Form 8-K (August 11 2014)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549

FORM 8-K
CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
August 8, 2014
Date of Report (Date of earliest event reported)
GAIN CAPITAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)
 
 
 
 
 
Delaware
 
001-35008
 
20-4568600
(State of Incorporation)
 
(Commission File No.)
 
(IRS Employer Identification No.)
Bedminster One
135 Route 202/206
Bedminster, New Jersey 07921
(Address of Principal Executive Offices)
(908) 731-0700
(Registrant’s Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))










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 Reported
 
Restatement 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 Earnings
 
Restatement 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,
 
As Previously Reported
 
Restatement 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.






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 hereunto duly authorized.
Dated: August 11, 2014
 
 
 
GAIN CAPITAL HOLDINGS, INC.
 
 
By:
 
/s/ Jason Emerson
 
 
Jason Emerson
 
 
Chief Financial Officer