 

 

1,210

 

 

 

1,280

 

Receivable from sale of securities

 

 

910

 

 

 

484

 

Receivable for underwriting and market-making services

 

 

887

 

 

 

564

 

Bank commissions receivable

 

 

443

 

 

 

767

 

Dividends accrued

 

 

23

 

 

 

1,392

 

Bonds coupon receivable

 

 

3

 

 

 

-

 

Other receivables

 

 

2,702

 

 

 

56

 

 

 

 

 

 

 

 

 

 

Allowance for receivables

 

 

(1,441)

 

 

(2,036)

 

 

 

 

 

 

 

 

 

Total brokerage and other receivables, net

 

$317,124

 

 

$64,801

 

 

 
26

Table of Contents

 

FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

On September 30, 2021, and March 31, 2021, amounts due from a single related party customer were $215,342 and $8,948, respectively or 69% and 14% respectively, of total brokerage and other receivables, net. Based on historical data, the Company considers receivables due from related parties fully collectible. As of September 30, 2021, and March 31, 2021, using historical and statistical data, the Company recorded an allowance for brokerage receivables in the amounts of $1,441 and $2,036, respectively.

 

NOTE 7 – LOANS ISSUED

 

Loans issued as of September 30, 2021, consisted of the following:

 

 

 

Amount Outstanding, net of allowance

 

 

Due Dates

 

Average Interest Rate

 

 

Fair Value of Collateral

 

 

Loan Currency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Uncollateralized bank customer loans

 

 

13,428

 

 

October 2021 - September 2025

 

 

12.10%

 

 

-

 

 

KZT

 

Mortgage loans

 

 

11,190

 

 

October 2021 – September 2036

 

 

14.83%

 

 

11,089

 

 

KZT

 

Subordinated loan

 

 

5,099

 

 

December 2022 - April 2024

 

 

4.89%

 

 

-

 

 

USD

 

Bank customer loans

 

 

1,520

 

 

November 2021-September 2045

 

 

12.00%

 

 

1,000

 

 

RUB

 

Subordinated loan

 

 

1,392

 

 

September 2029

 

 

7.00%

 

 

-

 

 

UAH

 

Uncollateralized non-bank loan

 

 

18

 

 

December 2021

 

 

2.00%

 

 

-

 

 

EUR

 

 

 

$32,647

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the six months ended September 30, 2021, the Company entered into agreements with a related party microfinance organization to purchase uncollateralized consumer retail loans. The agreements provide the Company the ability to sell back to the microfinance organization up to $3,000 of the total loans purchased if such loans become delinquent for more than 20 days.

 

The Company has determined that it has assumed substantially all of the risks and rewards from the transferor of the loans, with the exception of the amount it has the right to sell back to the transferor, accordingly the Company has received control of the loans and has recognized the loans on its Condensed Consolidated Balance Sheets.

 

During the six months ended September 30, 2021, the Company purchased loans in the aggregate amount of $19,474 and sold back loans totaling $2,860 to the microfinance organization.

 

As of September 30, 2021, the Company held outstanding loans purchased from the microfinance organization totaling $14,615 net of an allowance of $1,187.

 

Loans issued as of March 31, 2021, consisted of the following:

 

 

 

Amount Outstanding

 

 

Due Dates

 

Average Interest Rate

 

 

Fair Value of Collateral

 

 

Loan Currency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subordinated loan

 

$5,033

 

 

December 2022-April 2024

 

 

3.69%

 

 

-

 

 

USD

 

Uncollateralized non-bank loan

 

 

2,382

 

 

January 2022 – February 2022

 

 

3.00%

 

 

-

 

 

USD

 

Uncollateralized non-bank loan

 

 

1,384

 

 

May 2021

 

 

13.00%

 

 

-

 

 

RUB

 

Subordinated loan

 

 

1,331

 

 

September 2029

 

 

7.00%

 

 

-

 

 

UAH

 

Bank customer loans

 

 

880

 

 

March 2024

 

 

15.41%

 

 

729

 

 

KZT

 

Bank customer loans

 

 

657

 

 

July 2021- September 2045

 

 

11.27%

 

 

611

 

 

RUB

 

 

 

$11,667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
27

Table of Contents

 

FREEDOM HOLDING CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All amounts in thousands of United States dollars, unless otherwise stated)

 

NOTE 8 – DEFFERED TAXES LIABILITIES

 

The Company is subject to taxation in the Russian Federation, Kazakhstan, Kyrgyzstan, Cyprus, Ukraine, Uzbekistan, Germany, Azerbaijan and the United States of America.

 

The tax rates used for deferred tax assets and liabilities as of September 30, 2021, and March 31, 2021, were 21% for the U.S., 20% for the Russian Federation, Kazakhstan, and Kyrgyzstan, 31% for Germany, 12.5% for Cyprus, 18% for Ukraine, 2% for Azerbaijan and 15% for Uzbekistan. Deferred tax assets and liabilities of the Company are comprised of the following: