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GAIN CAPITAL HOLDINGS, INC. FILES (8-K) Disclosing Non-Reliance on Previous Financials, Audits or Interim Review

August 11, 2014

Item 4.02(a) Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

On August 8, 2014, the Audit Committee of the Board of Directors of GAIN Capital Holdings, Inc. (the "Company") concluded that the financial statements contained in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 should no longer be relied upon due to the cumulative effect of the following items: Trading activity from some of the Company's omnibus partners that took place on March 31, 2014 was incorrectly recorded on April 1, 2014. Such trading activity should have been included in the first quarter's results, because the revenue was earned and realizable as of March 31, 2014. As a result of this omission, the Company understated its trading revenue for the first quarter of 2014 by $4.2 million. Expenses are recorded when goods are received or services performed; this is often in advance of payment, resulting in the recording of a corresponding liability. The Company operates a payment process that automatically results in an expense being recorded when cash is paid. To prevent double counting of expenses the original liability is released at that time. On March 31, 2014, the Company incorrectly assumed a payment to a partner had taken place for services performed in the first quarter of 2014 and therefore incorrectly released the related liability. The payment was actually made on April 1, 2014. As a result, the Company understated referral fees and the related accrual in the first quarter of 2014 by $1.0 million. The Company provides its customers market data received from various exchanges and uses the data to derive prices for certain of its products. The Company pays various fees to these exchanges based on the use of market data by the Company and, in some cases, its customers. These fees are based on a number of factors. In estimating these expenses for the first quarter of 2014, the Company did not utilize all relevant information available at the time and, as a result, understated its trading expenses and the related accrual by $0.6 million. The Company incorrectly recorded depreciation on an asset that was under construction and not yet in service. As a result, the Company overstated its depreciation expense in the first quarter of 2014 by $0.5 million.

The Company intends to file a Form 10-Q/A restating the previously filed unaudited interim condensed consolidated financial statements for the quarter ended March 31, 2014 as soon as practicable. The following tables reflect the financial statement line items impacted, together with the adjusted amounts, that will be included in the restated financial statements. For the avoidance of doubt, the following tables include only those line items impacted by the restatement: Restated Condensed Consolidated Balance Sheet Amounts

As of March 31, 2014 As Previously Restatement Reported Adjustments Restated (in thousands) Cash and cash equivalents $ 39,976 $ 4,914 $ 44,890 Cash and securities held for customers 805,930 (4,914 ) 801,016 Property and equipment, net of accumulated depreciation 16,973 500 17,473 Total assets 1,186,820 500 1,187,320 Payables to customers, brokers, dealers, FCMs and other regulated entities 805,930 (4,914 ) $ 801,016 Accrued expenses and other liabilities 55,511 2,389 57,900 Income tax payable 5,508 838 6,346 Total liabilities 939,653 (1,687 ) 937,966 Retained earnings 108,261 2,187 110,448 Total GAIN Capital Holdings, Inc. shareholders' equity 238,734 2,187 240,921 Total liabilities and shareholders' equity $ 1,186,820 $ 500 $ 1,187,320


Restated Condensed Consolidated Statement of Operations Amounts

Three Months Ended March 31, As Previously Reported Restatement Adjustments Restated Trading revenue $ 47,050 $ 4,154 $ 51,204 Net revenue 75,784 4,154 79,938 Trading expenses 6,307 581 6,888 Referral fees 19,640 1,048 20,688 Depreciation and amortization 2,710 (500 ) 2,210 Total Expense 73,670 1,129 74,799 INCOME BEFORE INCOME TAX EXPENSE 2,114 3,025 5,139 Income tax expense 438 838 1,276 NET INCOME 1,676 2,187 3,863 NET INCOME APPLICABLE TO GAIN CAPITAL HOLDINGS, INC. $ 1,638 $ 2,187 $ 3,825 Earnings per common share: Basic $ 0.04 $ 0.06 $ 0.10 Diluted $ 0.04 $ 0.05 $ 0.09

Restated Condensed Consolidated Statement of Changes in Shareholders' Equity

Retained Restatement Earnings Adjustments Restated BALANCE-December 31, 2013 $ 108,603 $ - $ 108,603 Net income applicable to Gain Capital Holdings, Inc. 1,638 2,187 3,825 BALANCE-March 31, 2014 (As Restated See Note 14) $ 108,261 $ 2,187 $ 110,448 Restated Condensed Consolidated Statements of Cash Flows Amounts The correction of the errors described above did not impact the Company's total cash flows from operating activities, investing activities or financing activities within its consolidated statement of cash flows, but did result in corrections of the following line items within cash flows from operating activities: Three Months Ended March 31, Restatement As Previously Reported Adjustments Restated Net income $ 1,676 $ 2,187$ 3,863 Depreciation and amortization 4,910 (500 ) 4,410 Cash and securities held for customers (71,893 ) 4,914 (66,979 ) Payables to customers, brokers, dealers, FCMs and other regulated entities 71,893 (4,914 ) 66,979 Accrued expenses and other liabilities (4,088 ) 2,389 (1,699 ) Income tax payable 1,728 838 2,566 Cash provided by operating activities 10,095 4,914 15,009 Increase in cash and cash equivalents 105 4,914 5,019 Cash and cash equivalents - end of period $ 39,976 $ 4,914$ 44,890


The Audit Committee has discussed the matters disclosed in this Form 8-K with Deloitte & Touche LLP, the Company's independent registered public accounting firm.


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Source: Edgar Glimpses

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