ITEM 1. Business
Overview
Incorporated in 1995, ICH is a financial services holding company that operates primarily through its wholly-owned broker-dealer and registered investment advisor subsidiary, Investors Capital Corporation (“ICC”). ICC provides to investors:
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Broker-dealer services primarily in support of trading and investment in securities such as corporate stocks and bonds, U.S. Government securities, municipal bonds, mutual funds, variable annuities, alternative investments and variable life insurance, including provision of market information, internet trading and portfolio tracking facilities and records management, and
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Investment advisory services, including asset management, conducting business as Investors Capital Advisory Services (“ICA”).
Financial information pertaining to the Company for the fiscal years ended March 31, 2014 and 2013 is included in Part II of this document including, without limitation, financial statements and supplementary data in Item 8 thereof. See Part II, Item 8, Footnote 12 - “Segment Information” for information concerning each of the segments of the Company’s business with respect to the fiscal years ended March 31, 2014 and 2013, including revenues from external customers, a measure of profit or loss, and total assets.
MERGER AGREEMENT
As previously reported on Form 8-K, on October 02, 2013, RCS Capital
Corporation (NYSE: RCAP) (“RCAP”) and Investors Capital Holdings, LTD. (“ICH”) announced its entry on October 1, 2013 into a letter of intent (the “Letter of Intent”) under which RCAP expects to acquire ICH for aggregate consideration of approximately $52.5 million, or for a share purchase price of $7.25 for each share of ICH common stock outstanding, on a fully diluted basis. On October 27, 2013, the Company executed a definitive merger agreement
			
		
(the “Merger Agreement”) with RCAP, pursuant to which RCAP will acquire ICH and its subsidiaries, including Investors Capital Corporation, for a total consideration of approximately $52.5 million comprised of cash and RCAP stock. Pursuant to the definitive merger agreement between RCAP and ICH, it is required that ICH pay RCAP a $3 million termination fee, in certain specific circumstances, should the merger not be consummated and ICH consummates a business combination transaction with another party other than RCAP. In addition, ICH has agreed to a 45-day exclusivity period subject to reimbursement of certain expenses of RCAP. The closing of the transaction is subject to customary closing conditions, including FINRA approval of the proposed change in control for ICC, as well as both regulatory and shareholder approval of the transaction by ICH stockholders.
On May 15, 2014, both RCAP and ICH filed with the SEC a Registration Statement on Form S-4 (the “Proxy Statement/Prospectus”) in connection with this proposed transaction. THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS WILL CONTAIN IMPORTANT INFORMATION ABOUT ICH, RCAP, THE PROPOSED TRANSACTION AND RELATED MATTERS. INVESTORS AND SECURITY HOLDERS ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS CAREFULLY WHEN THEY BECOME AVAILABLE. Investors and security holders will be able to obtain free copies of the Registration Statement and the Proxy Statement/Prospectus and other documents filed with the SEC by us and RCAP in connection with the proposed transaction through the web site maintained by the SEC at www.sec.gov. In addition, investors and security holders will be able to obtain free copies of the Registration Statement and the Proxy Statement/Prospectus and such other documents by phone, e-mail or written request by contacting our investor relations department c/o Rebecca Hice, Assistant Corporate Secretary, Investors Capital Holdings, Ltd., Six Kimball Lane, Suite 150, Lynnfield, MA 01940; or RCS’s investor relations department c/o Brian Jones, CFO, RCS Capital Corporation, bjones@rcscapital.com, (866) 904-2988.
Upon receipt of sufficient votes, this transaction is expected to close July 2014 although no assurances can be given if and when the merger will close. RCAP expects that our business, once acquired, will operate independently of RCAP’s wholesale broker-dealer subsidiary, Realty Capital Securities, LLC, and function as a separate business unit alongside RCAP’s existing operating subsidiaries.
Broker-Dealer Services
Investors Capital Corporation
ICC is registered as a securities broker-dealer with the Financial Industry Regulatory Authority ("FINRA"), the SEC, the Municipal Securities Rule Making Board ("MSRB") and the Securities Investor Protection Corporation ("SIPC"). Headquartered in Lynnfield, Massachusetts, the wholly-owned subsidiary of ICH also is duly registered and doing business as a broker-dealer in all 50 states, the Commonwealth of Puerto Rico and the District of Columbia. ICC provides multiple investment products and provides support, technology and back-office services to a network of producing (non-staff) independent registered representatives, of which there were 454 at March 31, 2014. Broker-dealer commissions and investment advisory fees generated by ICC's registered representatives represented the bulk of the Company's total revenues for the fiscal year ended March 31, 2014.
Advisor Direct
On January 24, 2013 ICH acquired a shell broker-dealer and received FINRA approval for this new broker-dealer subsidiary, Advisor Direct, Incorporated. AD is a broker-dealer registered with the SEC and is a member of FINRA. AD operates as a (k)(1) Broker-Dealer where principal transactions are limited to mutual funds and/or variable annuities only and has a minimum net capital of $5,000. AD had no principal transactions since the acquisition date as it remains a shell broker-dealer.
Broker-Dealer Representatives
Our independent representatives are duly registered under federal and state law to offer and provide broker-dealer services to investors through ICC. Depending upon their activities, they also may be required to qualify and register as investment advisor representatives (see “INVESTMENT ADVISORY SERVICES”, below). Our training programs for representatives emphasize the long-range aspects of financial planning and investment. We believe that the continuing education and support we provide to our registered representatives enable them to better inform and serve their clients.
			
		
Attracting and retaining experienced, productive registered representatives is an integral part of our growth strategy. Once recruited, we focus on enhancing our representatives' professional knowledge, skills and value to their clients.
We offer prospective representatives an attractive commission payout and the independence of owning and operating their own businesses. Our representatives generally pay the costs associated with their offices and operations, while we concentrate on providing technical, regulatory, supervisory, compliance and other support services to our independent investment professionals. This allows expansion of our operations with relatively minimal capital outlay.
Compensation to Registered Representatives
Commission payouts to our registered representatives are negotiated and generally represent a percentage of the gross dealer concession generated by them. Representatives grant to us the right to offset against commissions certain losses we may sustain as a result of their actions, errors or omissions. Our agreements with our representatives are terminable by either party with or without cause.
Support to Registered Representatives
We provide a variety of services and products to our representatives to enhance their professionalism and productivity.
Technology Resources. Our technology offerings enable our representatives and/or their clients to perform many tasks on web-based programs. Our proprietary platform CapitalCONNECT provides for intuitive analytics and data management that allows representatives to have a holistic view of client accounts, to track commissions, client documents, access to ICC Transparency document management system and other on-demand reporting.
Approved Investment Products. Our representatives offer a wide variety of investment products to their clients that are sponsored by well-respected, financially sound companies. We follow a selective due diligence process in determining approved products to be offered to clients by our representatives, and we periodically review the product list for continued maintenance or removal of approved status.
Marketing. We provide advertising and practice management tools to our representatives to enhance their profile, public awareness and professional stature in the public's eye, including FINRA-approved marketing materials, corporate and product brochures, client letters and website assistance.
Supervision/Compliance. We maintain comprehensive broker-dealer and investment advisor compliance programs. Our home office licensing, compliance and risk management staffs include three dedicated attorneys. We also retain experienced supervisors in FINRA-recognized Offices of Supervisory Jurisdiction at our home office and in the field offices across the country that are charged with compliance responsibilities.
In this period of rapid regulatory change, we closely supervise and monitor the activities of our representatives to mitigate risk and ensure compliance with applicable laws, rules and regulations including anti-money laundering and other programs required by the USA Patriot Act. Our compliance and surveillance efforts are increasingly assisted by computer systems, programs and reports, including routine internal auditing of trading and investment activity.
Our representatives seek and value assistance in the area of compliance. Keeping in step with the latest industry regulations, our compliance department provides to our registered representatives, among other things:
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Advertising and sales literature review
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Field inspections, followed up with written findings and remediation programs
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In-house publications, conference calls, webinars, workshops, seminars and other communications on compliance topics
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Assistance with customer complaints and regulatory inquiries
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Training at regional and national meetings
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IT tools designed to enhance compliance review and communication
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Interpretation of rules and regulations and general compliance training
			
		
Clearing. We do not hold any funds or securities on behalf of our clients. We have a fully disclosed clearing agreement with Pershing LLC, a subsidiary of Bank of New York Mellon, on a fee-for-service basis to provide orderly processing and clearing of most of our brokerage securities transactions. Services provided by Pershing include billing and credit extension, as well as control, receipt, custody and delivery of customer securities and funds.
Investment Advisory Services
Investors Capital Advisory Services
The Company’s investment advisory business is conducted through our broker-dealer subsidiary, ICC, doing business as Investors Capital Advisory Services (“ICA”).
ICA provides investment advisory services, including asset allocation and portfolio rebalancing, with our various programs. These services, for the most part, are conducted through our online brokerage platform. Other allocation services are performed directly by fund companies. ICA offers several advisory wrap programs that provide managed advisory accounts for our advisors’ clients, as follows:
A-MAP Suite of Advisory Wrap Programs- Rep-As-Portfolio Manager Program
ICA’s suite of A-MAP Program, including A-MAP, A-MAP AT, & A-MAP FT, enables the advisor to assist a client in creating a personalized investment portfolio. The advisor acts as the portfolio manager, with full investment discretion. A-MAP and A-MAP AT are programs where a platform fee is charged by ICA for its services as a registered investment advisor (“RIA”). A-MAP FT is a program where ICA charges a flat fee in lieu of a platform fee for its services as an RIA.
Fund Select Advisory Wrap Program- Rep-As-Portfolio Manager Program
Fund Select is an advisory program where the advisor creates and manages a customized portfolio constructed primarily of mutual funds.
F-MAP Advisory Wrap Program - Firm managed ETF and Mutual Fund Wrap Program
F-MAP program utilizes an established ICA model portfolio which creates, manages, rebalances, reallocates, and reports on portfolios that consist of but are not limited to: no-load or load-waived mutual funds, ETF's, and/or variable annuities.
S-MAP Advisory Wrap Program - Separate Account Wrap Program
S-MAP is an advisory program where ICA has entered into agreements with Sub-Advisors who are selected by the representatives to provide advisory services to their clients. The S-MAP portfolios are not managed by ICA; rather they are managed by the Sub-Advisor on a discretionary basis.
Investment Advisor Representatives
Each of our investment advisor representatives must satisfy licensing requirements of the states in which they operate prior to providing investment advisory services. As of March 31, 2014, 351 independent investment advisor representatives registered with the various state securities departments were affiliated with ICA, which increased from 339 advisors the previous year.
Asset Allocation Strategy
Our investment advisor representatives often provide advisory services through our representative-directed program where the asset allocation is performed directly by the independent investment advisor. Our asset allocation strategy is based on the principle that, by investing in a combination of asset classes, risk may be reduced while seeking enhanced returns. Combining asset classes that typically do not fluctuate in tandem may lower the volatility of the customer's investment portfolio while providing the potential for long-term returns. In implementing a personalized asset allocation strategy for each customer:
			
		
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The customer's risk tolerance, investment goals, age, time horizon, investment experience and financial and personal circumstances are determined using detailed questionnaires that are completed during personal interviews. Based upon these data, an overall investment allocation among stocks, bonds, cash and/or other investment products is fashioned.
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Specific investment vehicles believed to be appropriate for the particular customer and investment allocation are selected from a universe of company-approved mutual funds, variable annuities, individual securities and other investment products.
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Following investment in the selected securities, portfolio performance is monitored and periodically communicated to the client, and changes to the portfolio are made from time to time based upon performance, the customer's financial situation, goals and risk tolerance and other relevant factors.
Fee-Based Compensation Structure
In conformity with the requirements of the Investment Advisors Act of 1940 (the “Advisors Act”), compensation for our investment advisory services consists of an annual fee, assessed and earned quarterly, as a percentage of assets under management rather than a transaction-based commission or performance fee.
Insurance Operations
In certain states a licensed insurance entity is required for ICC representatives to sell life insurance and annuity products to their clients. Accordingly, the Company operates ICC Insurance Agency, Inc., a wholly-owned subsidiary of ICH that is duly licensed for such purposes in states in which such licensing is required. All revenue realized by this entity flows through as revenue to ICC.
ICH Securities
ICH Securities was established to hold cash for Company for income tax benefit purposes at the Massachusetts state level.
Our Strategy
Key elements of our strategy to achieve our corporate objectives include:
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Attract, recruit and retain exceptional financial professionals. Our business model emphasizes recruitment and retention of capable, experienced independent financial professionals possessing the professional qualifications, knowledge and judgment to provide superior broker-dealer and investment advisory services to their customers. Our recruitment efforts are supported by advertising, targeted direct mail and telemarketing.
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Provide technologically innovative solutions to independent financial advisors. We continue to pursue additional technologies to service the rapidly evolving financial services industry. We believe that it is vital for our independent financial advisors to utilize state of the art technology to effectively facilitate their business activity. With an on-going commitment to provide highly capable technology platform, we believe our independent advisors can leverage these tools to drive efficiency and economies of scale.
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Provide value-added services to our clients. We provide our clients with access to a pool of well-trained representatives, access to up-to-date market and other financial information, and direct access to our trade desk that is online with various stock exchanges and institutional buyers and sellers. We have focused initiatives on education, compliance and product support, as well as practice management programs to assist an advisor in their efforts to growth their business’ production. Also, we assist our representatives in developing personalized Internet web sites to provide their clients with a secure and private interface directly to our proprietary client web site.
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Grow recurring revenues. We recognize the trend toward increased investment advisory business and are focused on building our fee based investment advisory business when it serves the interests of our clients. We
			
		
define recurring revenue to include our advisory fees, trailing commissions and certain other fees. The advisory fees are the largest component and not dependent upon transaction volumes. While advisory accounts generate substantially lower first year revenue than most commission products, the recurring nature of advisory fees provides stability and a foundation for accelerating future revenue growth.
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Increase brand awareness. We strive to increase our brand recognition to attract new clients and representatives by building market awareness, educating the investing public and maintaining customer loyalty through direct marketing, advertising through our marketing department, use of our web site, various public relations programs, web and live seminars, and/or advertising media such as print, radio and television.
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Expand our product and service offering through strategic relationships. We continue to pursue business alliances to increase trading volume, capitalize on cross-selling opportunities, create additional markets for our asset management programs, mutual fund sales and fixed insurance products, take advantage of emerging market trends, create operational efficiencies and further enhance our name recognition.
Competition
Our competitors vary in size, resources and breadth of services offered. We encounter direct and indirect competition from numerous established financial services companies, including firms that offer full-commission and discount brokerage, investment advisory, and financial planning services, increasingly based on the independent representative model. Many of our competitors are owned by insurance companies, banks and other large financial institutions.
Many competitors, alone or in conjunction with their parent corporations, have greater financial, technical, marketing and other resources, offer a wider range of services and financial products, and have greater name recognition and more extensive client bases.
We seek to compete through the quality of our registered representatives, a premier level of service to our representatives, and the breadth and depth of brokerage and advisory products and services we offer. We believe that our ability to compete depends upon many factors both within and outside our control, including:
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Our ability to attract and retain a network of experienced investment professionals
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The effectiveness, ease of use, performance and features of our technology and services
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The price and quality of our services and overall client satisfaction
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The volatility and performance of financial markets and the world economy
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Our ability to service our clients effectively and efficiently
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Our reputation in the financial services industry
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Our ability to foster compliance with applicable laws and regulations by employees and independent representatives
How We Are Regulated
Broker-Dealer Regulation
The securities industry is subject to extensive regulation under both federal and state law. The SEC is the federal agency responsible for administering the federal securities laws that apply to broker-dealers. ICC is a broker-dealer registered with the SEC. In addition to complying with the voluminous and complex rules set out in applicable statutes, including the Securities Act of 1933 and Securities Exchange Act of 1934 (as amended, the “Securities Act” and “Exchange Act”, respectively), The Dodd- Frank Act of 2010 and rules and regulations promulgated thereunder, every registered broker-dealer that conducts business with the public is required to be a member of and subject to the jurisdiction and rules of self-regulatory organizations, such as FINRA.
FINRA has established numerous rules applicable to broker-dealers, including conduct rules for securities transactions among broker-dealers and private investors, trading rules for the over-the-counter markets and operational rules for its member firms. FINRA conducts examinations of member firms, investigates possible violations of the federal securities laws and its own rules and conducts disciplinary proceedings involving member firms and associated individuals. FINRA administers qualification testing for all securities principals and registered representatives for its
			
		
own account and on behalf of the state securities authorities. We are also subject to regulation under state law. We are currently registered as a broker-dealer in all 50 states, Puerto Rico and the District of Columbia.
The SEC and other regulatory agencies in the United States have rules with respect to net capital requirements that affect our broker-dealer subsidiary. These rules are designed to ensure that broker-dealers maintain adequate capital in relation to their liabilities, depending upon the types of securities business conducted and the size of their customer business. These rules have the effect of requiring that a substantial portion of a broker-dealer's assets be kept in cash or highly liquid investments. Failure to maintain the required net capital may subject a firm to suspension or revocation of its registration with the SEC and suspension and expulsion by the FINRA and other regulatory bodies, and ultimately may require its liquidation. Additional legislation, changes in rules promulgated by the SEC and by self-regulatory bodies and changes in the interpretation or enforcement of existing laws and rules often directly affects the method of operation and profitability of broker-dealers. The SEC and the self-regulatory bodies may conduct administrative proceedings which can result in censure, fine, suspension or expulsion of a broker-dealer, its officers, employees or registered representatives.
Registered Investment Advisor Regulation
The Advisors Act, and the rules promulgated thereunder, regulates the registration and compensation of investment advisors. Investment advisors are deemed to be fiduciaries for their clients and, as such, are held to a high standard of conduct. Investment advisors are subject to regulation and oversight by the SEC and the various states. Investment advisors are required to register with the SEC and/or appropriate state regulatory agencies, are required to periodically file reports, and are subject to periodic or special examinations. Rules promulgated under the Advisors Act govern many aspects of the investment advisory business, such as advertisements by investment advisors and the custody or possession of funds or securities of a client. Most states require registration by investment advisors, unless an exemption is available, and impose annual registration fees. Some states also impose minimum capital requirements. There can be no assurance that compliance with existing and future requirements and legislation will not be costly and time consuming or otherwise adversely impact our business in this area.
Regulations Applicable to the Use of the Internet
Due to the established popularity and use of the Internet and other online services, various regulatory authorities have adopted or are considering laws and/or regulations with respect to the internet or other online services covering issues such as user privacy, pricing, content copyrights and quality of services. In addition, the growth and development of the market for online commerce may prompt more stringent consumer protection laws that may impose additional burdens on those companies conducting business online.
Employees
As of March 31, 2014, we had 62 full-time employees, the majority of whom are located at our principal office in Lynnfield, Massachusetts. No employee is covered by a collective bargaining agreement or is represented by a labor union. We consider our employee relations to be excellent. We also enter into independent contractor arrangements on an as-needed basis to assist with various aspects of our business.
Available information
The Company is subject to the informational requirements of the Securities Exchange Act and, in accordance therewith, files reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information filed with the SEC by the Company can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC located at http://www.sec.gov.
Our website address is http://www.investorscapital.com. We make available free of charge on or through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as
			
		
reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information found on our website is not part of this or any other report we file with or furnish to the SEC. All such documents are also available in print at no charge to any shareholder who requests them in writing to Robert Foney, Manager Corporate Communications, Six Kimball Lane, Lynnfield, MA 01940.
Executive Officers Of The COMPANY
The following sets forth, as of June 9, 2014, certain information with respect to each of the executive officers of ICH:
Timothy B. Murphy, age 49, has served as a director of the Company since July 1995. A founder of the Company, Mr. Murphy has served as President and Chief Executive Officer since August 2009. He served as Executive Vice President and Chief Financial Officer of the Company from its inception until August and December 2009, respectively, and as President of ICC since its inception. He entered the securities industry in 1991 as an operations manager in the Boston regional office of Clayton Securities. By 1994, he was serving as compliance officer of BayBanks Brokerage and a vice president of G.R. Stuart & Company, another brokerage firm. Mr. Murphy holds various securities licenses including series 4, 7, 24, 27, 53, 63 and 65.
Kathleen L. Donnelly, age 42, was promoted to Chief Financial Officer of the Company effective January 1, 2009 and serves as its principal financial officer. Prior to this appointment, Ms. Donnelly was employed by ICC as Corporate Accountant where she managed the Company’s Sarbanes-Oxley compliance readiness program and provided internal budgeting and financial analysis services. From 1997 through 2006, she was an Audit Manager with UHY LLP (formerly Brown & Brown, LLP), the Company’s independent public accountants prior to the appointment of Marcum, LLP. Ms. Donnelly is a Certified Public Accountant.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None
ITEM 2.
ITEM 2. Properties.
Our principal offices are located within a 14,336 square foot facility at Six Kimball Lane, Lynnfield, MA for a three year term, expiring on March 31, 2017. The total lease expense for office space at this location for fiscal years ended March 31, 2014 and 2013, respectively, was $214,565 and $84,270. For fiscal year end March 31, 2013 there was $199,200 in lease expense for our previous headquarters located at 230 Broadway, Lynnfield, MA 01940.
The Company relocated its headquarters on December 1, 2012 and subsequently resolved litigation on May 30, 2013 with its prior lessor and landlord, specific to the leased tenancy at 230 Broadway Lynnfield, MA. The Company was awarded a retroactive abatement of certain rental payments, including condo fees and real estate taxes based on a May 30, 2013 court order. In June 2014, the Company settled this litigation with the lessor of its former home office space for $175,000.
We believe that our existing property is adequate for current operating requirements of our business; however additional space will be needed as staffing increases.
ITEM 3.
ITEM 3. Legal Proceedings.
The Company operates in a highly litigious and regulated industry, and we are presently and regularly involved in legal proceedings in the ordinary course of our business, including lawsuits, arbitration claims, regulatory and/or governmental subpoenas, investigations and actions, and other claims. The Company often is made a defendant in arbitrations and other legal proceedings that are incidental to our securities business. The Company vigorously contests the allegations of the complaints and believes that there are meritorious defenses in these matters. From time to time the Company also is the subject of regulatory investigations and proceedings. Counsel often is unable to confidently predict the likelihood of an outcome, whether favorable or unfavorable, in such matters because of routine and inherent uncertainties. The Company maintains errors and omissions insurance, the proceeds of which may help to reduce the amount we may otherwise be required to pay with respect to certain types of claims. In certain instances,
			
		
our errors and omissions insurance carrier may seek to treat a series of similar claims as “interrelated claims,” which would allow the insurance carrier to aggregate similar claims for purposes of determining their coverage limits. Further, management evaluates whether or not to establish reserves for pending litigation.
Effective January 2012 to December 31, 2012, for claims related to alternative investments the Company’s exposure was limited to $250,000 in any one case for all other investment products, the Company’s exposure was limited to $100,000 in any one case, subject to policy limitations and exclusions.
Effective January 2012 to December 31, 2013 and from January 2014 to December 31, 2014, for claims related to alternative investment products, the Company’s exposure is limited to $1,000,000 in aggregate defense and indemnity costs, subject to policy terms and conditions. Thereafter, following satisfaction of this aggregate deductible, the Company’s exposure on claims for these same type of investments is $150,000 per claim, plus an additional 10% co-insurance on amounts exceeding $150,000. For all other investment products, the Company’s exposure is $100,000 per claim.
The Company also maintains a fidelity bond to protect itself from potential damages and/or legal costs related to fraudulent activities pursuant to which the Company’s exposure is usually limited to a $350,000 deductible per case, subject to policy limitations and exclusions.
From time to time, we may also be engaged in various legal proceedings not related to securities. We currently maintain various types of insurance, including directors’ and officers’ liability insurance, as well as employment practices liability insurance.
ITEM 4.
ITEM 4. [REMOVED]
PART II
ITEM 5.
ITEM 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
ICH's common stock has been trading on NYSE AMEX / Alternext US (“Amex”) (formerly, The American Stock Exchange) under the symbol "ICH" since February 8, 2001. Prior to such date, there was no established public trading market for the common stock. As of June 9, 2014, there were 7,238,309 shares outstanding and 211 registered holders thereof.
The following table presents the high and low closing prices for the common stock of ICH on the Amex for the periods indicated:
			
		
Cash Dividends
The Company did not pay any dividends on its common stock during the fiscal years ended March 31, 2014 and 2013.
We have no current intentions of paying dividends on shares of our common stock for the foreseeable future. In addition, the terms of our bank loan agreement with Commerce Bank & Trust Company restrict our ability to pay dividends. Future dividend decisions will be based on, and affected by, a number of factors, including the operating results and financial requirements of the Company and the impact of regulatory restrictions. For further information regarding restrictions on our ability to transfer funds to our stockholders, see Part I, Item 1. “Business - How We Are Regulated” and Part II, Item 7. “Management's Discussion and Analysis - Liquidity and Capital Resources” in this Form 10-K.
Securities Authorized for Issuance Under Compensation Plans
The following table presents information as of March 31, 2014 with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance.
See “Footnote 16 - Benefit Plans” to the Company’s Financial Statements, contained in Part II, Item 8 of this Form 10-K, for a description of the material features of each compensation plan under which equity securities of the Company’s are authorized for issuance that was adopted without the approval of security holders.
recent sales of unregistered securities
None.
ITEM 6.
ITEM 6. selected financial data.
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Management's discussion and analysis reviews our consolidated financial condition as of March 31, 2014 and 2013, the consolidated results of operations for the years ended March 31, 2014 and 2013 and, where appropriate, factors that may affect future financial performance. The discussion should be read in conjunction with the accompanying consolidated financial statements and related notes. Unless context requires otherwise, as used in this Management's Discussion and Analysis (i) the "current period" means the fiscal year ended March 31, 2014, (ii) the "prior period"
			
		
means the fiscal year ended March 31, 2013, (iii) an increase or decrease compares the current period to the prior period, and (iv) all non-comparative amounts refer to the current period.
Forward-Looking Statements
The statements, analyses, and other information contained herein relating to trends in our operations and financial results, the markets for our products, the future development of our business, and the contingencies and uncertainties to which we may be subject, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "will," "should," "may," and other similar expressions, are "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Such statements are made based upon management's current expectations and beliefs concerning future events and their effects on the Company. Our actual results may differ materially from the results anticipated in these forward-looking statements.
These forward-looking statements are subject to risks and uncertainties including, but not limited to, those described and discussed in this report and other documents filed by the Company with the United States Securities and Exchange Commission (the “SEC”). We specifically disclaim any obligation to update or revise any forward-looking information, whether as a result of new information, future developments, or otherwise.
Overview
We are a financial services holding company that, through our subsidiaries, provides brokerage, investment advisory, insurance and related services. We operate in a highly regulated and competitive industry that is influenced by numerous external factors such as economic conditions, marketplace liquidity and volatility, monetary policy, global and national political events, regulatory developments, competition and investor preferences. Our revenues and net earnings may be either enhanced or diminished from period to period by these and other external factors.
OUR BUSINESS
We operate primarily through our subsidiary, ICC, as a broker-dealer and, doing business as ICA, as a registered investment advisor, with a national network of independent financial representatives. ICCIA facilitates the sale of insurance products. AD, also a broker-dealer subsidiary, is limited to principal transactions in mutual funds and/or variable annuities only. AD had no principal transactions during the current period. Our principal location, executive offices, and administration offices are located at Six Kimball Lane, Suite 150, Lynnfield, MA 01940 and it is referred to as our Home office.
Broker-Dealer Services
ICC provides broker-dealer services in support of trading and investment by our representatives’ customers in securities, including corporate equity and debt securities, U.S. Government securities, municipal securities, mutual funds, limited partnerships and other alternative investments, variable annuities and variable life insurance. ICC also provides related services such as market information, Internet brokerage, portfolio tracking facilities and records management.
Investment Advisory Services
We provide investment advisory services, including asset allocation and portfolio rebalancing, for our representatives’ customers through ICA. We offer various accounts, some of which are managed by our financial advisors, and other that are managed by third parties. The advisor managed accounts offers various account structures, including fee-based and “wrap fee” accounts. For financial advisors who prefer not to act as portfolio manager, third party management options are available. The type of portfolios may include separately managed accounts, mutual funds and other model portfolios.
			
		
Recruitment and Support of Representatives
A key component of our business strategy is to recruit well-established, productive representatives who provide superior service to their clients. Additionally, we assist our representatives in developing and expanding their business by providing a variety of support services and a diversified range of investment products for their clients. We focus on providing substantial added value to our representatives’ practices, enabling them to be more productive.
Support provided to assist representatives in pursuing consistent, profitable sales growth takes many forms, including automated trading systems and other technology solutions, targeted financial assistance and a network of communication links with investment product companies. Regional and national conventions provide forums for interaction to improve product knowledge, sales and client satisfaction. In addition, we provide our representatives with programs and tools to grow their businesses both through new client acquisition and advancement of existing client relationships. These programs enhance our ability to attract and retain productive representatives.
Critical Accounting Policies
In General
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The Company believes that of its significant accounting policies (detailed in Footnote 2 - Summary of Significant Accounts Policies to the Company’s Consolidated Financial Statements contained herein), those dealing with valuation of securities and other assets, revenue recognition and allowance for doubtful accounts receivable involve a particularly high degree of judgment and complexity. Our accounting policies require estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in the consolidated financial statements. Due to their nature, estimates involve judgment based upon available information. Actual results or amounts can and do differ from estimates and the difference can have a material effect on the consolidated financial statements. Therefore, understanding these policies is important to understanding the reported results of operations and the financial position of the Company.
Off-Balance Sheet Risk
We execute securities transactions on behalf of our customers. If either the customer or counter-party fails to perform, we, by agreement with our clearing broker, may be required to discharge the obligations of the non-performing party. In such circumstances, we may sustain a loss if the market value of the security is different from the contract value of the transaction. We seek to control off-balance sheet risk by monitoring the market value of securities held or given as collateral in compliance with regulatory and internal guidelines. Pursuant to such guidelines, our clearing firm requires that we reduce positions when necessary. We also complete credit evaluations where there is thought to be credit risk.
Reserves
We record reserves related to legal proceedings in "accrued expenses" in the consolidated balance sheet. The determination of these reserve amounts requires significant judgment on the part of management. We consider many factors including, but not limited to: the amount of the claim; the amount of the loss in the client's account; the basis and validity of the claim; the possibility of wrongdoing on the part of one of our employees or representatives; previous results in similar cases; and legal precedents. Each legal proceeding is reviewed with counsel in each accounting period and the reserve is adjusted as deemed appropriate by management. Any change in the reserve amount is recorded in the consolidated financial statements and is recognized as a charge or credit to earnings in that period. The assumptions made by management in determining the estimates of reserves may be incorrect and the actual costs upon disposition of a legal proceeding may be greater or less than the reserved amount.
Risk Management
Risk is an inherent part of our business and activities. Risk management is critical to our financial strength and profitability and requires robust auditing, constant communications, sound judgment and knowledge of financial
			
		
regulations, trends and the economy as a whole. We take a holistic approach to governance, risk management and compliance.
Management and staff, at all levels, take a proactive role in the risk management process. The principal risks involved in our business activities include market, operational, regulatory and legal risks.
Market Risk
Market risk is the risk attributable to common macroeconomic factors such as gross domestic product, employment, inflation, interest rates, budget deficits and consumer sentiment. Consumer and producer sentiment is critical to our business. The level of consumer confidence determines their willingness to spend, especially in the financial markets. It is the willingness to spend in the financial markets that is key to our business. A shift in spending in this area, often caused by market volatility, could negatively impact us. In addition, declines in market values negatively impact investment advisory revenues that are based upon the value of assets under management. We constantly monitor these economic trends in order to enhance and broaden our product line to mitigate potential negative impact of such trends. Furthermore, we cannot be certain that efforts and focus of management on the Merger will have any market impact to our overall business.
Operational Risk
Operational risk refers to the risk of loss resulting from our operations, including, but not limited to, improper or unauthorized execution of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes. Managing these risks is critical, especially in a rapidly changing environment with increasing transaction volume. Failure to manage these risks could result in material financial loss to the Company. To mitigate these risks, the Company has developed policies and procedures designed to identify and manage operational risk. These policies and procedures are reviewed and updated on a continuing basis by a broad-based Risk Committee that meets weekly to ensure that risk is minimized.
Regulatory and Legal Risk
Regulatory and legal risk includes non-compliance with applicable legal and regulatory requirements and the risk of customer claims that could result in adverse judgments against us. We are subject to extensive regulation in the various jurisdictions in which we operate. We maintain procedures to address issues such as regulatory capital requirements, sales and trading practices, use of and safekeeping of customer information and funds, the granting of credit, collection activities, money-laundering and record keeping. However, compliance procedures, no matter how stringent and comprehensive, can only mitigate, but not completely prevent the outcomes and consequences of which often cannot be reasonably foreseen or quantified in advance. Regulations are constantly evolving and the costs of compliance are ever-increasing.
Despite meeting regulations we continue to be the subject of numerous civil actions and arbitrations arising out of customer complaints concerning our activities as a broker-dealer, investment advisor, employer or otherwise. As experienced generally in the industry today, the volume of such complaints has generally trended upward in recent years, particularly in conjunction with market losses incurred by customers during the most recent financial downturn.
Effects of Inflation
Our assets primarily are liquid in nature and not significantly affected by inflation. Management believes that the replacement cost of property and equipment will not materially affect operating results. However, the rate of inflation can affect our expenses, including, without limitation, employee compensation and benefits, communications and occupancy, which may not be readily recoverable through charges for services provided.
			
		
KEY INDICATORS OF FINANCIAL PERFORMANCE
We periodically review and analyze our financial performance across a number of measurable factors considered to be particularly useful in understanding and managing our business. Key metrics in this process include productivity and practice diversification of representatives, top line commission and advisory services revenues, operating expenses, legal costs, taxes, earnings per share and adjusted EBITDA (as defined below).
PRODUCTIVITY AND PRACTICE DIVERSIFICATION OF REPRESENTATIVES
Management believes that continual improvement in the overall quality of our independent representatives is a key to achieving growth in revenues and earnings. We believe that upgrading the business practices of our representatives not only grows revenue, but assists in limiting the cost of overhead functions and representative noncompliance. We strive to continually improve the overall quality of our force of representatives by:
·
assisting representatives to improve their skills and practices,
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recruiting established, high-quality representatives, and
·
terminating low-quality representatives.
Productivity
A key metric that we use to assess the average quality of our producing (non-staff) representatives is per capita rep-generated revenue based on a 12-month period. Data for the 12-month periods ended March 31, 2014 and 2013 are presented below:
We believe that the 6.4% increase in per capita rep-generated revenue reflects sustained advisor productivity as well as recruitment of established, higher producing representatives, offsetting retired or terminated lower producing representatives.
Practice Diversification
We encourage diversification in the investments products and services recommended or selected by our independent representatives for their clients through recruitment, education and training. This enables our representatives to more fully serve the investment and security needs of their clients, particularly in volatile markets. We believe that representatives who offer diversified investment products and sophisticated services to their clients will generate transaction and fee-based business and recurring revenues that will help us weather volatile and down markets.
			
		
Comparison of Fiscal Years Ended March 31, 2014 and 2013
The following discussion provides an assessment of our results of operations, capital resources and liquidity and should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this report.
RESULTS OF OPERATIONS
Adjusted EBITDA
Earnings before interest, taxes, depreciation and amortization (“EBITDA”), as adjusted by eliminating other non-cash expense such as stock-related compensation, gains or losses on sales of assets, and various non-recurring items such as the $1.2 million in material expenses incurred in connection with the Merger Agreement and customary regulatory filings; (“adjusted EBITDA”), is a key metric we use in evaluating our financial performance. We consider adjusted EBITDA important in monitoring and evaluating our financial performance on a consistent basis across multiple time periods. We also use adjusted EBITDA as an important measure, among others, to analyze and evaluate financial and strategic planning decisions.
Adjusted EBITDA is considered a non-US GAAP financial measure as defined by Regulation G promulgated by the SEC under the Securities Act. Adjusted EBITDA should be considered in conjunction with, rather than as a substitute
			
		
for, important US GAAP financial measures including pre-tax income, net income and cash flows from operating activities. Items excluded from adjusted EBITDA are significant and necessary components to the operations of our business; therefore, adjusted EBITDA should only be used as a supplemental measure of our operating performance.
Adjusted EBITDA, Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, stock-based compensation and non-recurring items) reflects a loss of $0.7 million for the current fiscal year, as compared to income of $1.3 million in the prior year due to operating costs particularly in regulatory, legal and professional costs, in excess of this fiscal year’s revenue growth.
Revenues
Revenue for the fiscal year ended March 31, 2014 increased 10.3%, or $8.7 million to $93.6 million, as compared to $84.9 million in the prior period reflecting momentum from both organic and recruiting growth. Notably, results reflect growth in our higher-margin fee-based business. Commission revenue grew 8.5% to $71.2 million, up from $65.6 million in the prior fiscal year, reflecting increased transaction volume and sales in all major product categories. Advisory fees increased by 14.5%, again, reflecting both organic growth and our recruitment of higher-producing representatives. Top-line revenues also benefited from improved financial markets which attributed to an increase in recurring revenues, and revenue earned from sales of brokerage transactions, mutual funds, direct participation programs, and an increase in insurance products.
Advisory fee-based revenue grew 14.5% to $18.8 million, up from $16.4 million in the prior fiscal year due to both new assets under management and positive market conditions. Revenues have increased in all of the ICAS programs, most notably in our A-MAP FT program, an advisor-managed program which includes a flat fee rate. A-MAP FT is currently the leading ICAS program in generating the most revenue with largest total assets under management. A-MAP, our advisor-directed managed assets program, where investment advisory services are provided directly by our independent representatives, continues to be a significant portion of our advisory services revenue.
We expect advisory revenues to continue to grow, reflecting newly-added assets from our representatives, as well as shift by existing representatives to advisory services. The Company continues to commit resources to amplify growth in this revenue segment. The Company targets recruiting to attract new advisors, plus offers specialized practice management offerings to drive organic growth. Strategic marketing efforts are consistent with the firm’s goal of determinedly growing its revenues through recruiting and organically through enhanced business development. These strategies will be implemented to further differentiate us within the independent broker dealer channel.
Other fee income increased by 11.1%, or $0.2 million as a result of fees earned for annual renewals, errors and omissions, and monthly technology fees. In the prior fiscal year, the Company offered technology rebates to representatives, totaling approximately $0.2 million as part of the initial year’s platform offerings and their resulting per representative GDC growth. The rebate program was one-year only.
The increase in other revenue, which consists of net marketing revenues and interest income, resulted primarily from the rise in marketing allowances earned from product sponsor programs as a result of increased sales volumes of sponsored investment products.
			
		
Expenses
Total expenses increased by 14.5% principally as a result of increases in commissions and advisory fees paid to our representatives, followed by increases in legal and professional fees for the pending merger with RCAP, coupled with the settlement of multiple claims and arbitrations, and finally, promotional costs supporting our recruiting and branding efforts. We experienced modest increases or reductions in the other expense categories.
Commissions and advisory fees paid to our representatives are directly related to the proportionate increase in commissions and advisory fee revenues generated by our representatives, as payouts are tied to productivity levels. Accordingly, the $7.5 million or 11.1% increase in commissions and advisory fees reflects the corresponding increase in commission and advisory fee revenue. The percentage payout to our representatives increased by 1.0% as compared to last year’s payout percentage thus affecting our overall margin as a result of both the increase in average revenue production per representative, which is paid a higher percentage payout, as well as enhanced payouts awarded to newer representatives.
Regulatory, legal and professional expenses increased by $4.0 million, or 83.6% when comparing the current period to the prior period. Legal fees and settlement costs increased by $2.8 million mainly due to the increase in our reserves for estimated settlement costs, including a $0.7 million atypical settlement related to a particular class action lawsuit. While the Company had fewer cases that settled in the current period versus the prior period, a higher deductible amount per case applies. These settlements continue to stem largely on claims made from the sales of alternative investment products prior to the recession, coupled with an increase in the Company’s deductible specifically for the alternative investment products. Finally, legal and professional fees related to the Merger Agreement between RCAP and ICH contributed $1.2 million to the increase.
We will continue to incur legal fees and settlement costs as we operate in a litigious, regulated industry. In addition, from time to time regulatory agencies and self-regulatory organizations institute investigations into industry or firm practices that also may result in the imposition of financial or other sanctions. We invest significant resources to mitigate litigation and regulatory exposure by promoting sound operational procedures, on-going surveillance processes and obtaining comprehensive insurance coverage.
The 2.7%, or $0.2 million increase in employee compensation and benefits is attributable to the Company’s salaries returning to base pay levels in the current year as compared to salary reductions in the prior year. There was also an increase in non-cash compensation expense of $0.2 million, or 109.2% for the vesting of non-restricted stock grants made to ICC employees, awarded in February 2013. These increases were offset by a decrease in incentive bonus compensation of $0.5 million as the Company did not have any incentive bonus compensation for the current period.
Costs for brokerage, clearing, and exchange fees were relatively consistent with similar costs from the prior period.
Costs associated with occupancy and equipment decreased 33.0% primarily as a result of reduced rent expense for our current Headquarters and depreciation and amortization incurred in the current period as compared to the write off of leasehold improvements in our prior headquarters after relocation in the prior period.
Other administrative costs decreased by 21.7%, principally due to one-time home office relocation costs incurred in the prior period. Interest expense increased as a result of the subordinated debt interest, paid monthly at 8.25%.
FINANCIAL RESULTS SUMMARY
The Company reported a $2.9 million operating loss as compared to $0.6 million in operating income for the prior period. The Company’s net loss totaled $2.4 million, or $0.35 per basic net loss per share, compared to net income totaling $0.4 million, or $0.06 per basic and diluted net income per share for the prior period.
The Company’s $2.4 million net loss in the current period versus the $0.4 million net income in the prior period is driven by the $1.2 million in professional fees for the pending merger with RCAP, coupled with the settlement of multiple claims and arbitrations, and finally, advertising and promotional costs which increased by 83.5% in recruiting and branding efforts.
			
		
Our business plan is primarily focused on increasing our network of registered representatives and advisors which will expand our revenue base, specifically by recruiting larger producers. The Company remains focused on the retention of its representative force with enhanced technology, practice management initiatives, compliance education, and quality customer service.
Liquidity and Capital Resources
Our primary source of liquidity remains cash flows from operations, primarily from our broker-dealer and investment advisory business. Decisions on the allocation of capital include projected profitability and available cash flows, risk management and regulatory capital requirements. A key to this approach is ensuring that industry-standard controls are effective to support our operations and those of our representatives while ensuring sufficient liquidity.
As of March 31, 2014, cash and cash equivalents totaled $4.5 million as compared to $6.6 million as of March 31, 2013. Working capital as of March 31, 2014 was $5.0 million as compared to $7.5 million as of March 31, 2013. The ratio of current assets to current liabilities was 1.62 to 1 as of March 31, 2014 as compared to 1.92 to 1 as of March 31, 2013.
Cash used in operating activities was relatively insignificant for the fiscal year ended March 31, 2014 as compared to $2.5 million in cash provided for the year ended March 31, 2013.
In comparing cash flow from operating activities for fiscal year ended March 31, 2014 to 2013, cash flows decreased by $2.5 million largely due to the Company’s current year net loss of $2.4 million as compared to net income of $0.4 million in the prior period, offset by a change in accounts receivable accounts held at our clearing firm. In addition, there were increases in loans receivable due to the increase in issuance of transition loans to newly recruited representatives, liabilities in accounts payable, and accrued legal expenses that decreased operating cash from operating activities. Finally, there was a change in deferred taxes related to our current tax position offset by an increase in the partial valuation allowance.
Cash used in investing activities during the current period consisted primarily of investments in marketable securities and in the prior year mainly from the acquisition of property and equipment due to relocation.
Financing activities for principal payments on a short-term note obligation to finance insurance premiums in both the current and prior year were $2.1 million and $2.3 million, respectively, for the fiscal years ended March 31, 2014 and 2013. In the prior year, $2.0 million was provided from the $2.0 million subordinated debt borrowing, and in the current period there were no new additional subordinated borrowings.
The Company experienced significant cash outflows, mainly from expenses that were non-recurring in nature. The $1.2 million related to the Merger Agreement and $0.7 million settlement, net of insurance proceeds, for one particular claim contributed to both the $2.1 million decrease in cash and cash equivalents, as well as regulatory net capital. The Company may have some additional cash outflows related to the Merger Agreement but nothing of the magnitude experienced this fiscal year. Significant costs related to the Merger Agreement are winding down as evidenced by the recent completed customary regulatory filings. In addition, the Company has settled numerous claims and expects future costs to normalize to amounts reported previously.
The Company’s ability to continually generate positive cash flows will depend on its future results of operations. The Company is continuously striving to mitigate operational and legal risks in a stringent regulatory environment along with aiming to increase its market share through its retention and recruiting efforts. The Company is also motivated and monitors both variable and fixed expenses to ensure they are in line with its revenue base by means of operational efficiency.
Management believes that the Company will achieve its revenue growth goals which will generate the necessary capital resources, from its core operations, in the near future once the proposed merger is completed. The Company recently recruited fifty new advisors which will help grow top line revenue. With our 5- star service model we will continue welcoming new advisors to our independent model who are attracted by our value proposition and culture.
			
		
ITEM 8.
ITEM 8. Financial Statements And Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Investors Capital Holdings, Ltd. and Subsidiaries
Lynnfield, MA
We have audited the accompanying consolidated balance sheets of Investors Capital Holdings, Ltd. and subsidiaries (the “Company”) as of March 31, 2014 and 2013, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included a consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Investors Capital Holdings, Ltd. and subsidiaries, at March 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Marcum LLP
Marcum, LLP
Boston, Massachusetts
June 25, 2014
			
		
			
		
						
						
						
						
						
						
			
		
The accompanying notes are an integral part of these consolidated financial statements.
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended March 31, 2014 and 2013
The accompanying notes are an integral part of these consolidated financial statements.
			
		
			
		
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended March 31, 2014 and 2013
NOTE 1 - NATURE OF OPERATIONS
Incorporated in 1995 under Massachusetts law and redomesticated under Delaware law in 2007, Investors Capital Holdings, Ltd. ("ICH") is a holding company whose wholly-owned subsidiaries assist a nationwide network of independent registered representatives ("representatives") in providing a diversified line of financial services to the public including securities brokerage, investment advice, asset management, financial planning and insurance. Our subsidiaries include the following:
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Investors Capital Corporation ("ICC") is duly registered under the Securities Exchange Act of 1934, the Investment Advisers Act of 1940 and applicable state law to provide broker-dealer and investment advisory services nationwide. ICC’s national network of independent financial representatives is licensed to provide these services through ICC under the regulatory purview of the Securities and Exchange Commission (the “SEC”), the Financial Industry Regulatory Authority (“FINRA”) and state securities regulators. ICC executes and clears its public customer accounts on a fully disclosed basis through Pershing, LLC (“Pershing”). ICC, doing business as Investors Capital Advisors (“ICA”), also provides investment advisory services.
·
ICC Insurance Agency, Inc. facilitates the sale of insurance and annuities by our representatives.
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Investors Capital Holdings Securities Corporation ("ICH Securities") holds cash, cash equivalents, interest income and dividend income for ICH.
·
Advisor Direct, Incorporated (“AD”) is a Broker-Dealer registered with the SEC and is a member of FINRA. AD is registered to operate as a (k)(1) Broker-Dealer where principal transactions are limited to mutual funds and/or variable annuities only. On January 25, 2013, Investors Capital Holdings, Ltd. (“ICH”) acquired all the assets of AD for a cash purchase price of $32,500 and simultaneously changed its name from LifeVest Financial, Inc. to AD. AD is a wholly-owned subsidiary of ICH.
Significant Transactions
On October 27, 2013, ICH executed a definitive merger agreement (the “Merger Agreement”) with RCS Capital Corp (“RCAP”), pursuant to which RCAP will acquire ICH and its subsidiaries, including ICC, for a total consideration of approximately $52.5 million comprised of cash and RCAP stock. The closing of the transaction is subject to customary closing conditions, including FINRA approval of the proposed change in control for ICC, as well as both regulatory and shareholder approval of the transaction by ICH stockholders. The Merger Agreement was amended on March 03, 2014. Under the Merger Agreement, as amended, Merger Sub, a Zoe Acquisition, LLC, a wholly-owned subsidiary of RCAP, will merge with and into ICH (the “Merger”), with the Company surviving the merger as a subsidiary of RCAP. RCAP expects that ICH, once the Merger is consummated, will operate independently of RCAP’S wholesale and retail broker-dealer subsidiary, Realty Capital Securities, LLC, and function as a separate business unit alongside RCAP’S existing operating subsidiaries. The transaction is expected to close in July 2014.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company are summarized below to assist the reader to better understand the consolidated financial statements and other data contained herein.
Basis of Presentation
			
		
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, ICC, ICC Insurance Agency, Inc., Advisor Direct, Inc. and ICH Securities. All significant inter-company items and transactions have been eliminated in the consolidation.
Use of Estimates and Assumptions
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, if any, at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Those estimates deal with the valuation of securities and other assets revenue recognition, litigation reserves and allowance for doubtful accounts receivable and involve a particularly high degree of judgment and complexity. Actual results could differ from those estimates.
Revenue Recognition
The Company’s revenue recognition policies are summarized below.
Mutual Funds/Variable Annuities. Revenue from the sale of mutual funds and variable annuities is recognized as of the date the check and application is accepted by the investment company.
Brokerage. The Company earns commissions through stock purchase and sale transactions, mutual fund purchases, government and corporate bonds transactions, fee-based managed accounts and ticket charges. The Company also earns revenue in the form of 12b-1 fees and interest on account balances. The earnings process is substantially complete at trade date in accordance with the rules of FINRA and the SEC.
The Company also receives credit adjustments for clearing charges that are netted against any clearing charges the Company may incur for the period. These adjustments are recognized as income in the period received unless otherwise noted by the clearing Company.
Unrealized gains and losses are recorded at the time that the Company reconciles its trading positions with the market value. The unrealized gains or losses are adjusted to market until the position is settled or the trade is cancelled.
Advisory Fees. The Company’s managed accounts advisory fees are based on the amount of assets managed per agreement negotiated between its independent representatives and their clients. These revenues are recorded quarterly as and when billed based on the fair market value of assets managed throughout the quarter. Any portion remaining uncollected due to account adjustments after account rebalancing is charged against earnings at quarter end.
Administration Fees. Administration fees for services rendered to the Company’s representatives respecting annual FINRA license renewals and Error and Omissions (“E&O”) insurance are recognized as revenue upon registration of the representative with FINRA and listing of the registered representative with the E&O insurance carrier. The funds received from the registered representative are initially recorded as unearned revenue. The amounts collected in excess of the E & O insurance premium and/or fees due FINRA, if any, are recognized as revenue. Fees collected to maintain books and records are deferred and recognized ratably throughout the year.
Other Revenue. Revenue from marketing associated with product sales is recognized quarterly based on production levels. Marketing event revenues are recognized at the commencement of each event offset by its costs. Revenue from ICC’s technology platform, Capital Connect, is recognized monthly based on a representative’s selected package, which provides them access to a portal, in addition to receiving IT support. The service terminates immediately if a representative is no longer with the firm or it is temporarily suspended, in either case, there will be no additional fees to be recognized as income.
Cash and Cash Equivalents
			
		
For purposes of reporting cash flow, cash and cash equivalents includes cash in checking and savings accounts, cash at its clearing firm and short-term investments with original maturities of 90 days or less.
Customer Accounts
The Company's customer accounts are reported by the various custodians on a fully disclosed basis.
Financial Instruments
The Company’s financial assets and liabilities are reported in the statements of financial condition at readily ascertainable fair value or at carrying amounts that approximate fair value as these financial instruments generally have short maturity periods. The fair value of securities owned and trading securities sold, not yet purchased are equal to the carrying value. Changes in the fair value of these securities are reflected in the results of operations.
Marketable Securities
The Company classifies its short-term investments as trading, available for sale, or held to maturity. The Company's marketable securities consist of fixed income instruments and mutual funds and have been classified by management as trading. Accordingly, realized and unrealized gains and losses at year-end are included in the earnings of the Company. The fair market values of these securities are determined based on quoted market prices.
The Company conducts its principal trading through two designated trading accounts. One of these accounts is used to facilitate fixed income trading on a same day buy-sell basis. The second account is used to facilitate fixed income trading for representatives and may carry positions overnight. These securities are normally held in the account for no longer than 30 days and are recorded at fair market value.
Advertising
The Company expenses all promotional costs as incurred.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful life of the related assets, over a period of three to seven years. Leasehold improvements are amortized over the lesser of the economic useful life of the improvement or the term of the lease. Routine repairs and maintenance are expensed as incurred.
The Company reviews the carrying value of its property and equipment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from its use and eventual disposition. In cases where an asset is not in use and subsequently disposed of, the Company recognizes a loss on disposal that is equal to the carrying value at the time of disposal offset against any proceeds received. The Company reported losses on its disposal of property and equipment of $0 and $65,786 respectively, for the years ended March 31, 2014 and 2013.
Income Taxes
The Company uses the asset and liability method to account for income taxes, which requires recognition of deferred tax assets, subject to valuation allowances, and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income or loss in the period that includes the enactment date.
Deferred income taxes are the result of timing differences between book and taxable income and consist primarily of deferred compensation, legal accruals, differences between depreciation expenses, and a net operating loss for financial statement purposes versus tax return purposes.
			
		
The Company has assessed the realizability of its deferred tax assets to determine whether or not a valuation allowance was required for some or all of its deferred tax assets. The Company also considered its current period reporting results and compared these results to its annual projection. Management anticipates it will achieve profitability and future taxable income. If future operations exceed current projections, management may conclude such valuation allowance is no longer needed. Conversely, if future operating results do not meet current projections, it is possible that an additional valuation allowance may be needed in future periods.
US GAAP requires that the impact of tax positions be recognized in the financial statements if they are more likely than not of being sustained upon examination, based on the technical merits of the position. The Company’s management has determined that the Company has no uncertain tax positions requiring recognition as of March 31, 2014.
The Company files federal and state income tax returns. The statute of limitations for the federal tax return is three years, and for state tax returns is between a range of three and six years; therefore, federal tax returns before March 31, 2011 are not subject to examination and certain state tax returns before March 31, 2011 and March 31, 2008 are not subject to examination. The Company had returns under examination as of March 31, 2014.
Earnings Per Share
The Company reports net income (loss) per share. Diluted earnings per share do not include the effect of stock options as it has an anti-dilutive effect on earnings per share (See Note 17). Basic and diluted net income per common share are determined by dividing net income by the weighted average number of common shares outstanding during the period.
Stock Based Awards
The Company grants stock based awards to employees, directors, and registered representatives after the awards are approved by the board of directors. These awards are incentive driven and based on performance. (See NOTE 16 BENEFIT PLANS)
Segment Reporting
The Company makes disclosures about products and services, and major customers. See “Note 12, Segment Information”.
Accounts Receivable - Allowance for Doubtful Accounts
The Company’s policies for determining whether a receivable is considered uncollectible are as follows:
Trade receivables from brokers and clearing organizations. As prescribed by the SEC, trade receivables usually settle within three days. The balances shown as receivable from and payable to brokers and clearing organizations represent amounts due in connection with the Company’s normal transactions involving trading of securities. Management considers all receivables to be collectible; therefore, no allowance for doubtful accounts has been provided.
Loans to representatives. Management performs periodic evaluations and provides an allowance based on the assessment of specifically identified unsecured receivables and other factors, including the representative's payment history and production levels. Once it is determined that it is both probable that a loan has been impaired, typically due to the termination of the relationship, and the amount of loss can reasonably be estimated, the portion of the loan balance estimated to be uncollectible is so classified. See “Note 3, Loans to Registered Representatives”.
Valuation of Securities and Other Assets
Substantially all financial instruments are reflected in the consolidated financial statements at fair value or amounts that approximate fair value. These may include cash and cash equivalents; securities purchased under agreements to resell; deposits with clearing organizations; securities owned; and securities sold but not yet purchased. Certain
			
		
financial instruments are classified as trading, available for sale, and held to maturity. The realized gains and losses are recorded in the income statement in the period in which the transactions occurred. The related unrealized gains and losses would be reflected in other comprehensive income depending on the underlying purpose of the instrument.
Where available, the Company uses prices from independent sources such as listed market prices, or broker or dealer price quotations. Fair values for certain derivative contracts are derived from pricing models that consider current market and contractual prices for the underlying financial instruments or commodities, as well as time value and yield curve or volatility factors underlying the positions. In addition, even where the value of a security is derived from an independent market price or broker or dealer quote, certain assumptions may be required to determine the fair value. The Company generally assumes that the size of positions in securities that the Company holds would not be large enough to affect the quoted price of the securities if the Company were to sell them, and that any such sale would happen in an orderly manner. However, the actual value realized upon disposition could be different from the current carrying value.
Internal Use of Software
The costs of internally developed software that qualify for capitalization are capitalized as fixed assets and subsequently amortized over the estimated useful life of the software, which is generally three years. The costs of internally developed software are included in fixed assets at the point at which the conceptual formulation, design and testing of possible software project alternatives are complete and management authorizes and commits to funding the project. The Company does not capitalize projects where it believes that the future economic benefits are less than probable.
Reclassifications
Certain amounts in 2013 were reclassified to provide comparison with 2014 classifications. There was no impact to previously reported Net income (loss) or Net income (loss) per share.
Recent Accounting Pronouncements
There were no recent accounting pronouncements to be applied for the fiscal years ended March 31, 2014 and 2013.
Subsequent Events
The Company has evaluated subsequent events through the date the financial statements were available to be filed. There were no material subsequent events requiring adjustment to or disclosure in these financial statements.
NOTE 3 - Loans to Registered Representatives
ICC has granted loans to certain registered representatives. These loans are primarily given to newly recruited representatives to assist in the transition process. These loans are generally forgivable over a multi-year term, generally one to five years, and forgiveness is based on the condition that the representative remains licensed with the Company and the achievement of specified performance goals. Upon forgiveness, the loans are charged to commission expense. Loans charged to commission expense totaled $308,194 and $181,599 for the fiscal years ended March 31, 2014 and 2013, respectively.
Some loans to registered representatives are not subject to a forgiveness contingency. These loans, as well as loans that have failed the forgiveness contingency, are repaid to the Company by deducting a portion of the representatives’ commission payouts throughout the commission cycle until the loans are repaid.
Interest charged on these loans to representatives range from 4.25% to 8.25% annually. Loans to registered representatives included in receivables from employees and registered representatives are as follows at March 31:
			
		
Included in other loans is a loan receivable from a registered representative in connection with a regulatory matter settled with the Massachusetts Securities Division on October 27, 2010. This representative has agreed to reimburse the Company for certain amounts paid by the Company with respect to this regulatory matter. The amount due on this receivable at March 31, 2014 and 2013 was $276,503 and $330,587, respectively.
NOTE 4 - SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED AT FAIR VALUE
Securities owned consists of marketable securities recorded at fair value. Securities sold, but not yet purchased represents obligations of the Company to deliver the specified security at the contracted price and thereby create a liability to purchase the security in the market at prevailing prices. Changes in the value of these securities are reflected currently in the results of operations.
As of March 31, 2014 and 2013, the Company’s securities owned and securities sold not yet purchased at fair value consisted of the following securities:
NOTE 5 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
The Company is engaged in various trading and brokerage activities whose counterparties primarily include the general public. In the event counterparties do not fulfill their obligations, the Company may be exposed to risk. Securities sold, but not yet purchased, represent obligations of the Company to purchase the security in the market at the prevailing prices to the extent that the Company does not already have the securities in possession. Accordingly, these transactions result in off-balance sheet risk when the Company's satisfaction of the obligations exceeds the amount recognized in the balance sheet. The risk of default depends on the creditworthiness of the counterparty of the issuer of the instrument. It is the Company's policy to review, as necessary, the credit standings of each counterparty with which it conducts business.
			
		
Commissions receivable from one source were 25% and 36% of total receivables for the years ended March 31, 2014 and 2013, respectively.
At March 31, 2014, the carrying amount of the Company’s cash and cash equivalents was $4,481,769 of which $250,000 was covered by the Federal Deposit Insurance Corporation (“FDIC”). The Company’s cash and cash equivalents as of March 31, 2014 also includes $1,651,682 at its clearing firm of which $500,000 was fully insured by the Securities Investor Protection Corporation (“SIPC”).
At March 31, 2013, the carrying amount of the Company’s cash and cash equivalents was $6,589,698 of which $250,000 was covered by the Federal Deposit Insurance Corporation (“FDIC”). The Company’s cash and cash equivalents as of March 31, 2013 also includes $2,701,440 at its clearing firm of which $500,000 was fully insured by the Securities Investor Protection Corporation (“SIPC”).
NOTE 6 - FAIR VALUE MEASUREMENTS
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income or cost approach are used to measure fair value.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
·
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities the Company has the ability to access.
·
Level 2 - Inputs are inputs (other than quoted prices included within Level 1) that are observable for the asset or liability, either directly or indirectly.
·
Level 3 - Inputs include unobservable inputs for the asset or liability and rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. (The unobservable inputs should be developed based on the best information available in the circumstances and may include the Company’s own data.)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following table presents the Company's fair value hierarchy for those financial assets measured at fair value as of March 31, 2014:
The following table presents the Company’s fair value hierarchy for those financial assets and liabilities measured at fair value as of March 31, 2013:
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Fair Value Measurements on Recurring Basis
						
						
						
						
						
						
						
						
						
						
						
						
						
Total
						
						
Level 1
						
						
Level 2
						
						
Level 3
						
Assets:
						
						
						
						
						
						
						
						
						
						
						
						
Securities owned at fair value
						
						
						
						
						
						
						
						
						
						
						
						
			
		
Valuation of Marketable Trading and Investment Securities Owned
The fair value of marketable trading and investment securities owned is determined based on quoted market prices. Securities traded on a national exchange are stated at the last reported sales price on the day of valuation; other securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are stated as the last quoted bid price.
Valuation of Trading Securities Sold, Not Yet Purchased
As a broker-dealer, the Company is engaged in various securities trading and brokerage activities as principal. In the normal course of business, the Company sometimes sells securities they do not currently own and will therefore be obligated to purchase such securities at a future date. This obligation is recorded on the balance sheet at fair value based on quoted market prices of the related securities and will result in a trading loss if the fair value increases and a trading gain if the fair value decreases between the balance sheet and date of purchase.
Valuation of Mutual Funds
The fair value of mutual funds is determined based on quoted market prices. Securities traded on a national exchange are stated at the last reported sales price on the day of valuation; other securities traded in over-the-counter market and listed securities for which no sale was reported on that date are stated as the last quoted bid price.
NOTE 7- PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at March 31:
Depreciation expense was $158,613 and $234,083 for the year’s ended March 31, 2014 and 2013, respectively.
NOTE 8 - NOTES PAYABLE
At March 31, 2014 and 2013, notes payable consisted of debt to finance insurance premiums. These notes are referenced in the table below:
			
		
For the years ended March 31, 2014 and 2013 there was no long-term debt outstanding.
NOTE 9 - SUBORDINATED BORROWINGS
The lender, consisting of the Company’s clearing firm, have, under a Subordinated Debt Agreement and related Rider, subordinated its rights of collection of principal and claims to all other present and future senior creditors of the Company prior to the expiration of the agreement. The subordinated borrowings are covered by an agreement approved by FINRA on March 8, 2013 and are thus available for computing net capital under the SEC’s uniform net capital rule. To the extent that such borrowings are required for the Company’s continued compliance with minimum net capital requirements, they may not be repaid.
As of March 31, 2014 and March 31, 2013, the balance of subordinated borrowings was $2,000,000, respectively. The Company’s subordinated borrowings mature on March 8, 2016. The interest rate on all subordinated borrowings is prime plus five percent (8.25% at March 31, 2013), payable monthly. Interest expense totaled $165,000 for the year ended March 31, 2014, including accrued interest of $41,250 included in the Consolidated Balance Sheet. The Company has met each covenant as of March 31, 2014.
NOTE 10 -LINE OF CREDIT
The Company has a line of credit (“Line”) with maximum borrowings of $1,000,000 at the Bank’s base lending rate (5.00% per year as of March 31, 2014). The Line was renewed on November 22, 2013, and is subject to annual renewal and contains a customary minimum debt service covenant. There is no outstanding balance at March 31, 2014. The Company had the same lending terms and arrangement in the prior year and there was no outstanding balance at March 31, 2013.
NOTE 11 - INCOME TAXES
The (benefit) provision for income taxes is as follows for the fiscal years ended March 31:
			
		
Deferred income taxes are the result of timing differences between book and taxable income and consist primarily of deferred compensation, legal accruals, differences between depreciation expenses, and a net operating loss for financial statement purposes versus tax return purposes.
Net deferred tax assets (liabilities) within each tax jurisdiction consisted of the following at:
The following is a summary of the significant components of the Company's deferred tax assets and liabilities:
			
		
The total income tax provision (benefit) differs from the income tax at the statutory federal income tax rate due to the following:
The Company assesses the realizability of its deferred tax assets to determine whether or not a valuation allowance was required for some or all of its deferred tax assets. The Company considered both positive and negative evidence. Positive evidence, includes the Company’s recent history of taxable income in three of the past six years (2013, 2011 and 2010) which was the most significant factor used by the Company in the determination of whether a valuation allowance was required against recorded deferred tax assets. Also, the Company determined that its US GAAP losses over the prior fiscal years including this current year resulted from significant non-recurring and certain significant non-deductible expenses which the Company believes is further positive evidence that mitigates the negative evidence evaluated. Negative evidence, specifically the three years’ cumulative GAAP losses totaling $3.0 million includes $1.3 million of expenses in 2012 and $1.2 million in 2014, which were non-recurring in nature. The Company excluded these items in determining a partial valuation allowance was sufficient.
The Company recorded a $0.5 million partial valuation allowance initially in March 31, 2012, after weighing all the positive and negative evidence, and that most of the GAAP and taxable losses had been related to both non-recurring and non-deductible items related to a change of ownership. The Company did not release the partial valuation in fiscal year ended March 31, 2013 after reporting both GAAP and taxable income, and the partial valuation allowance remained unchanged during fiscal year ended March 31, 2013. The Company considered factors to determine whether to record a full release of the partial valuation allowance, or adjust that valuation allowance to represent the net operating loss of approximately $112,000. In consideration of qualitative factors of continued cumulative US GAAP losses, despite the current period’s profitability and taxable income, the Company made a final judgment not to reduce the partial valuation allowance at March 31, 2013.
For the year ended March 31, 2014, based on the Company’s review of all the positive and negative evidence, the Company recorded a valuation allowance of $0.73 million which approximates the net operating loss of $0.71 million. Net operating loss carryforwards totaling $4.96 million will expire through 2034 and are subject to limitations pursuant to Section 382 of the Internal Revenue Code.
The Company recognizes and measures its unrecognized tax benefit or expense. The Company assesses the likelihood, based on their technical merit, that tax positions will be sustained upon examination based on the facts, circumstances and information available at the end of each period. The measurement of unrecognized tax expense or benefit is adjusted when new information is available or when an event occurs that requires a change. The Company recognizes the accrual of any interest and penalties related to unrecognized tax expense in income tax expense. No interest or penalties were recognized in 2014 and 2013.
			
		
The Company does not have any tax positions as of March 31, 2014 for which it is reasonably possible that the total amounts of unrecognized tax benefit or expense will significantly increase or decrease within twelve months of the reporting date. The Company applied the “more-likely-than-not” recognition threshold to all tax positions taken or expected to be taken in a tax return, which resulted in no unrecognized tax benefits.
NOTE 12 - SEGMENT INFORMATION
Operating segments are defined as components of a business about which separate financial information is available that is regularly evaluated by management in deciding how to allocate resources and in assessing performance. The Company evaluates performance based on profit and loss from operations before income taxes not including nonrecurring gains and losses. The Company's has two operating segments, the independent broker-dealer provided by ICC and AD, and asset management and investment advisory services provided by ICA. ICCIA conducts the sale of insurance products and reports that activity at ICC.
The segments are strategic business units that are managed separately. They operate under different regulatory systems, provide different services and require distinct marketing strategies and varied technological and operational support. They also have differing revenue models; ICC earns transactional commissions and various fees in connection with the brokerage of securities for its customers. ICCIA generates commissions from insurance products. ICA generates recurring revenue from fees earned on the value of assets under management. Lastly, AD is eligible to receive commissions on principal transactions of mutual funds and/or variable annuities only. AD, acquired on January 24, 2013, is operational but had no principal transactions during the current period.
The Company accounts for inter-segment services and transfers as if the services or transfers were to third parties, that is, at current market prices. In presenting segment data, all corporate overhead items are allocated to the segments, and inter-segment revenue, expense, receivables and payables are eliminated. Currently it is impractical to report segment information using geographical concentration.
Management allocates all expenses separately to the parent and ICC, including allocation of costs associated with shared personnel, based upon time studies and a determination of which entities are the beneficiaries of the services rendered by the personnel. Within ICC, expenses are further allocated between the two segments, ICC and ICA, as follows: overhead expenses pro rata to revenue, direct full-time and time-shared employee costs based on the segments being served, and other personnel-related expenses pro rata to head count.
The Company allocated expenses to AD for administrative, record-keeping, and compliance purposes pursuant to the expense sharing agreement between, ICH,ICC, and AD, filed with FINRA in January 2014. There were $2,880 in allocated expenses from ICC to AD, and $10,013 in direct costs from ICH to AD for regulatory and professional services in maintaining its shell broker-dealer status.
In addition, ICC reimburses ICH in the form of a management fee for ICH-incurred overhead expenses that are necessary for ICC to effectively conduct its operations. This overhead primarily is in the nature of salaries and professional and legal fees incurred to obtain such services as audit engagements, legal advice, and industry expertise. The Company periodically reviews the effect that these agreements described above may have on the firm’s net capital.
Segment reporting primarily based on revenue components is as follows for the years ended:
			
		
			
		
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Operating Leases
On October 19, 2012 the Company entered into a lease for 14,045 square feet and began occupying that space as our new Headquarters on December 1, 2012. This lease, which originally was for a term of sixteen months with expiration on March 31, 2014, has been amended to a three year extension, expiring on March 31, 2017. Also, on March 1, 2014, the Company amended the lease for additional space, for a total of 14,336 square feet.
The Company was awarded a retroactive abatement of certain rental payments, including condo fees and real estate taxes based on a May 30, 2013 court order. In June 2014, the Company settled this litigation with the lessor of its former home office space for $175,000.
The total minimum, non-cancelable rent payments due in future periods under these existing operating leases are as follows for the year ended March 31:
Rent expense under the operating leases was $214,565 and $283,470 for the years ended March 31, 2014 and 2013, respectively, and is included in occupancy costs in the statement of income.
The Company offers loans and transition assistance to representatives mainly for recruiting or retention purposes. These commitments are contingent upon certain events occurring, including, but not limited to, the representatives joining the Company and meeting certain production requirements. As of March 31, 2014 and 2013, there were $160,000 and $0 outstanding commitments, respectively.
NOTE 14 - LITIGATION AND REGULATORY MATTERS
In the ordinary course of business, the Company and its subsidiaries are routinely defendants in or parties to arbitrations and other legal actions and proceedings brought on behalf of various claimants, some of which seek material and/or indeterminable amounts. Certain of these actions and proceedings are based on alleged violations of securities, consumer protection, labor and other laws and may involve claims for substantial monetary damages asserted against the Company and its subsidiaries. Also, the Company and its subsidiaries are subject to regulatory examinations, information gathering requests, inquiries, investigations and formal administrative proceedings that may result in fines or other negative impact on the Company. ICC, as a duly registered broker/dealer and investment advisor, is subject to regulation by the SEC, FINRA, NYSE-Amex, and state securities regulators.
The Company maintains Errors and Omissions (“E &O”) insurance to protect it from potential damages and/or legal costs associated with certain litigation and arbitration proceedings. Effective January 01, 2012 to December 31, 2012, for claims related to alternative investments the Company’s exposure was limited to $250,000 in any one case, and for all other investment products, the Company’s exposure was limited to $100,000 in any one case, subject to policy limitations and exclusions. Effective January 01, 2013 to March 31, 2014, for claims related to alternative investment products, the Company’s exposure is limited to $1,000,000 in aggregate defense and indemnity costs, subject to policy terms and conditions. Thereafter, following satisfaction of this aggregate deductible, the Company’s exposure on claims for these same type of investments is $150,000 per claim, plus an additional 10% co-insurance on amounts exceeding $150,000. For all other investment products, the Company’s exposure is $100,000 per claim. The Company also maintains a fidelity bond to protect itself from potential damages and/or legal costs related to fraudulent activities pursuant to which the Company’s exposure is usually limited to a $350,000 deductible per case, subject to policy limitations and exclusions.
The Company recognizes a legal liability when management believes it is probable that a liability has been incurred and the amount can be reasonably estimated. Conclusions on the likelihood that a liability has been incurred and
			
		
estimates as to the amount of the liability are based on consultations with the Company’s General Counsel who, when situations warrant, may engage and consult external counsel to assist with the evaluation and handle certain matters. Legal fees for defense costs are expensed as incurred and classified as professional services within the consolidated statements of income.
The Company measures the gross amount of probable and reasonably estimated losses for claim settlements, then applies applicable insurance coverage to determine the net liability or range of estimated loss, respectively. ICH records accruals for claim settlements based on the net liability, which would not exceed the applicable insurance deductible amount. The accrual for the net liability is reported in accrued expenses in the Balance Sheet. Specifically, contingent liabilities are generally limited to applicable insurance deductible amounts. The Company’s insurance carrier generally confirms coverage at the inception of a claim, and the carrier assumes responsibility for direct payment for the final disposition or settlement of the matter, following the Company’s satisfaction of the applicable deductible.
As of March 31, 2014 and March 31, 2013, the Company had accrued professional fees relating to the Company’s defense in various legal matters and estimated probable settlement costs of approximately $1,670,000 and $1,535,000, respectively, included in accrued expenses and accounts payable on the consolidated balance sheet. It is possible that some of the matters could require the Company to pay damages or make other payments or establish accruals in amounts that could not be estimated as of March 31, 2014. Key components of the accrual include claims arising from alleged poor performance of certain alternative investments in real estate investments trusts that have experienced bankruptcy or other financial difficulties during or in connection with the recent recession and credit crisis.
The following are details of claims the Company considered individually material for the year ended March 31, 2014:
• Mangiarelli vs. ICC. According to the statement of claim dated in November 2012, Mr. and Mrs. Mangiarelli asserted that certain ICC registered representative (“ICC Rep”) failed to disclose important material facts about their investments in REITS and LLC’s. Claimants state ICC Rep violated both federal and state security laws and breached in fiduciary responsibilities. General allegations of unsuitability and failure to supervise were also noted in the statement of claim. ICC filed affirmative defenses in February, 2013 that the claimant’s risk exposure compared to their net worth was moderate and investment objective was for long term growth. The applicable insurance defense and indemnity deductible applicable to this matter is $250,000 which is the Company’s maximum exposure for this claim. The Company accrued $250,000; less fees incurred, which reduces the deductible.
• Demarkey vs. ICC. According to the statement of claim, a certain ICC registered representative solicited Mr. Demarkey to invest in a real estate investment trust. The claimant asserts he was misinformed of the investment that it was both speculative and involved a high degree of risk. ICC filed its preliminary answer stating that the claimant was interested in a 1031 exchange in order to diversify. The applicable insurance defense and indemnity deductible applicable to this matter is $250,000 which is the Company’s maximum exposure for this claim. The Company accrued $250,000; less fees incurred which reduce the deductible.
With respect to claims where loss exposure is reasonably possible, but not yet probable, the range of individual claim amounts is from $50,000 to $681,000, unless claims have indeterminable amounts. The estimated range of loss, net of insurance coverage, is from $0 - $930,000, in the aggregate, for all claims where a contingent loss is reasonably possible at March 31, 2014.
The following are details of claims the Company considered individually material for year ended March 31, 2013:
						
						
•
Andersen vs ICC. This FINRA arbitration was initiated by the filing of a Statement of Claim by Claimant, Jane Comer, as Personal Representative of the Estate of Michael R. Andersen (“Decedent”). Claimant alleged that ICC and its former ICC Registered Representative, were liable to Decedent for losses associated with his investments in several alternative investments.
						
						
			
		
						
Claimant sought damages in the amount between $500,000 and $1,000,000; punitive damages; attorney’s fees; costs; and interest. The applicable insurance defense and indemnity deductible applicable to this matter is $250,000 which is the Company’s maximum exposure for this claim. The Company had accrued $250,000; less fees incurred which reduced the deductible.
						
						
•
Stickel vs. ICC. Claimant alleged that ICC and the Registered Representative were liable to her for losses associated with certain. The Statement of Claim, dated May 2012, contained counts for unsuitability, misrepresentation and negligent supervision. The applicable insurance defense and indemnity deductible applicable to this matter is $250,000 which is the Company’s maximum exposure for this claim. The Company accrued $250,000, less fees incurred which reduced the deductible.
						
						
•
Giraldo vs. ICC. This FINRA arbitration was initiated by the filing of a Statement of Claim by Claimants, Bernardo and Suzel Giraldo. Claimants alleged that ICC and its former Registered Representative were liable for losses associated with their investment. The applicable insurance defense and indemnity deductible applicable to this matter is $250,000 which is the Company’s maximum exposure for this claim. The Company accrued $250,000, less fees incurred which reduced the deductible.
With respect to claims where loss exposure is reasonably possible, but not yet probable, the range of individual claim amounts are from $100,000 to $2,000,000, unless claims have indeterminable amounts. The estimated range of loss is from $0 - $1,200,000, in the aggregate, for all reasonably possible claims at March 31, 2013. Many of these cases were either subsequently settled or dismissed during fiscal year ended March 31, 2014.
NOTE 15- NET CAPITAL REQUIREMENTS
ICC is subject to SEC Uniform Net Capital Rule (Rule 15c3-1) which requires that our broker-dealer subsidiary maintain minimum net capital. As of March 31, 2012, ICC computes net capital requirements under the alternative method, which requires firms to maintain minimum net capital, as defined, equal to the greater of $250,000 or 2% of aggregate debit balances. Repayment or prepayment of subordinated debt and withdrawal of equity from retiring partners or officers is subject to net capital not falling below 5% of aggregate debits or 120% of minimum net capital requirement
As of March 31, 2014, ICC had net capital of $2.28 million (i.e., an excess of $2.03 million) as compared to net capital of approximately $4.43 million (i.e., an excess of $4.18 million) as of March 31, 2013. The decrease in net capital is attributed to an increase in non-allowable assets specifically for loans to representatives, as well as payments of non-recurring expenses related to the Merger Agreement coupled with as numerous litigation and claims settlements.
AD is a registered broker-dealer and, accordingly, is subject to SEC Uniform Net Capital Rule (Rule 15c3-1) which requires the Company to maintain minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. AD operates as a (k)(1) Broker Dealer limiting its principal transactions to mutual funds and variable annuities with a minimum net capital of $5,000. As of March 31, 2014, the Company had net capital of $26,795 (an excess of $21,795). The Company’s net capital ratio for March 31, 2014 was 1.40 to 1.
NOTE 16 - BENEFIT PLANS
The 1994 Stock Option Plan
As of September 1, 1994, the Company adopted a stock option plan (the "1994 Plan") that provided for the granting of options to Timothy Murphy, the Company’s CEO, to purchase shares of the common stock of the Company for $1.00 per share. Following a three for two stock split in 1997, a maximum of 150,000 shares of common stock were issuable and granted under the 1994 Plan. The number of options and grant date were determined at the discretion of the Company's Board of Directors (the "Board"). Options outstanding under the 1994 Plan are fully exercisable and have no stated expiration.
			
		
The 1996 Incentive Stock Plan
As of October 1, 1997, the Board adopted the 1996 Incentive Stock Plan (the "1996 Plan"). Key employees, directors and the Company's registered representatives are eligible to receive stock options and stock grants, and the aggregate number of shares to be delivered under the 1996 Plan cannot exceed 300,000. As of March 31, 2014 and 2013, there were no options outstanding. As of March 31, 2014 and 2013, the Company had granted a total of 218,750 shares of stock under the 1996 Plan.
The 2001 Equity Incentive Plan
As of March 12, 2001, the Board adopted the 2001 Equity Incentive Plan (the "2001 Plan"). Key employees, directors and the Company's registered representatives are eligible to receive stock grants and/or stock options to purchase shares of the common stock of the Company. The aggregate number of shares issuable under the 2001 Plan cannot exceed 250,000. The numbers of shares subject to each stock grant or stock option and any vesting requirements are determined by the Board. As of March 31, 2014 and 2013, no shares of stock have been granted under the 2001 Plan.
The 2005 Equity Incentive Plan- Amended and Restated Equity and Cash Bonus Plan (the “Amended Plan”)
The Investors Capital Holdings, Ltd. 2005 Equity Incentive Plan was adopted by the Board on May 17, 2005, and was approved by vote of the Company’s stockholders at a September 21, 2005 meeting, and amended on October 11, 2011 (the “Amended Plan”). The purpose of the Amended Plan is (i) to attract and retain employees, directors, officers, representatives and other individuals upon whom the responsibilities of the successful administration, management, planning and/or organization of the Company may rest, and whose present and potential contributions to the welfare of the Company, a parent corporation or a subsidiary are of importance (“Key Contributors”), and (ii) to motivate Key Contributors with a view toward enhancing profitable growth of the Company over the long term. Under the Amended Plan Plan, the Company is authorized to award options to purchase common stock, and shares of common stock, to employees, independent representatives and others (e.g. Board members) who have contributed to or are expected to contribute to the Company, its businesses and prospects. Restricted stock customarily are granted by the Company in connection with initial employment or under various retention plans. Options may, but need not, be designated as incentive stock options (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code of 1986. As of March 31, 2014, the Company had not granted any options under the plan and had no current plans to do so. The Company did grant 416,715 of restricted shares of stock under the Amended plan to employees, directors, and representatives in February 2013.
Restricted shares of stock granted under the Amended Plan have been either fully vested at date of grant or subject to vesting over time periods varying from one to seven years after the date of grant, unvested shares being subject to forfeiture in the event of termination of the grantee’s relationship with the Company, other than for death or disability. The compensation cost associated with restricted stock grants is recognized over the vesting period of the shares and is calculated as the market value of the shares on the date of grant. Restricted shares have been recorded as deferred compensation, which is a component of paid-in capital within stockholders’ equity on the Company’s Consolidated Balance Sheets. Under the Amended Plan 58,201 shares remain as authorized and are available for issuance and 941,799 shares have been issued. Stock compensation for the years ended March 31, 2014 and 2013 for restricted shares issued under all Plans was $361,469 and $172,780, respectively.
The following activity under the Amended Plan occurred during the fiscal year ended March 31, 2014:
			
		
The following activity under the Amended Plan occurred during the fiscal year ended March 31, 2013:
The Company's results for the fiscal year ended March 31, 2014 and 2013, respectively includes $205,740 and $17,145 of compensation costs related to vesting of restricted stock grants to employees and $155,729 and $155,635 of restricted stock grants to directors, consultants and independent representatives, under the 2005 Plan.
As of March 31, 2014 there was $1,281,798 of unrecognized compensation cost related to grants under the 2005 Plan, and $1,695,682 of unrecognized compensation as of March 31, 2013 under the 2005 Plan.
Stock Option Grants
A summary of the status of the Company's employee, representative and Directors' fixed stock options as of March 31, 2014 and 2013, and changes during the fiscal years ended on those dates, is presented below:
The intrinsic value of the above stock options was $921,000 and $412,500 at March 31, 2014 and 2013, respectively.
Retirement Plan: The Company has a 401(k) Profit Sharing Plan that allows participation by all employees with at least three months of service. The Plan covers substantially all employees who have met employment guidelines. Effective January 1, 2014, the Company instituted a safe harbor contribution. The Company matched 100% of the eligible participant’s contribution up to 3% of the participant’s qualifying wages and then 50% of the next 2% of participant’s contribution. The Company’s matching contributions, included in compensation and benefits, was approximately $41,000, for the year ended March 31, 2014. The Company did not make any discretionary contributions for the prior fiscal year.
Non-Qualified Deferred Compensation Plan: Effective December 2007, the Company established the Investors Capital Holdings, Ltd. Deferred Compensation Plan (the “NQ Plan”) as well as a Rabbi Trust Agreement for this Plan, for which ICC is the NQ Plan’s sponsor. The funded NQ Plan enables eligible ICC’s Representatives to elect to defer
			
		
a portion of earned commissions, as defined by the NQ Plan. The asset represents the representatives’ invested contributions of deferred commissions, investment gains and losses as well as insurance charges while the liability is comprised of the participant deferrals, unrealized gains and losses and any distributions. The total amount of deferred compensation was $683,002 and $475,352 for the years ended March 31, 2014 and 2013, respectively
NOTE 17 - EARNINGS PER COMMON SHARE
Basic earnings per share represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the dilutive effect of all stock options and other items outstanding during the period that could potentially result in the issuance of common stock, as well as any adjustment to income that would result from the assumed issuance. As of March 31, 2014, there were 150,000 stock options and 354,883 shares of unvested restricted stock outstanding which were excluded from the diluted loss per share calculation since they were anti-dilutive. As of March 31, 2013, there were 150,000 stock options and 463,990 shares of unvested restricted stock outstanding which were included in the diluted net income per share calculation resulting in no change on earnings per share.
NOTE 18 - UNAUDITED QUARTERLY RESULTS
The unaudited quarterly amounts may differ due to the reclassifications. Refer to Note 2 - Summary of Significant Accounting Policies.
NOTE 19-SUBSEQUENT EVENTS
On May 9, 2014 150,000 options were exercised for 150,000 common shares of ICH, by ICH’s CEO at a fair market value of $7.13 per share. These options were issued in 1994.
ITEM 9.
ITEM 9. Changes In And Disagreements With Accountant On Accounting And Financial Disclosure.
None.
			
		
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits to the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as the Company's disclosure controls and procedures are designed to do.
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Report of Management on Internal Control Over Financial Reporting
The Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 1992. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of March 31, 2014.
Remediation of Material Weaknesses in Internal Control
Not applicable.
No Attestation Report by Public Accounting Firm
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to a permanent exemption from the internal control audit requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.
			
		
Changes in Internal Controls Over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART III
Item 10
Item 10 - Directors, Executive Officers and Corporate Governance, Information concerning our executive officers is included above in Part I, Item I.
* CURRENT BOARD OF DIRECTORS *
Dr. Blaise A. Aguirre, MD, age 50, is a child psychiatrist who is Medical Director of 3 East at Harvard-affiliated McLean Hospital and an instructor in Psychiatry at Harvard Medical School. Previously he was a broker with Investors Capital Corp., having obtained his series 7 and 63 securities licenses. Dr. Aguirre sits on the Board of Directors that oversees the annual running of the Illinois Marathon in Champaign, IL. He also was a Member of the Medical Advisory Board of IVPCARE, Inc. prior to their buy-out by Walgreens.
Dr. Aguirre has developed and maintains enduring relationships with institutional money managers, venture capitalists, and angel investors, and he has developed an expertise as a small cap stock analyst. The Company believes that the combination of these and other attributes may prove valuable to the Company in, among other things, establishing and maintaining potential sources of financing for the Company.
William J. Atherton, FLMI, CLU, age 75, has served as a director of the Company since November 2004 and currently serves as Chairman of the Board of Directors and of its Nominating and Governance Committee. Mr. Atherton is a retirement income planning consultant to insurers, money managers, distribution firms and administrative firms operating in the insurance industry. He is a former president of two life insurance companies: North American Security Life (NASL), now John Hancock Annuities, of Boston, MA from 1984 through 1996 and Ameritas Variable Life Insurance Company of Lincoln, NE., from 1997 to 2004, retiring at the mandatory age of 65. In these roles, Mr. Atherton was the President and a director of two mutual fund companies, the NASL Series Trust and the Calvert Variable Series and a member of the boards of NASL and Ameritas Holding Company. As chief executive of these companies, Mr. Atherton supervised all functions of the companies, including the actuarial, finance, sales, marketing, administration and legal departments, accountable to the boards of each firm for compliance and success in each area. The functions of chief actuary, chief financial officer, chief legal officer and chief marketing officer reported to Mr. Atherton in each company.
Mr. Atherton, with his lifelong CEO-level immersion in the variable insurance products industry, provides uniquely valuable insights, experience and judgment in this important area.
James D. Crosson, age 52, Mr. Crosson operates his own financial services business as a Financial Consultant. He has 28 years of industry experience with the focus of his practice being Retirement Planning. Mr. Crosson is a past board member of the Gabelli School of Business at Roger Williams University. He has instructed at UMASS Dartmouth, Bridgewater State College and Bristol Community College. He also is a past board member of The United Way. Mr. Crosson entered the securities industry in 1983 after graduating from Roger Williams University with a degree in Business Management and minors in Finance and Economics. He began as a stockbroker with First Albany Securities. In 1991 he became an independent financial consultant with LPL Financial and in 2009 he joined Investors Capital as an independent financial consultant. In the 20 years that Mr. Crosson has operated his practice, he has consistently been in the top 5% of the broker dealers he has been associated with. He has been quoted in The Wall Street Journal and various financial publications. Mr. Crosson holds his series 7, 24 and 63 securities licenses as well as his life, accident and health insurance license.
			
		
Mr. Crosson is a distinguished independent representative of ICC with decades of achievement in the industry. The Company believes that he will provide other Board members with valuable insights into our operations, strategic insights and suggestions for overall improvement to benefit our registered representatives.
Don E. Ingram, age 60, is the founder and President of Ingram Financial Group, founded in 1977, and Ingram Advisory Services located in Florida. Mr. Ingram has been affiliated with ICC as a registered representative since 1997. He is a Registered Investment Advisor with the SEC (Securities and Exchange Commission) and a Financial Advisor registered with FINRA (the Financial Industry Regulatory Authority), and maintains Series 7, 24, 63 & 65 securities licenses as well as Life, Health and Variable Annuity Licenses. Don also holds credentials as a CFP (Certified Financial Planner), an AEP (Accredited Estate Planner), a CAP (Chartered Advisor in Philanthropy), a ChFC (Chartered Financial Consultant) and a CLU (Certified Life Underwriter). He holds an MSFS (Master of Science in Financial Services). Mr. Ingram’s extensive financial background imparts the ability to anticipate the investment, tax, and estate planning needs of the affluent investor.
Mr. Ingram currently is Vice Chairman of the Board of University of Florida Proton Therapy Institute External Advisors and serves on the Board of Trustees for Winter Haven Hospital, the Platinum Bank Board of Polk County and the Board of the University of Florida Prostate Disease Center. He is the Past Chairman of Winter Haven Hospital Foundation, has served on Boards for Florida State University, Polk State College and All Saints Academy, and was an organizing director of Commerce Bank. He is a former Commodore of the Lake Region Yacht & Country Club.
Mr. Ingram’s many years of affiliation with ICC have resulted in a deep understanding of the history, culture, policies and procedures, resources, shortcomings and potential of ICC and its independent representatives. Recognizing the ability of Mr. Ingram and other ICC registered representatives to provide unique insights into the issues that confront ICC in today’s challenging business environment, in 2008 ICC instituted its Advisory Council, comprised of some of its most successful and senior independent representatives, and Mr. Ingram provided distinguished service as its Chairman since its inception until completion of his term in 2011.
Robert T. Martin, age 47, has served as a director of the Company since 2005 and is Chairman of the Board’s Human Resources Committee. Mr. Martin has been President, CEO and a member of the Board of Directors of Mercury Brewing Company/Ipswich Ale Brewery for the past 11 years. Prior thereto, he practiced architecture in the greater Boston area after graduating in 1990 from Rensselaer Polytechnic Institute with degrees in Science and Architecture. In 1995 Mr. Martin took a position as Director of Operations at Ipswich Brewing Company, LTD. where he oversaw all aspects of the production portion of the brewery. Mr. Martin held this position until agreeing to purchase the brewery from its original owners in 1999.
As President and CEO of Mercury Brewing Company/Ipswich Ale Brewery, Mr. Martin has overseen and participated in all aspects of the corporation including, but not limited to, accounting, legal, sales, marketing, brand acquisition, facility management, State and Federal compliance, strategic partnerships and long term forecasting. Under his leadership, revenues and production have grown approximately 1000% and 500%, respectively. By 2009, the brewery was ranked the 2nd largest micro-brewery in the United States.
Mr. Martin sits on the Board of Corporators of The Institution for Savings in Newburyport, MA, was a member of the Board of Directors of the ICC Capital Growth Fund from 2000 to 2005, and is the past President and currently a member of the Board of Directors of The Massachusetts Brewers Guild.
Among the many attributes and skills that Mr. Martin brings to the Company’s Board of Directors is his demonstrated ability to plan for, apprehend, prioritize and manage the broad range of strategic and tactical opportunities, challenges and issues that inevitably confront business enterprises.
Robert P. Mazzarella, age 68, has over 40 years’ of experience in the securities industry and more than 19 years at Fidelity Investments. Prior to retiring from Fidelity Investments in 2002, Mr. Mazzarella was President of Fidelity Brokerage Services LLC with supervisory oversight responsibility for all of Fidelity’s retail brokerage products and services, including 80 investor centers across the U.S. with over 1,000 account executives and the rapidly growing
			
		
online brokerage business. During his tenure at Fidelity, he also was President of Fidelity’s Institutional Brokerage Group, comprised of four business segments that facilitate the buying and selling of securities for customers in the institutional and retail segments of the U.S. marketplace, including Fidelity Capital Markets, correspondent clearing services, Registered Investment Advisor services, and market data distribution services.
Prior to Fidelity, Mr. Mazzarella worked at Bradford National Corporation for 10 years, where he was responsible for sales, marketing and product development groups and operations. Bradford provided a wide range of services to large and small financial institutions including clearance services. Previously, he spent two years with the National Association of Securities Dealers (now FINRA) where he was involved in launching a new concept in clearing over-the-counter securities on a nationwide basis. He began his career at Merrill Lynch, where he was responsible for the development and operation of training programs for regional offices.
Mr. Mazzarella served on the Securities Industry Association’s Board of Directors where he chaired the SIA’s Discount Brokerage Committee and was a member of the Market Structure Committee. He also has served on the Boards of the Philadelphia Stock Clearing Corporation and Depository, The Chicago Board of Options Exchange, the Cincinnati Stock Exchange, the Boston Stock Exchange and Redibook ECN, Inc. Mr. Mazzarella was a member of The New York Stock Exchange, and served on the NYSE’s Regional Firms Committee.
Mr. Mazzarella has been serving as a director of Placemark Investments, a registered investment advisor firm, since 2002, and Siebert Financial Corp., a public brokerage firm, since 2004. He chairs the Boston Options Exchange Regulatory Board, has been a member of the Board of NASDAQ OMX BS since 2007, and currently serves as Chairman of Pyxis Mobile, a technology company. He also provides consulting services to a number of major financial services firms and advises venture capital firms regarding financial services investments. He also serves as Chairman of the Board of a Boston charter school.
Timothy B. Murphy, age 49, has served as a director of the Company since July 1995. A founder of the Company, Mr. Murphy has served as its President and Chief Executive Officer since August 2008. He served as Executive Vice President and Chief Financial Officer of the Company from its inception until August and December 2008, respectively, and as President of Investors Capital Corporation (“ICC”) since 1994 and of Eastern Point Advisors, Inc. (“EPA”) from 1995 to 2008. Mr. Murphy entered the securities industry in 1990 after graduating from Babson College with degrees in Finance, Investments and Quantitative Methods and a minor in Economics. Starting as a stockbroker for Clayton securities, in 1992 Mr. Murphy accepted a trading position with G.R. Stuart & Co. where he ran trading and operations and entered into the field of compliance. In 1994 Mr. Murphy took a position with Baybanks brokerage as assistant compliance officer before joining ICC as its first president later that year. Since starting with the Company he has overseen day to day operations of all aspects of the organization. Mr. Murphy also currently serves on the board of The Financial Services Institute. Mr. Murphy holds series 4, 7, 24, 27, 53, 63 and 65 securities licenses.
His long tenure as president of ICC, his strategic position as CEO of ICH, academic background and extensive industry experience qualify Mr. Murphy to serve on the Board of Directors of the Company.
Director Meetings and Attendance
During the fiscal year ended March 31, 2014 (the fiscal years ended March 31, 2014 and 2013 are sometimes hereinafter referred to as “fiscal 2014” and “fiscal 2013”), the Board held eleven meetings. The Company has no policy regarding director attendance at annual stockholder meetings; however, all directors attended the Company’s 2013 annual meeting of stockholders.
Independent Directors and their Committees
Four of the seven members of the Board, Messrs. Atherton, Aguirre, Martin and Mazzarella, are “independent directors” as defined by the Company’s Director Independence Standards as well as applicable Securities and Exchange Commission (“SEC”) rule and NYSE Amex listing standards. The Board maintains separately-designated standing Nominating and Governance, Audit, Human Resources and Risk Committees, the members of which are all independent directors, as described below. Messrs. Atherton and Martin also serve as the Lead Independent Director and Alternate Lead Independent Director, respectively.
			
		
The following table shows the current members of each standing committee of our Board of Directors:
Director Audit Human Resources Nom. & Governance Risk
Timothy B. Murphyx
William J. Atherton xx xx
Robert Mazzarella xx xx
Rob Martin xx xx
Blaise Aguirre xx xx
Audit Committee
The Audit Committee, a separately-designated standing committee established in accordance with section 3(a)(58)(A) of the Exchange Act of 1934, oversees the accounting and financial reporting processes of the Company and audits of the Company’s financial statements. The Audit Committee consults with the Company’s independent auditors and management with respect to the adequacy of internal controls as well as the Company's audited and interim financial statements before they are made public. The Committee also is responsible for retaining, determining the compensation of, overseeing, and terminating accounting firms that provide audit, review, attest and other services for the Company. The Board had determined that Mr. Mazzarella is an “audit committee financial expert” as defined by applicable SEC rule. See the documentation referred to in “Director and Nominee Backgrounds”, above, for information regarding experience of Mr. Mazzarella that is relevant to serving as an audit committee financial expert. The Audit Committee met four times during fiscal 2014.
Human Resources Committee
The Human Resources Committee is responsible for determining and approving the compensation payable to the Company’s Named Executive Officers, currently, Mr. Murphy and Ms. Donnelly, including salary and, as applicable, bonus and long-term incentive compensation. The Committee also is responsible for reviewing and approving employment agreements and severance and change of control arrangements for these officers, and administers and oversees the Company’s equity incentive plans including authorizing grants thereunder. The Committee determines such matters after carefully reviewing proposals respecting the amount and form thereof submitted by the chief executive officer, as well as information commissioned from Company staff and/or received from other sources that it deems relevant and material to the process. The Committee, in its deliberations, may consult third-party compensation surveys and published compensation information respecting selected peer group firms, and is empowered to engage the assistance of outside counsel and experts. The Committee met three times during fiscal 2014.
Compensation Consultant
Management did not engage the services of a compensation consultant.
Nominating and Governance Committee
The Nominating and Governance Committee is responsible, among other things, for identifying persons well qualified to become Board members, and recommending them to the Board as nominees for election at the next annual meeting of shareholders or to fill vacancies. The Committee also is responsible for recommending to the Board changes in the Company’s corporate governance guidelines, including policies and procedures for review, approval or ratification of transactions with related parties required to be reported under SEC rules. The Committee met three times during fiscal 2014.
Special Committee
The special committee, established by resolution of the ICH board of directors on September 16, 2013, is a committee consisting solely of the independent directors of ICH that was established, in light of the significance of the potential transaction with RCAP, to pursue and facilitate negotiations with RCAP, evaluate the feasibility of a potential acquisition of ICH by RCAP and the fairness of its proposed terms and to make a recommendation to the ICH board of directors with respect to any such transaction. The special committee unanimously recommended that the ICH board of
			
		
directors approve the merger agreement and the merger and submit the merger agreement and the merger for approval by the ICH stockholders. The special committee consists of William J. Atherton, as chairman, Blaise Aguirre, Rob Martin and Robert Mazzarella. The Committee met eight times during Fiscal 2014.
Risk Committee
The Risk Committee is responsible for providing oversight to management and the Board regarding the identification, management and mitigation of strategic, operational, regulatory, informational, external and other risks relating to the Company’s business and operations. The Committee met four times during fiscal 2014.
Risk Oversight
As stated above, the Risk Committee of the Board is primarily responsible for oversight of risks affecting the Company and its business. To assist the Risk Committee in discharging its responsibilities, the Committee had designated a member of the Committee, Robert Mazzarella, as liaison with the Risk Committee of Investors Capital Corporation (“ICC”), the Company’s broker-dealer and investment advisory subsidiary (the “ICC Risk Committee”). The ICC Risk Committee, comprised of the chief executive officer, the chief financial officer, the ICC chief risk officer/general counsel, chief operating officer and various other key members of senior and middle management, meets weekly to discuss matters relating to risks associated with the business of ICC. In his role as liaison, Mr. Mazzarella was tasked with attending ICC Risk Committee meetings as appropriate, and reporting back to the Committee and the Board. The Audit Committee also addresses risks associated with the Company’s financial reporting, primarily by meeting with and requesting information from management and the Company’s auditors. The Board also, from time to time, addresses matters of risk, particularly when brought to their attention by the Risk Committee or Audit Committee.
Committee Charters and Code of Ethics
The Charters of the Audit Committee, Human Resources Committee, and Nominating and Governance Committee, and the Company’s Code of Ethics, are available on our website at www.investorscapital.com/home/investorRelations/corporateGovernance.aspx.
Director Nomination Process
In evaluating the suitability of candidates for election or re-election as directors, the Nominating and Governance Committee considers many factors, including general understanding of marketing, finance, and other disciplines relevant to the success of a publicly traded company in today’s business environment; understanding of the Company’s business and technology; educational and professional background; and personal accomplishments. The Committee also evaluates each individual in the context of the Board as a whole, with the objective of recommending a group that can best ensure the success of the Company’s business and represent shareholder interests. In determining whether to recommend a director for re-election, the Committee considers, among other things, the director’s past attendance at meetings and participation in and contributions to the activities of the Board and its committees. Other than generally as set forth above, the Committee does not consider diversity in identifying nominees for director.
The Nominating and Governance Committee will consider shareholder recommendations for candidates for the Board. The name of any recommended candidate for director, together with a brief biographical sketch, a document indicating the candidate’s willingness to serve, if elected, and evidence of the nominating shareholder’s ownership of Company stock should be sent to the attention of the Secretary of the Company.
Communications with the Board
Stockholders desiring to send communications, other than proposals for stockholder meetings, to the Board or individual directors should address such communications to the Company’s Secretary, who will forward such
			
		
communications to the full Board, or individual directors, as deemed appropriate by senior management.
ITEM 11
ITEM 11
* ADDITIONAL INFORMATION *
executive compensation
Summary Compensation Table
The following table summarizes all plan and non-plan compensation awarded to, earned by, or paid to Mr. Murphy and Ms. Donnelly (the “Named Executive Officers”) for fiscal 2014 and 2013 for all services rendered in all capacities to the Company and its subsidiaries. Also, included executive officers of the Company’s wholly-owned subsidiary Investors Capital Corporation (“ICC”) as they manage the principal business unit and perform various policy making functions for the registrant, specifically they are Investor Capital Corporation’s Chief Compliance Officer, Mr. John G. Cataldo, Chief Operating Officer, Mr. James L. Wallace and General Counsel and Chief Risk Officer Melissa Tarentino.
			
		
Employment Arrangements with the Chief Executive Officer
Employment Agreements:
Effective April 1, 2010, the Company entered into employment agreement (an “Employment Agreement” and collectively, the “Employment Agreement”) with Timothy B. Murphy, its Chief Executive Officer and a director of the Company, to continue serving full-time as President and Chief Executive Officer (“CEO”) of the Company., The Employment Agreement supersedes in its entirety all prior employment agreements between the Company and this individual.
Under the Employment Agreement, Mr. Murphy is entitled to,The term of Mr. Murphy’s Employment Agreement is indefinite and may be terminated by either party at any time for any or no reason. If Mr. Murphy’s employment is terminated:
(a) by the Company without Cause, or by Mr. Murphy for Good Reason, he is entitled to (i) all earned but unpaid base salary and prior year annual bonuses, (ii) a pro rata annual bonus for the year of termination payable when normally payable but for his termination, (iii) severance totaling three times his base salary at the time of termination, payable in equal installments over the following 36 months, (iv) further severance equal to three times his prior fiscal year annual bonus, payable in a lump sum within ten days of termination, and (v) such amounts as may be vested under applicable Company retirement and equity plans under the terms thereof;
(b) by the Company with Cause, or by Mr. Murphy without Good Reason (other than retirement), he is entitled to the amounts specified in clauses (i) and (v) immediately above;
(c) upon Mr. Murphy’s Disability or death, Mr. Murphy (in the case of Disability) or his estate (in the case of death) is entitled to the amounts specified in clauses (i), (ii) and (v) of paragraph (a) above and either the Disability Benefit (in the case of Disability) or the Life Insurance Benefit (in the case of death); or
(d) upon Mr. Murphy’s retirement, he is entitled to the amounts specified in clauses (i), (ii) and (v) of paragraph (a) above.
The foregoing notwithstanding, Mr. Murphy shall be entitled to the amounts set forth in subparagraph (a) above if, in connection with or within 24 months following a Change in Control of the Company, either (1) the Company terminates Mr. Murphy’s employment without his consent for a reason other than Limited Cause, or his disability or death, or (2) he terminates his employment on 30 days notice for any reason other than retirement.
In the event of a Change in Control, under Mr. Murphy’s Employment Agreement, Mr. Murphy would be entitled to be reimbursed for any excise taxes paid by him as “excess parachute payments” under Section 280G of the Internal Revenue Code on said change of control benefits and on any such reimbursement, provided that any compensation otherwise payable to Mr. Murphy by reason of such Change in Control, but not more than $50,000, shall not be paid to Mr. Murphy if such forbearance would eliminate any such excess parachute payments with respect to him.
Employment Arrangements with Chief Financial Officer
			
		
The Company’s Chief Financial Officer, Kathleen L. Donnelly, does not have a formal written employment agreement, is employed at will and has no formal severance arrangements. Ms. Donnelly’s salary is $160,000 per year.
Employment Arrangements with ICC’s Chief Compliance Officer , Chief Operating Officer, and Chief Risk Officer and General Counsel
The Company’s subsidiary, ICC, does not have formal written employment agreement with the Chief Compliance Officer, John G. Cataldo, or its Chief Operating Officer, James Wallace, or its Chief Risk Officer and general counsel. Melissa Tarentino. Each is employed by ICC at will and has no formal severance arrangements. Mr. Cataldo, Mr. Wallace, and Ms. Tarentino salary is each $200,000 per year.
Outstanding Equity Awards At Fiscal Year-End
The following table sets forth information as of March 31, 2014 regarding unexercised stock options and non-vested stock resulting from prior awards by the Company to the Named Executive Officers. Said officers did not possess any unvested equity incentive plan awards as of said date.
Item 12
Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
			
		
(1)
Includes 78,691 shares that are the approximate share equivalent of units in a unitized Company common stock fund held in the Company’s 401(k) plan and (iii) 10,500 shares held for the benefit of 529 plans for Mr. Murphy’s children (in which such latter shares Mr. Murphy disclaims any personal beneficial interest).
(2)
Includes 7,759 shares that are the approximate share equivalent of units in a unitized Company common stock fund held in the Company’s 401(k) plan.
(3)
Includes 43,211 shares that are the approximate share equivalent of units in a unitized Company common stock fund held in the Company’s 401(k) plan.
(4)
Includes 1,117 shares that are the approximate share equivalent of units in a unitized Company common stock fund held in the Company’s 401(k) plan.
(5)
Includes 16,345 shares that are the approximate share equivalent of units in a unitized Company common stock fund held in the Company’s 401(k) plan.
The persons named in the above table have sole voting and dispositive power over all shares of common stock shown as beneficially owned by them, except as otherwise indicated herein. Mr. Ingram shares voting and dispositive power over 3,000 of the shares beneficially owned by him.
The business address of Mr. Murphy, Mr. Cataldo, Mr. Wallace and Ms. Donnelly is c/o Investors Capital Holdings, Ltd., Six Kimball Lane, Lynnfield, Massachusetts 01940. The business address of Mr. Martin is c/o Mercury Brewing Company, 21 Hayward Street, Ipswich, Massachusetts. Correspondence to Messrs. Atherton, Mazzarella, Aguirre, Crosson or Ingram may be directed to the above address for Investors Capital Holdings, Ltd. attention of the Secretary, who will promptly forward same to the intended recipient.
Item 13
Item 13 - Certain Relationships and Related Transactions, and Director Independence
Directors Messrs. Crosson and Ingram, have been independent registered representatives of the Company’s broker-dealer and investment advisory subsidiary, ICC, before and throughout the fiscal year ended March 31, 2014, and to the date of this Proxy Statement, and, during said time period, generated gross commission income for ICC of approximately $.70 million and $1.65 million, respectively, for which they receive commissions payments from ICC in lesser amounts. Their continuing relationships with the Company have been carefully considered by the Company in the process of nominating them for election as directors, and measures have been taken designed to ensure that their participation on the Board of Directors will not conflict with their continuing securities practices or result in violations of applicable law or regulations.
Item 14
Item 14 - Principal Accountant Fees and Services
Audit Fees
The aggregate fees billed for professional services for the audit of the Company's annual financial statements and review of financial statements included in the Registrant’s Forms 10-Q, or for services that are normally provided by the Company’s Accountant in connection with statutory and regulatory filings or engagements for those fiscal years totaled $160,719 and $175,129 for services rendered by Marcum for fiscal 2014 and 2013, respectively.
Audit-Related Fees
There were no aggregate fees billed for fiscal 2014 and 2013 for assurance and related services by Marcum that are
			
		
reasonably related to the performance of the audit or review of our financial statements (other than disclosed above)
Tax fees
There were no aggregate fees billed for fiscal 2014 and 2013 for tax compliance, tax advice, and tax planning by Marcum.
All Other Fees
Our principal accountants billed us $111,061 for all other fees in the fiscal year ended March 31, 2014 for products and services other than those described above, primarily related to the Merger Agreement. There were no aggregate fees billed classified as all other fees for fiscal year ended March 31, 2013.
PART IV
Item 15.
Item 15. Exhibits And Financial Statement Schedules.
Documents Filed as a Part of this Report:
Page
1.Financial Statements:
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . .. . . . . . . . . . ………... . . . . . 20
Consolidated Balance Sheets as of March 31, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Consolidated Statements of Operations for the years ended March 31, 2014 and 2013 . . . . . . . . . . . . . 22
Consolidated Statements of Changes in Stockholders' Equity for the years ended March 31,
2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Statements of Cash Flows for the years ended March 31, 2014 and 2013 . . . . . . . . . . . . . 24
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-31
2.Financial Statement Schedules:
No financial schedules are listed since they are not applicable or are not required, or because the required information is included in the consolidated financial statements or notes thereto.
			
		
3.Exhibits:
						
						
Exhibit
						
						
Number
Description
Location
2.1
Agreement and Plan of Merger by and among RCS Capital Corporation and ICH
(19)(Exh 2.1)
2.2
First Amendment to Agreement and Plan of Merger
(20)(Exh.2.2)
3.1
Certificate of Incorporation
(2)(Exh. 3.1)
3.2
By-Laws
(2)(Exh. 3.2)
4.1
Form of Stock Certificate
(2)(Exh. 4.1)
10.1
Employment Agreement with Theodore E. Charles (3)
(9)(Exh. 10.2)
10.1
Voting agreement by and among Timothy B. Murphy and RCS Capital
(19)(Exh 10.1)
Corporation, Zoe Acquisition, LLC and Parent ("Merger Sub")
						
10.2
Employment Agreement with Timothy B. Murphy (3)
(9)(Exh. 10.1)
10.3
The 1994 Stock Option Plan (3)
(4)(Exh. 10.3)
10.4
The 1996 Stock Incentive Plan (3)
(2)(Exh. 10.3)
10.5
The 2001 Equity Incentive Plan (3)
(5)(Exh. 4.4)
10.6
The 2005 Equity Incentive Plan (3)
(6)(Exh. 4.5)
10.7
Form of June 2006 Stock Grant Agreement (3)
(7)(Exh. 10.8)
10.8
Form of February 2009 Stock Grant Agreement (3)
(7)(Exh. 10.9)
10.9
Consulting Agreement with Theodore E. Charles (3)
(9)(Exh. 10.3)
10.10
Registration Agreement with Theodore E. Charles et. al
(10)(Exh. 10.1)
10.11
Agreement between the Company and Theodore E. Charles
(11)(Exh. 10.1)
10.12
Amended and Restated Equity and Cash Bonus Incentive Plan with
(13)(Exh. 5.02)
Timothy B. Murphy and Kathleen L. Donnelly
						
10.13
Amended and Restated Equity and Cash Bonus Incentive Plan with
(14)(Exh. 5.02)
Timothy B. Murphy and Kathleen L. Donnelly (voluntarily declined)
						
10.14
Amended and Restated Equity and Cash Bonus Incentive Plan
(16)(Exh. 5.02)
10.15
Subordinated Loan Agreement and Rider A, dated March 8, 2013, between
(17)(Exh. 10.15)
the Company and Pershing, LLC
						
						
						
23.1
Consent of MARCUM LLP
(17)
						
						
31.1
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a)
(1)
31.2
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a)
(1)
32.1
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350
(1)
32.2
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350
(1)
						
						
99.1
Earnings Press Release and Management Presentation
(15)(Exh.99.1)
99.1
RCS Capital Corporation Signs Letter of Intent to Acquire Investors
(18)(Exh. 99.1)
Capital Holdings, Ltd.
						
99.1
Investors Capital Holdings, Ltd. and RCS Capital Corporation Sign Definitive
(19)(Exh. 99.1)
Merger Agreement
						
99.1
Earnings Press Release for Year and Quarter ended March 31, 2014
(21)(Exh.99.1)
99.2
RCS Capital Corporation Announces Agreement to Acquire Investors Capital
(19)(Exh. 99.2)
Holdings, Ltd.
						
						
						
						
						
101.INS
XBRL Taxonomy Instance Document
(1)
101.SCH
XBRL Taxonomy Extension Schema Document
(1)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
(1)
101.DEF
XBRL Taxonomy Extension Definition Linkbase
(1)
101.LAB
XBRL Taxonomy Extension Labels Linkbase Document
(1)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
(1)
			
		
			
		
(18) Incorporated by reference to the indicated exhibit to the Registrant’s Current Report on Form 8-K filed October 2, 2013.
(19) Incorporated by reference to the indicated exhibit to the Registrant’s Current Report on Form 8-K filed October 28, 2013.
(20) Incorporated by reference to the indicated exhibit to the Registrant’s Current Report on Form 8-K (File No. 333-43664) filed March 3, 2014.
(21) Incorporated by reference to the indicated exhibit to the Registrant’s Current Report on Form 8-K filed May 22, 2014.
Any exhibit not included with this Form 10-K when furnished to any shareholder of record will be furnished to such shareholder upon written request and payment of up to $0.25 per page plus postage. Such requests should be directed to Rebecca Hice, Assistant Corporate Secretary, Investors Capital Holdings, Ltd., Six Kimball Lane, Suite 150, Lynnfield, MA 01940.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INVESTORS CAPITAL HOLDINGS, LTD.
By: /s/ Timothy B. Murphy
Chief Executive Officer
Date: June 25, 2014
Pursuant to the requirements of the Securities Act of 1933, this Annual Report on Form 10-K has been signed by the following persons in the capacities and as of the dates indicated.
						
						
						
						
Signature
						
Capacity(ies)
						
Date
						
						
						
						
/s/ Timothy B. Murphy
						
Principal Executive Officer
						
June 25, 2014
Timothy B. Murphy
						
						
						
						
						
						
						
						
/s/ Kathleen L. Donnelly
						
Principal Financial and Accounting Officer
						
June 25, 2014
Kathleen L. Donnelly
						
						
						
						
						
						
						
						
/s/ William Atherton
						
Chairman
						
June 25, 2014
William Atherton
						
						
						
						
						
						
						
						
/s/ Robert Martin
						
Director
						
June 25, 2014
			
		
Robert Martin
						
						
						
						
						
						
						
						
/s/ Robert Mazzarella
						
Director
						
June 25, 2014
Robert Mazzarella
						
						
						
						
						
						
						
						
/s/ Donnie E. Ingram
						
Director
						
June 25, 2014
Donnie E. Ingram
						
						
						
						
						
						
						
						
/s/ Blaise Aguiree
						
Director
						
June 25, 2014
Blaise Aguiree
						
						
						
						
						
						
						
						
/s/ James Crosson
						
Director
						
June 25, 2014
James Crosson
						
						
						
						
			
		
EXHIBIT INDEX
(Exhibits being initially filed with this Form 10-K)
21.1 Subsidiaries of Investors Capital Holdings, Ltd. as of March 31, 2014
23.1 Consent of MARCUM LLP
31.1 Certification of Timothy B. Murphy pursuant to Rule 13a-14(a)
31.2 Certification of Kathleen L. Donnelly pursuant to Rule 13a-14(a)
32.1 Certification of Timothy B. Murphy pursuant to 18 U.S.C. Section 1350
5.2
Certification of Kathleen L. Donnelly pursuant to 18 U.S.C. Section 1350
101.INS XBRL Taxonomy Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy ExtensionLabels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document