Filing summary
Issuer and period: The supplied filing identifies the registrant as BMB Munai, Inc. (BMBM), not Freedom Holding Corp. It is a Form 10-Q for the quarter ended December 31, 2016, covering the three- and nine-month periods ended that date. The filing describes BMBM and its subsidiary FFIN Securities, Inc.; it does not present Freedom Holding Corp. as the reporting company.
Business context
BMBM had acquired FFIN in November 2015 and described its intended strategy as building an international brokerage and financial-services firm, potentially including acquisitions of Freedom Finance businesses in Russia, Kazakhstan, and Cyprus. FFIN was still deciding whether to seek FINRA membership and U.S. broker-dealer registration. The financial statements are presented as a continuation of FFIN following reverse-merger accounting.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2016 | Nine months ended Dec. 31, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $100,463 | $438,199 | $102,595 / $386,558 |
| Net loss | $99,468 | $435,228 | $104,908 / $389,233 |
| Operating cash used | Not stated by quarter | $286,092 | $403,757 |
- For the nine-month period, professional fees increased $58,628, primarily from legal and audit work related to the contemplated acquisitions; lower general and administrative costs partly offset the increase. Quarterly operating expenses declined slightly year over year.
- At December 31, 2016, cash and cash equivalents excluding restricted cash were $13,586; restricted cash was $8,533,566 and matched deferred distribution liabilities. Total assets were $8,551,010, current liabilities were $8,681,083, and shareholders’ deficit was $130,073.
- Management reported a $132,996 working-capital deficit after excluding restricted cash and the corresponding deferred distribution liability. The filing reports no debt balance; substantial current obligations were unclaimed historical shareholder distributions.
- Nine-month financing cash inflow was $200,000, all from CEO and majority shareholder Timur Turlov. A further $70,000 contribution was made in January 2017. No cash was generated from investing activities in the 2016 nine-month period.
- Profit margins are not meaningful because the company reported no revenue. The reported per-share net loss rounds to $0.00.
Changes, outlook, and risks
- Nine-month net loss increased to $435,228 from $389,233, while operating cash used decreased to $286,092 from $403,757, largely reflecting working-capital changes. The prior-year investing inflow included cash acquired in the FFIN transaction; $8,533,566 of restricted cash remains earmarked for distributions to shareholders who have not completed claim documentation.
- Management anticipated continued losses until the company completes one or more Freedom Companies acquisitions, launches revenue-generating activities, or pursues another opportunity. There is no quantified earnings or revenue guidance.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Continued operations depend on completing acquisitions and/or obtaining financing; Turlov was not obligated to provide further funding, and additional financing was not assured.
- Acquisition completion depended on audited U.S. GAAP financial statements, required regulatory approvals, and other closing conditions. The filing says the company continued working toward closing but could not assure completion. FFIN’s U.S. broker-dealer application and licensing decision also remained unresolved.
- Other disclosed risks include regulatory approval and compliance across jurisdictions, obtaining funding, preparing acquisition-target financial statements, and attracting qualified personnel. More than $8.3 million of cash was above FDIC insurance limits at December 31, 2016.
- Contractual obligations totaled $8,547,940, mostly the $8,533,566 of historical distributions payable upon valid shareholder claims, plus office lease commitments. The filing reports no off-balance-sheet financing arrangements.
Important facts for investors to verify
- Confirm that this BMB Munai, Inc. filing is the intended document; its issuer does not match the requested Freedom Holding Corp.
- Verify the status and terms of any proposed Freedom RU, Freedom KZ, or Freedom CY acquisitions, including audited financial statements and regulatory approvals.
- Check FFIN’s decision and progress regarding FINRA membership and U.S. broker-dealer registration.
- Assess near-term funding needs, the availability of further related-party contributions or other financing, and the going-concern risk.
- Confirm the restricted-cash and distribution-payable balances and the amount of uninsured cash deposits.