SEC Company Response from Freedom Holding Corp. (FRHC) (CIK 0000924805) (FRHC) — Sep 22, 2009
Freedom Holding Corp. (FRHC) (CIK 0000924805)
Date: Sept. 22, 2009 · CIK: 0000924805 · Accession: 0001038838-09-000309
AI Filing Summary & Sentiment
Referenced dates: September 15, 2009
Letter
United States Securities and Exchange Commission Division of Corporate Finance Re: BMB Munai, Inc. Form 8-K filed July 8, 2009, amended September 3, 2009 File No.: 1-33034
Dear Mr. White:
At the request of the management of BMB Munai, Inc., (the “Company” or “BMB Munai”) we are responding to comments raised by the staff at the Securities and Exchange Commission in your letter dated September 15, 2009. Following are the Company’s responses to your comments.
Form 8-K, Item 4.02 filed July 8, 2009, as amended September 3, 2009
1.
We are unable to understand the restatements described in your filing. We note, for example, that the cumulative change to net income described in your filing is $848,610, that is, increased income of $1,148,609 in fiscal year 2007, offset by decreased income of $299,999 in fiscal year 2008. Yet you describe an increase in shareholders’ equity of only $299,999 in FY 2007 and no changes in shareholders' equity in any other fiscal year. Please explain. If you are adjusting retained earnings in FY 2006, please disclose this more clearly in your filing. Also tell us why an adjustment to equity is not required for FY 2009 and 2010.
In response to comment 2 below, the Company has provided additional detail supporting the restatements described in Amendment No. 3 to the Current Report of the Company that was originally filed on July 8, 2009 (the “Third Amendment”), which the Company believes will clarify the restatements.
The Company is not proposing to adjust retained earnings in FY 2006 (please see below for an explanation of journal entries that were made relating to FY 2006.) Rather, as was discussed in a conference call with the SEC staff, the journal entries relating to FY 2006 were treated as prior-period entries and adjusted through beginning balance FY 2007 retained earnings.
POULTON & YORDAN
TELEPHONE: 801-355-1341
324 SOUTH 400 WEST, SUITE 250
FAX: 801-355-2990
SALT LAKE CITY, UTAH 84101
POST@POULTON-YORDAN.COM
Mr. Chris White
September 22, 2009
Page 2
In regards to the changes made to FY 2007 specifically addressed in comment 1, please note that the adjustments shown in the Third Amendment are adjustments to “previously reported” information and not adjustments to rolled-forward financial information. For instance, the change to income in FY 2007 of $1,148,609 was comprised of $848,610 relating to a prior-period entry, as well as $299,999 of a current period entry. The “previously reported” information is unchanged, and in effect, already includes the $848,610 entry. Therefore, in comparing “previously reported” information to the “as restated” balances, the only adjustment required is the $299,999 current entry.
The Company believes that no adjustment to equity is required for FY 2009 and 2010 because the Company recognized the mistake during the fourth quarter of fiscal 2008 and corrected the accounting for deferred income taxes at the end of that period. Therefore, as of March 31, 2008, the Company believes the ending deferred tax liability is correct. The deferred tax provision or benefit is calculated by comparing the current period ending deferred tax balance to the prior period ending deferred tax balance. Since the March 31, 2008 deferred tax balance did not change, any adjustments made to the prior year deferred tax balance would be corrected in the FY 2008 deferred tax calculation.
The Company believes that the restatements presented in the Third Amendment are correct and correspond to the periods presented in the Company’s Annual Report on Form 10-K for the year ended March 31, 2009. Therefore, the Company does not believe an additional amendment to the Current Report on Form 8-K originally filed on July 8, 2009 is necessary.
2.
Please provide to us a more detailed description of the accounting entries that comprise your restatements.
As noted in the Third Amendment, the Company improperly applied the different tax rates between Kazakhstan and U.S. operations to temporary differences at March 31, 2006, primarily relating to its U.S. investments in oil and gas properties and to U.S. accrued interest income. As a result, FY 2006 deferred tax liability was understated by $1,662,543. Of this amount, $848,610, relating the U.S. accrued interest income, was adjusted through retained earnings balance as of April 1, 2006 (beginning balance FY 2007). The amount of $813,933, which relates to the U.S. investment in oil and gas properties, did not effect retained earnings, but was rather adjusted through Oil and gas properties. In accordance with FAS 109, this deferred tax liability from oil and gas properties for the U.S. tax jurisdiction was originally recorded during FY 2005 as the result of a temporary difference related to the oil and gas basis from the non-taxable business combination with Emir Oil LLP. Also in accordance with FAS 109, as well as SEC guidance, this amount was capitalized to Oil and gas properties as “FAS 109 Goodwill”.
Mr. Chris White
September 22, 2009
Page 3
A summary of the entries affecting beginning balance retained earnings for FY 2007 are shown below. The Company has added reference numbers to the financial statement entries and the journal entries to facilitate an understanding of the connection between the restatements and the entries that were made:
CONSOLIDATED BALANCE SHEETS
ENDING BALANCES AT MARCH 31, 2006
ADJUSTMENTS TO ENDING BALANCES AT MARCH 31, 2006
OPENING BALANCES AT APRIL 1, 2006
APRIL 1, 2006:
Oil and gas properties
$66,683,297
$813,933 (1)
$67,497,230
Total assets
$126,582,656
$813,933
$127,396,589
Deferred income tax liabilities
$6,405,285
$1,662,543 (2)
$8,067,828
Total long term liabilities
$7,329,877
$1,662,543
$8,992,420
Accumulated deficit
($9,244,427)
($848,610) (3)
($10,093,037)
Total shareholders’ equity
$114,628,804
($848,610)
$113,780,194
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$126,582,656
$813,933
$127,396,589
April 1, 2006
Dr.
O&G prop
813,933 (1)
Dr.
Retained earnings
848,610 (3)
Cr.
Deferred tax liability
1,662,543 (2)
During the fiscal year ended March 31, 2007 the Company corrected its deferred income tax liability, which resulted from improperly accounting for the benefit for exploration stage companies. The correction of this error resulted in a $299,999 decrease to deferred income taxes liability, as well as a decrease in income tax expense.
Mr. Chris White
September 22, 2009
Page 4
A summary of the adjustments made to FY 2007 previously reported balances is shown below.
AS PREVIOUSLY REPORTED
ADJUSTMENTS
AS RESTATED
MARCH 31, 2007:
Deferred taxes
$7,948,297
($299,999) (4)
$7,648,298
Total long term liabilities
$10,114,126
($299,999)
$9,814,127
Accumulated deficit
($8,204,936)
$299,999 (5)
($7,904,937)
Total shareholders’ equity
$125,561,620
$299,999
$125,861,619
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
$144,796,045
$0
$144,796,045
Year ended March 31, 2007
Dr.
Deferred tax liability
299,999 (4)
Cr.
Income tax expense
299.999 (5)
As mentioned above, the year ended March 31, 2007 adjustments only include the $299,999 adjustment because the $848,610 prior period adjustment amount was already recorded as a current period entry in the “as previously reported” column instead of as an adjustment to beginning retained earnings.
The entries below result from erroneously recording a tax expense based on income from Kazakhstan operations that, pursuant to the Company’s license and contract with the Republic of Kazakhstan and Kazakhstan tax law, the Company was not liable to recognize, due to the fact that the Company is operating in the exploration phase.
During the fourth quarter of fiscal 2008 the Company recognized the mistake in accounting for deferred income tax and made adjustments to its financial statements in that period.
AS PREVIOUSLY REPORTED
ADJUSTMENTS
AS RESTATED
JUNE 30, 2007:
Deferred taxes
$9,475,728
($1,827,430) (6)(8)
$7,648,298
Total long term liabilities
$11,670,225
($1,827,430)
$9,842,795
Accumulated deficit
($4,322,679)
$1,827,430 (7)(9)
($2,495,249)
Total shareholders’ equity
$130,020,834
$1,827,430
$131,848,264
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
$154,028,651
$0
$154,028,651
Mr. Chris White
September 22, 2009
Page 5
SEPTEMBER 30, 2007:
Deferred taxes
$12,019,068
($4,370,770) (10)(12)
$7,648,298
Total long term liabilities
$74,747,418
($4,370,770)
$70,376,648
Retained earnings
$614,394
$4,370,770 (11)(13)
$4,985,164
Total shareholders’ equity
$135,534,864
$4,370,770
$139,905,634
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
$222,830,745
$0
$222,830,745
DECEMBER 31, 2007:
Deferred taxes
15,370,129
(7,721,831) (14)(16)
7,648,298
Total long term liabilities
78,557,874
(7,721,831)
70,836,043
Retained earnings
7,119,395
7,721,831 (15)(17)
14,841,226
Total shareholders’ equity
142,616,822
7,721,831
150,338,653
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
$241,979,412
$0
$241,979,412
MARCH 31, 2008:
Deferred taxes
$7,544,716
$0
$7,544,716
Total long term liabilities
$71,808,702
$0
$71,808,702
Retained earnings
$23,405,627
$0
$23,405,627
Total shareholders’ equity
$159,803,931
$0
$159,803,931
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
$254,838,093
$0
$254,838,093
Three months ended June 30, 2007
Dr.
Show Raw Text
CORRESP
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filename1.htm
POULTON & YORDAN
ATTORNEYS AT LAW
RICHARD T. LUDLOW
September 22, 2009
Chris White
Branch Chief
United States Securities and Exchange Commission
Division of Corporate Finance
Washington, D.C. 20549
Re:
BMB Munai, Inc.
Form 8-K filed July 8, 2009, amended September 3, 2009
File No.: 1-33034
Dear Mr. White:
At the request of the management of BMB Munai, Inc., (the “Company” or “BMB Munai”) we are responding to comments raised by the staff at the Securities and Exchange Commission in your letter dated September 15, 2009. Following are the Company’s responses to your comments.
Form 8-K, Item 4.02 filed July 8, 2009, as amended September 3, 2009
1.
We are unable to understand the restatements described in your filing. We note, for example, that the cumulative change to net income described in your filing is $848,610, that is, increased income of $1,148,609 in fiscal year 2007, offset by decreased income of $299,999 in fiscal year 2008. Yet you describe an increase in shareholders’ equity of
only $299,999 in FY 2007 and no changes in shareholders' equity in any other fiscal year. Please explain. If you are adjusting retained earnings in FY 2006, please disclose this more clearly in your filing. Also tell us why an adjustment to equity is not required for FY 2009 and 2010.
In response to comment 2 below, the Company has provided additional detail supporting the restatements described in Amendment No. 3 to the Current Report of the Company that was originally filed on July 8, 2009 (the “Third Amendment”), which the Company believes will clarify the restatements.
The Company is not proposing to adjust retained earnings in FY 2006 (please see below for an explanation of journal entries that were made relating to FY 2006.) Rather, as was discussed in a conference call with the SEC staff, the journal entries relating to FY 2006 were treated as prior-period entries and adjusted through beginning balance FY 2007 retained
earnings.
POULTON & YORDAN
TELEPHONE: 801-355-1341
324 SOUTH 400 WEST, SUITE 250
FAX: 801-355-2990
SALT LAKE CITY, UTAH 84101
POST@POULTON-YORDAN.COM
Mr. Chris White
September 22, 2009
Page 2
In regards to the changes made to FY 2007 specifically addressed in comment 1, please note that the adjustments shown in the Third Amendment are adjustments to “previously reported” information and not adjustments to rolled-forward financial information. For instance, the change to income in FY 2007 of $1,148,609 was comprised of $848,610 relating to a
prior-period entry, as well as $299,999 of a current period entry. The “previously reported” information is unchanged, and in effect, already includes the $848,610 entry. Therefore, in comparing “previously reported” information to the “as restated” balances, the only adjustment required is the $299,999 current entry.
The Company believes that no adjustment to equity is required for FY 2009 and 2010 because the Company recognized the mistake during the fourth quarter of fiscal 2008 and corrected the accounting for deferred income taxes at the end of that period. Therefore, as of March 31, 2008, the Company believes the ending deferred tax liability is correct. The deferred tax provision or
benefit is calculated by comparing the current period ending deferred tax balance to the prior period ending deferred tax balance. Since the March 31, 2008 deferred tax balance did not change, any adjustments made to the prior year deferred tax balance would be corrected in the FY 2008 deferred tax calculation.
The Company believes that the restatements presented in the Third Amendment are correct and correspond to the periods presented in the Company’s Annual Report on Form 10-K for the year ended March 31, 2009. Therefore, the Company does not believe an additional amendment to the Current Report on Form 8-K originally filed on July 8, 2009 is necessary.
2.
Please provide to us a more detailed description of the accounting entries that comprise your restatements.
As noted in the Third Amendment, the Company improperly applied the different tax rates between Kazakhstan and U.S. operations to temporary differences at March 31, 2006, primarily relating to its U.S. investments in oil and gas properties and to U.S. accrued interest income. As a result, FY 2006 deferred tax liability was understated by $1,662,543. Of this amount, $848,610,
relating the U.S. accrued interest income, was adjusted through retained earnings balance as of April 1, 2006 (beginning balance FY 2007). The amount of $813,933, which relates to the U.S. investment in oil and gas properties, did not effect retained earnings, but was rather adjusted through Oil and gas properties. In accordance with FAS 109, this deferred tax liability from oil and gas properties for the U.S. tax jurisdiction was originally recorded during FY 2005 as the result
of a temporary difference related to the oil and gas basis from the non-taxable business combination with Emir Oil LLP. Also in accordance with FAS 109, as well as SEC guidance, this amount was capitalized to Oil and gas properties as “FAS 109 Goodwill”.
Mr. Chris White
September 22, 2009
Page 3
A summary of the entries affecting beginning balance retained earnings for FY 2007 are shown below. The Company has added reference numbers to the financial statement entries and the journal entries to facilitate an understanding of the connection between the restatements and the entries that were made:
CONSOLIDATED BALANCE SHEETS
ENDING BALANCES AT MARCH 31, 2006
ADJUSTMENTS TO ENDING BALANCES AT MARCH 31, 2006
OPENING BALANCES AT APRIL 1, 2006
APRIL 1, 2006:
Oil and gas properties
$66,683,297
$813,933 (1)
$67,497,230
Total assets
$126,582,656
$813,933
$127,396,589
Deferred income tax liabilities
$6,405,285
$1,662,543 (2)
$8,067,828
Total long term liabilities
$7,329,877
$1,662,543
$8,992,420
Accumulated deficit
($9,244,427)
($848,610) (3)
($10,093,037)
Total shareholders’ equity
$114,628,804
($848,610)
$113,780,194
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$126,582,656
$813,933
$127,396,589
April 1, 2006
Dr.
O&G prop
813,933 (1)
Dr.
Retained earnings
848,610 (3)
Cr.
Deferred tax liability
1,662,543 (2)
During the fiscal year ended March 31, 2007 the Company corrected its deferred income tax liability, which resulted from improperly accounting for the benefit for exploration stage companies. The correction of this error resulted in a $299,999 decrease to deferred income taxes liability, as well as a decrease in income tax expense.
Mr. Chris White
September 22, 2009
Page 4
A summary of the adjustments made to FY 2007 previously reported balances is shown below.
AS PREVIOUSLY REPORTED
ADJUSTMENTS
AS RESTATED
MARCH 31, 2007:
Deferred taxes
$7,948,297
($299,999) (4)
$7,648,298
Total long term liabilities
$10,114,126
($299,999)
$9,814,127
Accumulated deficit
($8,204,936)
$299,999 (5)
($7,904,937)
Total shareholders’ equity
$125,561,620
$299,999
$125,861,619
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
$144,796,045
$0
$144,796,045
Year ended March 31, 2007
Dr.
Deferred tax liability
299,999 (4)
Cr.
Income tax expense
299.999 (5)
As mentioned above, the year ended March 31, 2007 adjustments only include the $299,999 adjustment because the $848,610 prior period adjustment amount was already recorded as a current period entry in the “as previously reported” column instead of as an adjustment to beginning retained earnings.
The entries below result from erroneously recording a tax expense based on income from Kazakhstan operations that, pursuant to the Company’s license and contract with the Republic of Kazakhstan and Kazakhstan tax law, the Company was not liable to recognize, due to the fact that the Company is operating in the exploration phase.
During the fourth quarter of fiscal 2008 the Company recognized the mistake in accounting for deferred income tax and made adjustments to its financial statements in that period.
AS PREVIOUSLY REPORTED
ADJUSTMENTS
AS RESTATED
JUNE 30, 2007:
Deferred taxes
$9,475,728
($1,827,430) (6)(8)
$7,648,298
Total long term liabilities
$11,670,225
($1,827,430)
$9,842,795
Accumulated deficit
($4,322,679)
$1,827,430 (7)(9)
($2,495,249)
Total shareholders’ equity
$130,020,834
$1,827,430
$131,848,264
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
$154,028,651
$0
$154,028,651
Mr. Chris White
September 22, 2009
Page 5
SEPTEMBER 30, 2007:
Deferred taxes
$12,019,068
($4,370,770) (10)(12)
$7,648,298
Total long term liabilities
$74,747,418
($4,370,770)
$70,376,648
Retained earnings
$614,394
$4,370,770 (11)(13)
$4,985,164
Total shareholders’ equity
$135,534,864
$4,370,770
$139,905,634
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
$222,830,745
$0
$222,830,745
DECEMBER 31, 2007:
Deferred taxes
15,370,129
(7,721,831) (14)(16)
7,648,298
Total long term liabilities
78,557,874
(7,721,831)
70,836,043
Retained earnings
7,119,395
7,721,831 (15)(17)
14,841,226
Total shareholders’ equity
142,616,822
7,721,831
150,338,653
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
$241,979,412
$0
$241,979,412
MARCH 31, 2008:
Deferred taxes
$7,544,716
$0
$7,544,716
Total long term liabilities
$71,808,702
$0
$71,808,702
Retained earnings
$23,405,627
$0
$23,405,627
Total shareholders’ equity
$159,803,931
$0
$159,803,931
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
$254,838,093
$0
$254,838,093
Three months ended June 30, 2007
Dr.