frhc-20221231

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 December 31, 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

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. 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 February 10, 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


		Pages
PART I — FINANCIAL INFORMATION

Item 1.	Unaudited Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets as of December 31, 2022, and March 31, 2022	3

	Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income for the Three and Nine Months Ended December 31, 2022 and 2021	4

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2022 and 2021	6

	Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended December 31, 2022 and 202 1	9

	Notes to Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	68

Item 3.	Qualitative and Quantitative Disclosures About Market Risk	94

Item 4.	Controls and Procedures	99

PART II — OTHER INFORMATION		100

Item 1.	Legal Proceedings	100

Item 1A.	Risk Factors	100

Item 6.	Exhibits	102

Signatures		103

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FREEDOM HOLDING CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (All amounts in thousands of United States dollars, unless otherwise stated)


	December 31, 2022		March 31, 2022*
			(Recasted)
ASSETS
Cash and cash equivalents	$	664,095	$	225,464
Restricted cash	449,979		547,950
Trading securities	1,929,840		1,158,377
Available-for-sale securities, at fair value	174,326		161,364
Margin lending, brokerage and other receivables, net	403,568		147,659
Loans issued	639,377		92,446
Fixed assets, net	43,862		17,823
Intangible assets, net	9,010		5,163
Goodwill	9,460		5,898
Right-of-use asset	24,054		7,431
Insurance contract assets	11,243		5,712
Other assets	47,754		27,044
Assets held for sale	961,566		825,419
TOTAL ASSETS	$	5,368,134	$	3,227,750

LIABILITIES AND SHAREHOLDERS’ EQUITY
Securities repurchase agreement obligations	$	1,233,928	$	840,224
Customer liabilities	1,786,452		765,628
Margin lending and trade payables	142,341		45,083
Liabilities from insurance activity	156,542		119,490
Current income tax liability	—		14,556
Securities sold, not yet purchased – at fair value	—		13,865
Debt securities issued	37,192		34,390
Lease liability	24,175		7,504
Payable for acquisition	16,055		—
Liability arising from continuing involvement	319,694		6,447
Other liabilities	37,940		21,477
Liabilities held for sale	931,484		812,478
TOTAL LIABILITIES	$	4,685,803	$	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 December 31, 2022, and March 31, 2022, respectively	59		59
Additional paid in capital	159,580		174,745
Retained earnings	592,115		441,924
Accumulated other comprehensive loss	(60,920)		(63,125)
TOTAL FRHC SHAREHOLDERS’ EQUITY	$	690,834	$	553,603

Non-controlling interest	(8,503)		(6,995)
TOTAL SHAREHOLDERS’ EQUITY	$	682,331	$	546,608

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,368,134	$	3,227,750

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

* Please see Note 3

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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 December 31,				Nine Months Ended December 31,
	2022		2021*		2022		2021*
			(Restated)				(Restated)
Revenue:
Fee and commission income	$	80,883	$	91,408	$	253,486	$	262,549
Net gain on trading securities	25,456		7,663		38,894		197,947
Interest income	80,255		33,657		187,817		82,514
Insurance underwriting income	28,557		21,394		78,998		51,491
Net gain on foreign exchange operations	20,866		1,361		30,014		4,076
Net loss on derivative	(21,469)		(314)		(22,523)		(1,028)
TOTAL REVENUE, NET	214,548		155,169		566,686		597,549

Expense:
Fee and commission expense	18,314		24,782		60,068		68,626
Interest expense	52,037		21,890		132,971		52,852
Insurance claims incurred, net of reinsurance	17,419		16,286		51,586		41,096
Operating expense	50,608		31,581		126,367		72,772
Provision for impairment losses/(recovery)	24,140		(333)		30,294		911
Other expense	570		979		79		2,426
TOTAL EXPENSE	163,088		95,185		401,365		238,683

INCOME BEFORE INCOME TAX	51,460		59,984		165,321		358,866

Income tax expense	(5,069)		(1,806)		(26,567)		(39,026)

INCOME FROM CONTINUING OPERATIONS	46,391		58,178		138,754		319,840

Income/(loss) before income tax (expense)/benefit of discontinued operations (including loss on disposal of $2,509 and $0 for the three months ended December 31, 2022 and 2021, respectively, and loss on disposal of $43,973 and $0 for nine months ended December 31, 2022 and 2021, respectively, see Note 25)	13,667		(5,067)		14,467		(4,609)

Income tax (expense)/benefit of discontinued operations	2,342		962		(4,538)		953

Income/(loss) from discontinued operations	16,009		(4,105)		9,929		(3,656)

NET INCOME	62,400		54,073		148,683		316,184

Less: Net loss attributable to non-controlling interest in subsidiary	(464)		(343)		(1,508)		(415)
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	62,864	$	54,416	$	150,191	$	316,599

OTHER COMPREHENSIVE INCOME
Change in unrealized gain on investments available-for-sale, net of tax effect	(54)		(1,063)		2,309		(1,789)
Reclassification adjustment for net realized loss on available-for-sale investments disposed of in the period, net of tax effect	320		953		197		1,606
Foreign currency translation adjustments	(5,611)		(8,650)		(301)		(4,447)

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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	(5,345)		(8,760)		2,205		(4,630)

COMPREHENSIVE INCOME BEFORE NON-CONTROLLING INTERESTS	$	57,055	$	45,313	$	150,888	$	311,554

Less: Comprehensive loss attributable to non-controlling interest in subsidiary	(464)		(343)		(1,508)		(415)

COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	57,519	$	45,656	$	152,396	$	311,969

EARNINGS PER COMMON SHARE (In U.S. dollars):
Earnings from continuing operations per common share - basic	0.79		0.98		2.37		5.40
Earnings from continuing operations per common share - diluted	0.78		0.98		2.33		5.40

Earnings/(loss) from discontinued operations per common share - basic	0.59		(0.07)		0.49		(0.06)
Earnings/(loss) from discontinued operations per common share - diluted	0.58		(0.07)		0.48		(0.06)

Earnings per common share - basic	1.38		0.91		2.86		5.34
Earnings per common share - diluted	1.36		0.91		2.81		5.34

Weighted average number of shares (basic)	58,678,730		59,534,712		58,642,637		59,326,201
Weighted average number of shares (diluted)	59,522,701		59,534,712		59,527,743		59,326,201

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

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FREEDOM HOLDING CORP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (All amounts in thousands of United States dollars, unless otherwise stated)


	For the Nine Months Ended December 31,
	2022		2021*
			(Restated)
Cash Flows From Operating Activities
Net income	$	148,683	$	316,184
Net income/(loss) from discontinued operations	$	9,929	$	(3,656)
Net income from continued operations	$	138,754	$	319,840
Adjustments to reconcile net income used in operating activities:
Depreciation and amortization	3,502		2,854
Noncash lease expense	3,453		2,587
Change in deferred taxes	(3,392)		(2,508)
Stock compensation expense	6,520		5,636
Unrealized gain on trading securities	(65,684)		(7,903)
Net change in accrued interest	(35,984)		(27,858)
Change in insurance reserves	42,236		35,381
Allowances for receivables	30,294		907
Changes in operating assets and liabilities:
Trading securities	(630,879)		(364,995)
Margin lending, brokerage and other receivables	(270,725)		(141,678)
Insurance contract assets	6,460		(106)
Other assets	(11,058)		(12,028)
Securities sold, not yet purchased – at fair value	(13,865)		5,979
Brokerage customer liabilities	240,362		(230,143)
Current income tax liability	(14,556)		6,404
Margin lending and trade payables	92,225		28,720
Lease liabilities	(3,470)		(2,839)
Liabilities from insurance activity	(22,581)		(7,937)
Other liabilities	10,432		735
Net cash flows used in operating activities from continuing operations	(497,956)		(388,952)
Net cash flows from/(used in) operating activities from discontinued operations	32,165		(222,901)
Net cash flows used in operating activities	(465,791)		(611,853)

Cash Flows Used In Investing Activities
Purchase of fixed assets	(27,345)		(4,078)
Proceeds from sale of fixed assets	—		172
Purchase from microfinance organizations loans, net	(57,031)		(22,192)
Net change in loans issued to customers	(507,728)		(11,946)
Purchase of available-for-sale securities, at fair value	(205,781)		(223,482)
Proceeds from sale of available-for-sale securities, at fair value	196,799		171,221
Consideration paid for acquisition of London Almaty	(16,343)		—
Consideration paid for acquisition of Freedom Life	(13,630)		—
Cash, cash equivalents and restricted cash received from acquisitions	11,385		—
Net cash flows used in investing activities from continuing operations	(619,674)		(90,305)

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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	(21,647)		(2,790)
Net cash flows used in investing activities	(641,321)		(93,095)

Cash Flows From Financing Activities
Proceeds from securities repurchase agreement obligations	388,675		315,383
Proceeds from issuance of debt securities	23,861		13,000
Repurchase of debt securities	(23,387)		(10,104)
Repurchase of mortgage loans under the State Program	(7,117)		—
Funds received under state program for financing of mortgage loans	318,330		—
Net change in bank customer deposits	779,044		83,448
Capital contributions	677		1,966
Exercise of options	—		119

Net cash flows from financing activities from continuing operations	1,480,083		403,812
Net cash flows from financing activities from discontinued operations	26,105		37,982
Net cash flows from financing activities	1,506,188		441,794
Effect of changes in foreign exchange rates on cash and cash equivalents from continued operations	23,591		(7,321)
Effect of changes in foreign exchange rates on cash and cash equivalents from discontinued operations	61,473		13,695

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	484,140		(256,780)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD FROM CONTINUED OPERATIONS	773,414		659,495
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD FROM DISCONTINUED OPERATIONS	456,886		559,385
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	1,230,300		1,218,880

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD FROM CONTINUED OPERATIONS	$	1,114,074	$	582,376
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD FROM DISCONTINUED OPERATIONS	$	600,366	$	379,724
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$	1,714,440	$	962,100


	For The Nine Months Ended December 31,
	2022		2021
			(Restated)
Supplemental disclosure of cash flow information:
Cash paid for interest	$	133,286	$	29,190
Income tax paid	$	47,262	$	42,237

Supplemental non-cash disclosures:
Operating lease right-of-use assets obtained/disposed of in exchange for operating lease obligations during the period, net	$	19,089	$	4,684

* Please see Note 4

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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:


	December 31, 2022		December 31, 2021
			(Restated)
Cash and cash equivalents	$	664,095	$	165,633
Restricted cash	449,979		416,743
Total cash, cash equivalents and restricted cash shown as in the statement of cash flows	$	1,114,074	$	582,376

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

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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 capital		Retained earnings		Accumulated other comprehensive (loss)/income		Total equity attributable to the shareholders'		Non- controlling interest				Total
	Shares	Amount

Balance As At September 30, 2022	59,542,212	$	59	$	155,635	$	529,251	$	(55,575)	$	629,370	$	(8,039)			$	621,331

Stock based compensation	—	—		3,945		—		—		3,945		—				3,945
Other comprehensive income	—	—		—		—		266		266		—				266
Translation difference	—	—				—		(5,611)		(5,611)						(5,611)
Net income/(loss)	—	—		—		62,864		—		62,864		(464)				62,400

Balance As At December 31, 2022	59,542,212	$	59	$	159,580	$	592,115	$	(60,920)	$	690,834	$	(8,503)	$	—	$	682,331

Balance As At March 31, 2022	59,542,212	$	59	$	174,745	$	441,924	$	(63,125)	$	553,603	$	(6,995)			$	546,608

Stock based compensation	—	—		10,746		—		—		10,746		—				10,746
Contribution of shareholder	—	—		677		—		—		677		—				677
Acquisition of insurance companies	—	—		(26,588)				—		(26,588)		—				(26,588)
Other comprehensive income	—	—		—		—		2,506		2,506		—				2,506
Translation difference	—	—		—		—		(301)		(301)		—				(301)
Net income/(loss)	—	—		—		150,191		—		150,191		(1,508)				148,683

Balance As At December 31, 2022	59,542,212	$	59	$	159,580	$	592,115	$	(60,920)	$	690,834	$	(8,503)			$	682,331

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

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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 capital		Retained earnings		Accumulated other comprehensive loss		Total equity attributable to the shareholders'		Non- controlling interest		Total
	Shares	Amount

Balance As At September 30, 2021 (Recasted)	59,534,712	$	59	$	143,268	$	476,610	$	(36,304)	$	583,633	$	(501)	$	583,132

Stock based compensation	—	—		4,561		—		—		4,561		—		4,561
Other comprehensive loss	—	—		—		—		(109)		(109)		—		(109)
Translation difference	—	—		—		—		(8,650)		(8,650)		—		(8,650)
Net income/(loss)	—	—		—		54,416		—		54,416		(343)		54,073

Balance As At December 31, 2021	59,534,712	$	59	$	147,829	$	531,026	$	(45,063)	$	633,851	$	(844)	$	633,007

Balance As At March 2021 (Recasted)	58,443,212	$	58	$	135,260	$	214,427	$	(40,433)	$	309,312	$	(1,641)	$	307,671

Stock based compensation	1,031,500	1		11,280		—		—		11,281		—		11,281
Sale of Freedom Ukraine shares	—	—		(796)		—		—		(796)		1,212		416
Contribution of shareholder	—	—		1,966		—		—		1,966		—		1,966
Exercise of options	60,000	—		119		—		—		119		—		119
Other comprehensive loss	—	—		—		—		(183)		(183)		—		(183)
Translation difference	—	—		—		—		(4,447)		(4,447)		—		(4,447)
Net income/(loss)	—	—		—		316,599		—		316,599		(415)		316,184

Balance As At December 31, 2021	59,534,712	$	59	$	147,829	$	531,026	$	(45,063)	$	633,851	$	(844)	$	633,007

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, 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 United Kingdom, Greece, Spain, France, Germany, the United Arab Emirates and Turkey. The Company also has a subsidiary in the United States which is a U.S. Securities and Exchange Commission ("SEC") registered broker dealer. The Company's common stock trades on the Nasdaq Capital Market, KASE, AIX and SPBX.

As of December 31, 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 authorized 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");

•Freedom Kazakhstan PC Ltd. ("Freedom Kazakhstan PC Ltd.")

•Ticketon Events LLP, an Almaty, Kazakhstan-based online ticket sales company ("Ticketon");

•Freedom Finance Turkey LLC, an Istanbul, Turkiye-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 Company to receive 90% of the net profits of Freedom UA after tax, and require the Company to provide Freedom UA the

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FREEDOM HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (All amounts in thousands of United States dollars, except share data, unless otherwise stated)

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. The sale of the Company's Russian subsidiaries was approved by the Central Bank of the Russian Federation on February 10, 2023, and the sale is expected to be completed before the end of February 2023.

In July 2022, Freedom RU established a Russian subsidiary Freedom Finance Auto LLC. In January 2023, Freedom RU concluded an agreement with Maxim Povalishin to sell Freedom Finance Auto LLC for RUB 50 million (approximately $695 based on the applicable currency exchange rate on the reporting date). On February 7, 2023, the sale of Freedom Finance Auto LLC was completed.

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), the Astana International Stock Exchange (AIX), the Moscow Exchange (MOEX), the Saint-Petersburg Exchange (SPBX), the Ukrainian Exchange (UX), the Republican Stock Exchange of Tashkent (UZSE) and the Uzbek Republican Currency Exchange (UZCE) and is a member of the New York Stock Exchange (NYSE) and the Nasdaq Stock Exchange (Nasdaq). The Company also owns a 24.3% interest in the UX. Freedom EU provides the Company's clients with operational support and access to investment opportunities in the U.S. and European securities markets.

On October 19, 2022, Freedom UA's brokerage license was suspended for a period of five years and its assets were frozen by the Ukrainian authorities following its inclusion on a sanctions list of the Ukrainian government. As of December 31, 2022, Freedom UA's total assets and total liabilities of $7,835 and $7,284, respectively, were reclassified to restricted assets and liabilities as part of other assets and other liabilities, respectively. The Company believes that the decision to include Freedom UA on such list was erroneous and it is in the process of appealing such decision.

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

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FREEDOM HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (All amounts in thousands of United States dollars, except share data, unless otherwise stated)

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. As of and for the three and nine months ended December 31, 2022, the only VIE of the Company was Freedom UA.

The carrying amounts of the VIE’s consolidated assets and liabilities are as follows:


	December 31, 2022	March 31, 2022

Cash and cash equivalents	1	134
Restricted cash	1,942	2,843
Trading securities	3,477	2,942
Margin lending, brokerage and other receivables, net	967	435
Fixed assets, net	800	1,043
Intangible assets, net	140	205
Right-of-use asset	424	905
Other assets	84