Freedom Holding Corp.

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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 June 30, 2018
	OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
	SECURITIES EXCHANGE ACT OF 1934
	For the
transition period from __ to ___

| Commission
File Number 001-33034 |
| --- |
| FREEDOM HOLDING CORP. |
| (Exact
name of registrant as specified in its charter) |

Nevada	30-0233726
(State
or other jurisdiction of	(I.R.S.
Employer
incorporation
or organization)	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
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post 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	☐ (Do not check if a smaller reporting
company)	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
August 10, 2018, the registrant had 58,033,212 shares of common
stock, par value $0.001, issued and outstanding. | | | | |

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FREEDOM HOLDING CORP.

FORM 10-Q

TABLE OF CONTENTS

| PART I
— FINANCIAL INFORMATION | Page |
| --- | --- |
| Item 1.
Unaudited Condensed Consolidated Financial Statements | 2 |
| Condensed
Consolidated Balance Sheets as of June 30, 2018 and March 31,
2018 | 2 |
| Condensed
Consolidated Statements of Operations and Statements of Other
Comprehensive Income/(Loss) for the Three Months Ended June 30,
2018 and 2017 | 3 |
| Condensed
Consolidated Statements of Cash Flows for the Three Months Ended
June 30, 2018 and 2017 | 4 |
| Notes
to Condensed Consolidated Financial Statements | 5 |
| Item 2.
Management’s Discussion and Analysis of Financial
Condition and Results of
Operations | 27 |
| Item 3.
Qualitative and Quantitative Disclosures About Market
Risk | 36 |
| Item 4.
Controls and Procedures | 36 |
| PART II
— OTHER INFORMATION | |
| Item 1.
Legal Proceedings | 37 |
| Item
1A. Risk Factors | 37 |
| Item 5.
Other Information | 37 |
| Item 6.
Exhibits | 38 |
| Signatures | 39 |

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FREEDOM HOLDING CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS ( Unaudited )

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

Rule Below Paragraph

	June 30, 2018	March 31, 2018*
		(Recast)
ASSETS
Cash
and cash equivalents	$ 45,057	$ 65,731
Restricted
cash	24,802	21,962
Trading
securities	184,350	212,595
Available-for-sale
securities, at fair value	2	240
Brokerage
and other receivables, net	42,245	24,854
Loans
issued	16,757	8,754
Deferred
tax assets	812	772
Fixed
assets, net	2,471	2,571
Intangible
assets, net	4,807	5,531
Goodwill	3,103	3,288
Other
assets, net	4,823	4,573
TOTAL ASSETS	$ 329,229	$ 350,871
LIABILITIES AND STOCKHOLDERS’ EQUITY
Securities
sold, not yet purchased - at fair value	$ 1,756	$ 1,135
Loans
received	13,977	7,143
Debt
securities issued	19,969	11,222
Customer
liabilities	40,402	30,672
Trade
payables	15,742	9,013
Deferred
distribution payments	8,534	8,534
Securities
repurchase agreement obligation	114,572	154,775
Other
liabilities	2,012	1,376
TOTAL LIABILITIES	216,964	223,870
Commitments and Contingencies (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; 58,033,212
and 58,033,212 shares issued and outstanding as of June 30, 2018
and March 31,2018, respectively	58	58
Additional
paid in capital	99,003	100,180
Retained
earnings	27,437	34,320
Accumulated
other comprehensive loss	(14,233 )	(7,557 )
TOTAL STOCKHOLDERS’ EQUITY	112,265	127,001
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 329,229	$ 350,871

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.

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FREEDOM HOLDING CORP.

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

Rule Below Paragraph

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

Rule Below Paragraph

| | Three months
ended June 30, — 2018 | 2017* |
| --- | --- | --- |
| Revenue: | | (Recast) |
| Fee
and commission income | $ 5,428 | $ 3,057 |
| Net
gain/(loss) on trading securities | (3,288 ) | 7,131 |
| Interest
income | 7,372 | 2,647 |
| Net
gain on derivatives | - | 490 |
| Net
gain/(loss) on foreign exchange operations | (2,110 ) | 659 |
| TOTAL REVENUE, NET | 7,402 | 13,984 |
| Expense: | | |
| Interest
expense | 4,614 | 2,030 |
| Fee
and commission expense | 764 | 289 |
| Operating
expense | 9,111 | 3,663 |
| Other
expense/(income), net | (54 ) | 45 |
| TOTAL EXPENSE | 14,435 | 6,027 |
| NET
INCOME/(LOSS) BEFORE INCOME TAX | (7,033 ) | 7,957 |
| Income
tax benefit | 150 | 33 |
| NET INCOME/(LOSS) | $ (6,883 ) | $ 7,990 |
| OTHER
COMPREHENSIVE INCOME/(LOSS) | | |
| Change
in unrealized gain on investments available-for-sale, net
of tax effect | $ - | $ (59 ) |
| 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 | (6,698 ) | (2,169 ) |
| COMPREHENSIVE INCOME/(LOSS) | $ (13,559 ) | $ 5,762 |
| BASIC
NET INCOME/(LOSS) PER COMMON SHARE (In US Dollars) | $ (0.12 ) | $ 0.71 |
| DILUTED
NET INCOME/(LOSS) PER COMMON SHARE (In US Dollars) | $ (0.12 ) | $ 0.71 |
| Weighted
average number of shares (basic) | 58,033,212 | 11,306,084 |
| Weighted
average number of shares (diluted) | 58,191,542 | 11,306,084 |

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.

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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)

Rule Below Paragraph

| | For the three
months ended — June 30,
2018 | June 30,
2017* |
| --- | --- | --- |
| | | (Recast) |
| Cash
Flows From Operating Activities | | |
| Net
income/(loss) | $ (6,883 ) | $ 7,990 |
| Adjustments to
reconcile net income/(loss) from operating activities: | | |
| Depreciation and
amortization | 396 | 271 |
| Loss on sale of
fixed assets | 33 | - |
| Change in deferred
taxes | (109 ) | 173 |
| Stock compensation
expense | 838 | - |
| Unrealized loss on
trading securities | 7,856 | 1,563 |
| Net gain on
derivative | - | (490 ) |
| Net change in
accrued interest | 13 | 155 |
| Changes in
operating assets and liabilities: | | |
| Trading
securities | 6,089 | (15,079 ) |
| Brokerage and other
receivables | (15,710 ) | (18,937 ) |
| Loans
issued | (8,441 ) | 226 |
| Other
assets | (568 ) | (769 ) |
| Customer
liabilities | 9,131 | 8,724 |
| Current income tax
liability | - | (137 ) |
| Trade
payables | 7,251 | 6,943 |
| Securities
repurchase agreement obligation | (30,436 ) | 17,925 |
| Securities sold,
not yet purchased | 718 | - |
| Other
liabilities | 806 | 237 |
| Net
cash flows (used in)/from operating activities | (29,016 ) | 8,795 |
| Cash
Flows From Investing Activities | | |
| Purchase of fixed
assets | (477 ) | (457 ) |
| Proceeds from sale
of fixed assets | 276 | 21 |
| Proceeds from sale
of intangible assets | - | 224 |
| Proceeds from
sale/(purchase) of available-for-sale securities, at fair
value | 238 | (3,069 ) |
| Consideration
paid for Asyl | (2,240 ) | - |
| Cash
received at acquisition | - | 1,368 |
| Net
cash flows used in investing activities | (2,203 ) | (1,913 ) |

| Cash
Flows From Financing Activities — Proceeds from
issuance of debt securities | 9,708 | 4,256 |
| --- | --- | --- |
| Repurchase of debt
securities | - | (775 ) |
| Proceeds from loans
received | 7,336 | - |
| Capital
contributions | 225 | 8,164 |
| Net
cash flows from financing activities | 17,269 | 11,645 |

| Effect of changes
in foreign exchange rates on cash and cash
equivalents | (3,884 ) | (1,753 ) |
| --- | --- | --- |
| NET
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (17,834 ) | 16,774 |
| CASH,
CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF
PERIOD | 87,693 | 35,365 |
| CASH,
CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ 69,859 | $ 52,139 |

| | For the three
months ended — June 30,
2018 | June
30, 2017* |
| --- | --- | --- |
| | | (Recast) |
| Supplemental
disclosure of cash flow information: | | |
| Cash paid for
interest | $ 4,327 | $ 1,844 |
| Income tax
paid | $ 237 | $ 159 |

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 |

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.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

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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 securities industry, including retail securities brokerage, research, investment counseling, securities trading, market making, corporate investment banking and underwriting services in Central Asia. The Company is headquartered in Almaty, Kazakhstan, with supporting administrative office locations in Russia, Cyprus and the United States.

The Company owns directly, or through subsidiaries, the following companies: LLC Investment Company Freedom Finance, a Moscow, Russia-based securities broker-dealer (“Freedom RU”); FFIN Bank, a Moscow, Russia-based bank (“FFIN Bank”); JSC Freedom Finance, an Almaty, Kazakhstan-based securities broker-dealer (“Freedom KZ”); FFINEU Investments Limited, a Limassol, Cyprus-based broker-dealer (“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 professional participants on the Kazakhstan Stock Exchange (KASE), Moscow Exchange (MOEX), Saint-Petersburg Exchange (SPB), the Ukrainian Exchange, and the 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-month period ended June 30, 2018, are not necessarily indicative of the results that may be expected for the year ended March 31, 2019.

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.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

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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, LLC First Stock Store (“Freedom 24”) and Branch Office of LLC IC Freedom Finance in Kazakhstan (“KZ Branch”). 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. The majority 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).

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.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

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.

anchor 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. Futures 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.

All gains and losses on foreign currency contracts were realized during the three months ended June 30, 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 revenue.

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 income/(loss)” reserve.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

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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.

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, 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 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.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

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 and accumulated in the Accumulated other comprehensive income/(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 are recognized in the Condensed Consolidated Statements of Operations and Statements of other Comprehensive Income/(Loss). 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 reclassified to profit or loss.

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.

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).

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

Brokerage and other receivables

Brokerage and other receivables comprise 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 Company 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 June 30, 2018 and March 31, 2018, the Company had not recorded any charges for impairment of long-lived assets.

Impairment of goodwill

As of June 30, 2018 and March 31, 2018, goodwill recorded in the Company’s Condensed Consolidated Balance Sheets totaled $3,103 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.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

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 June 30, 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 changes 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 income beginning in 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 quarter ended June 30, 2018.

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.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

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

In May 2018, the FASB issued ASU No. 2018-06, Codification Improvements to Topic 942, Financial Services - Depository and Lending. The FASB issued this Update to supersede outdated guidance related to the Office of the Comptroller of the Currency’s Banking Circular 202, Accounting for Net Deferred Tax Charges (Circular 202). The Board has an ongoing project on its agenda about Codification improvements to clarify the FASB Accounting Standards Codification or to correct unintended application of guidance. Those Codification improvement items generally are not expected to have a significant effect on current accounting practice or to create a significant administrative cost for most entities. The amendments in this Update are of a similar nature, and, therefore, the Board is addressing the improvements through the Codification improvements project. The Board decided to issue a separate Update to increase stakeholders’ awareness of the improvements to Topic 942, Financial Services—Depository and Lending. The amendments in this Update remove outdated guidance related to Circular 202 and should have no effect on reporting entities.

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.

For public entities, these 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 , adopted in July 2018, 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, adopted in January 2018, 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. We are currently evaluating the effect of the standards on our ongoing financial reporting.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

NOTE 3 – REVISION OF FINANCIAL STATEMENT

When preparing the condensed consolidated financial statements as of and for the three months ended June 30, 2018, management determined that certain amounts included in the Company’s condensed consolidated financial statements as of March 31, 2018 and for the three months ended June 30, 2017 required revision, due to closing of the acquisition of Freedom RU on June 29, 2017, and Freedom CY on November 1, 2017 and the closing 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 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.

The previously issued Condensed Consolidated Balance Sheet as of March 31, 2018, and Condensed Consolidated Statement of Operations and Statements of Other Comprehensive Income for the three months ended June 30, 2017 have been revised as follows:

| BALANCE SHEETS (RECAST) | As of March 31,
2018 — 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 | 3,745 | 24,854 |
| 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 | $ 20,785 | $ 350,871 |
| 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 | (1,067 ) | 34,320 |
| Accumulated
other comprehensive loss | (7,394 ) | (163 ) | (7,557 ) |
| TOTAL STOCKHOLDERS’ EQUITY | 115,100 | 11,901 | 127,001 |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ 330,086 | $ 20,785 | $ 350,871 |

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

| STATEMENTS OF OPERATIONS AND STATEMENTS OF OTHER COMPREHENSIVE
INCOME (RECAST) | For the three
months ended June 30, 2017 — As
previously reported | Recast | As
recasted |
| --- | --- | --- | --- |
| Revenue: | | | |
| Fee
and commission income | $ 2,855 | $ 202 | $ 3,057 |
| Net gain on trading
securities | 7,009 | 122 | 7,131 |
| Interest
income | 2,584 | 63 | 2,647 |
| Net gain on
derivatives | 490 | - | 490 |
| Net
gain on foreign exchange operations | 617 | 42 | 659 |
| TOTAL REVENUE, NET | 13,555 | 429 | 13,984 |
| Expense: | | | |
| Interest
expense | 1,987 | 43 | 2,030 |
| Fee
and commission expense | 238 | 51 | 289 |
| Operating
expense | 2,911 | 752 | 3,663 |
| Other
expense, net | 78 | (33 ) | 45 |
| TOTAL EXPENSE | 5,214 | 813 | 6,027 |
| NET
INCOME BEFORE INCOME TAX | 8,341 | (384 ) | 7,957 |
| Income
tax benefit | 31 | 2 | 33 |
| NET INCOME | $ 8,372 | $ (382 ) | $ 7,990 |
| OTHER
COMPREHENSIVE INCOME | | | |
| Change
in unrealized gain on investments available-for-sale, net of tax
effect | $ - | $ (59 ) | $ (59 ) |
| Foreign
currency translation adjustments, net of tax | (1,758 ) | (411 ) | (2,169 ) |
| COMPREHENSIVE INCOME | $ 6,614 | $ (852 ) | $ 5,762 |

NOTE 4 – CASH AND CASH EQUIVALENTS

| | June 30,
2018 | March 31,
2018 (Recast) |
| --- | --- | --- |
| Securities
purchased under reverse repurchase agreements | $ 19,514 | $ 27,389 |
| Current account
with commercial banks | 7,616 | 9,032 |
| Petty
cash in bank vault and on hand | 5,834 | 2,712 |
| Current
account with Central Depository (Kazakhstan) | 4,588 | 1,280 |
| Current
accounts with brokers | 3,781 | 22,749 |
| Current account
with National Settlement Depository (Russia) | 1,770 | 1,244 |
| Current account
with Central Bank (Russia) | 991 | 980 |
| Accounts
with stock exchange | 814 | 214 |
| Current
account in clearing organizations | 149 | 131 |
| Total
cash and cash equivalents | $ 45,057 | $ 65,731 |

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

As of June 30, 2018 and March 31, 2018, cash and cash equivalents were not insured. As of June 30, 2018 and March 31, 2018, the cash and cash equivalents balance included collateralized securities received under reverse repurchase agreements on the terms presented below:

| | June 30,
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 | 14.88 % | 9,156 | 9,656 | 18,812 |
| Corporate
debt | 15.00 % | 702 | - | 702 |
| Total | | $ 9,858 | $ 9,656 | $ 19,514 |

	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 June 30, 2018 and March 31, 2018, is $33,729 and $28,311, respectively. For additional information please see Note 9 – Securities sold, not yet purchased – at fair value.

NOTE 5 – RESTRICTED CASH

As of June 30, 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 the 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 shareholder completing and submitting to the Company the necessary documentation to claim his, her or its distribution payments. The Company has no control over when, or if, an entitled shareholder will submit the necessary documentation to claim his, her, or its distribution payment. Restricted cash consisted of:

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

| | June
30, 2018 | March
31, 2018 (Recast) |
| --- | --- | --- |
| Brokerage
customers’ cash | $ 15,439 | $ 12,963 |
| Deferred
distribution payments | 8,534 | 8,534 |
| Guaranty
deposits | 640 | 350 |
| Reserve with
Central Bank of Russia | 189 | 115 |
| Total
restricted cash | $ 24,802 | $ 21,962 |

NOTE 6 – TRADING SECURITIES

As of June 30, 2018, and March 31, 2018, trading securities consisted of:

| | June
30, 2018 | March
31, 2018 (Recast) |
| --- | --- | --- |
| Equity
securities | $ 146,487 | $ 177,339 |
| Debt
securities | 37,615 | 34,986 |
| Mutual investment
funds | 248 | 270 |
| Total
trading securities | $ 184,350 | $ 212,595 |

The following tables present trading securities assets in the condensed consolidated financial statements at fair value on a recurring basis as of June 30, 2018 and March 31, 2018:

		Fair Value Measurements at
		June 30, 2018 using
		Quoted
Prices in Active Markets for Identical Assets	Significant
Other Observable Inputs	Significant
unobservable units
	June 30 , 2018	(Level
1)	(Level
2)	(Level
3)
Equity
securities	$ 146,487	$ 146,487	$ -	$ -
Debt
securities	37,615	37,615	-	-
Mutual investment
funds	248	248	-	-
Total
trading securities	$ 184,350	$ 184,350	$ -	$ -

		Fair Value Measurements at
		March 31, 2018 (Recast) using
		Quoted Prices in
Active Markets for Identical Assets	Significant
Other Observable Inputs	Significant
unobservable units
	March 31,
2018 (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	$ -	$ -

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

NOTE 7 – LOANS ISSUED

As of June 30, 2018, and March 31, 2018 the Company had loans issued in the amount of $16,757 and $8,754, respectively.

Loans issued as of June 30, 2018, consisted of the following:

| | Amount
Outstanding | Due
Dates | Average Interest
Rate | Fair Value of
Collateral | Loan
Currency |
| --- | --- | --- | --- | --- | --- |
| Collateralized
brokerage loans | $
4,720 | Jan.
2019 – Feb. 2019 | 3.00% | $
4,479 | USD |
| Uncollateralized
brokerage loan | $
11,496 | Sep.
2018 | 3.00% | - | KZT |
| Bank
customer loans | $
541 | Nov.
2018- Feb. 2028 | 12.59% | - | RUB |

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 |

NOTE 8 – DEFERRED TAX ASSETS

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

The tax rates used for deferred tax assets and liabilities for the three months ended June 30, 2018 and 2017, is 25% and 37.3%, respectively for the US and 20% for the Russian Federation, Kazakhstan, Kyrgyzstan, Ukraine and Uzbekistan.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

Deferred tax assets and liabilities of the Company are comprised of the following:

| | June 30,
2018 | March 31, 2018
(Recast) |
| --- | --- | --- |
| Deferred tax assets: | | |
| Tax losses
carryforward | $ 3,283 | $ 3,050 |
| GILTI
losses | 404 | - |
| Accrued
liabilities | 34 | 49 |
| Revaluation on
trading securities | 151 | 88 |
| Stock compensation
expenses | 718 | 405 |
| Valuation
allowance | (3,736 ) | (2,433 ) |
| Deferred
tax assets | 854 | 1,159 |
| Deferred tax liabilities: | | |
| Revaluation on
trading securities | 42 | 387 |
| Deferred
tax liabilities | | |
| | 42 | 387 |
| Net
deferred tax assets | $ 812 | $ 772 |

During the three months ended June 30, 2018 and 2017, the effective tax rate was equal to 2.13% and (0.41%), respectively. During the three months ended June 30, 2018, effective tax rate was primarily impacted due to unrecognized tax losses carryforward on Freedom KZ and FRHC in the amount of $309 and $1,666, respectively, and during the three months ended June 30, 2017 due to non-taxable gains on trading securities in Freedom KZ in the amount of $7,795.

During the three-month period ended June 30, 2018, the Company realized net loss before income tax of $7,033, primarily from operating expenses of the Company and losses of Freedom KZ on trading operations. This resulted in the Company realizing an income tax benefit during the three months ended June 30, 2018 of $150. During the three months ended June 30, 2017, the Company realized a net income before income tax of $7,957 primarily from non-taxable revenues generated from Freedom KZ’s trading operations and utilized tax loss carryforwards of $203. This resulted in the Company realizing an income tax benefit during the three months ended June 30, 2017 of $33.

NOTE 9 – SECURITIES SOLD, NOT YET PURCHASED – AT FAIR VALUE

As of June 30, 2018, and March 31, 2018, the Company’s securities sold, not yet purchased – at fair value was $1,756 and $1,135 respectively.

During the quarter ended June 30, 2018, the Company sold shares received as a pledge under reverse repurchase agreements and recognized financial liabilities at fair value in the amount of $6,996, and partially closed short position in the amount of $5,216 by purchasing securities from a third party, reducing the financial liability. During the quarter ended June 30, 2018, the Company recognized a gain on the change in fair value of financial liabilities at fair value through the Consolidated Statements of Operations and Statements of Other Comprehensive Income/(Loss) in the amount of $956 with a foreign exchange translation gain of $203.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

A short sale involves the sale of a security that is not owned in the expectation of 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 10 – 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 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 June 14, 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.

NOTE 11 – LOANS RECEIVED

| Borrower | Lender | June 30,
2018 | March 31,
2018 | Interest rate | Term | Maturity date |
| --- | --- | --- | --- | --- | --- | --- |
| JSC Freedom
Finance | Bank | $ 9,049 | $ 7,044 | 7 % | 1 year | 2/5/2019 |
| Freedom Holding
Corp. | Non-Bank | 4,834 | - | 3 % | 3
months | 9/30/2018 |
| FFINEU Investments
Limited | Non-Bank | 94 | 99 | 1 % | 1 year | 12/11/2018 |
| Total | | $ 13,977 | $ 7,143 | | | |

As of June 30, 2018 and March 31, 2018, the Company had received United States dollar denominated loans from JSC AsiaCreditBank in the total amount of $8,954 and $7,031, respectively, under a credit line agreement with $9,000 in total available for withdrawal. The Company pledged 3.1 million shares of Kcell with a fair value $13,970 as of June 30, 2018, to collateralize the AsiaCreditBank loan. Non-bank loans received are unsecured. As of June 30, 2018 and March 31, 2018, accrued interest on the loans totaled $68 and $16, respectively.

NOTE 12 – DEBT SECURITIES ISSUED

| | June 30,
2018 | March 31,
2018 |
| --- | --- | --- |
| | | (Recast) |
| Debt securities
issued denominated in USD | $ 10,605 | $ 7,006 |
| Debt securities
issued denominated in KZT | 9,253 | 4,025 |
| Accrued
interest | 111 | 191 |
| Total | $ 19,969 | $ 11,222 |

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

As of June 30, 2018, and March 31, 2018, the Company had bonds of Freedom KZ issued under Kazakhstan law in the amount of $19,969 and $11,222 respectively. As of June 30, 2018, Company issued bonds with fixed annual coupon rate 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 8% fixed annual coupon rate and 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 June 30, 2018 and March 31, 2018 included $111 and $191 accrued interest, respectively. The Freedom KZ bonds are actively traded on Kazakhstan Stock Exchange.

NOTE 13 – CUSTOMER LIABILITIES

The Company recognizes customer liabilities associated with funds held by our brokerage and bank customers. Customer liabilities consist of:

| | June 30,
2018 | March 31, 2018
(Recast) |
| --- | --- | --- |
| Brokerage
customers | $ 21,927 | $ 21,367 |
| Banking
customers | 18,475 | 9,305 |
| Total | $ 40,402 | $ 30,672 |

NOTE 14 – SECURITIES REPURCHASE AGREEMENT OBLIGATIONS

As of June 30, 2018, and March 31, 2018, trading securities included collateralized securities subject to repurchase agreements as described in the following table:

	June 30, 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	12.26 %	$ 86,961	$ 906	$ 6,532	$ 94,399
Corporate
debt	6.83 %	9,896	-	-	9,896
Non-US sovereign
debt	8.41 %	10,277	-	-	10,277
Total
securities sold under repurchase
agreements		$ 107,134	$ 906	$ 6,532	$ 114,572

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

	March 31, 2018 (Recast)
	Interest rate and remaining contractual maturity of the
agreements
	Average interest rate	Overnight and
continuous	Up to 30
days	30-90
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 June 30, 2018 and March 31, 2018, was $155,459 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 15 – 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 is 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 three months ended June 30, 2017.

During the three months ended June 30, 2018 and 2017, the Company earned commission income from related parties in the amounts of $4,439 and $661, 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.

As of June 30, 2018 and March 31, 2018, the Company had bank commission receivables and receivable from brokerage clients from related parties totaling $615 and $1,055, respectively. Brokerage and other receivables from related parties result principally from commissions receivable on the brokerage operations of related parties.

As of June 30, 2018 and March 31, 2018, the Company had brokerage accounts with related parties totaling $2,700 and $17,795, respectively.

As of June 30, 2018, and March 31, 2018, the Company had loans issued to related parties totaling $5 and $1,748, respectively.

As of June 30, 2018, and March 31, 2018, the Company had margin lending receivables with related parties totaling $10,818 and $8,748, respectively.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

As of June 30, 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 June 30, 2018, and March 31, 2018, the Company had margin lending payables due to related parties, totaling $0 and $81, respectively.

As of June 30, 2018, and March 31, 2018, the Company had loans received from a related party totaling $843 and $99, respectively.

As of June 30, 2018, and March 31, 2018, the Company had customer liabilities on brokerage accounts and bank accounts of related parties totaling $11,104 and $3,402, respectively. As of June 30, 2018, and March 31, 2018, the Company had restricted customer cash on brokerage accounts and cash on bank accounts of related parties totaling $9,762 and $2,004, respectively.

NOTE 16 – STOCKHOLDERS’ EQUITY

During the three months ended June 30, 2018, Mr. Turlov made capital contributions of $225 to FRHC. At the time such contributions were made, Mr. Turlov was the Chief Executive Officer, Chairman of the board, and majority shareholder of the Company.

On June 29, 2017, the Company and Mr. Turlov closed the acquisition of Freedom RU. Pursuant to the terms of the Acquisition Agreement, Mr. Turlov received a total of 20,665,023 shares of restricted common stock in exchange for his 100% interest in Freedom RU.

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 $838 during the three months ended June 30, 2018.

As disclosed in Note 1 on November 10, 2017, FRHC issued 12,758,011 shares of restricted Company common stock in exchange for Mr. Turlov 100% equity interest in Freedom CY and Freedom CY became a wholly owned subsidiary of the Company.

As disclosed in Note 1, on November 1, 2017, the Company entered into a Share Exchange and Acquisition Agreement and agreed to issue 387,700 shares of restricted common stock to BusinessTrain Ltd. to acquire 100% of the outstanding equity interest of Freedom UA.

On December 8, 2017, the Company completed a private placement of 3,681,667 shares of its restricted common stock in exchange for an aggregate offering proceeds of $11,045. The shares of common stock were sold to non-U.S. persons pursuant to the exemption from registration provided in Regulation S promulgated under the Securities Act for offers and sales made outside the United States. Arkady Rakhilkin, a Company director, purchased 348,333 shares for $1,045.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

On March 2, 2018, the Company completed a private placement of 5,426,612 shares of its restricted common stock in exchange for an aggregate offering proceeds of $29,399. The shares of common stock were sold to non-U.S. persons pursuant to the exemption from registration provided in Regulation S promulgated under the Securities Act for offers and sales made outside the United States. Askar Tashtitov, a Company director, purchased 28,000 shares for $154.

NOTE 17 – STOCK BASED COMPENSATION

As disclosed in Note 16, 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 for the quarter ended June 30, 2018. Total compensation expense related to options granted was $54 for the quarter ended June 30, 2018 and $0 for the quarter ended June 30, 2017. As of June 30, 2018, there was total remaining compensation expense of $489 related to stock options, which will be recorded over a weighted average period of approximately 2.27 years. No options were exercisable or exercised during the quarter ended June 30, 2018.

The Company has determined fair value of stock options using the Black-Scholes option valuation model based on the following key assumptions during the quarter ended June 30, 2018:

| 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 restricted shares were awarded. During the three months ended June 30, 2018, no restricted shares were awarded. The compensation expense related to restricted stock awards was $784 during the quarter ended June 30, 2018, and $0 during the quarter ended June 30, 2017. As of June 30, 2018, there was $5,884 of total unrecognized compensation cost related to nonvested shares of restricted stock granted. The cost is expected to be recognized over a weighted average period of 1.96 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.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

The following is a summary of stock option activity for year ended June 30, 2018:

	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value
Outstanding,
beginning of year	$ 360,000	$ 1.98	9.27	$ 1,753
Granted	-	-	-	-
Exercised	-	-	-	-
Forfeited/cancelled/expired	-	-	-	-
Outstanding, at
June 30, 2018	$ 360,000	$ 1.98	9.27	$ 1,879
Exercisable
at June 30, 2018	$ -	$ -	-	$ -

The table below summarizes the activity for the Company's restricted stock outstanding during the quarter ended June 30, 2018:

	Shares	Weighted Average Fair Value
Outstanding,
beginning of year	$ 3,900,000	$ 8,190
Granted	-
Vested	-	-
Forfeited/cancelled/expired	-	-
Outstanding,
at June 30, 2018	$ 3,900,000	$ 8,190

NOTE 18 – ACQUISITIONS

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. We acquired Asyl 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 months ended June 30, 2018, management determined that certain amounts included in the Company’s consolidated financial statements as of March 31, 2018 and for the three months ended June 30, 2017 required revision, due to closing of the completion of merger of Asyl in April 2018, which was deemed to be an entity under common control with the Company since April 28, 2017.

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. We acquired Nettrader for approximately $3.8 million, which was equal to the fair value of the net assets acquired by the Company.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

When preparing the condensed consolidated financial statements for the three months ended June 30, 2018, management determined that certain amounts included in the Company’s consolidated financial statements as of March 31, 2018 and for the three months ended June 30, 2017 required revision, due to closing of the completion of merger of Nettrader in May 2018, which was deemed to be an entity under common control with the Company since May 18, 2017.

NOTE 19 – REVERSE STOCK SPLIT

On September 6, 2017, the Company effected a one-share-for-twenty-five-shares reverse stock split of its common stock. All share and earnings per share information has been retroactively adjusted to reflect the stock split. The effect of this stock split on the Company’s earnings per share is as follows:

| | For the three
months ended June 30, 2018 | For the three
months ended June 30, 2017 (Recast) |
| --- | --- | --- |
| Basic
and diluted net income per common share: | | |
| Net
income/(loss) | $ (6,883 ) | $ 7,990 |
| Net
income/(loss) per common share - basic (in US dollars) | $ (0.12 ) | $ 0.71 |
| Net
income/(loss) per common share - diluted (in US
dollars) | $ (0.12 ) | $ 0.71 |
| Shares
used in the calculation of net income per common
share: | | |
| Basic | 58,033,212 | 11,306,084 |
| Diluted | 58,191,542 | 11,306,084 |

NOTE 20 – COMMITMENTS AND CONTINGENT LIABILITIES

The table below shows approximate lease commitments and other contingent liabilities of the Company as of June 30, 2018:

| Contractual
obligations | Total | Less than 1
year | 2-3
years |
| --- | --- | --- | --- |
| Office
leases (1) | $ 8,609 | $ 5,568 | $ 3,041 |
| TOTAL | $ 8,609 | $ 5,568 | $ 3,041 |

(1)

The Company has number of lease agreements for office spaces in different locations. In general, all agreements are made for a one-year period with extension or termination provisions, except three lease agreements with longer lease terms.

The Company’s rent expense for office space was $1,086 and $377 for the three months ended June 30, 2018 and 2017, respectively.

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FREEDOM HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( Unaudited)

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

Rule Below Paragraph

NOTE 21 – SUBSEQUENT EVENTS

The Company evaluated all material events and transactions that occurred after June 30, 2018 through August 14, 2018. During this period the Company did not have any additional material recognizable subsequent events.

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

The following discussion is intended to assist you in understanding our results of operations and our present financial condition. Our unaudited condensed consolidated financial statements and the accompanying notes included in this Quarterly Report on Form 10-Q contain additional information that should be referred to when reviewing this material and this document should be read in conjunction with our financial statements and the related notes contained elsewhere in this report and in our other filings with the U.S. Securities and Exchange Commission (the “Commission”) including our annual report on Form 10-K filed with the Commission on June 29, 2018.

Special Note About Forward-Looking Information

Certain information included herein contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) such as statements relating to our anticipated revenues and operating results, estimates used in the preparation of our financial statements, future performance, plans for future expansion, analyses, prospects, strategies, capital spending, sources of liquidity, and financing sources. Forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made herein. These forward-looking statements can sometimes be recognized by the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” and similar expressions. Such statements are subject to known and unknown risks, uncertainties, and other factors, including the meaningful and important risks and uncertainties discussed in this report. These forward-looking statements are based on the beliefs of management as well as assumptions made by and information currently available to management. These statements include, among other things:

●

the ability of our current management to effectively execute our business strategy;

●

our capability to compete with financial services companies that have greater experience, financial resources and competitive advantages in the markets where we operate;

●

Timur Turlov owns the controlling interest in our common stock and therefore has the ability to direct our business with his reasonable business judgment without approval of other shareholders;

●

our capacity to comply with the extensive, pervasive and ever evolving regulatory and oversight requirements in the various jurisdictions where our subsidiaries operate, the failure of which could prevent us from conducting our business;

●

volatility in the domestic and international capital markets, currency fluctuations and general economic conditions;

●

our ability to attract and retain key management and other properly licensed and experienced personnel to satisfy applicable regulatory standards and operate our business profitably; and

●

our ability to properly manage the market, leverage and customer risks that arise from our proprietary trading.

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Although we have attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause the forward-looking statements not to be accurate as described in this report. These forward-looking statements are only predictions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially.

You should not rely on forward-looking statements as predictions of future events. While we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance and achievements. Moreover, neither we nor any other person assumes any responsibility for the accuracy and completeness of these statements or undertakes any obligation to revise these forward-looking statements to reflect events and circumstances after the date of this report or to reflect the occurrence of unanticipated events.

This discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and capital resources during the fiscal quarters ended June 30, 2018 and 2017.

Overview

We own several operating subsidiaries that conduct full-service retail securities brokerage, investment counseling, securities trading, investment banking and underwriting services in Central Asia. We are headquartered in Almaty, Kazakhstan, with supporting administrative offices in Russia, Cyprus and the United States.

Our companies are professional participants of the Kazakhstan Stock Exchange (KASE), the Moscow Stock Exchange (MOEX), the Saint-Petersburg Stock Exchange (SPB), the Ukrainian Exchange, and the Republican Stock Exchange of Tashkent (UZSE). We operate a brokerage office in Cyprus that serves to provide our 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 we operate do not currently allow investors direct access to international securities markets.

Our initial line of business has been directed toward providing a comprehensive array of financial services to our target retail audience which is high-net-worth individuals and small businesses seeking to diversify their investment portfolios to manage economic risk associated with political, regulatory, currency, banking, and national uncertainties. Clients are provided online tools and retail locations to establish accounts and conduct securities trading on transaction-based pricing. We market to our customer demographic through a number of channels, including telemarketing, training seminars and investment conferences, print and online advertising using social media, our mobile app and search engine optimization activities.

Executive Summary

Customer Base

We serviced more than 81,000 client accounts, approximately 34,000 of them were received as result of acquisitions of JSC Asyl Invest and LLC Nettrader Brokerage, more than 40% of which carried positive cash or asset account balances during the three months ended June 30, 2018. During the three months ended June 30, 2018 we opened over 3,000 new accounts, against 55 account closures. Our total client transaction volume for the quarter exceeded $8 billion.

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We have accelerated our growth through the completion of several strategic acquisitions which have enabled us to expand our market reach, increase our client base and provide our clientele the convenience of both a state-of-the-art proprietary electronic trading platform and 58 retail brokerage and financial services offices located across Kazakhstan (16), Kyrgyzstan (1), Russia (39), Uzbekistan (1) and Ukraine (1) that provide a full array of financial services, investment consulting and education.

Recent Acquisitions

In April 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 to more than 49,000. Asyl was formerly controlled by Mr. Turlov. We acquired Asyl for approximately $2.2 million, which was equal to the fair value of the net assets we acquired.

In May 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. We acquired Nettrader for approximately $3.8 million, which was equal to the fair value of the net assets we acquired.

OTCQX

Subsequent to the quarter end, on July 18, 2018, our common stock began trading on the OTCQX ® Best Market, a premium market operated by OTC Markets, Inc. Previously, our common stock was trading on the OTC Pink ® Open Market. We believe trading on the OTCQX will help to expand our exposure and increase investor access and presents an opportunity at this stage in our growth to communicate with our shareholders and with securities market professionals in the U.S. and abroad.

Financing Activities

During three months ended June 30, 2018, we placed United States dollar and Kazakhstani tenge denominated bonds of Freedom KZ in Kazakhstan in the amount of approximately $9.7 million. These bonds have fixed annual coupon rates of 8.00% or 11.5% and maturity dates ranging from January 2019 to May 2021.

Financial Results

During the three months ended June 30, 2018, we realized a net loss of approximately $6.9 million and basic and diluted loss per share of $0.12, compared to a net income of approximately $8 million and basic and diluted earnings per share of $0.71 during the quarter ended June 30, 2017. As a result of the weakening of our functional currencies against our reporting currency and the resulting currency translation adjustments, net of tax, we realized a comprehensive loss of approximately $13.6 million during the 2018 period compared to a comprehensive income of approximately $5.8 million during the comparable 2017 period.

All dollar amounts reflected under the headings “Results of Operations,” “Liquidity and Capital Resources,” and “Cash Flows” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented in thousands of U.S. dollars unless the context indicates otherwise.

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Results of Operations

Three months ended June 30, 2018 compared to the three months ended June 30, 2017

The following quarter-to-quarter comparison of our financial results is not necessarily indicative of future results.

	Three Months Ended June 30, 2018 — Amount	% *	Three Months EndedJune 30, 2017 (Recast) — Amount	% *
Revenues:
Fee
and commission income	$ 5,428	73 %	$ 3,057	22 %
Net gain/(loss) on
trading securities	(3,288 )	(44 %)	7,131	50 %
Interest
income	7,372	100 %	2,647	19 %
Net gain on
derivatives	-	0 %	490	4 %
Net gain/(loss) on
foreign exchange operations	(2,110 )	(29 %)	659	5 %
Total
revenues, net	7,402	100 %	13,984	100 %
Expenses:
Interest
expense	4,614	62 %	2,030	15 %
Fee
and commission expense	764	10 %	289	2 %
Operating
expense	9,111	123 %	3,663	26 %
Other
expense/(income), net	(54 )	(1 %)	45	0 %
Total
expense	14,435	194 %	6,027	43 %
Net income/(loss)
before income taxes	(7,033 )	(95 %)	7,957	57 %
Income tax
benefit	150	2 %	33	0 %
Net
income/(loss)	$ (6,883 )	$ (93 %)	$ 7,990	$ 57 %
Other
comprehensive income/(loss)
Changes in
unrealized gain on investments available-for-sale	$ -	0 %	$ (59 )	0 %
Reclassification
adjustment relating to available-for-sale investments disposed of
in the period, net of tax effect	22	0 %	-	0 %
Foreign
currency translation adjustments, net of tax	(6,698 )	(90 %)	(2,169 )	(16 %)
Comprehensive income/(loss)	$ (13,559 )	(183 %)	$ 5,762	(41 %)

Reflects percentage of Total revenues, net.

Revenue

We derive revenue primarily from gains realized from our proprietary trading activities, fee and commission income earned from our retail brokerage clients, fees and commission from investment banking services, and interest income.

	Three Months Ended June 30, 2018 — Amount	%	Three Months Ended June 30 2017 (Recast) — Amount	%	Change — Amount	%
Fee and commission
income	$ 5,428	73 %	$ 3,057	22 %	$ 2,371	78 %
Net gain/(loss) on
trading securities	(3,288 )	(44 %)	7,131	50 %	(10,419 )	(146 %)
Interest
income	7,372	100 %	2,647	19 %	4,725	179 %
Net gain on
derivatives	-	0 %	490	4 %	(490 )	(100 %)
Net
gain/(loss) on foreign exchange operations	(2,110 )	(29 %)	659	5 %	(2,769 )	(420 %)
Total revenue, net	$ 7,402	100 %	$ 13,984	100 %	$ (6,582 )	(47 %)

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During the three months ended June 30, 2018 and 2017, we realized total net revenue of $7,402 and $13,984, respectively. Revenue during the three months ended June 30, 2018, was significantly lower than during the three months ended June 30, 2017, primarily due to realizing net losses on trading securities and foreign exchange operations during the period ended June 30, 2018, compared to net gains during the period ended June 30, 2017. The losses were only partially offset by significant increases in fee and commission income and interest income during the three months ended June 30, 2018.

Fee and commission income . During the three months ended June 30, 2018, fee and commission income increased $2,371 compared to the three months ended June 30, 2017. This increase resulted principally from increased fees and commissions for the retail brokerage and related banking services we provide our clients. During the three months ended June 30, 2018, fees and commissions generated from brokerage and related banking services amounted to $3,758 and $1,670, respectively.

These increases in fees and commissions resulted primarily from the growth of our customer base, increased client transaction volume, and greater demand for the other services we offer. Fees and commissions for brokerage services consisted principally of broker fees from customer trading, underwriting and market making services and agency fees. During the three months ended June 30, 2018, brokerage fees and commissions increased $2,442 as a result of increased client transaction volume. During the three months ended June 30, 2017, we engaged in significantly more underwriting and market making activities than during the three months ended June 30, 2018, as a result fees and commissions realized from underwriting and market making services decreased by $1,024. Fees for bank services consist primarily of wire transfer fees, commissions for payment processing and commissions for currency exchange operations. The $1,182 increase in fees and commission from banking services during the three months ended June 30, 2018, compared to the same period 2017 is attributable to the fact that we continue to grow our brokerage-related banking operations and opening new locations.

Net gain/(loss) on trading securities. Net gain/(loss) on trading securities reflects the gains and losses from trading activities in our proprietary trading accounts. Net gains or losses are comprised of realized and unrealized gains and losses. Gains or losses are realized when we close a position in a security and realize a gain or a loss on that position. U.S. GAAP requires that we reflect in our financial statements unrealized gains and losses on all our securities trading positions that remain open as of the end of each period. Fluctuations in unrealized gains or losses from one period to another may result from factors within our control, such as when we elect to close an open securities position, which would have the effect of reducing our open positions and, thereby potentially reducing the amount of unrealized gains or losses in a period. Fluctuations in unrealized gains and losses from period to period may occur as a result of factors beyond our control, such as fluctuations in the market prices of the open securities positions we hold. Unrealized gains or losses in a particular period may or may not be indicative of the gain or loss we will realize on a securities position when the position is closed.

During the three months ended June 30, 2018, we recognized a net loss on trading securities of $3,288, which included $5,094 of realized net gain and $8,382 of unrealized net loss compared to a net gain of $7,131 on trading securities for three months ended June 30, 2017, which included $9,631 of realized net gain and $2,500 of unrealized net loss. The primary contributing factor to our net loss on trading securities during the three months ended June 30, 2018, was a decrease in the share price of JSC Kcell - Kazakhstan’s largest cellular service provider, resulting in a loss in the amount of $6,415, which included $2,033 of realized net gain and $8,448 of unrealized net loss. Our net loss on trading securities was partially offset by unrealized gains on the revaluation of securities due to an increase in share price of JSC Kazakhtelecom – Kazakhstan’s largest telecommunications company in the amount of $3,648.

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Interest income . During the three months ended June 30, 2018 and 2017, we recorded interest income from several sources: interest income on trading securities and interest income on cash and cash equivalents held in financial institutions, reverse repurchase transactions and amounts due from banks. Interest income on trading securities consisted of interest earned from investments in debt securities and dividends earned on equity securities held in our proprietary trading accounts. During the three months ended June 30, 2018, we realized interest income of $7,372 compared to $2,647 for the three months ended June 30, 2017. The increase in interest income of $4,725 was primarily due to an increase in interest income on trading securities in the amount of $4,587 and an increase in interest income from reverse repurchase transactions in the amount of $139 as a result of an increased volume of reverse repurchase transactions during the quarter ended June 30, 2018.

Net gain on derivative . On December 28, 2016, Freedom RU entered into a derivative instrument agreement 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 Condensed Consolidated Balance Sheets and measured at each reporting period using the Black-Scholes Model. The gain associated with this derivative instrument is recognized as gain on a 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 June 14, 2017, at a strike price $3.10 per share.

In connection with the transaction described in the preceding paragraph, we recorded a derivative liability of $495 as of March 31, 2017. On June 14, 2017, the derivative instrument expired unexercised by the option holder, and we recognized a gain on the derivative instrument of $490. We engaged in no similar transactions during the three months ended June 30, 2018.

Net gain/(loss) on foreign exchange operations. During the three months ended June 30, 2018, we realized net loss on foreign exchange operations of $2,110 compared to a $659 net gain on foreign exchange operations during the three months ended June 30, 2017. This change from a net gain to a net loss was due to the fact, that during the period from March 31, 2018 to June 30, 2018, the value of the Kazakhstani tenge decreased approximately 7% against the United States dollar. In accordance with US GAAP, we are required to revalue assets denominated in foreign currencies into our reporting currency, which is United States dollars. As a result of the increase in Kazakhstani tenge denominated financial assets we held during the three months ended June 30, 2018, coupled with the aforementioned reduction in value of the Kazakhstani tenge against the United States dollar, we realized an $815 loss on foreign exchange revaluations, a $699 loss on the on revaluation of corporate bonds issued by Freedom KZ indexed to the United States dollar, and a $603 loss on the revaluation of United States dollar denominated loans from JSC AsiaCreditBank received by Freedom KZ. These losses were only partially offset by a $204 gain on foreign exchange operations as the result of revaluation of United States dollar denominated securities held by Freedom KZ during the quarter ended June 30, 2018.

Expense

	Three Months Ended June 30, 2018 — Amount	%	Three Months Ended June 30, 2017 (Recast) — Amount	%	Change — Amount	%
Interest
expense	$ 4,614	32 %	$ 2,030	34 %	$ 2,584	127 %
Fee and commission
expense	764	5 %	289	5 %	475	164 %
Operating
expense	9,111	63 %	3,663	60 %	5,448	149 %
Other
expense/(income) net	(54 )	0 %	45	1 %	(99 )	(220 %)
Total expense	$ 14,435	100 %	$ 6,027	100 %	$ 8,408	140 %

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During the three months ended June 30, 2018 and 2017, we incurred total expenses of $14,435 and $6,027, respectively. Expenses during the three months ended June 30, 2018, increased as a result of our continued efforts to expand and grow our business.

Interest expense. During the three months ended June 30, 2018, we recognized total interest expense of $4,614, compared to total interest expense of $2,030 during the three months ended June 30, 2017. The increase in interest expense was primarily attributable to higher volumes of short-term financing attracted by means of securities repurchase agreements, totaling $2,485.

Fee and commission expense . During the three months ended June 30, 2018, we recognized fee and commission expense of $764, compared to fee and commission expense of $289 during the three months ended June 30, 2017. The increase was associated with higher commission fees paid to the Central Depository, stock exchanges and brokerage fees to other brokers of $406. The increases in fee and commission expense is primarily associated with expanded brokerage operations in Cyprus. We also started to work with payment systems, including Zolotaya Korona and Visa which resulted in a $56 increase in expenses.

Operating expense . During the three months ended June 3 0 , 2018, operating expense totaled $9,111 compared to operating expenses of $3,663 for the three months ended June 30, 2017. The increase was primarily attributable to higher general and administrative expenses related to growth in our operations, including a $1,828 increase in payroll expenses, a $838 increase in equity compensation expense for equity awards made to employees, a $708 increase in rent expense, a $346 increase in office repair expenses, a $325 increase in advertising expenses, a $280 increase in office equipment expenses, a $272 increase in professional services fees, a $105 increase in depreciation and amortisation expenses, a $69 increase in utilities, and a $677 increase in expenses for communication services, trainings and conferences, business trip expenses , charity, IT services fees, insurance fees and expenses for taxes, other than income tax.

Income tax benefit

We recognized a net loss before income tax of $7,033 during the three months ended June 30, 2018, and net income before income tax $7,957 during the three months ended June 30, 2017. During the three months ended June 30, 2018, we realized an income tax benefit of $150, compared to an income tax benefit of $33 during the three months ended June 30, 2017. The change of the effective tax rates from (0.41%) during the three months ended June 30, 2017 to 2.13% during the three months ended June 30, 2018, was the result of changes in the composition of our revenues we realized from our trading activities and the tax treatment of those revenues in the various foreign jurisdictions where our subsidiaries operate.

Comprehensive income

The functional currencies of our operating subsidiaries are the Russian ruble, European euro, Ukrainian hryvnia, Uzbekistani som and the Kazakhstani tenge. Our reporting currency is the United States dollar. As a result of depreciation of the Russian ruble by 10% and the Kazakhstani tenge by 7% against the United States dollar during the periods covered in this report, we realized a foreign currency translation loss of $6,698 during the three months ended June 30, 2018, compared to a foreign currency translation loss of $2,169 during the three months ended June 30, 2017. As a result of the factors discussed above, coupled with the significant increase in our foreign currency translation loss, during the three months ended June 30, 2018, we realized a comprehensive loss of $13,559, compared to a comprehensive income of $5,762 during the three months ended June 30, 2017.

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Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet our potential cash requirements for general business purposes. Our operations are funded through a combination of existing cash on hand, cash generated from operations, proceeds from the issuance of common stock, proceeds from the sale of bonds of one of our subsidiaries, our credit facility other borrowings and capital contributions from our controlling shareholder. Regulatory requirements applicable to our subsidiaries require them to maintain minimum capital levels.

As of June 30, 2018, we had cash and cash equivalents of $45,057, compared to cash and cash equivalents of $65,731, as of March 31, 2018. At June 30, 2018, we had total current assets (less restricted cash) of $276,477 and total current liabilities of $196,995, resulting in working capital of $79,482. By comparison, at March 31, 2018, we had total current assets (less restricted cash) of $307,993 and total current liabilities of $212,648, resulting in working capital of $95,345. Current assets, current liabilities and working capital were all lower at June 30, 2018 compared to March 31, 2018 as a result of the factors described in the following paragraphs.

Currency fluctuations during the periods discussed above led to a 10% reduction in the value of the Russian ruble and a 7% reduction in the value of the Kazakhstani tenge against the US dollar. As a result, in accordance with US GAAP, balance sheet items denominated in Russian rubles and Kazakhstani tenge had to be revalued. This caused us to realize a $2,110 net loss on foreign exchange operations and a foreign currency translation loss of $6,698 during the three months ended June 30, 2018.

During the three months ended June 30, 2018, we experienced a shift in the composition of our debt obligations. Our obligations under direct repurchase agreements denominated in Kazakhstani tenge, which bore interest at an average rate of 11.74%, decreased by $40,203 from March 31, 2018 to June 30, 2018. During the same period, we issued $7,348 in Freedom KZ bonds denominated in Kazakhstani tenge and $2,360 in Freedom KZ bonds denominated in United States dollars. The bonds denominated in Kazakhtani tenge have a coupon rate of 11.5% and the bonds denominated in United States dollars have a coupon rate of 8%. We also received bank loans denominated in United States dollars of $1,889, which bear interest at 7% per annum and non-bank loans denominated in Kazakhstani tenge of $4,834 which bear interest at a rate of 3%. During the three months ended June 30, 2018, Mr. Turlov made capital contributions of $225.

As of June 30, 2018, the value of the trading securities held in our proprietary trading account totaled $184,350 compared to $212,595 at March 31, 2018. This reduction in trading securities was primarily attributable to the revaluations resulting from the weakening of the Russian ruble and Kazakhstani tenge against the United States dollar, and the net loss of trading securities we realized during the three months ended June 30, 2018, as described above in “ Results of Operations ”. As of June 30, 2018, $164,950 worth of trading securities held in our proprietary trading account were subject to securities repurchase obligations and pledge loans received compared to $209,088 at March 31, 2018. Of our $45,057 in cash and cash equivalents at June 30, 2018, $19,514 was subject to reverse repurchase agreements.

We monitor and manage our leverage and liquidity risk through various committees and processes we have established. We assess our leverage and liquidity risk based on considerations and assumptions of market factors, as well as other factors, including the amount of available liquid capital (i.e., the amount of their cash and cash equivalents not invested in our operating business). While we are confident in the risk management monitoring and management processes we have in place, a significant portion of our trading securities and cash and cash equivalents are subject to collateralization agreements. This significantly enhances our risk of loss in the event financial markets move against our positions. When this occurs our liquidity, capitalization and business can be negatively impacted. Because of the amount of leverage we employ in our proprietary trading activities, coupled with our strategy to at times take large positions in select companies or industries, our liquidity, capitalization, projected return on investment and results of operations can also be significantly affected when we misjudge the impact of events, timing and liquidity of the market for those securities.

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As of June 30, 2018, approximately $90,000 worth of our proprietary trading account was invested in the securities of a single company. Our position in this security is highly leveraged. We invested in this security based on our analysis that this company is significantly undervalued and presents a good investment opportunity. As of the date of this report, this position remains open. Based on the size of the position and the leveraging we have employed to maintain it, our liquidity, capitalization, projected return on investment and results of operations could be significantly negatively affected if our analysis of this investment opportunity and/or market conditions, including our ability to liquidate the position as needed, proves to be incorrect.

We have pursued an aggressive growth strategy during the past several years, and we anticipate continuing efforts to rapidly expand the footprint of our full service financial services business in Central Asia. While this strategy has led to revenue growth it also results in increased expenses and greater need for capital resources. Further growth and e xpansion may require greater capital resources than we currently possess, which could require us to pursue additional equity or debt financing from outside sources. We cannot assure that such financing will be available to us on acceptable terms, or at all, at the time it is needed.

We believe that our current cash and cash equivalents, cash expected to be generated from operating activities, and forecasted returns from our proprietary trading will be sufficient to meet our working capital needs for the next 12 months. We continue to monitor our financial performance to ensure adequate liquidity to fund operations and execute our business plan.

Cash Flows

The following table presents our cash flows for the three months ended June 30, 2018 and 2017:

| | For the three
months ended June 30,
2018 | For the three
months ended June 30,
2017 (Recast) |
| --- | --- | --- |
| Net cash flows
(used in)/from operating activities | $ (29,016 ) | $ 8,795 |
| Net cash flows used
in investing activities | (2,203 ) | (1,913 ) |
| Net cash flows from
financing activities | 17,269 | 11,645 |
| Effect of changes
in foreign exchange rates on cash and cash
equivalents | (3,884 ) | (1,753 ) |
| NET CHANGE IN CASH,
CASH EQUIVALENTS, AND RESTRICTED CASH | $ (17,834 ) | $ 16,774 |

Net cash used in operating activities during the three months ended June 30, 2018, was $29,016. By comparison, during the three months ended June 30, 2017 we realized net cash from operations of $8,795. This was primarily because of changes in operating assets and liabilities, including a $30,436 decrease in securities repurchase agreement obligations, a $15,710 increase in brokerage and other receivables and an $8,441 increase in loans issued. These changes were only partially offset by a $9,131 increase in customer liabilities, a $7,251 increase in trade payables, and a $6,089 decrease in trading securities.

During the three months ended June 30 , 2018 , net cash used in investing activities was $2,203 compared to net cash used in investing activities of $1,913 during the three months ended June 30, 2017. Cash from investing activities during the three months ended June 30, 2018, was primarily used for the acquisition of Asyl in the amount of $2,240 and for purchases of fixed assets, net of sales, of $201, which was partially offset by cash received from the sale of available-for-sale securities, at fair value of $238. Cash used in investing activities during the three months ended June 30, 2017, was primarily used to purchase available-for-sale securities, at fair value of $3,069 and fixed assets of $457, which was partially was offset by cash received in connection with the acquisitions of Asyl and Nettrader in the amount of $1,368.

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Net cash from financing activities during the quarter ended June 30, 2018, consisted principally of proceeds from loans received in the amount of $7,336, proceeds from issuance of debt securities of Freedom KZ in the amount of $9,708, capital contributions to the Company by Mr. Turlov in the amount of $225. By comparison, net cash flows from financing activities during the quarter ended June 30, 2017, consisted principally of capital contributions from Mr. Turlov in the amount of $8,164 and proceeds from issuance of debt securities of Freedom KZ and Asyl in the amount of $4,256, which was partially offset by repurchase of debt securities in the amount of $775.

Contractual Obligations and Contingencies

See Note 20 - Commitments and Contingent Liabilities for information regarding our significant contractual obligations and contingencies at June 30, 2018.

Off-Balance Sheet Financing Arrangements

As of June 30, 2018, we had no off-balance sheet financing arrangements.

Critical Accounting Policies and Estimates

For a discussion of critical accounting policies and estimates, please see Note 2 to our condensed consolidated financial statements.

Item 3. Qualitative and Quantitative Disclosures about Market Risk

Because we are a smaller reporting company we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of June 30, 2018, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures under the 2013 framework of the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report in timely alerting them to information required to be included in our periodic filings with the Commission.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended June 30 , 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The securities industry is highly regulated and many aspects of our business involve substantial risk of liability. In recent years, there has been an increasing incidence of litigation involving the brokerage industry, including class action suits that generally seek substantial damages, including in some cases punitive damages. Compliance and trading problems that are reported to federal, state and provincial regulators, exchanges or other self-regulatory organizations by dissatisfied customers are investigated by such regulatory bodies, and, if pursued by such regulatory body or such customers, may rise to the level of arbitration or disciplinary action. We are also subject to periodic regulatory audits and inspections.

From time to time, our subsidiaries are party to various routine legal proceedings, claims, and regulatory inquiries arising out of the ordinary course of their business. Management believes that the results of these routine legal proceedings, claims, and regulatory matters will not have a material adverse effect on the Company’s financial condition, or on the Company’s operations and cash flows. However, the Company cannot estimate the legal fees and expenses to be incurred in connection with these routine matters and, therefore, is unable to determine whether these future legal fees and expenses will have a material impact on the Company’s operations and cash flows. It is the Company’s policy to expense legal and other fees as incurred.

Item 1A. Risk Factors

We believe there are no additions to the risk factors disclosed in our annual report on Form 10-K for the year ended March 31, 2018, filed with the Commission on June 29, 2018.

Item 5. Other Information

In connection with the upcoming Annual Meeting of Stockholders on September 20, 2018, on July 26, 2018, we filed with the Commission a definitive proxy statement on Schedule 14A disclosing the procedures whereby our shareholders may recommend nominees to our board of directors nominations. While the procedures remained largely unchanged, the following additional procedures have been added:

●

Shareholders are now required to submit recommendations to our Nominating and Corporate Governance Committee, rather than the independent members of our board of directors.

●

Recommendations must now include a minimum of two references who have either worked with the candidate, served on a board of directors or board of trustees with the candidate (or can otherwise provide relevant perspective on the candidate’s capabilities as a potential Board member).

●

The nominating committee may contact the stockholder making the nomination to discuss the qualifications of the candidate and the stockholder’s reasons for making the nomination. The nominating committee may then interview the candidate if it deems the candidate to be appropriate.

●

The nominating committee may also use the services of a third-party search firm to provide additional information about the candidate before making a recommendation to the board of directors.

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Item 6. Exhibits

Exhibits. The following exhibits are filed or furnished, as applicable, as part of this report:

Exhibit No.*	Description of Exhibit	Location
Item 31	Rule
13a-14(a)/15d-14(a) Certifications
31.01	Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002	Attached
31.02	Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002	Attached
Item 32	Section 1350 Certifications
32.01	Certification
Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002	Attached
Item 101	Interactive Data File
101	The
following Freedom Holding Corp, financial information for the
periods ended June 30, 2018, formatted in XBRL (eXtensive Business
Reporting Language): (i) the Condensed Consolidated Balance Sheets,
(ii) the Condensed Consolidated Statements of Operations and
Statements of Other Comprehensive Income, (iii) the Condensed
Consolidated Statements of Cash Flows, and (iv) the Notes to the
Unaudited Condensed Consolidated Financial Statements.	Attached

All exhibits are numbered with the number preceding the decimal indicating the applicable SEC reference number in Item 601 and the number following the decimal indicating the sequence of the particular document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

| Date: | August
14, 2018 | FREEDOM
HOLDING CORP. — /s/
Timur Turlov |
| --- | --- | --- |
| | | Timur
Turlov Chief
Executive Officer |
| Date: | August
14, 2018 | /s/
Evgeniy Ler |
| | | Evgeniy
Ler Chief
Financial Officer |

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