UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2018
 
OR
 
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________ to _________
 
Commission File Number 001-33034
 
FREEDOM HOLDING CORP.
(Exact name of registrant as specified in its charter)
 
Nevada
 
30-0233726
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 “Esentai Tower” BC, Floor 7
77/7 Al Farabi Ave
 
 
Almaty, Kazakhstan
 
050040
(Address of principal executive offices)
 
(Zip Code)
 
  (801) 355-2227
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such file). Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (Check one):
 
Large accelerated filer
 ☐
Accelerated filer
 ☐
Non-accelerated filer
 ☐
Smaller reporting company
 ☒
(Do not check if smaller reporting company)
 
Emerging growth company
 ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
 
As of February 11, 2019, the registrant had 58,043,212 shares of common stock, par value $0.001, issued and outstanding.
 
 
 
FREEDOM HOLDING CORP.
FORM 10-Q
TABLE OF CONTENTS
 
PART I — FINANCIAL INFORMATION
Page
 
 
3
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
 
7
 
 
33
 
 
45
 
 
46
 
 
PART II — OTHER INFORMATION
 
 
 
47
 
 
47
 
 
47
 
 
49
 
 
50
 
 
2
 
FREEDOM HOLDING CORP.
 
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
 
 
December 31,
2018
 
 
March 31,
2018*
 
 
 
 
 
 
(Recast)
 
ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 $41,425 
 $65,731 
Restricted cash
  27,103 
  21,962 
Trading securities
  154,542 
  212,595 
Available-for-sale securities, at fair value
  1 
  240 
Brokerage and other receivables, net
  52,839 
  24,885 
Loans issued
  2,337 
  8,754 
Deferred tax assets
  878 
  772 
Fixed assets, net
  5,033 
  2,571 
Intangible assets, net
  4,212 
  5,531 
Goodwill
  2,862 
  3,288 
Other assets, net
  4,129 
  4,573 
 
    
    
TOTAL ASSETS
 $295,361 
 $350,902 
 
    
    
LIABILITIES AND STOCKHOLDERS’ EQUITY
    
    
 
    
    
Securities sold, not yet purchased - at fair value
 $- 
 $1,135 
Loans received
  3,967 
  7,143 
Debt securities issued
  26,573 
  11,222 
Customer liabilities
  58,596 
  30,672 
Trade payables
  16,351 
  9,013 
Deferred distribution payments
  8,534 
  8,534 
Securities repurchase agreement obligation
  68,181 
  154,775 
Current income tax liability
  82 
  - 
Other liabilities
  1,634 
  1,376 
TOTAL LIABILITIES
  183,918 
  223,870 
 
    
    
Commitments and Contingent Liabilities (Note 20)
  - 
  - 
 
    
    
STOCKHOLDERS’ 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; 58,043,212 and 58,033,212 shares issued and outstanding as of December 31, 2018 and March 31, 2018, respectively
  58 
  58 
Additional paid in capital
  98,128 
  100,180 
Retained earnings
  38,628 
  34,351 
Accumulated other comprehensive loss
  (25,371)
  (7,557)
TOTAL STOCKHOLDERS’ EQUITY
  111,443 
  127,032 
 
    
    
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 $295,361 
 $350,902 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
* See Notes 2 and 3 for information regarding recast amounts and basis of financial statement presentation.
 
 
3
 
FREEDOM HOLDING CORP.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND STATEMENTS OF OTHER COMPREHENSIVE INCOME/(LOSS) (Unaudited)
(All amounts in thousands of United States dollars, except Share data, unless otherwise stated)
 
 
 
Three months ended
December 31,
 
 
Nine months ended
December 31,
 
 
 
2018
 
 
2017*
 
 
2018
 
 
2017*
 
Revenue:
 
 
 
 
(Recast)
 
 
 
 
 
(Recast)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fee and commission income
 $12,274 
 $2,454 
 $31,033 
 $7,526 
Net gain/(loss) on trading securities
  11,641 
  (8,108)
  12,669 
  31,408 
Interest income
  2,976 
  2,991 
  11,823 
  6,778 
Net gain on derivatives
  - 
  867 
  - 
  687 
Net gain/(loss) on foreign exchange operations
  (498)
  366 
  (3,746)
  1,989 
 
    
    
    
    
TOTAL REVENUE, NET
  26,393 
  (1,430)
  51,779 
  48,388 
 
    
    
    
    
Expense:
    
    
    
    
Interest expense
  3,180 
  4,610 
  11,471 
  9,825 
Fee and commission expense
  1,422 
  855 
  3,155 
  1,647 
Operating expense
  12,117 
  6,696 
  31,272 
  14,149 
Other expense, net
  229 
  290 
  581 
  281 
Loss from disposal of subsidiary
  - 
  - 
  15 
  - 
 
    
    
    
    
TOTAL EXPENSE
  16,948 
  12,451 
  46,494 
  25,902 
NET INCOME/(LOSS) BEFORE INCOME TAX
  9,445 
  (13,881)
  5,285 
  22,486 
 
    
    
    
    
Income tax (expense)/benefit
  (545)
  413 
  (1,009)
  (552)
 
    
    
    
    
NET INCOME/(LOSS)
 $8,900 
 $(13,468)
 $4,276 
 $21,934 
 
    
    
    
    
OTHER COMPREHENSIVE INCOME/(LOSS)
    
    
    
    
    Change in unrealized gain on investments available-for- sale, net of tax effect
 $- 
 $(168)
 $- 
 $(121)
Reclassification adjustment relating to available-for-sale investments disposed of in the period, net of tax effect
  - 
  - 
  22 
  - 
    Foreign currency translation adjustments, net of tax effect
  (5,596)
  3,131 
  (17,836)
  (3,250)
 
    
    
    
    
COMPREHENSIVE INCOME/(LOSS)
 $3,304 
 $(10,505)
 $(13,538)
 $18,563 
 
    
    
    
    
BASIC NET INCOME/(LOSS) PER COMMON SHARE (In US Dollars)
 $0.15 
 $(0.30)
 $0.07 
 $0.83 
DILUTED NET INCOME/(LOSS) PER COMMON SHARE (In US Dollars)
 $0.15 
 $(0.30)
 $0.07 
 $0.83 
Weighted average number of shares (basic)
  58,038,864 
  45,018,578 
  58,035,103 
  26,341,542 
Weighted average number of shares (diluted)
  58,248,924
  45,018,578
  58,225,549
  26,434,930 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
* See Notes 2 and 3 for information regarding recast amounts and basis of financial statement presentation.
 
 
4
 
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,
2018
 
 
December 31,
2017
 
 
 
 
 
 
(Recast)
 
Cash Flows From Operating Activities
 
 
 
 
 
 
Net income
 $4,276 
 $21,934 
Adjustments to reconcile net income used in operating activities:
    
    
Depreciation and amortization
  1,503 
  918 
Loss on sale of fixed assets
  31 
  202 
Change in deferred taxes
  (260)
  639 
Stock compensation expense
  2,533 
  792 
Unrealized loss/(gain) on trading securities
  9,623 
  (19,578)
Net gain on derivative
  - 
  (490)
Net change in accrued interest
  75 
  (263)
Allowance for receivables
  350 
  31 
Changes in operating assets and liabilities:
    
    
Trading securities
  14,277 
  (98,938)
Brokerage and other receivables
  (28,968)
  (2,264)
Loans issued
  5,644 
  145 
Other assets
  (292)
  (2,495)
Customer liabilities
  32,620 
  7,271 
Current income tax liability
  81 
  (126)
Trade payables
  4,931 
  1,413 
Securities sold, not yet purchased
  (1,071)
  - 
Other liabilities
  526 
  574 
Net cash flows from/used in operating activities
  45,879 
  (90,235)
 
    
    
Cash Flows From Investing Activities
    
    
Purchase of fixed assets
  (4,311)
  (1,123)
Proceeds from sale of fixed assets
  268 
  8 
Proceeds from sale of intangible assets
  - 
  125 
Proceeds from sale/(purchase) of available-for-sale securities, at fair value
  235 
  (3,814)
Consideration paid for Asyl
  (2,240)
  - 
Cash received from acquisitions
  - 
  1,800 
Net cash flows used in investing activities
  (6,048)
  (3,004)
 
 
 
 
 
 
 
Cash Flows From Financing Activities
 
 
 
 
 
 
Proceeds from/(repurchase of) securities repurchase agreement obligations
  (65,238)
  81,421
 
Proceeds from issuance of debt securities
  22,059 
  13,594 
Repurchase of debt securities
  (3,346)
  (2,428)
Proceeds from loans received
  5,615 
  - 
Repayment of loans
  (8,143)
  - 
Capital contributions
  245 
  8,594 
Private placement
  - 
  11,045 
Net cash flows used in/from financing activities
  (48,808)
  112,226
 
 
Effect of changes in foreign exchange rates on cash and cash equivalents
  (10,188)
  (1,192)
 
    
    
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
  (19,165)
  17,795 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD
  87,693 
  35,365 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD
 $68,528 
 $53,160 
 
 
 
5
 
 
 
 
 
For the nine months ended
 
 
 
December 31,
2018
 
 
December 31,
2017*
 
 
 
 
 
 
(Recast)
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
 
Cash paid for interest
 $10,654 
 $8,467 
Income tax paid
 $417 
 $583 
 
    
    
 
Non-cash investing and financing activities:
 
Assets received from acquisition of Asyl
 $- 
 $4,666 
Liabilities assumed from acquisition of Asyl
 $- 
 $82 
Assets received from acquisition of Nettrader
 $- 
 $11,158 
Liabilities assumed from acquisition of Nettrader
 $- 
 $4,121 
Common stock issued for acquisition of Freedom UA
 $- 
 $1,485 
Assets received from acquisition of Freedom UA
 $- 
 $1,652 
Liabilities assumed from acquisition of Freedom UA
 $- 
 $999 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
* See Notes 2 and 3 for information regarding recast amounts and basis of financial statement presentation.
 
 
6
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
NOTE 1 - DESCRIPTION OF BUSINESS
 
Overview
 
Freedom Holding Corp. (the “Company” or “FRHC”) is a corporation organized in the United States under the laws of the State of Nevada that owns several operating subsidiaries that engage in a broad range of activities in the financial services industry, including retail securities brokerage, investment education, securities trading, investment banking and market making activities in Eastern Europe and Central Asia. The Company is headquartered in Almaty, Kazakhstan, with supporting administrative office locations in Russia, Cyprus and the United States. The Company has retail locations in Russia, Kazakhstan, Ukraine, Uzbekistan, Kyrgyzstan and Germany.
 
The Company owns directly, or through subsidiaries, the following companies: LLC Investment Company Freedom Finance, a Moscow, Russia-based securities broker-dealer (“Freedom RU”);LLC FFIN Bank, a Moscow, Russia-based bank (“FFIN Bank”); JSC Freedom Finance, an Almaty, Kazakhstan-based securities broker-dealer (“Freedom KZ”);Freedom Finance Cyprus Limited, a Limassol, Cyprus-based broker-dealer (“Freedom CY”); Freedom Finance Germany TT GmbH (“Freedom GE”), a Munich, Germany-based tied agent of Freedom CY; LLC Freedom Finance Ukraine, a Kiev, Ukraine-based broker-dealer (“Freedom UA”); LLC Freedom Finance Uzbekistan, a Tashkent, Uzbekistan-based broker-dealer (“Freedom UZ”); and FFIN Securities, Inc., a Nevada corporation (“FFIN”).
 
The Company’s subsidiaries are members on the Kazakhstan Stock Exchange (KASE), Astana International Exchange (AIX), Moscow Exchange (MOEX), Saint-Petersburg Exchange (SPB), Ukrainian Exchange, and Republican Stock Exchange of Tashkent (UZSE). Freedom CY serves to provide the Company’s clients with operations support and access to the investment opportunities, relative stability, and integrity of the U.S. and European securities markets, which under the regulatory regimes of many jurisdictions where the Company operates do not currently allow investors direct access to international securities markets.
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended December 31, 2018, are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2019.
 
 
7
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
The Condensed Consolidated Balance Sheet at March 31, 2018, has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.
 
The Company’s Condensed Consolidated Financial Statements present the consolidated accounts of FRHC, FFIN, Freedom RU, Freedom KZ, FFIN Bank, Freedom CY, Freedom UA, Freedom UZ, Freedom GE and the financial results of LLC First Stock Store (“Freedom24”) up to the date of its disposal on September 30, 2018. All significant inter-company balances and transactions have been eliminated from the condensed consolidated financial statements.
 
For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2018.
 
Use of estimates
 
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that the estimates utilized in preparing its financial statements are reasonable and prudent. Actual results could differ from those estimates.
 
Revenue recognition
 
Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services promised to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. A significant portion of the Company’s revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as loans and investment securities, as these activities are subject to other US GAAP guidance discussed elsewhere within these disclosures. Descriptions of the Company’s revenue-generating activities that are within the scope of ASC Topic 606, which are presented in these income statements as components of non-interest income are as follows:
 
Commissions on brokerage services;
Commissions on banking services (money transfers, foreign exchange operations and other); and
Commissions on investment banking services (underwriting, market making, and bondholders’ representation services).
 
 
8
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
The Company adopted the new guidance on April 1, 2018. Under Topic 606, the Company is required to recognize incentive fees when they are probable and there is not a significant chance of reversal in the future. For the brokerage commission, banking service commission and investment banking services commission contracts in place at the time of adoption, this change in policy did not result in any actual change in revenue that had already been recognized and therefore there was no transition adjustment necessary. Based on a review of the Company’s brokerage commission, banking service commission and investment banking services commission contracts in place at the time of adoption, the Company does not believe the actual timing of recognition of incentive fees under future contracts will be materially impacted in the future.  However, the new policy may result in incentive fees being recognized sooner in the future than they would have been under the Company’s revenue recognition policy in place prior to the adoption of Topic 606.
 
The Company recognizes revenue when five basic criteria have been met:
 
The parties to the contract have approved the contract (in writing, orally, or in accordance with other customary business practices) and are committed to perform their respective obligations.
The entity can identify each party’s rights regarding the goods or services to be transferred.
The entity can identify the payment terms for the goods or services to be transferred.
The contract has commercial substance (that is, the risk, timing, or amount of the entity’s future cash flows is expected to change as a result of the contract).
It is probable that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.
 
Derivative financial instruments
 
In the normal course of business, the Company invests in various derivative financial contracts including futures. Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently re-measured to their fair value at each reporting date. The fair values are estimated based on quoted market prices or pricing models that take into account the current market and contractual prices of the underlying instruments and other factors. Derivatives are carried as assets when their fair value is positive and as liabilities when it is negative. Derivatives are included in assets and liabilities at fair value through profit or loss in the consolidated balance sheet.
 
The Company purchases foreign currency futures contracts from financial institutions to minimize the risk caused by foreign currency fluctuation on its foreign currency receivables and payables and also purchases foreign currency futures contracts for speculative purposes. These futures contracts are traded on the Kazakhstan Stock Exchange and represent commitments to purchase or sell a particular foreign currency at a future date and at a specific price.
 
 
9
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
All gains and losses on foreign currency contracts were realized during the three and nine month periods ended December 31, 2018 and 2017, and are included in net gain on derivatives in the Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income/(Loss).
 
Functional currency
 
Management has adopted ASC 830, Foreign Currency Translation Matters as it pertains to its foreign currency translation. The Company’s functional currencies are the Russian ruble, European euro, Ukrainian hryvnia, Uzbekistani som and Kazakhstani tenge, and its reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated into United States dollars using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in Other Comprehensive Income/(Loss).
 
For financial reporting purposes, foreign currencies are translated into United States dollars as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet dates. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive loss”.
 
Cash and cash equivalents
 
Cash and cash equivalents are generally comprised of certain highly liquid investments with maturities of three months or less at the date of purchase. Cash and cash equivalents include reverse repurchase agreements which are recorded at the amounts at which the securities were acquired or sold plus accrued interest.
 
Securities reverse repurchase and repurchase agreements
 
A reverse repurchase agreement is a transaction in which the Company purchases financial instruments from a seller, typically in exchange for cash, and simultaneously enters into an agreement to resell the same or substantially the same financial instruments to the seller for an amount equal to the cash or other consideration exchanged plus interest at a future date. Securities purchased under reverse repurchase agreements are accounted for as collateralized financing transactions and are recorded at the contractual amount for which the securities will be resold, including accrued interest. Financial instruments purchased under reverse repurchase agreements are recorded in the financial statements as cash placed on deposit collateralized by securities and classified as cash and cash equivalents in the Condensed Consolidated Balance Sheets.
 
 
10
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
A repurchase agreement is a transaction in which the Company sells financial instruments to another party, typically in exchange for cash, and simultaneously enters into an agreement to reacquire the same or substantially the same financial instruments from the buyer for an amount equal to the cash or other consideration exchanged plus interest at a future date. These agreements are accounted for as collateralized financing transactions. The Company retains the financial instruments sold under repurchase agreements and classifies them as trading securities in the Condensed Consolidated Balance Sheets. The consideration received under repurchase agreements is classified as securities repurchase agreement obligations in the Condensed Consolidated Balance Sheets.
 
The Company enters into reverse repurchase agreements and repurchase agreements transactions to, among other things, acquire securities to leverage and grow its proprietary trading portfolio, cover short positions and settle other securities obligations, to accommodate customers’ needs and to finance its inventory positions. The Company enters into these transactions in accordance with normal market practice. Under standard terms for repurchase transactions, the recipient of collateral has the right to sell or repledge the collateral, subject to returning equivalent securities on settlement of the transaction.
 
Available-for-sale securities
 
Financial assets categorized as available-for-sale (“AFS”) are non-derivatives that are either designated as available-for-sale or not classified as (a) loans and receivables, (b) held to maturity investments or (c) trading securities.
 
Listed shares and listed redeemable notes held by the Company that are traded in an active market are classified as AFS and are stated at fair value. The Company has investments in unlisted shares that are not traded in an active market but that are also classified as investments AFS and stated at fair value (because Company management considers that fair value can be reliably measured). Gains and losses arising from changes in fair value are recognized in other comprehensive income/(loss) and are accumulated in Accumulated other comprehensive loss, with the exception of other-than-temporary impairment losses, interest calculated using the effective interest method, dividend income and foreign exchange gains and losses, which are recognized in the Condensed Consolidated Statements of Operations. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments’ revaluation reserve is then reclassified to Condensed Consolidated Statements of Operations.
 
Trading securities
 
Financial assets are classified as trading securities if the financial asset has been acquired principally for the purpose of selling it in the near term.
 
Trading securities are stated at fair value, with any gains or losses arising on remeasurement recognized in revenue. Changes in fair value are recognized in the Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income/(Loss) and included in net gain/(loss) on trading securities. Interest earned, and dividend income are recognized in the Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income/(Loss) and are included in interest income, according to the terms of the contract and when the right to receive the payment has been established.
 
 
11
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
Investments in nonconsolidated managed funds are accounted for at fair value based on the net asset value (“NAV”) of the funds provided by the fund managers with gains or losses included in net gain on trading securities in the Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income/(Loss).
 
Debt securities issued
 
Debt securities issued are initially recognized at the fair value of the consideration received, less directly attributable transaction costs. Subsequently, amounts due are stated at amortized cost and any difference between net proceeds and the redemption value is recognized over the period of the borrowings using the effective interest method. If the Company purchases its own debt, it is removed from the Condensed Consolidated Balance Sheets and the difference between the carrying amount of the liability and the consideration paid is recognized in the Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income/(Loss).
 
Brokerage and other receivables
 
Brokerage and other receivables are comprised of commissions and receivables related to the securities brokerage and banking activity of the Company. At initial recognition, brokerage and other receivables are recognized at fair value. Subsequently, brokerage and other receivables are carried at cost net of any allowance for impairment losses.
 
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 Company - put presumptively beyond the reach of the Company and its creditors, even in bankruptcy or other receivership.
The transferee has rights to pledge or exchange financial assets.
The Company or its agents do not maintain effective control over the transferred financial assets or third-party beneficial interests related to those transferred assets.
 
Where the Company has not met the asset derecognition conditions above, it continues to recognize the asset to the extent of its continuing involvement.
 
Impairment of long lived assets
 
In accordance with the accounting guidance for the impairment or disposal of long-lived assets, the Company periodically evaluates the carrying value of long-lived assets to be held and used when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the fair value from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows, discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost of disposal. As of December 31, 2018 and March 31, 2018, the Company had not recorded any charges for impairment of long-lived assets.
 
 
12
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
Impairment of goodwill
 
As of December 31, 2018 and March 31, 2018, goodwill recorded in the Company’s Condensed Consolidated Balance Sheets totaled $2,862 and $3,288, respectively. The Company performs an impairment review at least annually, unless indicators of impairment exist in interim periods. The impairment test for goodwill uses a two-step approach. Step one compares the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value exceeds the estimated fair value, step two must be performed. Step two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit's goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess. In its annual goodwill impairment test, the Company estimated the fair value of the reporting unit based on the income approach (also known as the discounted cash flow method) and determined the fair value of the Company’s goodwill exceeded the carrying amount of the Company’s goodwill.
 
Income taxes
 
The Company recognizes deferred tax liabilities and assets based on the difference between the financial statements and tax basis of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.
 
Current income tax expenses are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. The Company accounts for income taxes using the asset and liability approach. Under this method, deferred income taxes are recognized for tax consequences in future years based on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements at each year-end and tax loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable for the differences that are expected to affect taxable income.
 
The Company will include interest and penalties arising from the underpayment of income taxes in the provision for income taxes. As of December 31, 2018 and March 31, 2018, the Company had no accrued interest or penalties related to uncertain tax positions.
 
On December 22, 2017, the U.S. bill commonly referred to as the Tax Cuts and Jobs Act (“Tax Reform Act”) was enacted, which significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The Tax Reform Act also provided for a one-time deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017. The Global Intangible Low-Taxed Income ("GILTI") provisions of the Tax Reform Act require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company may be subject to incremental U.S. tax on GILTI starting with the 2018 tax year, which began April 1, 2018, depending upon expense allocations and the applicable U.S. foreign tax credit rules. The Company has presented the deferred tax impacts of GILTI tax in its consolidated financial statements for the three and nine months ended December 31, 2018.
 
 
13
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
Financial instruments  
 
Financial instruments are carried at fair value as described below.
 
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. Fair value is the current bid price for financial assets, current ask price for financial liabilities and the average of current bid and ask prices when the Company is both in short and long positions for the financial instrument. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange or other institution and those prices represent actual and regularly occurring market transactions on an arm’s length basis.
 
Leases
 
Rent payable under operating leases is charged to expense on a straight-line basis over the term of the relevant lease.
 
Fixed assets
 
Fixed assets are carried at cost, net of accumulated depreciation. Maintenance, repairs, and minor renewals are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range between three and seven years.
 
Recent accounting pronouncements
 
ASU 2016-02, “Leases,” ASU 2018-01, “Land Easement Practical Expedient for Transition to Topic 842,” ASU 2018-10, “Codification Improvements to Topic 842, Leases” and ASU 2018-11, “Leases (Topic 842): Targeted Improvements”: In February 2016, the FASB issued ASU 2016-02 which requires entities to include substantially all leases on the balance sheet by requiring the recognition of right-of-use assets and lease liabilities for all leases. Entities may elect to exclude from the balance sheet those leases with a maximum possible term of less than 12 months. For lessees, a lease is classified as finance or operating, and the asset and liability are initially measured at the present value of the lease payments. For lessors, accounting for leases is largely unchanged from previous provisions of U.S. GAAP, other than certain changes to align lessor accounting to specific changes made to lessee accounting and ASC 606. ASU 2016-02 also requires new qualitative and quantitative disclosures for both lessees and lessors. In July 2018 the FASB adopted ASU 2018-10 which makes technical corrections and clarifications to the accounting guidance in Topic 842.
 
 
 
14
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
For public entities, ASU 2016-02, 2018-01, 2018-10 and 2018-11 are effective for fiscal years beginning after December 15, 2018, including interim periods therein, with early adoption permitted. ASU 2016-02 requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2018-11 provides entities an optional transition method to apply the new guidance as of the adoption date, rather than as of the earliest period presented. In transition, entities may elect certain practical expedients when applying ASU 2016-02. These include a package of practical expedients that must be applied in its entirety to all leases commencing before the effective date, unless the lease is modified, to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, which effectively allows entities to carryforward accounting conclusions under previous U.S. GAAP. ASU 2016-02 also includes a practical expedient to use hindsight in making judgments when determining the lease term and any long-lived asset impairment. ASU 2018-01 allows entities to elect a practical expedient that would exclude application of ASU 2016-02 to land easements that existed prior to its adoption, if they were not accounted for as leases under previous U.S. GAAP. ASU 2018-11 provides a lessor practical expedient for separating lease and non-lease components. The Company plans to apply the practical expedients permitted within the guidance, which allows the Company to carryforward its historical lease classification, and to apply the transition option which does not require application of the guidance to comparative periods in the year of adoption. The adoption of this ASU will result in the recognition of significant right-of-use assets and lease liabilities in the Company’s Consolidated Balance Sheets. The preparation for adoption is ongoing, including the assessment of other potential impacts of this ASU, which includes analysis of potential transitional adjustments to Stockholders’ equity and impact of adoption on the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows.
 
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. In March 2014, the Board issued a proposed FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, which the Board finalized on August 28, 2018. The disclosure framework project’s objective and primary focus are to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by generally accepted accounting principles (GAAP). The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this Update apply to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements.
 
 
15
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. On June 16, 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced an expected credit loss methodology for the impairment of financial assets measured at amortized cost basis. That methodology replaces the probable, incurred loss model for those assets. Through that Update, the Board added Topic 326 and made several consequential amendments to the FASB Accounting Standards Codification. The amendment clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The effective date and transition requirements for the amendments in this Update are the same as the effective dates and transition requirements in Update 2016-13, as amended by this Update. The Company does not expect material impact from new guidance on its condensed consolidated financial statements.
 
In December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842), Narrow-Scope Improvements for Lessors. On February 25, 2016, the FASB issued Accounting Standards update No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. The FASB has been assisting stakeholders with implementation questions and issues as organizations prepare to adopt the new lease requirements. The amendments in this Update affect the amendments in Update 2016-02, which are not yet effective but can be early adopted. The effective date and transition requirements for the amendments in this Update for entities that have not adopted Topic 842 before the issuance of this Update are the same as the effective date and transition requirements in Update 2016-02 (for example, January 1, 2019, for calendar-year-end public business entities). All entities, including early adopters, must apply the amendments in this Update to all new and existing leases. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements.
 
NOTE 3 – REVISION OF FINANCIAL STATEMENT
 
When preparing the condensed consolidated financial statements as of December 31, 2018, and for the three and nine months ended December 31, 2018, management determined that certain amounts included in the Company’s consolidated financial statements as of March 31, 2018, and for the three and nine months ended December 31, 2017, required revision, due to the closing of the acquisition of Freedom RU on June 29, 2017, the closing of the acquisition of Freedom CY on November 1, 2017, and the completion of the mergers of Nettrader LLC (“Nettrader”) in May 2018, and Asyl Invest JSC (“Asyl”) in April 2018, which were deemed to be entities under common control with the Company.
 
Certain reclassifications also have been made to the prior year’s consolidated financial statements to enhance comparability with the current year’s condensed consolidated financial statements following the increase in intangible assets of the Company related to acquisition of the Tradernet trading platform. As a result, certain line items have been amended in the Condensed Consolidated Balance Sheets. Comparative figures have been adjusted to conform to the current period’s presentation.
 
 
16
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
The previously issued Consolidated Balance Sheet as of March 31, 2018, and Condensed Consolidated Statement of Operations and Statements of Other Comprehensive Income/(Loss) for the three and nine months ended December 31, 2017 have been revised as follows:
 
 
 
As of March 31, 2018
 
 BALANCE SHEETS (RECAST)
 
As previously reported
 
 
Recast
 
 
As recasted
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 $64,531 
 $1,200 
 $65,731 
Restricted cash
  13,671 
  8,291 
  21,962 
Trading securities
  212,319 
  276 
  212,595 
Available-for-sale securities, at fair value
  2 
  238 
  240 
Brokerage and other receivables, net
  21,109 
  3,776 
  24,885 
Loans issued
  8,754 
  - 
  8,754 
Deferred tax assets
  1,046 
  (274)
  772 
Fixed assets, net
  2,362 
  209 
  2,571 
Intangible assets, net
  - 
  5,531 
  5,531 
Goodwill
  1,798 
  1,490 
  3,288 
Other assets, net
  4,494 
  79 
  4,573 
TOTAL ASSETS
 $330,086 
 $20,816 
 $350,902 
 
    
    
    
LIABILITIES AND STOCKHOLDERS’ EQUITY
    
    
    
 
    
    
    
Securities sold, not yet purchased - at fair value
 $1,135 
 $- 
 $1,135 
Loans received
  7,143 
  - 
  7,143 
Debt securities issued
  10,840 
  382 
  11,222 
Customer liabilities
  21,855 
  8,817 
  30,672 
Trade payables
  8,998 
  15 
  9,013 
Deferred distribution payments
  8,534 
  - 
  8,534 
Securities repurchase agreement obligation
  154,775 
  - 
  154,775 
Deferred income tax liabilities
  387 
  (387)
  - 
Other liabilities
  1,319 
  57 
  1,376 
TOTAL LIABILITIES
  214,986 
  8,884 
  223,870 
 
    
    
    
STOCKHOLDERS’ EQUITY
    
    
    
 
    
    
    
Preferred stock
  - 
  - 
  - 
Common stock
  58 
  - 
  58 
Additional paid in capital
  87,049 
  13,131 
  100,180 
Retained earnings
  35,387 
  (1,036)
  34,351 
Accumulated other comprehensive loss
  (7,394)
  (163)
  (7,557)
TOTAL STOCKHOLDERS’ EQUITY
  115,100 
  11,932 
  127,032 
 
    
    
    
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 $330,086 
 $20,816 
 $350,902 
 
 
17
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
 
 
For the three months ended December 31, 2017
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND STATEMENTS OF OTHER COMPREHENSIVE INCOME/(LOSS) (RECAST)
 
As previously reported
 
 
Recast
 
 
As recasted
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
Fee and commission income
 $1,999 
 $455 
 $2,454 
Net gain/(loss) on trading securities
  (8,318)
  210 
  (8,108)
Interest income
  2,853 
  138 
  2,991 
Net gain on derivatives
  867 
  - 
  867 
Net gain/(loss) on sale of fixed assets
  16 
  (16)
  - 
Net gain/(loss) on foreign exchange operations
  424 
  (58)
  366 
 
    
    
    
TOTAL REVENUE, NET
  (2,159)
  729 
  (1,430)
 
    
    
    
Expense:
    
    
    
Interest expense
  4,487 
  123 
  4,610 
Fee and commission expense
  795 
  60 
  855 
Operating expense
  5,983 
  713 
  6,696 
Other expense, net
  105 
  185 
  290 
 
    
    
    
TOTAL EXPENSE
  11,370 
  1,081 
  12,451 
 
    
    
    
NET LOSS BEFORE INCOME TAX
  (13,529)
  (352)
  (13,881)
 
    
    
    
Income tax benefit
  403 
  10 
  413 
 
    
    
    
NET LOSS
 $(13,126)
 $(342)
 $(13,468)
 
    
    
    
OTHER COMPREHENSIVE INCOME/(LOSS)
    
    
    
Change in unrealized gain on investments available-for-sale, net
of tax effect
 $- 
 $(168)
 $(168)
Foreign currency translation adjustments, net of tax effect
  1,529 
  1,602 
  3,131 
 
    
    
    
COMPREHENSIVE INCOME/(LOSS)
 $(11,597)
 $1,092 
 $(10,505)
 
 
18
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
 
 
For the nine months ended December 31, 2017
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND STATEMENTS OF OTHER COMPREHENSIVE INCOME (RECAST)
 
As previously reported
 
 
Recast
 
 
As recasted
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
Fee and commission income
 $6,412 
 $1,114 
 $7,526 
Net gain on trading securities
  30,825 
  583 
  31,408 
Interest income
  6,442 
  336 
  6,778 
Net gain on derivatives
  687 
  - 
  687 
Net gain on sale of fixed assets
  8 
  (8)
  - 
Net gain on foreign exchange operations
  1,957 
  32 
  1,989 
 
    
    
    
TOTAL REVENUE, NET
  46,331 
  2,057 
  48,388 
 
    
    
    
Expense:
    
    
    
Interest expense
  9,499 
  326 
  9,825 
Fee and commission expense
  1,474 
  173 
  1,647 
Operating expense
  12,113 
  2,036 
  14,149 
Other expense, net
  131 
  150 
  281 
 
    
    
    
TOTAL EXPENSE
  23,217 
  2,685 
  25,902 
 
    
    
    
NET INCOME BEFORE INCOME TAX
  23,114 
  (628)
  22,486 
 
    
    
    
Income tax expense
  (584)
  32 
  (552)
 
    
    
    
NET INCOME
 $22,530 
 $(596)
 $21,934 
 
    
    
    
OTHER COMPREHENSIVE INCOME
    
    
    
Change in unrealized gain on investments available-for-sale, net of tax effect
 $- 
 $(121)
 $(121)
Foreign currency translation adjustments, net of tax effect
  (2,809)
  (441)
  (3,250)
 
    
    
    
COMPREHENSIVE INCOME
 $19,721 
 $(1,158)
 $18,563 
 
 
19
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
NOTE 4 – CASH AND CASH EQUIVALENTS
 
 
 
December 31,
2018
 
 
March 31,
2018
 (Recast)
 
 
 
 
 
 
 
 
Securities purchased under reverse repurchase agreements
 $11,466 
 $27,389 
Current accounts with brokers
  12,090 
  22,749 
Current accounts with commercial banks
  4,148 
  9,032 
Current account with Central Bank (Russia)
  3,151 
  980 
Current account with Central Depository (Kazakhstan)
  2,564 
  1,280 
Current account with National Settlement Depository (Russia)
  2,432 
  1,244 
Petty cash in bank vault and on hand
  2,091 
  2,712 
Accounts with stock exchanges
  1,882 
  214 
Current accounts in clearing organizations
  1,601 
  131 
Total cash and cash equivalents
 $41,425 
 $65,731 
 
As of December 31, 2018 and March 31, 2018, cash and cash equivalents were not insured.
 
As of December 31, 2018 and March 31, 2018, the cash and cash equivalents balance included collateralized securities received under reverse repurchase agreements on the terms presented below:
 
 
 
December 31, 2018
 
 
 
Interest rates and remaining contractual maturity of the agreements
 
 
 
Average Interest rate
 
 
Up to 30 days
 
 
30-90 days
 
 
  Total
 
Securities purchased under reverse repurchase agreements
 
 
 
 
 
 
 
 
 
 
 
 
Corporate equity
  10.16%
 $7,960 
 $791 
 $8,751 
Corporate debt
  14.00%
  115 
  - 
  115 
Non-US sovereign debt
  8.25%
  2,600 
  - 
  2,600 
Total
    
 $10,675 
 $791 
 $11,466 
 
 
 
March 31, 2018 (Recast)
 
 
 
Interest rates and remaining contractual maturity of the agreements


 
Average Interest rate
 
 
Up to 30 days
 
 
30-90 days
 
 
Total
 
Securities purchased under reverse repurchase agreements
 
 
 
 
 
 
 
 
 
 
 
 
Corporate equity
  14.99%
 $11,095 
 $15,572 
 $26,667 
Corporate debt
  14.96%
  521 
  201 
  722 
Total
    
 $11,616 
 $15,773 
 $27,389 
 
The securities received by the Company as collateral under reverse repurchase agreements are liquid trading securities with market quotes and significant trading volume. The fair value of collateral received by the Company under reverse repurchase agreements as of December 31, 2018 and March 31, 2018, was $13,246 and $28,311, respectively. For additional information please see Note 10 – Securities sold, not yet purchased – at fair value.
 
 
20
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
NOTE 5 – RESTRICTED CASH
 
As of December 31, 2018 and March 31, 2018, the Company’s restricted cash consisted of deferred distribution payments, cash segregated in a special custody account for the exclusive benefit of our brokerage customers and required reserves with the Central Bank of the Russian Federation which represents cash on hand balance requirements. The deferred distribution payment amount is a reserve held for distribution to shareholders who have not yet claimed their distributions from the 2011 sale of the Company’s oil and gas exploration and production operations of $8,534. This distribution is currently payable, subject to the entitled shareholders completing and submitting to the Company the necessary documentation to claim his, her or its distribution payments. The Company has no control over when, or if, any entitled shareholder will submit the necessary documentation to claim his, her, or its distribution payment.
 
Restricted cash consisted of:
 
 
 
December 31,
2018
 
 
March 31,
2018
(Recast)
 
 
 
 
 
 
 
 
Brokerage customers’ cash
 $17,544 
 $12,963 
Deferred distribution payments
  8,534 
  8,534 
Reserve with Central Bank of Russia
  673 
  115 
Guaranty deposits
  352 
  350 
Total restricted cash
 $27,103 
 $21,962 
 
NOTE 6 – TRADING SECURITIES
 
As of December 31, 2018, and March 31, 2018, trading securities consisted of:
 
 
 
 
December 31,
2018
 
 
March 31,
2018
(Recast)
 
 
 
 
 
 
 
 
Equity securities
 $96,778 
 $177,339 
Debt securities
  57,529 
  34,986 
Mutual investment funds
  235 
  270 
Total trading securities
 $154,542 
 $212,595 
 
The fair value of assets and liabilities is determined using observable market data based on recent trading activity. Where observable market data is unavailable due to a lack of trading activity, the Company utilizes internally developed models to estimate fair value and independent third parties to validate assumptions, when appropriate. Estimating fair value requires significant management judgment, including benchmarking to similar instruments with observable market data and applying appropriate discounts that reflect differences between the securities that the Company is valuing and the selected benchmark. Depending on the type of securities owned by the Company, other valuation methodologies may be required.
 
Measurement of fair value is classified within a hierarchy based upon the transparency of inputs used in the valuation of an asset or liability. Classification within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
 
 
21
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
The valuation hierarchy contains three levels:
 
Level 1 - Valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets.
Level 2 - Valuation inputs are quoted market prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets, and other observable inputs directly or indirectly related to the asset or liability being measured.
Level 3 - Valuation inputs are unobservable and significant to the fair value measurement.
 
There was a transfer between Level 1 and Level 3 valuation techniques during the three and nine months ended December 31, 2018, in the amount of $508. This transfer is related to corporate bonds of one issuer, which was made due to an absence of market prices from stock exchanges. As of December 31, 2018, fair value of these bonds was determined based on the discounted cash flows methodology.
 
The following tables present trading securities assets in the condensed consolidated financial statements at fair value on a recurring basis as of December 31, 2018 and March 31, 2018:
 
 
 
   
 
 
  Fair Value Measurements at December 31, 2018 using   
 
 
 
December 31,    
 
 
Quoted Prices in Active Markets for Identical Assets 
 
 
Significant Other Observable Inputs 
 
 
Significant Unobservable Inputs
 
 
 
2018
 
 
(Level 1)
 
 
(Level 2)
 
 
(Level 3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 $96,778 
 $96,778 
 $- 
 $- 
Debt securities
  57,529 
  57,021 
  - 
  508 
Mutual investment funds
  235 
  235 
  - 
  - 
Total trading securities
 $154,542 
 $154,034 
 $- 
 $508 
 
 
 
 
 
 
Fair Value Measurements at March 31, 2018 (Recast) using
 
 
 
March 31,
2018 
 
 
Quoted Prices in Active Markets for Identical Assets 
 
 
Significant Other Observable Inputs 
 
 
Significant Unobservable Inputs
 
 
 
 (Recast)
 
 
(Level 1)
 
 
(Level 2)
 
 
(Level 3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 $177,339 
 $177,339 
 $- 
 $- 
Debt securities
  34,986 
  34,986 
  - 
  - 
Mutual investment funds
  270 
  270 
  - 
  - 
Total trading securities
 $212,595 
 $212,595 
 $- 
 $- 
  
 
22
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
NOTE 7 – BROKERAGE AND OTHER RECEIVABLES, NET
 
 
 
 December 31,
 
 
March 31,
2018
 
 
 
2018
 
 
(Recast)
 
Margin lending receivables
 $26,533 
 $17,276 
Receivables from the sale of securities
  26,261 
  6,061 
Receivables from brokerage clients
  421 
  738 
Receivables for underwriting and market-making services
  92 
  79 
Bank commissions receivable
  - 
  1,016 
Bonds coupon receivable
  - 
  119 
Other receivables
  200 
  20 
Allowance for receivables
  (668)
  (424)
Total brokerage and other receivables, net
 $52,839 
 $24,885 
 
As of December 31, 2018 and March 31, 2018, using historical and statistical data, the Company recorded an allowance for brokerage receivables in the amount of $668 and $424, respectively.
 
NOTE 8 – LOANS ISSUED
 
Loans issued as of December 31, 2018, consisted of the following:
 
 
 
Amount Outstanding
 
 
  Due Dates
 
 
Average Interest Rate
 
 
Fair Value of Collateral
 
 
Loan Currency
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collateralized brokerage loans
 $1,857 
Dec. 2019
  4.75%
 $4,560 
USD
Bank customer loans
  480 
Feb. 2019- Sep. 2028
  12.95%
  - 
RUB
 
 $2,337 




 
Loans issued as of March 31, 2018, consisted of the following:
 
 
 
Amount Outstanding
 
 
  Due Dates
 
 
Average Interest Rate
 
 
Fair Value of Collateral
 
 
Loan Currency
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collateralized brokerage loans
 $5,371 
Jan. 2019-Feb. 2019
  3.00%
 $6,992 
USD 
Uncollateralized brokerage loan
  2,832 
Jan. 2019-Mar. 2019
  0.00%
  - 
KZT
Bank customer loans
  551 
Nov. 2018-Feb. 2028
  12.32%
  - 
RUB
 
 $8,754 

    


  
 
23
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
NOTE 9 – DEFERRED TAX ASSETS
 
The Company is subject to taxation in the Russian Federation, Kazakhstan, Kyrgyzstan, Cyprus, Ukraine, Uzbekistan, Germany and the United States of America.
 
The tax rates used for deferred tax assets and liabilities for the nine months ended December 31, 2018 and 2017, is 25% and 21%, respectively for the US, 20% for the Russian Federation, Kazakhstan, Kyrgyzstan, Ukraine and Uzbekistan, 31% for Germany and 12.5% for Cyprus.
 
Deferred tax assets and liabilities of the Company are comprised of the following:
 
 
 
December 31,
2018
 
 
March 31,
2018
(Recast)
 
 
 
 
 
 
 
 
Deferred tax assets:
 
 
 
 
 
 
Tax losses carryforward
 $3,438 
 $3,050 
Accrued liabilities
  44 
  49 
Revaluation on trading securities
  88 
  88 
Stock compensation expenses
  - 
  405 
Valuation allowance
  (1,924)
  (2,433)
Deferred tax assets
  1,646 
  1,159 
 
    
    
Deferred tax liabilities:
    
    
Revaluation on trading securities
  768 
  387 
 
    
    
Deferred tax liabilities
  768 
  387 
 
    
    
Net deferred tax assets
 $878 
 $772 
 
During the nine months ended December 31, 2018 and 2017, the effective tax rate was equal to 19.09% and 2.45%, respectively. The change in effective tax rate was primarily due to earned revenue from commission income of Freedom CY, taxable in Cyprus at a tax rate of 12.5%, and due to unrecognized tax loss carryforwards on FRHC. During the nine months ended December 31, 2017, the effective tax rate was primarily impacted due to non-taxable gains on trading securities in Freedom KZ in the amount of $26,010.
 
During the nine months ended December 31, 2018, the Company realized net gain before income tax of $5,285, primarily from earned revenue from commission income of Freedom CY in the amount of $13,563, taxable in Cyprus at a tax rate of 12.5%. This gain was offset by operating expenses of Freedom KZ and FRHC that have unrecognized tax losses carryforward. This resulted in the Company realizing an income tax expense during the nine months ended December 31, 2018, of $1,009. During the nine months ended December 31, 2017, the Company realized net income before income tax of $22,486, primarily from non-taxable revenues generated from Freedom KZ’s trading operations.
 
During the three months ended December 31, 2018 and 2017, the effective tax rate was equal to 5.77% and 2.98%, respectively. The increase in effective tax rate was primarily due to earned revenue from commission income of Freedom CY, taxable in Cyprus at a tax rate of 12.5% and due to unrecognized tax loss carryforwards on FRHC.
 
 
24
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
During the three-month period ended December 31, 2018, the Company realized net gain before income tax of $9,445, primarily from earned revenue from commission income of Freedom CY in the amount of $5,900, taxable in Cyprus at a tax rate of 12.5% and from non-taxable revenue generated from Freedom KZ trading operations. These gains were offset by operating expenses of Freedom KZ and FRHC that have unrecognized tax losses carryforward. This resulted in the Company realizing an income tax expense during the three months ended December 31, 2018, of $545. During the three months period ended December 31, 2017, the Company realized net loss before income tax of $13,881, primarily from non-taxable revenues generated from Freedom KZ’s trading operations resulting in an income tax benefit of $413.
 
NOTE 10 – SECURITIES SOLD, NOT YET PURCHASED – AT FAIR VALUE
 
As of December 31, 2018, and March 31, 2018, the Company’s securities sold, not yet purchased – at fair value was $0 and $1,135, respectively.
 
During the nine months ended December 31, 2018, the Company sold shares received as a pledge under reverse repurchase agreements and recognized financial liabilities at fair value in the amount of $7,951 and partially closed short positions in the amount of $7,880 by purchasing securities from third parties, reducing its financial liability. During the nine months ended December 31, 2018, the Company recognized a gain on the change in fair value of financial liabilities at fair value in the Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income/(Loss) in the amount of $951 with foreign exchange translation gains of $255.
 
A short sale involves the sale of a security that is not owned by the seller in the expectation of the seller purchasing the same security (or a security exchangeable) at a later date at a lower price. A short sale involves the risk of a theoretically unlimited increase in the market price of the security that would result in a theoretically unlimited loss.
 
NOTE 11 – DERIVATIVE LIABILITY
 
On December 28, 2016, Freedom RU entered into a derivative instrument agreement with a related party that included a call option feature for the purchase of shares held by Freedom RU. This call option was classified as a derivative liability in the Consolidated Balance Sheets and measured at each reporting period using the Black-Scholes model. The gain associated with this derivative instrument is recognized as a gain on derivative instrument in the condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income. In exchange for a $2,629 premium paid upfront, this derivative instrument granted the holder the right to purchase 11.8 million shares of a top rated Russian commercial bank – Sberbank, on June14, 2017, at a strike price $3.10 per share.
 
The Company recorded a derivative liability of $495 as of March 31, 2017, as a result of the fair value of the call option. On June 14, 2017, the derivative instrument expired, unexercised by the option holder, and the Company recognized a gain on the derivative instrument of $490.
 
 
25
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
NOTE 12 – LOANS RECEIVED
 
Borrower
 
Lender
 
 
December 31,
2018
 
 
March 31,
2018
(Recast)
 
 
Interest rate
 
 
Term
 
 
Maturity date
 
Freedom Holding Corp.
Non-Bank 
 $3,875 
 $- 
  3%
3 month-1 year
03/29/2019-12/31/2019 
Freedom Finance Cyprus Limited
 
Non-Bank
 
  92 
  99 
  1%
1 year
12/11/2019
JSC Freedom Finance
 
Bank
 
  - 
  7,044 
  7%
1 year
2/5/2019
Total
    
 $3,967 
 $7,143 
    
    
    
 
As of March 31, 2018, the Company had received United States dollar denominated loans from JSC AsiaCredit Bank in the total amount of $7,031, under a credit line agreement with $9,000 withdrawal limit. During the nine months ended December 31, 2018, the Company fully repaid the loan from JSC AsiaCredit Bank. Non-bank loans received are unsecured. As of December 31, 2018 and March 31, 2018, accrued interest on the loans totaled $28 and $16, respectively.
 
NOTE 13 – DEBT SECURITIES ISSUED
 
 
 
December 31,
 
 
March 31,
2018
 
 
 
  2018
 
 
(Recast)
 
Debt securities issued denominated in USD
 $18,417 
 $7,006 
Debt securities issued denominated in KZT
  7,718 
  4,025 
Accrued interest
  438 
  191 
Total
 $26,573 
 $11,222 
 
As of December 31, 2018 and March 31, 2018, the Company had outstanding bonds of Freedom KZ under Kazakhstan law in the amount of $26,573 and $11,222, respectively. As of December 31, 2018, these bonds had fixed annual coupon rates ranging from 8% to 11.5% and maturity dates ranging from January 2019 to May 2021. As of March 31, 2018, debt securities issued included Asyl bonds in the amount of $3,015 with an 8% fixed annual coupon rate and a maturity date of August 2018, which were fully redeemed in April 2018.
 
Debt securities issued are initially recognized at the fair value of the consideration received, less directly attributable transaction costs. Debt securities issued as of December 31, 2018 and March 31, 2018, included $438 and $191 accrued interest, respectively. The Freedom KZ bonds are actively traded on Kazakhstan Stock Exchange.
 
NOTE 14 – CUSTOMER LIABILITIES
 
The Company recognizes customer liabilities associated with funds held by our brokerage and bank customers. Customer liabilities consist of:
 
 
 
December 31,
2018
 
 
March 31,
2018
(Recast)
 
Banking customers
 $32,541 
 $9,305 
Brokerage customers
  26,055 
  21,367 
Total
 $58,596 
 $30,672 
 
 
26
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
NOTE 15 – SECURITIES REPURCHASE AGREEMENT OBLIGATIONS
 
As of December 31, 2018 and March 31, 2018, trading securities included collateralized securities subject to repurchase agreements as described in the following table:
 
 
 
December 31, 2018
 
 
 
Interest rates and remaining contractual maturity of the agreements
 
 
 
Average interest rate
 
 
Up to 30 days
 
 
30-90 days
 
 
Over 90 days
 
 
Total
 
Securities sold under repurchase agreements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate equity
  11.96%
 $45,063 
 $- 
 $2,121 
 $47,184 
Corporate debt
  10.33%
  13,685 
  - 
  - 
  13,685 
Non-US sovereign debt
  8.91%
  7,312 
  - 
  - 
  7,312 
Total securities sold under repurchase agreements
    
 $66,060 
 $- 
 $2,121 
 $68,181 
 
 
 
March 31, 2018 (Recast)
 
 
 
Interest rate and remaining contractual maturity of the agreements
 
 
 
Average interest rate
 
 
Up to 30 days
 
 
30-90 days
 
 
Over 90 days
 
 
Total
 
Securities sold under repurchase agreements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate equity
  12.04%
 $109,821 
 $8,961 
 $7,148 
 $125,930 
Corporate debt
  10.64%
  24,257 
  2,023 
  - 
  26,280 
Non-US sovereign debt
  8.54%
  2,565 
  - 
  - 
  2,565 
Total securities sold under repurchase agreements
    
 $136,643 
 $10,984 
 $7,148 
 $154,775 
 
The fair value of collateral pledged under repurchase agreements as of December 31, 2018 and March 31, 2018, was $96,707 and $203,140, respectively.
 
Securities pledged as collateral by the Company under repurchase agreements are liquid trading securities with market quotes and significant trading volume.
 
NOTE 16 – RELATED PARTY TRANSACTIONS
 
On December 28, 2016, Freedom RU entered into a derivative instrument agreement with a related party which included a call option feature. The gain or loss associated with this agreement was recognized as gain on a derivative instrument in the Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income/(Loss). The Company recorded a derivative liability of $495 as of March 31, 2017. On June 14, 2017, the derivative instrument expired unexercised by the holder, and the Company recognized a gain on the derivative instrument of $490 for the nine months ended December 31, 2017. 
 
During the three months ended December 31, 2018 and 2017, the Company earned commission income from related parties in the amounts of $11,101 and $1,392 respectively.
 
During the nine months ended December 31, 2018 and 2017, the Company earned commission income from related parties in the amounts of $26,723 and $3,103, respectively.
 
Commission income earned from related parties is comprised primarily of brokerage commissions and agency fees for referrals of new brokerage clients to other brokers and commissions for money transfers by brokerage clients.
 
 
27
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
As of December 31, 2018 and March 31, 2018, the Company had bank commission receivables and receivables from brokerage clients from related parties totaling $43 and $1,055, respectively. Brokerage and other receivables from related parties result principally from commissions on the brokerage operations of related parties.
 
As of December 31, 2018 and March 31, 2018, the Company had cash and cash equivalents with related parties totaling $8,400 and $17,795, respectively.
 
As of December 31, 2018 and March 31, 2018, the Company had loans issued to related parties totaling $20 and $1,748, respectively.
 
As of December 31, 2018 and March 31, 2018, the Company had margin lending receivables with related parties totaling $12,347 and $8,748, respectively.
 
As of December 31, 2018 and March 31, 2018, the Company had advances received for the sale of fixed assets from a related party totaling $0 and $288, respectively.
 
As of December 31, 2018 and March 31, 2018, the Company had margin lending payables due to related parties, totaling $0 and $81, respectively.
 
As of December 31, 2018 and March 31, 2018, the Company had loans received from a related party totaling $2,825 and $99, respectively.
  
As of December 31, 2018 and March 31, 2018, the Company had accounts payable due to a related party totaling $2,843 and $0, respectively.
 
As of December 31, 2018 and March 31, 2018, the Company had customer liabilities on brokerage accounts and bank accounts of related parties totaling $7,953 and $3,402, respectively. As of December 31, 2018 and March 31, 2018, the Company had restricted customer cash on brokerage accounts of related parties totaling $5,177 and $2,004, respectively.
 
NOTE 17 – STOCKHOLDERS’ EQUITY
 
During the nine months ended December 31, 2018 and 2017, shareholders made capital contributions of $245 and $8,594 to FRHC, respectively.
 
On October 6, 2017, the Company awarded restricted stock grants totaling 3,900,000 shares of its common stock to 16 employees and awarded nonqualified stock options to purchase an aggregate of 360,000 shares of its common stock to two employees. Of the 3,900,000 shares awarded pursuant to the restricted stock grant awards, 1,200,000 shares are subject to two-year vesting conditions and 2,700,000 shares are subject to three-year vesting conditions. All of the nonqualified stock options are subject to three-year vesting conditions. The Company recorded stock based compensation expense for restricted stock grants and stock options in the amount of $847 and $2,533 during the three and nine months ended December 31, 2018, respectively. The Company recorded stock based compensation expense for restricted stock grants and stock options in the amount of $792 during three and nine months ended December 31, 2017.
 
 
28
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
NOTE 18 – STOCK BASED COMPENSATION
 
As disclosed in Note 17, on October 6, 2017, the Company issued restricted stock awards totaling 3,900,000 shares of its common stock to 16 employees and awarded nonqualified stock options to purchase an aggregate of 360,000 shares of its common stock at a strike price $1.98 per share to two employees. Shares of restricted stock have the same dividend and voting rights as common stock while options do not. All awards were issued at the fair value of the underlying shares at the grant date.
 
During the year ended March 31, 2018, stock options covering a total of 360,000 shares of common stock were granted. No options were granted during the three and nine month periods ended December 31, 2018. Total compensation expense related to options granted was $54 for the three months ended December 31, 2018, and $51 for the three months ended December 31, 2017. Total compensation expense related to options granted for the nine months periods ended December 31, 2018 and 2017, was $162 and $51, respectively. As of December 31, 2018, there was total remaining compensation expense of $381 related to stock options, which will be recorded over a weighted average period of approximately 1.76 years.
 
The Company has determined the fair value of such stock options using the Black-Scholes option valuation model based on the following key assumptions:
 
Vesting period (years)
3
Volatility
165.33%
Risk-free rate
1.66%
 
During the year ended March 31, 2018, a total of 3,900,000 shares of common stock were awarded. During the three and nine months ended December 31, 2018, no shares of common stock were awarded. The compensation expense related to restricted stock grants was $793 during the three months ended December 31, 2018, and $741 during the three months ended December 31, 2017. Total compensation expense related to restricted stock grants was $2,371 and $741 during the nine months ended December 31, 2018 and 2017, respectively. As of December 31, 2018, there was $4,298 of total unrecognized compensation cost related to nonvested shares of common stock granted. The cost is expected to be recognized over a weighted average period of 1.54 years.
 
Stock-based compensation expense for the cost of the awards granted is based on the grant-date fair value. For stock option awards, the fair value is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Accordingly, while management believes that the Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Company's employee stock options. During the three months ended December 31, 2018, 10,000 stock options were exercised.
 
 
29
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
The following is a summary of stock option activity for the nine months ended December 31, 2018:
 
 
 
          Shares
 
 

    Weighted Average Exercise Price
 
 
Weighted Average Remaining Contractual Term (In Years)
 
 
Aggregate
Intrinsic Value
 
Outstanding, March 31, 2018
  360,000 
 $1.98 
  9.52 
 $1,753 
Granted
  - 
  - 
  - 
  - 
Exercised
  (10,000)
 1.98
  - 
 66
Forfeited/cancelled/expired
  - 
  - 
  - 
  - 
Outstanding, at December 31, 2018
  350,000 
 $1.98 
  8.76 
 $2,198 
Exercisable, at December 31, 2018
  110,000 
 $1.98 
  8.76 
 $691
 
The table below summarizes the activity for the Company's restricted stock outstanding during the nine months ended December 31, 2018:
 
 
 
Shares
 
 
Weighted Average Fair Value
 
Outstanding, March 31, 2018
  3,900,000 
 $8,190 
Granted
  - 
  - 
Vested
  1,500,000 
  3,150 
Forfeited/cancelled/expired
  - 
  - 
Outstanding, at December 31, 2018
  2,400,000 
 $5,040 
 
NOTE 19 – ACQUISITIONS AND DISPOSAL OF SUBSIDIARY
 
Acquisition of Asyl
 
On April 12, 2018, we completed the acquisition and merger of Asyl into the Company. This acquisition joined the two largest retail brokerage firms in Kazakhstan and increased our client accounts in Kazakhstan by 16,000 accounts. Asyl was formerly controlled by Mr. Turlov since April 28, 2017. The Company agreed to acquire Asyl from Mr. Turlov for approximately $2.2 million, which was equal to the fair value of the net assets acquired by the Company.
 
When preparing the condensed consolidated financial statements for the three and nine months ended December 31, 2018, management determined that certain amounts included in the Company’s consolidated financial statements as of March 31, 2018 and for the three and nine months ended December 31, 2017, required revision, due to completion of the merger of Asyl in April 2018, which was deemed to be an entity under common control with the Company since April 28, 2017.
 
 
30
 
 
FREEDOM HOLDING CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All amounts in thousands of United States dollars, unless otherwise stated)
 
Acquisition of Nettrader
 
On May 28, 2018, we completed the acquisition and merger of Nettrader. This resulted in the acquisition of approximately 16,000 new Russian client accounts. This acquisition also finalized our acquisition of the Tradernet trading platform, a browser-based application and in some countries a supporting mobile app to facilitate our customers’ trading activities and ability to monitor and manage all aspects of their personal accounts and participate in our client social network. Nettrader was formerly owned by Mr. Turlov since May 18, 2017. The Company acquired Nettrader for approximately $3.8 million, which was equal to the fair value of the net assets acquired by the Company.
 
When preparing the condensed consolidated financial statements for the three and nine months ended December 31, 2018, management determined that certain amounts included in the Company’s consolidated financial statements as of March 31, 2018 and for the three and nine months ended December 31, 2017, required revision, due to the completion of the merger of Nettrader in May 2018, which was deemed to be an entity under common control with the Company since May 18, 2017.
 
Disposal of First Stock Store
 
During the nine months ended December 31, 2018, the Company fully disposed of its subsidiary LLC First Stock Store. LLC First Stock Store provided an online securities marketplace in Russia through a project called Freedom24. LLC First Stock Store was disposed of for $7, with net assets as of the date of disposal of $22. The difference was recognized as loss on disposal of subsidiary in the amount of $15. Prior to the disposal, Freedom24 and its employees were transferred to Freedom RU.
 
NOTE 20 – COMMITMENTS AND CONTINGENT LIABILITIES
 
The table below shows approximate lease commitments and other contingent liabilities of the Company as of December 31, 2018:
 
 
 
  Payments Due By Period 
 

 
Total
 
 
Less than
1 year
 
 
 
1-3 years
 
 
3-5 years 
 
 
 More than 5 years
 
Operating Leases:
 
   
 
 
 
 
 
   
 
 
 
 
 
 
 
Office Leases(1)
 $6,654
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