1. Basis of Presentation

Organization and Nature of Business

Gleacher & Company, Inc. (the “Parent” and together with its subsidiaries, the “Company”) is incorporated under the laws of the State of Delaware. The Company’s common stock is traded on The NASDAQ Global Market (“NASDAQ”) under the symbol “GLCH.”

The Company historically has operated an investment banking business, predominately fixed-income sales and trading and financial advisory services, through three principal business units: Investment Banking, MBS & Rates and Credit Products. The Company also engaged in residential mortgage lending operations through ClearPoint Funding, Inc. (“ClearPoint”) until this business was discontinued, and the business sold to Homeward Residential, Inc. (“Homeward”), in February 2013 (the “Homeward Transaction”).

The Company has disclosed, in previous filings with the U.S. Securities and Exchange Commission (the “SEC”), various uncertainties that had adversely impacted counterparty relationships, employee turnover and operating results. Those factors impacted the overall stability of the Company’s platform. During the three months ended June 30, 2013, the Company’s Board of Directors approved plans to discontinue operations in its MBS & Rates (including RangeMark Financial Services (“RangeMark”)) and Credit Products divisions (together, “Fixed Income” or the “Fixed Income businesses”) as well as, later in the quarter, its Investment Banking division. As a result of the exits from these businesses, the Company now has no meaningful revenue-producing operations. Exiting these businesses impacted approximately 150 employees. As of August 8, 2013, the Company had approximately 20 employees. Refer to Notes 20 and 21 herein for additional information.

The Company is evaluating several strategic alternatives in order to preserve and maximize stockholder value. These include:

· pursuing a strategic transaction with a third party, such as a merger or sale of the Company;

· reinvesting the Company’s liquid assets in favorable opportunities; and

· continuing the wind-down of the Company’s remaining operations and making a distribution of proceeds to stockholders.

The Company does not believe that discontinuing the businesses referenced above will have a significant near-term impact on its liquidity. The Company’s liquidity needs will depend to a large extent on decisions it makes regarding the alternatives described above and its future business operations, generally. The Company’s available liquidity, which consists primarily of cash, is currently anticipated to be sufficient to meet its ongoing financial obligations for a reasonable period of time.

On May 31, 2013, the Board of Directors appointed Christopher J. Kearns of Capstone Advisory Group, LLC (“Capstone”) as the Company’s Chief Restructuring Officer and Chief Executive Officer. In this capacity, Mr. Kearns serves as the Company’s principal executive officer. The Company also entered into an agreement with Capstone and Mr. Kearns, pursuant to which Capstone is providing a number of services to the Company, including:

· evaluating and implementing, subject to the approval of the Company’s Board of Directors, the chosen course of action to preserve asset value and maximize recoveries to stockholders under the circumstances;

· overseeing the operations of the Company through execution of the selected course of action;

· ascertaining personnel and potential funding required and key steps to effectuate the selected course of action; and

· soliciting and evaluating expressions of interest in certain assets of the Company and effectuating such sales where appropriate and practical under the circumstances.

Recent Developments

Board of Director Nominations

On May 23, 2013, the Company announced that five individuals, Messrs. Mark R. Patterson, Christopher R. Pechock, Jamie Lifton, Keith B. Hall and Marshall Cohen, were nominated by MatlinPatterson for election to the Board of Directors of the Company at the Company’s 2013 Annual Meeting of Stockholders. Each of these nominees was elected for a term of one year.

Employment Terminations — Former Chief Executive Officer and Chief Operating Officer

Effective May 24, 2013, the employment of Thomas J. Hughes, Chief Executive Officer of the Company, was terminated. In addition, effective May 24, 2013, the employment of John Griff, Chief Operating Officer of the Company, was terminated.

Reverse Stock Split / NASDAQ Compliance

On May 30, 2013, the Company implemented a reverse stock split of its shares of common stock at a ratio of 1-for-20. As a consequence of the reverse stock split, every 20 shares of the Company’s outstanding common stock were combined into one share, without any change to the par value per share. In part as a result of this reverse stock split, the Company regained compliance with the listing standards on the NASDAQ Global Market.

All share and share-related information herein has been adjusted, to the extent necessary, to reflect this reverse stock split.

Policies and Presentation

The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements prepared in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could be different from these estimates. In the opinion of management, all normal, recurring adjustments necessary for a fair statement of this interim financial information are contained in the accompanying consolidated financial statements. The results for any interim period are not necessarily indicative of those for the full year.

The accompanying consolidated financial statements are presented in accordance with the SEC requirements for Quarterly Reports on Form 10-Q and are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted. Reference should be made to the Company’s audited consolidated financial statements and notes within the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 for additional information, including a summary of the Company’s significant accounting policies.

Reclassifications

Certain amounts in prior periods have been reclassified to conform to the current year presentation with no impact to previously reported net loss or stockholders’ equity. This includes the prior period results of the Investment Banking, MBS & Rates and Credit Products divisions, which are now being reported as discontinued operations, as well as the results of ClearPoint, which was discontinued in the first quarter of 2013. Refer to Notes 20 and 21 herein for additional information. Certain items which have previously been reported within the Company’s Other segment have been reclassified as discontinued operations, as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
(In thousands of dollars)	2013			2012		2013			2012
Items reclassified as discontinued operations
Revenues
Interest income — Intersegment allocation	$	—		$	1,521	$	778		$	3,454
Expenses
Compensation expense	867			2,206		2,387			4,234
Professional fees	(206		)	301		182			1,158
Occupancy expense	837			364		1,428			643
Goodwill impairment	—		(1)	21,096		—		(1)	21,096
Communications and data processing	173			124		338			358
Other	121			225		278			459
Total expenses:	1,792			24,316		4,613			27,948

Expenses, net of revenues	$	1,792		$	22,795	$	3,835		$	24,494

(1) Impairment of intangible assets of $3.3 million and $3.9 million for the three and six months ended June 30, 2013, recognized in connection with the Company’s exits from Investment Banking, Fixed Income and ClearPoint is recorded as restructuring expense and included within discontinued operations (Note 20 and Note 21).

Recent Accounting Pronouncements

In April 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-07 “Presentation of Financial Statements (Topic 205)” (“ASU 2013-07”). The objective of ASU 2013-07 is to clarify when an entity should apply the liquidation basis of accounting. In addition, the guidance provides principles for recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. ASU 2013-07 requires an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). ASU 2013-07 requires financial statements prepared using the liquidation basis of accounting to present relevant information about the entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its presentation of assets any items it had not previously recognized under GAAP but that it expects to either sell in liquidation or use in settling liabilities. An entity should recognize and measure its liabilities in accordance with GAAP that otherwise applies to those liabilities. The entity should not anticipate that it will be legally released from being the primary obligor under those liabilities, either judicially or by creditor(s). The entity is also required to accrue and separately present the costs that it expects to incur and the income it expects to earn during the expected duration of the liquidation, including any costs associated with sale or settlement of those assets and liabilities. ASU 2013-07 also requires disclosure about an entity’s plan for liquidation, the methods and significant assumptions used to measure assets and liabilities, the type and amount of costs and income accrued, and the expected during of the liquidation process. This guidance is effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. The adoption of ASU 2013-07 did not affect the Company’s financial statements, as liquidation is not imminent. Refer to “Organization and Nature of Business” above, for additional information.

In February 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-02 “Other Comprehensive Income — Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). The objective of ASU 2013-02 is to improve the reporting of reclassifications out of accumulated other comprehensive income. This ASU seeks to attain that objective by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. This guidance is effective prospectively for reporting periods beginning after December 15, 2012. ASU 2013-02 is not applicable to the Company as it has no items reported as other comprehensive income.

In January 2013, the FASB issued ASU No. 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”). The main objective of ASU 2013-01 is to address implementation issues about the scope of ASU No. 2011-11 “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”), which requires new disclosures about balance sheet offsetting and related arrangements. For derivative financial assets and liabilities, the amendments require disclosure of gross asset and liability amounts, amounts offset on the balance sheet, and amounts subject to offsetting requirements but not offset in the balance sheet. ASU 2013-01 clarifies that the scope of ASU 2011-11 applies to derivatives, including embedded bifurcated derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are offset in accordance with applicable accounting literature or subject to an enforceable master netting arrangement or similar agreement. This guidance is effective for annual reporting periods beginning on or after January 1, 2013 and is to be applied retrospectively. This guidance does not amend the existing guidance on when it is appropriate to offset, and since these amended principles require only additional disclosures, the adoption of ASU 2011-11 did not affect the Company’s financial condition, results of operations or cash flows.