frhc-20230930

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, 2023

			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 November 6, 2023, the registrant had 59,659,191 shares of common stock, par value $0.001, issued and outstanding.

FREEDOM HOLDING CORP.

FORM 10-Q

TABLE OF CONTENTS



		Page
PART I — FINANCIAL INFORMATION

Item 1.	Unaudited Condensed Consolidated Financial Statements	3

	Condensed Consolidated Balance Sheets as of September 30, 2023, and March 31, 2023	3

	Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income for the Three and Six Months Ended September 30, 2023 and 2022	4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2023 and 2022	6

	Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended September 30, 2023 and 2022	9

	Notes to Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	72

Item 3.	Qualitative and Quantitative Disclosures About Market Risk	104

Item 4.	Controls and Procedures	107

PART II — OTHER INFORMATION		109

Item 1.	Legal Proceedings	109

Item 1A.	Risk Factors	109

Item 5.	Other Information	109

Item 6.	Exhibits	110

Signatures		111

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


	September 30, 2023		March 31, 2023

ASSETS
Cash and cash equivalents (including $0 and $35,549 from related parties)	$	463,875	$	581,417
Restricted cash (including $62,965 and $114,885 from related parties)	386,874		445,528
Trading securities	3,603,884		2,412,556
Available-for-sale securities, at fair value	192,546		239,053
Margin lending, brokerage and other receivables, net (including $413,560 and $294,985 from related parties)	1,024,805		376,329
Loans issued (including $135,132 and $121,177 from related parties)	1,176,732		826,258
Fixed assets, net	66,448		54,017
Intangible assets, net	44,164		17,615
Goodwill	51,555		14,192
Right-of-use asset	34,212		30,345
Insurance contract assets	9,361		13,785
Other assets, net (including $— and $16,089 from related parties)	83,849		73,463
TOTAL ASSETS	$	7,138,305	$	5,084,558

LIABILITIES AND SHAREHOLDERS’ EQUITY
Securities repurchase agreement obligations	$	2,753,873	$	1,517,416
Customer liabilities (including $121,974 and $130,210 from related parties)	2,439,187		1,925,247
Margin lending and trade payables (including $0 and $3,239 from related parties)	166,501		122,900
Liabilities from insurance activity	209,222		182,502
Current income tax liability	22,512		4,547
Debt securities issued	66,003		60,025
Lease liability	34,186		30,320
Payable for acquisition (including $15,769 and $0 to related parties)	15,769		7,188
Liability arising from continuing involvement	458,608		440,805
Other liabilities (including $11,729 and $46 to related parties)	58,013		22,872
TOTAL LIABILITIES	$	6,223,874	$	4,313,822
Commitments and Contingent Liabilities (Note 23)	—		—

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; 59,659,191 and 59,659,191 shares issued and outstanding as of September 30, 2023, and March 31, 2023, respectively	59		59
Additional paid in capital	166,426		164,162
Retained earnings	807,149		647,064
Accumulated other comprehensive loss	(62,550)		(34,000)
TOTAL FRHC SHAREHOLDERS’ EQUITY	$	911,084	$	777,285

Non-controlling interest	3,347		(6,549)
TOTAL SHAREHOLDERS’ EQUITY	$	914,431	$	770,736

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	7,138,305	$	5,084,558

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

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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 September 30,				Six Months Ended September 30,
	2023		2022		2023		2022

Revenue:
Fee and commission income (including $20,022 and $61,149 from related parties)	$	111,703	$	83,157	$	210,406	$	172,603
Net gain on trading securities	50,771		9,005		82,587		13,439
Interest income (including $9,731 and $7,392 from related parties)	213,063		58,999		362,412		107,562
Insurance underwriting income	57,976		26,200		102,865		50,440
Net (loss)/gain on foreign exchange operations	(3,696)		4,555		15,605		9,148
Net gain/(loss) on derivative	1,378		(2,320)		(29,227)		(1,054)
Other income	4,386		524		7,143		491
TOTAL REVENUE, NET	435,581		180,120		751,791		352,629

Expense:
Fee and commission expense (including $81 and $196 from related parties)	31,614		18,439		60,298		41,754
Interest expense	139,381		40,863		234,427		80,934
Insurance claims incurred, net of reinsurance	33,988		17,475		55,502		34,167
Payroll and bonuses	39,998		17,229		71,628		33,642
Professional services	11,951		4,018		18,576		8,273
Stock compensation expense	1,031		1,703		2,264		3,579
Advertising expense	8,639		1,912		16,739		5,749
General and administrative expense (including $5,229 and $0 from related parties)	29,630		12,898		54,105		24,516
Allowance for expected credit losses	4,662		3,726		18,988		6,154
TOTAL EXPENSE	300,894		118,263		532,527		238,768

INCOME BEFORE INCOME TAX	134,687		61,857		219,264		113,861

Income tax expense	(19,208)		(12,619)		(35,864)		(21,498)

INCOME FROM CONTINUING OPERATIONS	115,479		49,238		183,400		92,363

(Loss)/Income before income tax expense of discontinued operations	—		(18,302)		—		800

Income tax expense of discontinued operations	—		(3,724)		—		(6,880)

Income from discontinued operations	—		(22,026)		—		(6,080)

NET INCOME	115,479		27,212		183,400		86,283

Less: Net (loss)/gain attributable to non-controlling interest in subsidiary	(368)		950		(549)		(1,044)
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	115,847	$	26,262	$	183,949	$	87,327

OTHER COMPREHENSIVE INCOME
Change in unrealized gain on investments available-for-sale, net of tax effect	2,168		1,477		4,407		2,343

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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)


Reclassification adjustment for net realized loss on available-for-sale investments disposed of in the period, net of tax effect	(306)		(716)		(1,264)		(123)
Foreign currency translation adjustments	(29,933)		(16,663)		(31,693)		5,316
OTHER COMPREHENSIVE (LOSS)/ INCOME	(28,071)		(15,902)		(28,550)		7,536

COMPREHENSIVE INCOME BEFORE NON-CONTROLLING INTERESTS	$	87,408	$	11,310	$	154,850	$	93,819

Less: Comprehensive (loss)/gain attributable to non-controlling interest in subsidiary	(368)		950		(549)		(1,043)

COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	87,776	$	10,360	$	155,399	$	94,862

EARNINGS PER COMMON SHARE (In U.S. dollars):
Earnings from continuing operations per common share - basic	1.97		0.82		3.13		1.59
Earnings from continuing operations per common share - diluted	1.95		0.81		3.09		1.57

Loss from discontinued operations per common share - basic	—		(0.38)		—		(0.10)
Loss from discontinued operations per common share - diluted	—		(0.37)		—		(0.10)

Earnings per common share - basic	1.97		0.45		3.13		1.49
Earnings per common share - diluted	1.95		0.44		3.09		1.46

Weighted average number of shares (basic)	58,581,332		58,665,415		58,546,963		58,624,513
Weighted average number of shares (diluted)	59,291,832		59,518,473		59,292,757		59,678,513

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 Six Months Ended September 30,
	2023		2022

Cash Flows From Operating Activities
Net income	$	183,400	$	86,283
Net income/(loss) from discontinued operations	$	—	$	(6,080)
Net income from continued operations	$	183,400	$	92,363
Adjustments to reconcile net income used in operating activities:
Depreciation and amortization	6,611		1,817
Amortization of deferred acquisition costs	12,161		—
Noncash lease expense	4,023		2,047
Change in deferred taxes	3,312		(1,763)
Stock compensation expense	2,264		3,581
Unrealized (gain)/loss on trading securities	(30,664)		8,232
Unrealized loss on derivatives	(434)		—
Net realized gain on available-for-sale securities	(1,264)		—
Net change in accrued interest	(68,173)		(20,855)
Revaluation of purchase price previously held interest in Arbuz	(1,040)		—
Change in insurance reserves	38,032		30,627
Change in unused vacation reserves	1,800		—
Allowance for expected credit losses	18,988		6,154
Changes in operating assets and liabilities:
Trading securities	(1,264,940)		(223,540)
Margin lending, brokerage and other receivables (including $(118,575) and $(228,343) changes from related parties)	(656,755)		(263,107)
Insurance contract assets	3,412		706
Other assets	(30,959)		(33,322)
Securities sold, not yet purchased – at fair value	—		(6,489)
Brokerage customer liabilities (including $(8,236) and $(197,204) changes from related parties)	354,720		329,496
Current income tax liability	17,947		4,537
Margin lending and trade payables (including $(3,239) and $(33,239) changes from related parties)	39,701		20,490
Lease liabilities	(4,728)		(2,453)
Liabilities from insurance activity	(262)		(8,032)
Other liabilities	21,159		4,521
Net cash flows used in operating activities from continuing operations	(1,351,689)		(54,990)
Net cash flows from/(used in) operating activities from discontinued operations	—		29,583
Net cash flows used in operating activities	(1,351,689)		(25,407)

Cash Flows Used In Investing Activities
Purchase of fixed assets	(19,446)		(17,295)
Proceeds from sale of fixed assets	—		36
Net change in loans issued to customers	(443,901)		(283,821)
Purchase of available-for-sale securities, at fair value	(134,002)		(167,450)
Proceeds from sale of available-for-sale securities, at fair value	174,277		157,420
Consideration paid for acquisition of London Almaty	—		(16,343)
Consideration paid for Internet Tourism	(31)		—
Consideration paid for Aviata	(690)		—
Consideration paid to Arbuz	(13,281)		—
Consideration paid to Ticketon	(3,003)		—
Prepayment on acquisition	(10,550)		4,954

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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)


Cash, cash equivalents and restricted cash disposed as a result of deconsolidation of Freedom UA	(1,987)	—
Cash, cash equivalents and restricted cash received from acquisitions	2,461	11,385
Net cash flows used in investing activities from continuing operations	(450,153)	(311,114)


Net cash flows used in investing activities from discontinued operations			(12,073)
Net cash flows used in investing activities	(450,153)		(323,187)

Cash Flows From Financing Activities
Proceeds from securities repurchase agreement obligations	1,367,948		168,565
Proceeds from issuance of debt securities	5,801		17,240
Repurchase of mortgage loans under the State Program	(19,526)		(2,594)
Funds received under state program for financing of mortgage loans	53,400		152,184
Net change in bank customer deposits	279,939		513,546
Purchase of non-controlling interest in Arbuz	(3,228)		—
Capital contributions	—		677
Proceeds from loans received	410		1,863

Net cash flows from financing activities from continuing operations	1,684,744		851,481
Net cash flows from financing activities from discontinued operations			44,203
Net cash flows from financing activities	1,684,744		895,684
Effect of changes in foreign exchange rates on cash and cash equivalents from continued operations	(59,098)		(28,371)
Effect of changes in foreign exchange rates on cash and cash equivalents from discontinued operations			212,557

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(176,196)		731,276

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD FROM CONTINUED OPERATIONS	1,026,945		773,414
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD FROM DISCONTINUED OPERATIONS			456,886
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	1,026,945		1,230,300

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD FROM CONTINUED OPERATIONS	$	850,749	$	1,230,420
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD FROM DISCONTINUED OPERATIONS			$	731,156
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$	850,749	$	1,961,576

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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 Six Months Ended September 30,
	2023		2022

Supplemental disclosure of cash flow information:
Cash paid for interest	$	220,299	$	39,032
Income tax paid	$	13,484	$	18,803

Supplemental non-cash disclosures:
Operating lease right-of-use assets obtained/disposed of in exchange for operating lease obligations during the period, net	$	3,771	$	5,706

The following table provides a reconciliation of cash and 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, 2023		September 30, 2022

Cash and cash equivalents	$	463,875	$	790,390
Restricted cash	386,874		440,030
Total cash, cash equivalents and restricted cash shown as in the statement of cash flows	$	850,749	$	1,230,420

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

At June 30, 2023	59,659,191	$	59	$	165,395	$	691,302	$	(34,479)	$	822,277	$	3,459	$	825,736

Stock based compensation	—	—		1,031		—		—		1,031		—		1,031
Acquisition of insurance companies	—	—		—		—		—		—		—		—
Capital contributions	—	—		—		—		—		—		—		—
Purchase of ReKassa shares	—	—		—		—		—		—		256		256
Foreign currency translation adjustments, net of tax effect	—	—		—		—		(29,933)		(29,933)		—		(29,933)
Other comprehensive reserve	—	—		—		—		1,862		1,862		—		1,862
Net income/(loss)	—	—		—		115,847		—		115,847		(368)		115,479

At September 30, 2023	59,659,191	$	59	$	166,426	$	807,149	$	(62,550)	$	911,084	$	3,347	$	914,431

At March 31, 2023	59,659,191	$	59	$	164,162	$	647,064	$	(34,000)	$	777,285	$	(6,549)	$	770,736

Cumulative adjustment from adoption of ASC 326	—	—		—		(22,772)		—		(22,772)		—		(22,772)
Stock based compensation	—	—		2,264		—		—		2,264		—		2,264
Disposal of FF Ukraine	—	—		—		(6,549)		—		(6,549)		6,549		—
Purchase of Arbuz shares	—	—		—		5,457		—		5,457		3,640		9,097
Purchase of ReKassa shares	—	—		—		—		—		—		256		256
Foreign currency translation adjustments, net of tax effect	—	—		—		—		(31,693)		(31,693)		—		(31,693)
Other comprehensive reserve	—	—		—		—		3,143		3,143		—		3,143
Net income/(loss)	—	—		—		183,949		—		183,949		(549)		183,400

At September 30, 2023	59,659,191	$	59	$	166,426	$	807,149	$	(62,550)	$	911,084	$	3,347	$	914,431

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 June 30, 2022	59,542,212	$	59	$	152,532	$	502,989	$	(39,673)	$	615,907	$	(8,989)	$	606,918

Stock based compensation	—	—		$	3,103	—		—		3,103		—		3,103
Sale of Freedom UA shares	—	—		—		—		—		—		—		—
Contribution of shareholder	—	—		—		—		—		—		—		—
Exercise of options	—	—		—		—		—		—		—		—
Other comprehensive income	—	—		—		—		761		761		—		761
Foreign currency translation adjustments, net of tax effect	—	—		—		—		(16,663)		(16,663)		—		(16,663)
Net income	—	—		—		26,262		—		26,262		950		27,212

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

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	—	—		$	6,801	—		—		6,801		—		6,801
Sale of Freedom UA shares	—	—		—		—		—		—		—		—
Contribution of shareholder	—	—		677		—		—		677		—		677
Acquisition of insurance companies	—	—		(26,588)		—		—		(26,588)		—		(26,588)
Other comprehensive income	—	—		—		—		2,234		2,234		—		2,234
Foreign currency translation adjustments, net of tax effect	—	—		—		—		5,316		5,316		—		5,316
Net income/(loss)	—	—		—		87,327		—		87,327		(1,044)		86,283

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

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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" and, together with its subsidiaries, the "Group") 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, underwriting services, commercial banking, insurance products, a payment platform, a conference platform and an online ticket sale platform. The Company is headquartered in Almaty, Kazakhstan, with supporting administrative office locations in Cyprus and the United States. The Group has a presence in Kazakhstan, Uzbekistan, Kyrgyzstan, Cyprus, Germany, the United Kingdom, United States, Greece, Spain, France, Poland, Armenia, Azerbaijan, Turkey and United Arab Emirates. The Company also has subsidiaries in the United States which include a broker-dealer that is registered with the United States Securities and Exchange Commission ("SEC") and the Financial Industry Regulatory Authority ("FINRA"). The Company's common stock trades on the Nasdaq Capital Market, the Kazakhstan Stock Exchange (KASE) and the Astana International Exchange (AIX).

As of September 30, 2023, 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")(1);

•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 Property Ltd, a Limassol, Cyprus-based asset management company ("Property");

•Freedom UK Prime Limited, a London, United Kingdom-based financial intermediary company ("Prime UK");

•Foreign Enterprise LLC Freedom Finance, 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 FZE., a Dubai, United Arab Emirates-based office of international organization ("Freedom UAE");

•ITS Tech Limited, an Astana International Financial Centre-based, IT-support company ("ITS Tech");

•Freedom Kazakhstan PC Ltd, an Almaty, Kazakhstan-based non-financial company ("Freedom Kazakhstan PC Ltd.");

•Ticketon Events LLP, an Almaty, Kazakhstan-based online ticket sales company ("Ticketon")(2);

•Freedom Finance Turkey LLC, an Istanbul, Turkey-based financial consulting company ("Freedom TR");

•Freedom Technologies LLP, an Almaty, Kazakhstan-based payment company ("Paybox")(3);

•Freedom U.S. Market LLC, a New York City, New York-based management company of Freedom’s U.S. Operations ("FUSM");

•LD Micro, a New York City, a pre-eminent event platform which hosts two premier small and micro-cap world conferences annually ("LD Micro");

•Aviata LLP ("Aviata"), an Almaty, Kazakhstan-based online aggregator for buying air and railway tickets ("Aviata");

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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)

• Internet-Tourism LLP, an Almaty, Kazakhstan-based online aggregator for buying air and railway tickets ("Internet Tourism);

•Arbuz Group LLP an Almaty, Kazakhstan-based online retail trade and e-commerce ("Arbuz") (4);

•Freedom Horizons LLP, an Almaty, Kazakhstan-based business consulting and services company;

•Freedom Telecom Holding Limited, an Almaty, Kazakhstan-based telecommunications company ("Telecom");

•Comrun LLP, an Almaty, Kazakhstan-based mobile and web application company ("ReKassa");

•Freedom Advertising Ltd, an Almaty, Kazakhstan-based advertising company ("Advertising");

•Freedom Shapagat Corporate Fund, an Almaty, Kazakhstan-based non-profit organization ("Shapagat");

•Freedom Structured Product PLC, a Limassol, Cyprus-based financial services company ("FSP").

•Freedom Management Ltd., an Abu-Dhabi, United Arab Emirates-based consulting company ("Freedom Management");

(1) Bank KZ has one wholly-owned subsidiary incorporated in Kazakhstan.

(2) Ticketon has two wholly-owned subsidiaries each incorporated in Uzbekistan, and Kyrgyzstan.

(3) Paybox has five wholly-owned subsidiaries each incorporated in Kazakhstan, Uzbekistan, and Kyrgyzstan.

(4) Arbuz has two wholly-owned subsidiaries each incorporated in Kazakhstan.

As at September 30, 2023 the Company 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 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.

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. Given the ongoing uncertainty surrounding the situation in Ukraine, the management of the Company believes that as of September 30, 2023 the Company does not maintain effective control over Freedom UA.

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 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 Ukrainian Exchange (UX). Freedom EU provides the Company's clients with operational support and access to investment opportunities in the United States and European securities markets.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting principles

The Company's accounting policies and accompanying 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 consolidated financial statements present the consolidated accounts of FRHC and its consolidated subsidiaries. All inter-company balances and transactions have been eliminated from the consolidated financial statements.

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. As of September 30, 2023 there are no VIEs in respect of the Company. As at March 31, 2023 and for the years ended March 31, 2023, 2022 and 2021, the only VIE in respect of the Company was Freedom UA.

The carrying amounts of Freedom UA’s consolidated assets and liabilities were as follows as of March 31, 2023:

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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)


						March 31, 2023

Cash and cash equivalents						26
Restricted cash						1,936
Trading securities						4,010
Margin lending, brokerage and other receivables, net						1,616
Fixed assets, net						782
Intangible assets, net						131
Right-of-use asset						135
Other assets						56

Total assets						8,692

Customer liabilities						5,837
Securities repurchase agreement obligations						12
Trade payables						25
Lease liability						159
Other liabilities						298

Total liabilities						6,331

Loss of control of Freedom UA

Amidst the Russia-Ukraine conflict and subsequent economic sanctions, Freedom UA was added to the Ukrainian government's sanctioned entities and individuals list, resulting in restrictive measures being imposed on it by the Ukrainian authorities, including suspension of its brokerage license. Effective April 1, 2023, the Company removed its equity interest in Freedom UA from its consolidated financial statements and recognized a loss of control of such company. The Company accounted for the deconsolidation of Freedom UA by recognizing loss in net income attributable to the Company as the difference between net liabilities of Freedom UA as of April 1, 2023 (date of loss of control) and net liabilities as of September 30, 2023.

Non-Consolidation of Freedom Securities Trading Inc.

The Company has assessed whether it should consolidate Freedom Securities Trading Inc. (formerly known as FFIN Brokerage Services, Inc.) ("FST Belize") under the variable interest entity (“VIE”) accounting method or the voting interest method ("VOE"). In July 2014, prior to the Company's reverse acquisition transaction, Timur Turlov founded FST Belize, a Belize-based broker dealer. FST Belize is solely owned by Mr. Turlov and was not acquired by the Company as part of the reverse acquisition transaction. Although FRHC and FST Belize are common control entities, under the control of an individual, there is no indication that FRHC should consolidate FST Belize given that:

(1) FST Belize is not a VIE and is not subject to further VIE analysis due to the fact it has sufficient equity at risk to finance its activities without additional financial support and the control over its significant activities is held by its sole shareholder, Mr. Turlov who is also FRHC's controlling shareholder, chairman and chief executive officer; and

(2) Mr. Turlov has a controlling interest in FST Belize such that under the VOE model FRHC is not required to consolidate FST Belize.

FST Belize is a corporation and Mr. Turlov is the sole owner of FST Belize, holding 100% of the ownership interest in it. There are no other shareholders or parties with participating rights or the ability to remove Mr. Turlov from his ownership position. Mr.Turlov has the ability to make all decisions in respect of FST Belize. FRHC's management has also assessed the relationship between FRHC (through its subsidiary Freedom EU) and FST Belize. Other than the tariff rates stipulated in the Variation Agreement dated February 25, 2020 entered into between Freedom EU and FST Belize, including the General Terms and Conditions of Business, which sets out the specific terms and conditions of the relationship between Freedom EU and FST Belize, there are no other contractual agreements or other implicit arrangements between the two

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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 that provide FRHC the power to control the operations of FST Belize. In December 2022 the Company changed its treatment of certain interest income so that it applies from the settlement date whereas previously it applied from the trade date. As a result of that change, the Company's management has continued to assess for any modifications or reconsideration events.

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 the Company's financial statements are reasonable and prudent. Actual results could differ from those estimates.

Revenue and expense 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 Group'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 Group's revenue-generating activities that are within the scope of ASC Topic 606, which are presented in the Consolidated Statements of Operations and Statements of Other Comprehensive Income as components of total revenue, net 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).

Gross versus net revenue

ASC 606 provides guidance on proper recognition of principal versus agent considerations which is used to determine gross versus net revenue recognition. Under ASC 606, the core objective of the guidance on gross versus net revenue recognition is to help determine whether the Group is a principal or an agent in a transaction. In general, the primary difference between these two is the performance obligation being satisfied. The principal has a performance obligation to provide the desired goods or services to the end customer, whereas the agent arranges for the principal to provide the desired goods or services. Additionally, a fundamental characteristic of a principal in a transaction is control. A principal substantively controls the goods and services before they are transferred to the customer as well as controls the price of the good or service being provided. An agent normally receives a commission or fee for these activities. In addition to control, the level at which the Group controls the price of the good or service being transferred determines principal versus agent status. The more discretion over setting price a Group has in providing the good or service, the more likely they are considered a principal rather than an agent.

In certain cases, other parties are involved with providing products and services to Freedom's customers. If Freedom is principal in the transaction (providing goods or services itself), revenues are reported based on the gross consideration received from the customer and any related expenses are reported gross in non interest expense. If Freedom is an agent in the transaction (arranging for another party to provide goods or services), the Group reports its net fee or commission retained as revenue.

Interest income

Interest income on margin loans, loans issued, trading securities, available-for-sale 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.

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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)

Interest income is recognized by the Group and continue to be accrued for the loans which meet the impairment criteria.

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.

Loans

The Group's loan portfolio is divided into: mortgages, uncollateralized bank customer loans, collateralized bank customer loans, car loans, loans issued to policyholders, convertible loans, right of claim for purchased retail loans and subordinated loans. Mortgage loans consist of loans provided to individuals to purchase residential homes, which is used as collateral for the loan. Uncollateralized bank customer loans consist of loans provided through credit cards to individuals and retail unsecured banking loans provided to individuals. Collateralized bank customer loans consist of retail collateralized loans provided to individuals. Subordinated loans consist of uncollateralized loans provided to the legal entities to support their businesses, that ranks below other, more senior loans or securities with respect to claims on assets or earnings. Margin loans are not classified as part of the Group's loan portfolio and are instead recorded on the Consolidated Balance Sheets under Margin lending, brokerage and other receivables, net. Loans to policyholders are represented by loans issued by insurer to its policyholders under an accumulative insurance contract. Policy loans are provided within the redemption amount, which is a security for the return of the received loan and covers the loans amount and interest. Car loans consists of loans provided to individuals to purchase new or used car. Right of claim for purchased retail loans represented by microfinance organization Freedom Finance Credit (“FFIN Credit") loans.

A loan becomes delinquent when the borrower doesn't fulfill its obligations to the Group to repay the loan on time according to the agreement.

Write-off

Loans are written off either partially or in their entirety only when the Group has stopped pursuing the recovery. If the amount to be written off is greater than the accumulated loss allowance, the difference is first treated as an addition to the allowance that is then applied against the gross carrying amount. Any subsequent recoveries are credited to expected credit loss expense.

The loan or part of the loan can be fully or partially written off in the following cases:

•death of the borrower;

•bankruptcy of the borrower;

•entry into force of a court decision on refusal or partial satisfaction of the Group's claims for debt collection;

•conversion of the pledged property into the ownership of the Group;

•assignment by the Group of its rights of claim to third parties.

Modifications

Where possible, the Group seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions.

The Group derecognizes loan when the terms and conditions have been renegotiated to the extent that, substantially, it becomes a new loan, with the difference recognized as a derecognition gain or loss, to the extent that an impairment loss has not already been recorded. When assessing whether or not to derecognize a loan to a customer, amongst others, the Group considers the following factors: change in currency of the loan, change in counterparty and modifications.

Allowance for credit losses

The Group maintains an allowance for credit losses (ACL) for financial assets measured at amortized cost. The ACL mainly consists of the allowance for loan losses, and the allowance for credit losses for available-for-sale securities. The estimate of expected credit losses under the current expected credit losses (CECL) methodology adopted on April 1, 2023

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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)

is based on relevant information about the past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.

Allowance for credit losses - Loans

On April 1, 2023, the Group adopted new accounting guidance which requires entities to estimate and recognize an allowance for lifetime expected credit losses for loans. Previously, an allowance for credit losses for loans was recognized based on probable incurred losses.

The ACL is a valuation account that is deducted from the amortized cost of total loans to present the net amount expected to be collected on the loans.

Under CECL, the Group's methodology to establish the allowance for loan losses has two basic components: (1) a collective CECL component for estimated expected credit losses for pools of loans that share common risk characteristics and (2) an individual CECL component for loans that do not share risk characteristics.

Management estimates the allowance balance using relevant and available information from internal and external sources, relating to past events, including historical trends in loan delinquencies and charge offs, current conditions, and reasonable and supportable forecasts.

Allowance for credit losses for loans that share common risk characteristics

Pooling loans with common risk characteristics for estimating allowance for credit losses is primarily based on the segmentation by product type and the type of collateral provided. The Group estimates current expected credit loss for loans with common risk characteristics using the PD/LGD methodology, which is based on relevant information about historical experience, current conditions, as well as reasonable and reasonable forecasts that allow estimating the Group's potential losses on the loan portfolio.

In assessing the Probability of Default (PD) for loans with common risk characteristics, the Group uses average monthly loan balance flowing across delinquency buckets over a period of five years or more. Based on the weighted average maturity of loans with common risk characteristics, using the Markov chain method, the proportion of possible loan agreements with overdue debts over 90 days for individuals and over 60 days for legal entities is determined, which are used to determine the PD for a pool of loans. If there are no own statistics, then the calculation of PD is carried out on the basis of statistics of State Credit Bureau JSC on past events for a period of five or more years. The resulting PD indicator is adjusted for qualitative or internal and external environmental factors not considered within the model, but which are relevant in estimating the expected credit losses within the loan portfolio. The macroeconomic indicators impacting the expected risk of loss within the loan portfolio include the following: GDP, the retail trade index, the unemployment rate, the real wage rate, the dollar exchange rate against the tenge, and the consumer price index. These macroeconomic indicators are recalculated once per year and used throughout the year. Also, they are used for all loan types. For defaulted loans, PD 100% is applied, for non-impaired loans PD for the average life of the pool is recognized at inception.

When estimating the Loss on Default (LGD) for loans with common risk characteristics, the Group uses the latest market value of the collateral as of the calculation date. First, depending on the type of collateral, liquidity ratios are applied to the market value, after which the value of the collateral is discounted at the initial effective interest rate of the loan agreement for the exposure periods corresponding to the types of collateral. When calculating LGD, the methodology is the same for both non-impaired and defaulted loans.

The described above PD/LGD approach apply for all type of loans, as well as non-impaired and defaulted.

Allowance for credit losses for loans that that do not share common risk characteristics

Loans that do not share similar risk characteristics with any pools of assets are subject to individual evaluation and are removed from the collectively assessed pools. Loans that are individually evaluated for collectability are reviewed based on an assessment of the financial condition of the borrower, taking into account the most possible debt repayment scenarios:

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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)

due to expected cash flows from operating activities, cash available from guarantors, founders, shareholders, investors, related companies, other confirmed cash flows, restructuring of the borrower's obligations and the sale of collateral. Depending on the loan maturity date, the expected cash flows are discounted at the original effective interest rate and allowance for credit losses are calculated as the difference between the discounted expected cash flows and outstanding balance of the loan. If repayment of the debt is deemed impossible, based on the expected cash flows, the Group accrues allowance for credit losses in the amount of 100% of the loan balance.

Loan portfolio risk elements and credit risk management

Credit risk management. When implementing credit risk management processes, the Group is guided by internal policies and procedures approved by the Board of Directors, which define the main goals, objectives, principles, priority areas for the formation of an internal effective credit risk management system that corresponds to the current market situation and the Group's development strategy, and ensures effective identification, measurement, monitoring and control of the Group's credit risk. In order to minimize credit risk, the Group has developed procedures for managing internal risk appetite limits for currencies, countries, sectors of the economy, business categories and products, types of collateral, concentration of risk on the top 20 borrowers, debts of a group of related borrowers, etc. Control over the level of limits on credit risk is carried out by the Group's risk division through the preparation of monthly management reports, which include, but are not limited to, information on the quality of the loan portfolio, its classification in accordance with the requirements of reporting standards, on the amount of exposure to credit risk, including a group of related borrowers, on the concentration of credit risk of the largest borrowers and borrowers as related parties to the Group, on the internal rating of borrowers, etc. When analyzing a borrower, the Group uses the following information to assess creditworthiness: the borrower's existing loans from all banks in the Republic of Kazakhstan, the presence of overdue debt, income, age, work experience and dynamics of credit behavior.

Mortgage loans. The Group provides mortgage loans for the purchase of real estate in both the primary and secondary markets. This is done through the Group's own and government lending programs, relevant lending products as described in the Group's internal normative documents, and compliance with the laws and regulations of the Republic of Kazakhstan. The main share of the Group's loan portfolio is represented by mortgage loans issued within the framework of state support programs, funded from the funds of quasi-state organizations. Valuation of real estate collateral is carried out directly by independent appraisal companies with subsequent confirmation by the Group's collateral service. The collateral policy and methodology of the process for working with collateral comply with the regulatory requirements of the regulator and the banking legislation of the country. In the process of making decisions on the solvency and creditworthiness of borrowers, an automatic check is carried out through external and internal databases. To do this, the results of both the Group's own and third-party credit scoring models are taken into account. The Group does not use third party loan underwriting services. Residential mortgages include only fixed rate loans secured by real estate purchases. When making a decision to issue a mortgage on housing, the Group takes into account the qualifications of the borrower, as well as the value of the underlying property.

Car loans. When making decisions on car loans, the Group uses both evaluation and scoring systems. The Group provides loans for the purchase of motor vehicles both under the C2C scheme and under the B2C scheme with the participation of car dealerships. The decision-making process includes the use of data from credit bureaus, government databases and other sources of information. This allows not only to assess the financial capacity of a potential borrower, but also to evaluate the purchased vehicle. Machine learning models have also been introduced that analyze data about the cars themselves and sellers. This allows to automatically screen out applications with high potential credit risk.

Right of claim for purchased retail loans. The Group regularly acquires receivables on consumer credit products from other financial institutions through assignment agreements (cessions). This pool of the Group's loan portfolio is low-risk due to the presence of a condition for the repurchase of loans by a microfinance organization in the event of an overdue debt on these loans for more than 20 calendar days in accordance with the agreement between the Group and the microfinance organization.

To confirm the solvency of a financial institution, an analysis is made of its financial position and the ability to fulfill obligations under an agreement on the repurchase of loans in case of default in payment terms for 20 or more days.

Uncollateralized bank customer loans. In the loan portfolio of individuals, an insignificant part is represented by loans issued without collateral for consumer purposes. The main condition for issuing loans to potential borrowers is compliance with the regulator's requirement that the amount of monthly loan payments does not exceed 50% of the borrower's income after a credit analysis. In case of violation of this condition, the Group rejects the loan request.

In addition to unsecured loans for individuals, the Group also offers unsecured loans for individual entrepreneurs. Several scoring models are used to make decisions about this product to determine the risk segment for each customer. The income of the client and the class of the borrower are also estimated based on his property status. The Group uses data from official

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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)

sources to determine the payment fund for an individual entrepreneur and turnover through an online cash register, which helps to assess the solvency of customers.

The final decision to grant a limit depends on the risk segment and income class of the borrower. Loans are issued both within the framework of their own programs and under government programs with subsidized interest rates in the portfolio.

Collateralized bank customer loans. The Group provides loans secured by guarantees issued by the quasi-governmental company's and by highly liquid financial assets. Due to the presence of collateral, the maximum loan amount significantly exceeds those provided for unsecured loans. At the loan issuance date, the collateral value fully covers the loan amount.

Derivative financial instruments

In the normal course of business, the Group 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.

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 Kazakhstan tenge, the euro, the U.S. dollar, the Uzbekistani som, the Kyrgyzstani som, the Azerbaijani manat, the British pound sterling, the Armenian dram, the United Arab Emirates dirham and the Turkish lira, 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 quarterly 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 shareholders' equity as "Accumulated other comprehensive loss". The Group uses exchange rates from the National Bank of the Republic of Kazakhstan for foreign currency translation purposes.

Cash and cash equivalents

Cash and cash equivalents are generally comprised of cash and certain highly liquid investments with original maturities of three months or less at the date of purchase. Cash and cash equivalents include reverse repurchase agreements with a maturity of less than 90 days and where the credit risk of the counterparty is low, which are recorded at the amounts at which the securities were acquired plus accrued interest.

Securities reverse repurchase and repurchase agreements

A reverse repurchase agreement is a transaction in which the Group 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 Consolidated Balance Sheets.

A repurchase agreement is a transaction in which the Group 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 Group retains the financial instruments sold under repurchase agreements and classifies them as trading securities in the Consolidated Balance Sheets. The consideration received under repurchase agreements is classified as securities repurchase agreement obligations in the Consolidated Balance Sheets.

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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)

The Group enters into reverse repurchase agreements, repurchase agreements, 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 Group 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.

Restricted cash

Restricted cash consists of cash and cash equivalents that are held for specific reasons and not available for immediate use. Certain subsidiaries of the Group are obligated by rules and regulations mandated by their primary regulators to segregate or set aside certain customer cash in the interests of protecting customer assets. Restricted cash is mainly represented by customer cash and guaranty deposits, which are restricted in use by the Group for more than three months.

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 investments or (c) trading securities.

Gains and losses arising from changes in fair value are recognized in other comprehensive income and accumulated in the Accumulated other comprehensive loss, with the exception of other-than-temporary impairment losses, interest calculated using the effective interest method, and foreign exchange gains and losses are recognized in the 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 accumulated other comprehensive (loss)/income is then reclassified to net realized gain/(loss) on investments available-for-sale in the Consolidated Statements of Operations and Statements of Other Comprehensive Income.

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 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 Consolidated Statements of Operations and Statements of Other Comprehensive Income and 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 of the funds provided by the fund managers with gains or losses included in net gain on trading securities in the 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 Group purchases its own debt it is removed from the Consolidated Balance Sheets and the difference between the carrying amount of the liability and the consideration paid is recognized in the Consolidated Statements of Operations and Statements of Other Comprehensive Income.

Margin lending, brokerage and other receivables

The Group engages in securities financing transactions with and for clients through margin lending. In margin lending, the Group's customers borrow funds from the Group or sell securities the customer does not own against the value of their qualifying securities held in custody by the Group. Under these agreements, the Group is permitted to sell or repledge

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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)

securities received as collateral. Furthermore, the contractual arrangements establish that the Group can use the pledged collateral by the customers for repurchase agreement operations, securities lending transactions or delivery to other counterparties to cover short positions.

Margin lending, brokerage and other receivables comprise margin lending receivables, brokerage commissions and other receivables related to the securities brokerage and banking activity of the Group. At initial recognition, margin lending, brokerage and other receivables are recognized at fair value. Subsequently, margin lending, brokerage and other receivables are carried at cost net of any allowance for impairment losses.

For both individual and institutional brokerage clients, the Group may enter into arrangements for securities financing transactions in respect of financial instruments held by the Group on behalf of the client or may use such financial instruments for its own account or the account of another client. The Group maintains omnibus brokerage accounts for certain institutional brokerage clients, in which transactions of the underlying clients of such institutional clients are combined in a single account with us. As noted above, the Group may use the assets within the omnibus accounts to finance, lend, provide credit or provide debt financing or otherwise use and direct the order or manner of assets for financing of other clients of ours.

As of September 30, 2023, the margin lending receivables balance from FST Belize was fully collateralized by its customer-owned cash and market securities held by the Group, including $340.7 million of margin lending receivables collateralized by FRHC securities. Customers’ required margin levels and established credit limits are monitored continuously by the Group's risk management staff. Pursuant to the Group’s policy, customers are required to deposit additional collateral or reduce positions, when necessary, to avoid liquidation of their positions.

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 where all of the following conditions are met:

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

•The transferee has rights to pledge or exchange financial assets.

•The Group 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 Group 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 Group 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. During the three months ended September 30, 2023 the Group did not record any charges for impairment of long-lived assets.

Impairment of goodwill

Goodwill is allocated to reporting units, which are identified as the operating segments or one level below operating segments that generate separate financial information regularly reviewed by management. The assignment of goodwill to reporting units allows for the assessment of potential impairment at the appropriate level within the organization.

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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)

The Group has identified its reporting units based on its organizational and operational structure, as well as the level at which internal financial information is reviewed by management to make strategic decisions. In line with this, the reporting units have been established as follows:

Central Asia and Eastern Europe Reporting Unit: This reporting unit represents the Group's operations in Central Asia and Eastern Europe, which encompasses countries such as Kazakhstan, Uzbekistan and Kyrgyzstan. The management team responsible for the Central Asia and Eastern Europe region regularly reviews financial information specific to this reporting unit, including revenue, expenses, and key performance indicators.

Europe Excluding Eastern Europe Reporting Unit: This reporting unit comprises the Group's operations in various European countries, including Cyprus, Germany and United Kingdom. The management team responsible for the Europe Excluding Eastern Europe region reviews financial information related to this reporting unit, including revenue, expenses, and market trends.

US Reporting Unit: This reporting unit comprises the Group's operations in USA. The management team responsible for the US region reviews financial information related to this reporting unit, including revenue, expenses, and market trends.

Middle East/Caucasus Unit: This reporting unit comprises the Group's operations in Middle East/Causcasus. This reporting unit represents the Group's operations in Middle East/Caucasus, which encompasses countries such as Armenia, Azerbaijan, UAE and Turkey. The management team responsible for the Middle East/Causcasus region reviews financial information related to this reporting unit, including revenue, expenses, and market trends.

Goodwill has been allocated to each reporting unit based on its relative fair value at the time of acquisition or significant triggering events. The fair value allocation of goodwill to reporting units is periodically reassessed to ensure alignment with the Group's evolving organizational structure and operational dynamics.

The Group conducts impairment testing on an annual basis or whenever indicators of potential impairment arise. The impairment testing involves comparing the carrying amount of each reporting unit, including its allocated goodwill, to its fair value. If the carrying amount exceeds the fair value, an impairment loss is recognized.

Further details regarding the measurement of goodwill impairment and the results of impairment tests for each reporting unit are provided below.

The Group discloses information about the reporting units, the carrying amounts of goodwill allocated to each reporting unit, and the impairment losses recognized. The allocation of goodwill to reporting units ensures a focused evaluation of each unit's financial performance and facilitates the identification of potential impairment, enhancing the transparency and reliability of the Company's financial reporting.

As of September 30, 2023 and March 31, 2023, goodwill recorded in the Company's Consolidated Balance Sheets totaled $51,555 and $14,192 respectively. The Group performs an impairment review at least annually unless indicators of impairment exist in interim periods. The entity compares the fair value of a reporting unit with its carrying amount. The goodwill impairment charge is recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. If fair value exceeds the carrying amount, no impairment is recorded.

During the three months ended September 30, 2023, the Group did not recognize an impairment loss related to goodwill.

The goodwill value at September 30, 2023 increased compared to March 31, 2023, due to the acquisitions of Arbuz, Aviata, Internet-Tourism and ReKassa and as a result of foreign exchange currency translation.

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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)

The changes in the carrying amount of goodwill for the three months ended September 30, 2023 and the year ended March 31, 2023, were as follows:


	Central Asia and Eastern Europe		Europe, excluding Eastern Europe		US		Middle East/ Caucasus		Total
Goodwill, gross
Balance as of March 31, 2022	$	5,104	$	—	$	1,626	$	—	$	6,730
Forex	438		—		—		—		438
Acquired	3,176		—		—		—		3,176
Balance as of September 30, 2022	8,718		—		1,626		—		10,344

Balance as of March 31, 2023	$	6,792	$	—	$	7,400	$	—	$	14,192
Forex	43