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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 30, 2022 |
| |
| OR |
| |
o | 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 | | 50040 | |
| (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 Stock, par value $0.001 per share | 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 x No o
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 x No o
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 | x | Accelerated filer | o |
| Non-accelerated filer | o | Smaller reporting company | o |
| | | Emerging growth company | o |
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes ☐ No x
As of November 13, 2022, the registrant had 59,542,212 shares of common stock, par value $0.001, issued and outstanding.
FREEDOM HOLDING CORP.
FORM 10-Q
TABLE OF CONTENTS
| | |
FREEDOM HOLDING CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (All amounts in thousands of United States dollars, unless otherwise stated) |
| | | | | | | | | | | |
| September 30, 2022 | | March 31, 2022* |
| | | (Recasted) |
ASSETS | | | |
Cash and cash equivalents | $ | 790,390 | | | $ | 225,464 | |
Restricted cash | 440,030 | | | 547,950 | |
Trading securities | 1,359,544 | | | 1,158,377 | |
Available-for-sale securities, at fair value | 168,175 | | | 161,364 | |
Brokerage and other receivables, net | 408,169 | | | 147,659 | |
Loans issued | 357,357 | | | 92,446 | |
Fixed assets, net | 36,857 | | | 17,823 | |
Intangible assets, net | 7,687 | | | 5,163 | |
Goodwill | 9,512 | | | 5,898 | |
Right-of-use asset | 13,602 | | | 7,431 | |
Deferred income tax assets | 2,673 | | | 908 | |
Insurance contract assets | 12,712 | | | 5,712 | |
Other assets | 62,042 | | | 26,136 | |
Assets held for sale | 1,115,615 | | | 825,419 | |
TOTAL ASSETS | $ | 4,784,365 | | | $ | 3,227,750 | |
| | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Securities repurchase agreement obligations | $ | 981,190 | | | $ | 840,224 | |
Customer liabilities | 1,567,458 | | | 765,628 | |
Trade payables | 69,088 | | | 45,083 | |
Liabilities from insurance activity | 150,077 | | | 119,490 | |
Current income tax liability | 19,046 | | | 14,556 | |
Securities sold, not yet purchased – at fair value | 7,376 | | | 13,865 | |
Loans received | 5,425 | | | 3,538 | |
Debt securities issued | 51,798 | | | 34,390 | |
Lease liability | 13,348 | | | 7,504 | |
Deferred distribution payments | 8,534 | | | 8,534 | |
Other liabilities | 170,078 | | | 15,852 | |
Payable for acquisition | 29,736 | | | — | |
Liabilities held for sale | 1,089,880 | | | 812,478 | |
TOTAL LIABILITIES | $ | 4,163,034 | | | $ | 2,681,142 | |
Commitments and Contingent Liabilities (Note 26) | — | | | — | |
| | | |
SHAREHOLDERS’ EQUITY | | | |
Preferred stock - $0.001 par value; 20,000,000 shares authorized, no shares issued or outstanding | — | | | — | |
Common stock - $0.001 par value; 500,000,000 shares authorized; 59,542,212 shares issued and outstanding as of September 30, 2022, and March 31, 2022, respectively | 59 | | | 59 | |
Additional paid in capital | 155,635 | | | 174,745 | |
Retained earnings | 529,251 | | | 441,924 | |
Accumulated other comprehensive loss | (55,575) | | | (63,125) | |
TOTAL FRHC SHAREHOLDERS’ EQUITY | $ | 629,370 | | | $ | 553,603 | |
| | | |
Non-controlling interest | (8,039) | | | (6,995) | |
TOTAL SHAREHOLDERS’ EQUITY | $ | 621,331 | | | $ | 546,608 | |
| | | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 4,784,365 | | | $ | 3,227,750 | |
The accompanying notes are an integral part of these condensed consolidated financial statements
* Please see Note 3
| | |
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, |
| 2022 | | 2021* | | 2022 | | 2021* |
| | | (Recasted) | | | | (Recasted) |
Revenue: | | | | | | | |
Fee and commission income | $ | 93,123 | | | $ | 95,215 | | | $ | 187,483 | | | $ | 174,431 | |
Net gain on trading securities | 9,005 | | | 181,603 | | | 13,439 | | | 190,285 | |
Net realized gain/(loss) on investments available for sale | 716 | | | (622) | | | 123 | | | (653) | |
Interest income | 49,033 | | | 24,429 | | | 92,682 | | | 45,566 | |
Insurance underwriting income | 26,200 | | | 16,022 | | | 50,440 | | | 30,098 | |
Net gain on foreign exchange operations | 4,555 | | | 1,508 | | | 9,148 | | | 2,716 | |
Net loss on derivative | (2,320) | | | (656) | | | (1,054) | | | (715) | |
TOTAL REVENUE, NET | 180,312 | | | 317,499 | | | 352,261 | | | 441,728 | |
| | | | | | | |
Expense: | | | | | | | |
Fee and commission expense | 18,439 | | | 22,651 | | | 41,754 | | | 43,844 | |
Interest expense | 40,863 | | | 16,716 | | | 80,934 | | | 30,962 | |
Insurance claims incurred, net of reinsurance | 17,475 | | | 13,513 | | | 34,167 | | | 24,809 | |
Operating expense | 37,760 | | | 21,770 | | | 75,759 | | | 41,191 | |
Provision for impairment losses | 3,726 | | | 978 | | | 6,154 | | | 1,245 | |
Other expense/(income), net | 192 | | | 786 | | | (368) | | | 795 | |
TOTAL EXPENSE | 118,455 | | | 76,414 | | | 238,400 | | | 142,846 | |
| | | | | | | |
INCOME BEFORE INCOME TAX | 61,857 | | | 241,085 | | | 113,861 | | | 298,882 | |
| | | | | | | |
Income tax expense | (12,619) | | | (32,094) | | | (21,498) | | | (37,220) | |
| | | | | | | |
INCOME FROM CONTINUING OPERATIONS | 49,238 | | | 208,991 | | | 92,363 | | | 261,662 | |
| | | | | | | |
Income/(loss) before income tax (expense)/benefit of discontinued operations (including loss on disposal of $41,464, see Note 25) | (18,302) | | | (2,779) | | | 800 | | | 458 | |
| | | | | | | |
Income tax (expense)/benefit of discontinued operations | (3,724) | | | 529 | | | (6,880) | | | (9) | |
| | | | | | | |
Income/(loss) from discontinued operations | (22,026) | | | (2,250) | | | (6,080) | | | 449 | |
| | | | | | | |
NET INCOME | 27,212 | | | 206,741 | | | 86,283 | | | 262,111 | |
| | | | | | | |
Less: Net income/(loss) attributable to non-controlling interest in subsidiary | 950 | | | (20) | | | (1,044) | | | (72) | |
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 26,262 | | | $ | 206,761 | | | $ | 87,327 | | | $ | 262,183 | |
| | | | | | | |
OTHER COMPREHENSIVE INCOME | | | | | | | |
Change in unrealized gain on investments available-for-sale, net of tax effect | 1,477 | | | (1,601) | | | 2,343 | | | (726) | |
Reclassification adjustment for net realized gain on available-for-sale investments disposed of in the period, net of tax effect | (716) | | | 622 | | | (123) | | | 653 | |
Foreign currency translation adjustments, net of tax effect | (16,663) | | | 1,181 | | | 5,316 | | | 4,203 | |
| | | | | | | |
| | |
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)` |
| | | | | | | | | | | | | | | | | | | | | | | |
OTHER COMPREHENSIVE (LOSS)/ INCOME | (15,902) | | | 202 | | | 7,536 | | | 4,130 | |
| | | | | | | |
COMPREHENSIVE INCOME BEFORE NON-CONTROLLING INTERESTS | $ | 11,310 | | | $ | 206,943 | | | $ | 93,819 | | | $ | 266,241 | |
| | | | | | | |
Less: Comprehensive income/(loss) attributable to non-controlling interest in subsidiary | 950 | | | (20) | | | (1,043) | | | (72) | |
| | | | | | | |
COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 10,360 | | | $ | 206,963 | | | $ | 94,862 | | | $ | 266,313 | |
| | | | | | | |
EARNINGS PER COMMON SHARE (In U.S. dollars): | | | | | | | |
Earnings from continuing operations per common share - basic | 0.82 | | | 3.51 | | | 1.59 | | | 4.42 | |
Earnings from continuing operations per common share - diluted | 0.81 | | | 3.51 | | | 1.57 | | | 4.42 | |
| | | | | | | |
(Loss)/earnings from discontinued operations per common share - basic | (0.38) | | | (0.04) | | | (0.10) | | | 0.01 | |
(Loss)/earnings from discontinued operations per common share - diluted | (0.37) | | | (0.04) | | | (0.10) | | | 0.01 | |
| | | | | | | |
Earnings per common share - basic | 0.45 | | | 3.47 | | | 1.49 | | | 4.43 | |
Earnings per common share - diluted | 0.44 | | | 3.47 | | | 1.46 | | | 4.43 | |
| | | | | | | |
Weighted average number of shares (basic) | 58,665,415 | | | 59,510,976 | | | 58,624,513 | | | 59,220,800 | |
Weighted average number of shares (diluted) | 59,518,473 | | | 59,510,976 | | | 59,678,513 | | | 59,220,800 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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, | | | |
| 2022 | | 2021* | | | |
| | | (Restated) | | | |
Cash Flows From Operating Activities | | | | | | |
Net income | $ | 86,283 | | | $ | 262,111 | | | | |
Net (loss)/income from discontinued operations | $ | (6,080) | | | $ | 449 | | | | |
Net income from continued operations | $ | 92,363 | | | $ | 261,662 | | | | |
Adjustments to reconcile net income used in operating activities: | | | | | | |
Depreciation and amortization | 1,817 | | | 1,915 | | | | |
Noncash lease expense | 2,047 | | | 1,568 | | | | |
Change in deferred taxes | (1,763) | | | 2,431 | | | | |
Stock compensation expense | 3,581 | | | 3,365 | | | | |
Unrealized loss/(gain) on trading securities | 8,232 | | | (41,966) | | | | |
Net change in accrued interest | (20,855) | | | (21,137) | | | | |
Change in insurance reserves | 30,627 | | | 25,138 | | | | |
Allowances for receivables | 6,154 | | | 1,245 | | | | |
Changes in operating assets and liabilities: | | | | | | |
Trading securities | (223,540) | | | (181,734) | | | | |
Brokerage and other receivables | (263,107) | | | (189,970) | | | | |
Insurance contract assets | 706 | | | 443 | | | | |
Other assets | (33,322) | | | (4,316) | | | | |
Securities sold, not yet purchased – at fair value | (6,489) | | | 6,719 | | | | |
Customer liabilities | 329,496 | | | 110,815 | | | | |
Current income tax liability | 4,537 | | | 19,684 | | | | |
Trade payables | 20,490 | | | 26,575 | | | | |
Lease liabilities | (2,453) | | | (1,654) | | | | |
Liabilities from insurance activity | (8,032) | | | (5,355) | | | | |
Other liabilities | 154,111 | | | (186) | | | | |
Net cash flows from operating activities from continuing operations | 94,600 | | | 15,242 | | | | |
Net cash flows from operating activities from discontinued operations | 29,583 | | | 5,605 | | | | |
Net cash flows from operating activities | 124,183 | | | 20,847 | | | | |
| | | | | | |
Cash Flows Used In Investing Activities | | | | | | |
Purchase of fixed assets | (17,295) | | | (2,776) | | | | |
Proceeds from sale of fixed assets | 36 | | | 167 | | | | |
Loans purchased from microfinance organization | (74,796) | | | (19,677) | | | | |
Loans sold to microfinance organization | 19,545 | | | 2,860 | | | | |
Loans issued | (228,570) | | | (5,726) | | | | |
Purchase of available-for-sale securities, at fair value | (167,450) | | | (147,479) | | | | |
Proceeds from sale of available-for-sale securities, at fair value | 157,420 | | | 106,850 | | | | |
Consideration paid for acquisition of London Almaty | (16,343) | | | — | | | | |
Prepayment on acquisition | 4,954 | | | — | | | | |
Cash, cash equivalents and restricted cash received from acquisitions | 11,385 | | | — | | | | |
Net cash flows used in investing activities from continuing operations | (311,114) | | | (65,781) | | | | |
FREEDOM HOLDING CORP.
| | |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (All amounts in thousands of United States dollars, unless otherwise stated) |
| | | | | | | | | | | |
Net cash flows used in investing activities from discontinued operations | (12,073) | | | (471) | |
Net cash flows used in investing activities | (323,187) | | | (66,252) | |
| | | |
Cash Flows From Financing Activities | | | |
Proceeds from securities repurchase agreement obligations | 168,565 | | | 172,234 | |
Proceeds from issuance of debt securities | 17,240 | | | — | |
Repurchase of debt securities | — | | | (10,134) | |
Net change in bank customer deposits | 513,546 | | | 17,497 | |
Capital contributions | 677 | | | 1,966 | |
Exercise of options | — | | | 119 | |
Proceeds from loans received | 1,863 | | | 69 | |
| | | |
Net cash flows from financing activities from continuing operations | 701,891 | | | 181,751 | |
Net cash flows from/(used in) financing activities from discontinued operations | 44,203 | | | (28,884) | |
Net cash flows from financing activities | 746,094 | | | 152,867 | |
Effect of changes in foreign exchange rates on cash and cash equivalents from continued operations | (28,371) | | | 250 | |
Effect of changes in foreign exchange rates on cash and cash equivalents from discontinued operations | 212,557 | | | 23,276 | |
| | | |
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 731,276 | | | 130,988 | |
| | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD FROM CONTINUED OPERATIONS | 773,414 | | | 659,498 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD FROM DISCONTINUED OPERATIONS | 456,886 | | | 558,890 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 1,230,300 | | | 1,218,388 | |
| | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD FROM CONTINUED OPERATIONS | $ | 1,230,420 | | | $ | 744,465 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD FROM DISCONTINUED OPERATIONS | $ | 731,156 | | | $ | 604,911 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 1,961,576 | | | $ | 1,349,376 | |
| | | | | | | | | | | |
| For The Six Months Ended September 30, |
| 2022 | | September 30, 2021* |
| | | (Restated) |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest | $ | 39,032 | | | $ | 15,275 | |
Income tax paid | $ | 18,803 | | | $ | 20,107 | |
| | | |
Supplemental non-cash disclosures: | | | |
Operating lease right-of-use assets obtained/disposed of in exchange for operating lease obligations during the period, net | $ | 5,706 | | | $ | 2,424 | |
* Please see Note 4
FREEDOM HOLDING CORP.
| | |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (All amounts in thousands of United States dollars, unless otherwise stated) |
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, 2022 | | September 30, 2021 |
| | | (Restated) |
Cash and cash equivalents | $ | 790,390 | | | $ | 184,523 | |
Restricted cash | 440,030 | | | 559,942 | |
Total cash, cash equivalents and restricted cash shown as in the statement of cash flows | $ | 1,230,420 | | | $ | 744,465 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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 capital | | Retained earnings | | Accumulated other comprehensive (loss)/income | | Non- controlling interest | | Total |
| Shares | | Amount | | | | | |
| | | | | | | | | | | | | |
Balance As At June 30, 2022 | 59,542,212 | | | $ | 59 | | | $ | 152,532 | | | $ | 502,989 | | | $ | (39,673) | | | $ | (8,989) | | | $ | 606,918 | |
| | | | | | | | | | | | | |
Stock based compensation | — | | | — | | | 3,103 | | | — | | | — | | | — | | | 3,103 | |
Sale of Freedom Finance Ukraine LLC shares | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Contribution of shareholder | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Acquisition of insurance companies | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other comprehensive income | — | | | — | | | — | | | — | | | 761 | | | — | | | 761 | |
Translation difference | — | | | — | | | — | | | — | | | (16,663) | | | — | | | (16,663) | |
Net income | — | | | — | | | — | | | 26,262 | | | — | | | 950 | | | 27,212 | |
| | | | | | | | | | | | | |
Balance As At September 30, 2022 | 59,542,212 | | | $ | 59 | | | $ | 155,635 | | | $ | 529,251 | | | $ | (55,575) | | | $ | (8,039) | | | $ | 621,331 | |
| | | | | | | | | | | | | |
Balance As At March 31, 2022 | 59,542,212 | | | $ | 59 | | | $ | 174,745 | | | $ | 441,924 | | | $ | (63,125) | | | $ | (6,995) | | | $ | 546,608 | |
| | | | | | | | | | | | | |
Stock based compensation | — | | | — | | | 6,801 | | | — | | | — | | | — | | | 6,801 | |
Sale of Freedom Finance Ukraine LLC shares | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Contribution of shareholder | — | | | — | | | 677 | | | — | | | — | | | — | | | 677 | |
Acquisition of insurance companies | — | | | — | | | (26,588) | | | — | | | — | | | — | | | (26,588) | |
Other comprehensive income | — | | | — | | | — | | | — | | | 2,234 | | | — | | | 2,234 | |
Translation difference | — | | | — | | | — | | | — | | | 5,316 | | | — | | | 5,316 | |
Net income/(loss) | — | | | — | | | — | | | 87,327 | | | — | | | (1,044) | | | 86,283 | |
| | | | | | | | | | | | | |
Balance As At September 30, 2022 | 59,542,212 | | | $ | 59 | | | $ | 155,635 | | | $ | 529,251 | | | $ | (55,575) | | | $ | (8,039) | | | $ | 621,331 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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 capital | | Retained earnings | | Accumulated other comprehensive (loss)/income | | Non- controlling interest | | Total |
| Shares | | Amount | | | | | |
| | | | | | | | | | | | | |
Balance As At June 30, 2021 (Recasted) | 59,474,712 | | | $ | 58 | | | $ | 138,687 | | | $ | 269,849 | | | $ | (36,506) | | | $ | (1,693) | | | $ | 370,395 | |
| | | | | | | | | | | | | |
Stock based compensation | — | | | 1 | | | 4,561 | | | — | | | — | | | — | | | 4,562 | |
Sale of Freedom Finance Ukraine LLC shares | — | | | — | | | (796) | | | — | | | — | | | 1,212 | | | 416 | |
Contribution of shareholder | — | | | — | | | 700 | | | — | | | — | | | — | | | 700 | |
Exercise of options | 60,000 | | | — | | | 119 | | | — | | | — | | | — | | | 119 | |
Other comprehensive loss | | | — | | | — | | | — | | | (979) | | | — | | | (979) | |
Translation difference | — | | | — | | | — | | | — | | | 1,181 | | | — | | | 1,181 | |
Net income/(loss) | — | | | — | | | — | | | 206,761 | | | — | | | (20) | | | 206,741 | |
| | | | | | | | | | | | | |
Balance As At September 30, 2021 | 59,534,712 | | | $ | 59 | | | $ | 143,271 | | | $ | 476,610 | | | $ | (36,304) | | | $ | (501) | | | $ | 583,135 | |
| | | | | | | | | | | | | |
Balance As At March 2021 (Recasted) | 58,443,212 | | | $ | 58 | | | $ | 135,260 | | | $ | 214,427 | | | $ | (40,433) | | | $ | (1,641) | | | $ | 307,671 | |
| | | | | | | | | | | | | |
Stock based compensation | 1,031,500 | | | 1 | | | 6,722 | | | — | | | — | | | — | | | 6,723 | |
Sale of Freedom Finance Ukraine LLC shares | — | | | — | | | (796) | | | — | | | — | | | 1,212 | | | 416 | |
Contribution of shareholder | — | | | — | | | 1,966 | | | — | | | — | | | — | | | 1,966 | |
Exercise of options | 60,000 | | | — | | | 119 | | | — | | | — | | | — | | | 119 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (74) | | | — | | | (74) | |
Translation difference | — | | | — | | | — | | | — | | | 4,203 | | | — | | | 4,203 | |
Net income/(loss) | — | | | — | | | — | | | 262,183 | | | — | | | (72) | | | 262,111 | |
| | | | | | | | | | | | | |
Balance As At September 30, 2021 | 59,534,712 | | | $ | 59 | | | $ | 143,271 | | | $ | 476,610 | | | $ | (36,304) | | | $ | (501) | | | $ | 583,135 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
FREEDOM HOLDING CORP.
| | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (All amounts in thousands of United States dollars, except share data, 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, commercial banking and insurance products. The Company is headquartered in Almaty, Kazakhstan, with supporting administrative office locations in Cyprus, the United States and Russia (with the Russian business classified as discontinued operations pending sale). The Company has retail locations in Kazakhstan, Russia (with the Russian business classified as discontinued operations pending sale), Ukraine, Uzbekistan, Kyrgyzstan, Azerbaijan, Armenia, Cyprus, the UK, Greece, Spain, France, Germany, United Arab Emirates and Turkey. The Company also owns a U.S. Securities and Exchange Commission ("SEC") registered broker dealer. The Company's common stock trades on the Nasdaq Capital Market.
As of September 30, 2022, the Company owned directly, or through subsidiaries, the following companies:
•Freedom Finance JSC, 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 Life JSC, an Almaty, Kazakhstan-based life/health insurance company ("Freedom Life");
•Freedom Finance Insurance JSC, an Almaty, Kazakhstan-based general insurance company ("Freedom Insurance");
•Freedom Finance Special Purpose Company LTD, an Astana International Financial Centre-based special purpose company ("Freedom SPC");
•Freedom Finance Commercial LLP, a Kazakhstan-based sales consulting 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");
•Freedom UK Prime Limited, a London, United Kingdom-based financial intermediary company ("Prime UK");
•Freedom Finance Uzbekistan LLC, a Tashkent, Uzbekistan-based broker-dealer ("Freedom UZ");
•Freedom Finance Azerbaijan LLC, an Azerbaijan-based financial educational center ("Freedom AZ");
•Freedom Finance Armenia LLC, an Armenia-based broker-dealer ("Freedom AR");
•Prime Executions, Inc., a New York City, New York-based NYSE institutional brokerage, that is also approved to engage in certain capital markets and investment banking activities ("PrimeEx");
•FFIN Securities, Inc., a currently-dormant Nevada corporation ("FFIN");
•Freedom Finance Ltd., a Dubai, United Arab Emirates-based financial intermediary company ("Freedom UAE");
•ITS Tech Limited, an Astana International Financial Centre-based, IT-support company ("ITS Tech");
•Ticketon Events LLP, an Almaty, Kazakhstan-based online ticket sales company ("Ticketon");
•Insurance Company London Almaty JSC, an Almaty, Kazakhstan-based general insurance company ("London Almaty");
•Waytrust Trading Ltd, a Cyprus-based asset management company ("Waytrust");
•Freedom Finance Turkey LLC, an Istanbul based financial consulting company ("Freedom TR");
•Investment Company Freedom Finance LLC, a Moscow, Russia-based securities broker-dealer ("Freedom RU");
•FFIN Bank LLC, a Moscow, Russia-based bank ("Freedom Bank RU"); and
•Freedom Finance Auto LLC, a Russia-based car loans company ("Freedom Auto").
The Company also owns a 9% interest in Freedom Finance Ukraine LLC, a Kiev, Ukraine-based broker-dealer ("Freedom UA"). The remaining 91% interest in Freedom UA is controlled by Askar Tashtitov, the Company's president. The Company has entered into a series of contractual arrangements with Freedom UA and Mr. Tashtitov, including a consulting services agreement, an operating agreement and an option agreement.
Because such agreements obligate the Company to guarantee the performance of all Freedom UA obligations and provide Freedom UA sufficient funding to cover all Freedom UA operating losses and net capital requirements, enable the
FREEDOM HOLDING CORP.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (All amounts in thousands of United States dollars, except share data, unless otherwise stated) |
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 determined that Freedom UA is a variable interest entity ("VIE"). Accordingly, the Company consolidated Freedom UA into the financial statements of the Company.
Prior to July 2021, the Company controlled approximately 32.9% of Freedom UA, but due to changes to Ukrainian regulations to restrict foreign ownership of registered Ukrainian broker-dealers, in July 2021, the Company was required to sell approximately 23.9% of its equity interest in Freedom UA to Mr. Tashtitov, reducing the Company's direct ownership interest in Freedom UA to approximately 9%.
The Company has entered into an agreement to sell its Russian subsidiaries, Freedom RU and Freedom Bank RU. For financial information regarding the Company's Russian subsidiaries see Note 25 - Assets and Liabilities held for sale and Divestiture of our Russian Subsidiaries in the Overview section of Management's Discussion and Analysis of Financial Condition and Results of Operations in this quarterly report on Form 10-Q. In addition, the Company intends to sell its Freedom Finance Auto LLC subsidiary, which is not material in the context of its operations. The sale of Freedom Finance Auto LLC by the Company is a condition precedent in the agreement to sell Freedom RU and Freedom Bank RU.
Through its subsidiaries, the Company is a professional participant, with a license to provide one or more types of services, on a number of stock exchanges, including the Kazakhstan Stock Exchange (KASE), Astana International Stock Exchange (AIX), Moscow Exchange (MOEX), Saint-Petersburg Exchange (SPBX), Ukrainian Exchange (UX), Republican Stock Exchange of Tashkent (UZSE), Uzbek Republican Currency Exchange (UZCE) and is a member of the New York Stock Exchange (NYSE) and Nasdaq Stock Exchange (Nasdaq). The Company also own a 24.3% interest in the UX. Freedom EU provides the Company's clients with operations support and access to the investment opportunities, relative stability, and integrity of the U.S. and European securities markets.
Unless otherwise specifically or contextually indicated, the “Company” refers to FRHC, together with its consolidated subsidiaries.
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).
Basis of presentation and principles of consolidation
The condensed consolidated financial statements present the condensed consolidated accounts of FRHC and its consolidated subsidiaries. In the opinion of management, all normal, recurring adjustments necessary for fair presentation of the condensed consolidated financial statements have been included.
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 subordinated financial support from other parties or whose equity holders at risk 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.
The carrying amounts of the VIE’s consolidated assets and liabilities are as follows:
FREEDOM HOLDING CORP.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (All amounts in thousands of United States dollars, except share data, unless otherwise stated) |
| | | | | | | | | | | |
| September 30, 2022 | | March 31, 2022 |
| | | |
Cash and cash equivalents | 1,645 | | | 134 | |
Restricted cash | — | | | 2,843 | |
Trading securities | 3,437 | | | 2,942 | |
Brokerage and other receivables, net | 273 | | | 435 | |
Fixed assets, net | 803 | | | 1,043 | |
Intangible assets, net | 147 | | | 205 | |
Right-of-use asset | 512 | | | 905 | |
Other assets | 92 | | | 127 | |
| | | |
Total assets | 6,909 | | | 8,634 | |
| | | |
Customer liabilities | 9,362 | | | 8,439 | |
Securities repurchase agreement obligations | — | | | 3,267 | |
Trade payables | 5 | | | 35 | |
Lease liability | 538 | | | 914 | |
Other liabilities | 65 | | | 434 | |
| | | |
Total liabilities | 9,970 | | | |