Business context and reporting period
Registrant discrepancy: The supplied filing is BMB Munai, Inc.’s Form 10-Q, not a filing for Freedom Holding Corp. It covers the quarter and nine months ended December 31, 2012; the quarter is the company’s fiscal third quarter. Financial figures below describe BMB Munai and are unaudited.
BMB Munai sold its Kazakhstan oil-and-gas subsidiary, Emir Oil, in September 2011. It reports no continuing revenue and says it is winding down Kazakhstan activities while seeking new business opportunities.
Financial performance and position
- Revenue: $0 in the quarter and nine-month period ended December 31, 2012.
- Net loss: $781,394 for the quarter, versus $304,217 a year earlier; $2.57 million for nine months, versus $138.85 million a year earlier. The prior-year nine-month loss included a $127.15 million loss on the Emir Oil sale, partly offset by $11.90 million of discontinued-operations income.
- Expenses: Quarterly general and administrative expense rose to $759,904 from $283,857, which management attributed to work fulfilling obligations under the sale agreement. Nine-month continuing-operations costs and expenses fell to $2.59 million from $23.59 million, largely reflecting lower G&A and no interest expense after the convertible notes were redeemed in 2011.
- Margins: Not meaningful because the company had no revenue.
- Cash flow: Nine-month operating cash use was $5.61 million; investing cash flow was zero; financing cash use was $22.97 million, primarily shareholder distributions. Cash declined $28.58 million to $10.79 million.
- Liquidity and balance sheet: At December 31, 2012, cash and total current assets were $10.79 million; current liabilities were $8.84 million, including $8.78 million of accrued unpaid shareholder distributions. Total assets were $10.92 million and shareholders’ equity was $2.07 million. The $36 million sale escrow was released in September 2012.
- Debt and other items: The filing reports no interest expense in the 2012 nine-month period following the 2011 redemption of $61.4 million of convertible notes. A $220,875 promissory note receivable was fully provided for; collection was considered unlikely.
Changes, outlook, and risks
The 2012 nine-month loss was substantially smaller than the prior-year loss, which included the sale loss and higher transaction-related expenses. In contrast, quarterly loss increased year over year as G&A rose. The company declared and made a $0.30-per-share distribution in October 2012, totaling $16.74 million; $2.06 million remained payable at quarter-end. It also paid the $5 million extraordinary-event fee due to board chairman Boris Cherdabayev during the quarter.
Management expects continuing losses and no revenue until a new business opportunity is identified and exploited. It gives no quantified earnings or revenue guidance and cautions that there is no assurance it can find an opportunity or have sufficient funds to pursue one. The filing states that the absence of positive cash flow raises substantial doubt about the company’s ability to continue as a going concern. U.S. bank deposits were in accounts exceeding FDIC insurance limits, though held in a money market account investing in U.S. government-backed securities. Management reported effective disclosure controls and no material change in internal control; it identified no additions to previously disclosed risk factors.
Most important facts to verify
- Confirm the intended issuer and period: the source is BMB Munai, Inc., not Freedom Holding Corp.
- Verify remaining cash after the $8.78 million of unpaid distributions and the company’s ability to fund wind-down and other obligations.
- Review the basis for the going-concern disclosure and prospects for identifying a new business.
- Check the status of unpaid shareholder distributions and any outstanding post-sale obligations to MIE.
- Assess the related-party Lakeview services arrangement and the fully provided promissory note receivable.