246e7fe18ff8443

Table Of Contents


INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)		SIX MONTHS ENDED
		September 30,
		2012		2011
Revenue:
Commissions	$	31,867,893	$	32,575,093
Advisory fees		8,089,985		8,266,088
Other fee income		676,330		211,963
Other revenue		491,082		559,494
Total revenue		41,125,290		41,612,638

Expenses:
Commissions and advisory fees		32,736,807		33,326,157
Compensation and benefits		3,039,968		4,762,840
Regulatory, legal and professional services		1,853,258		2,285,240
Brokerage, clearing and exchange fees		702,798		1,024,971
Technology and communications		624,218		681,944
Marketing and promotion		472,698		644,754
Occupancy and equipment		364,299		448,679
Other administrative		438,778		627,646
Interest		13,803		16,941
Total operating expenses		40,246,627		43,819,172

Operating income (loss)		878,663		(2,206,534)

Provision (benefit) for income taxes		336,760		(73,460)

Net income (loss)	$	541,903	$	(2,133,074)

Basic and diluted net income (loss) per share	$	0.08	$	(0.32)

Weighted average shares used in basic per share calculations		6,625,771		6,589,013

Weighted average shares used in diluted per share calculations		6,746,905		6,589,013

Table Of Contents

INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED)


		2012		2011
Cash flows from operating activities:
Net income (loss)	$	541,903	$	(2,133,074)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization		164,017		194,744
Change in valuation allowance on deferred tax asset		-		24,008
Deferred taxes		445,240		92,306
Stock-based compensation		90,903		67,927
Non-cash compensation for transfer of beneficial interest in life insurance to former chairman		-		568,095
Unrealized loss (gain) in marketable securities		(19,974)		69
Non-qualified deferred compensation investment		30,394		17,587
Market adjustment cash surrender value life insurance policy		(1,519)		21,088
Charge to commission expense (forgivable loans)		174,359		91,731
Allowance for bad debt expense		2,708		73,263
Change in operating assets and liabilities:
Accounts receivable		(403,682)		2,719,716
Prepaid expenses and other		(142,391)		523,010
Loans receivable from registered representatives		(102,984)		(383,514)
Income taxes		(33,480)		(193,108)
Accounts payable		185,720		(272,332)
Securities, net		7,863		20,076
Accrued expenses		(41,076)		(576,351)
Commissions payable		43,283		(713,221)
Unearned revenues		306,363		101,071
Net cash provided by operating activities		1,247,647		243,091

Cash flows from investing activities:
Acquisition of property and equipment		(4,684)		(66,113)
Cash surrender value life insurance policies		-		(18,442)
Payments on note receivable		-		101,098
Purchase of investments				(1,822)
Capitalized software		-		(60,250)
Net cash used in investing activities		(4,684)		(45,529)

Cash flows from financing activities:
Payments on note payable		(1,298,392)		(940,387)
Net cash used in financing activities		(1,298,392)		(940,387)

Net decrease in cash and cash equivalents		(55,429)		(742,825)
Cash and cash equivalents, beginning of period		4,537,713		4,587,195

Cash and cash equivalents, end of period	$	4,482,284	$	3,844,370

Supplemental disclosures of cash flow information:
Interest paid	$	13,803	$	16,941
Income taxes paid	$	-	$	-


See notes to condensed consolidated financial statements

Table Of Contents

INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(UNAUDITED)

Note 1 – Organization AND Basis of Presentation

Incorporated in 1995 under Massachusetts law and redomesticated under Delaware law in November 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:

Investors Capital Corporation ("ICC") is duly registered under the Securities Exchange Act of 1934 (the “Exchange Act”), 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.

·	Investors Capital Holdings Securities Corporation ("ICH Securities") holds cash, cash equivalents, interest income and dividend income for ICH.

BASIS OF PRESENTATION:

The condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented. Because of the nature of the Company’s business, interim period results may not be indicative of full year or future results.

The accompanying interim unaudited condensed consolidated financial statements of Investors Capital Holdings, Ltd. and its subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Quarterly Report on Form 10-Q. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, these financial statements contain all of the adjustments necessary for a fair presentation of the results of the interim periods presented. Operating results for the three months and six months period ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending March 31, 2013. The balance sheet at March 31, 2012 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by US GAAP for complete financial statement presentation. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K (the “Form 10-K”) for the fiscal year ended March 31, 2012 filed with the SEC, for additional disclosures and a description of accounting policies.

There have been no material changes from the critical accounting policies set forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our annual report on Form 10-K for the year ended March 31, 2012. Please refer to those sections for disclosures regarding the critical accounting policies related to our business

Table Of Contents

Certain prior year items have been reclassified to conform to the current period’s presentation. These reclassifications had no effect on previously reported results of operations. All significant intercompany balances and transactions have been eliminated.

The Company has evaluated subsequent events through the date of this filing.

Note 2 - Loans to Registered Representatives

ICC has granted loans to certain registered representatives with the stipulation that the loans will be forgiven if the representatives remain licensed with the Company for an agreed upon period of time, generally one to five years, and/or meet specified performance and/or revenue targets. Upon forgiveness, the loans are charged to commission expense for financial reporting purposes. Loans charged to commission expense totaled $86,379 and $82,314 for the three months ended September 30, 2012 and 2011 and $174,359 and $91,731 for the six months ended September 30, 2012 and 2011, 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 3% to 9.00% annually. Loans to registered representatives included in receivables from employees and registered representatives are as follows:



		September 30, 2012		March 31, 2012

Forgivable loans	$	1,034,891	$	1,057,497
Other loans		708,249		757,018
Less: allowance		(160,042)		(157,334)
Total loans	$	1,583,098	$	1,657,181

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 September 30, 2012 and March 31, 2012 was $360,167 and $391,560, respectively.

NOTE 3 - 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.

The Company, in preparing its income tax provision, bases the calculation on its annual projection of income or loss from operations. The annual projection is reconciled on a quarterly basis to changes in estimates, and at year end the calculation is based on the reported results of operations. Certain expenses are not deductible for

Table Of Contents

tax purposes, creating permanent differences that increase or decrease the income tax provision and effective income tax rate.

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 an additional 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 quarterly projection. Management, in a transitional period, feels confident it will achieve profitability and future taxable income; however, it has concluded that the sustained uncertainty in the global economy and its impact on the U.S. financial markets along with the ongoing legal risks and related defense costs inherent in the industry necessitated a valuation allowance in the amount of approximately $0.5 million as of March 31, 2012. 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. Currently, the Company has maintained its position on the $0.5 million valuation allowance which is netted against its deferred tax asset as of September 30, 2012.

The Company reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. Reserves related to uncertain tax positions are based on a determination of whether and how much of a tax benefit taken in our tax filings or positions is more likely than not to be realized, assuming that the matter in question will be raised by the tax authorities. Potential interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense. We believe appropriate provisions for outstanding issues have been made.

NOTE 4 – 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 have 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 and liabilities measured at fair value as of September 30, 2012:

Table Of Contents


Fair Value Measurements on Recurring Basis
		Total		Level 1		Level 2		Level 3
Assets:
Securities owned at fair value
Mutual funds (1)	$	271,375	$	271,375	$	-	$	-
Unit Investment Trusts		20,056		20,056		-		-
Asset backed securities		2,554				2,554
Total assets	$	293,985	$	291,431	$	2,554	$	-

Liabilities:
Securities sold, not yet purchased at fair value
Equities	$	17,996	$	17,996	$	-	$	-
Total liabilities	$	17,996	$	17,996	$	-	$	-

(1)	Certain mutual funds with a fair value of $36,610 are included in the non-qualified deferred compensation investment in the condensed consolidated balance sheet.

The following table presents the Company's fair value hierarchy for those financial assets and liabilities measured at fair value as of March 31, 2012:


Fair Value Measurements on Recurring Basis
		Total		Level 1		Level 2		Level 3
Assets:
Securities owned at fair value
Mutual funds	$	227,987	$	227,987	$	-	$	-
Equities		4,796		4,796		-		-
Asset backed securities		2,671				2,671
Total assets	$	235,454	$	232,783	$	2,671	$	-

Liabilities:
Securities sold, not yet purchased at fair value
Mutual funds	$	286	$	286	$	-	$	-
Asset backed securities		7,900		7,900		-		-
Total liabilities	$	8,186	$	8,186	$	-	$	-

NOTE 5 – 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. ICC is the NQ Plan’s sponsor. The unfunded NQ Plan enables eligible ICC Representatives to elect to defer a portion of earned commissions, as defined by the NQ Plan. The total amount of deferred compensation was $108,710 and $79,077 for the three months ended September 30, 2012 and 2011, respectively and 214,432 and $182,233 for the six months ended September 30, 2012 and 2011, respectively.

Table Of Contents

NOTE 6- LITIGATION AND REGULATORY MATTERS

In the ordinary course of business, the Company and its subsidiaries are routinely defendants in or parties to pending and threatened 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 consumer protection, securities 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 (formerly the American Stock Exchange) and other state securities regulators.

The Company maintains Errors and Omissions (“E&O”) insurance to protect itself from potential damages and/or legal costs associated with certain litigation and arbitration proceedings and, as a result, in the majority of cases, the Company’s exposure is limited to $100,000 or $250,000 (effective January 2012 for only alternative investment product related settlements) in any one case, subject to policy limitations and exclusions.

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 General Counsel of the broker-dealer 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 condensed consolidated statements of operations.

As of September 30, 2012 and March 31, 2012, the Company had accrued expenses of approximately $1,236,970 and $1,217,300, respectively, in legal fees and estimated probable settlement costs relating to the Company’s defense in various legal matters. 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 and/or could exceed those accrued as of September 30, 2012. Key components of the September 30, 2012 accrual included (i) estimated settlements and claims arising from alleged poor performance of certain real estate investments trusts (“REITs”) and oil and gas limited partnerships that have experienced bankruptcy or other financial difficulties during or in connection with the recent global liquidity crisis, (ii) operating lease litigation, and (iii) regulatory assessments that exceeded our expectations.

Note 7 - Stock Based Compensation

The Company periodically issues common stock to employees, directors, officers, representatives and other key individuals in accordance with the provisions of the shareholder approved equity compensation plans. The Company measures and recognizes compensation expense for all share-based awards made to representatives, officers, employees and directors based on estimated fair values.

Stock Awards

Shares of stock granted under Company’s equity incentive plans (the “Equity Plans”) as of September 30, 2012 have been either fully vested at date of grant or subject to vesting over time periods varying from one to five 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 these 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. Stock grants have been recorded as deferred compensation, which is a component of paid-in capital within stockholders’ equity on the Company’s Condensed Consolidated Balance Sheets.

Table Of Contents

The following activity occurred during the three months ended September 30, 2012 and 2011:



			Weighted Ave	Weighted Average
	Shares		Stock Price	Vested Life		Fair Value $
Non-vested at July 1, 2012	63,976	$	4.41	2.05 years	$	282,134

Granted	-		-			-
Less: vested	(15,885)		4.58			(72,753)
Less: canceled	(589)		5.68			(3,346)

Non-vested at September 30, 2012	47,502	$	4.33	1.95 years	$	205,684


			Weighted Ave	Weighted Average
	Shares		Stock Price	Vested Life		Fair Value $
Non-vested at July 1, 2011	28,332	$	3.70	1.89 years	$	104,828

Granted	-		-			-
Vested	(5,425)		3.55			(19,259)
Canceled	(215)		2.65			(570)

Non-vested at September 30, 2011	22,692	$	3.75	1.72 years	$	85,095

The Company’s net income for the three months ended September 30, 2012 includes $0.02 million of compensation costs related to the Company’s grants of restricted stock to directors and $0.03 million for grants to independent representatives under the Plans. In the prior period, the Company’s net loss included no stock compensation to executives and employees, and $0.02 million in compensation to independent representatives under the Equity Plans.

The following activity occurred during the six months ended September 30, 2012 and 2011:



			Weighted Ave	Weighted Average
	Shares		Stock Price	Vested Life		Fair Value
Non-vested at April 1, 2012	77,402	$	4.41	2.54 years	$	341,343

Granted	-		-			-
Less: vested	(25,125)		4.48			(112,485)
Less: canceled	(4,775)		4.88			(23,314)

Non-vested at September 30, 2012	47,502	$	4.33	1.95 years	$	205,684


			Weighted Ave	Weighted Average
	Shares		Stock Price	Vested Life		Fair Value
Non-vested at April 1, 2011	35,891	$	3.72	1.91 years	$	133,515

Granted	-		-			-
Vested	(12,341)		3.71			(45,785)
Canceled	(858)		3.18			(2,728)

Non-vested at September 30, 2011	22,692	$	3.75	1.72 years	$	85,095

Table Of Contents

The Company’s net income for the six months ended September 30, 2012 includes $0.02 million of compensation costs related to the Company’s grants of restricted stock to directors and $0.06 million for grants to independent representatives under the Plans. In the prior period, the Company’s net loss included $0.03 million of stock compensation to executives and employees, and $0.04 million in compensation to independent representatives under the Equity Plans.

Stock Option Grants

The following table summarizes information regarding the Company's employee and director fixed stock options as of September 30, 2012 and, 2011:


Employee
	2012		2011
Fixed Options		Weighted-Average		Weighted-Average
	Shares	Exercise Price	Shares	Exercise Price
Outstanding at beginning of period	150,000	$1.00	150,000	$1.00
Granted	-		-
Canceled	-		-
Exercised	-		-
Outstanding at end of period	150,000	$1.00	150,000	$1.00

Options exercisable at period end	150,000		150,000

Weighted-average fair value of
options granted during the period	-		-

The intrinsic value of the stock options was $450,000 at September 30, 2012 and $627,000 at September 30, 2011.

The following table summarizes further information about employee and Directors' fixed stock options outstanding as of September 30, 2012:



	Options Outstanding				Options Exercisable

	Range of Exercise Prices	Number Outstanding	Weighted-Average RemainingContractual Life		Exercise Price	Number Exercisable		Weighted-Average Exercise Price

$	1.00	150,000		$	1.00	150,000	$	1.00

Table Of Contents

Note 8 - Segment Information

The Company's reportable operating segments are (i) independent brokerage services offered through ICC and (ii) asset management (investment advisory) services offered through ICC, doing business as ICA. The segments are strategic business units that are managed separately. They operate under different and complex 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, whereas ICA generates recurring revenue from fees that are based on the value of assets under management.

Assets are allocated among ICH and its subsidiaries based upon legal ownership and the services provided. Total period-end assets are presented on a stand-alone basis, i.e., without inter-company eliminations. The Company does not allocate income taxes or unusual items to segments. Corporate items and eliminations are presented in the following table for the purpose of reconciling the stand-alone asset amounts to total consolidated assets.

Currently, 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.

Segment reporting is as follows for the three months ended:


		September 30, 2012
		Commissions		Advisory		ICH		ICH Securities		Totals

Non-interest revenue	$	16,237,978	$	4,033,714	$	(17,445)	$	-	$	20,254,247
Revenue from transaction with
other operating segments:		266,558		-		-		-	$	266,558
Interest and dividend income, net		68,513		-		7		-	$	68,520
Depreciation and amortization		79,829		1,167		-		-	$	80,996
Income (loss) from operations		10,888		532,696		(113,951)		7	$	429,640
Period end total assets		13,933,230		456,591		2,912,360		10,343	$	17,312,524
Corporate items and eliminations		-		-		(1,728,824)		-	$	(1,728,824)

		September 30, 2011
		Commissions		Advisory		ICH		ICH Securities		Totals

Non-interest revenue	$	15,933,823	$	4,143,816	$	(6,870)	$	-	$	20,070,769
Revenue from transaction with
other operating segments:		356,546		-		-		-	$	356,546
Interest and dividend income, net		97,262		-		1,878		4	$	99,144
Depreciation and amortization		89,890		1,167		-		-	$	91,057
Income (loss) from operations		(922,662)		398,117		(865,824)		-	$	(1,390,369)
Period end total assets		12,867,575		797,807		1,827,273		10,307	$	15,502,962
Corporate items and eliminations		-		-		(1,247,786)		-	$	(1,247,786)

Table Of Contents

Segment reporting is as follows for the six months ended:


		September 30, 2012
		Commissions		Advisory		ICH		ICH Securities		Totals

Non-interest revenue	$	32,799,117	$	8,209,373	$	(30,373)	$	-	$	40,978,117
Revenue from transaction with
other operating segments:		496,474		-		-		-	$	496,474
Interest and dividend income, net		147,160		-		13		-	$	147,173
Depreciation and amortization		162,850		1,167		-		-	$	164,017
Income (loss) from operations		29,554		1,140,811		(291,715)		13	$	878,663
Period end total assets		13,933,230		456,591		2,912,360		10,343	$	17,312,524
Corporate items and eliminations		-		-		(1,728,824)		-	$	(1,728,824)

		September 30, 2011
		Commissions		Advisory		ICH		ICH Securities		Totals

Non-interest revenue	$	33,053,900	$	8,373,887	$	(17,587)	$	-	$	41,410,200
Revenue from transaction with
other operating segments:		632,463		-		-		-	$	632,463
Interest and dividend income, net		200,488		-		1,933		17	$	202,438
Depreciation and amortization		193,577		1,167		-		-	$	194,744
Income (loss) from operations		(1,915,883)		964,376		(1,255,044)		17	$	(2,206,534)
Period end total assets		12,867,575		797,807		1,827,273		10,307	$	15,502,962
Corporate items and eliminations		-		-		(1,247,786)		-	$	(1,247,786)

Table Of Contents

NOTE 9- SUBSEQUENT EVENTS

In October 2012, the Company entered into a short-term operating lease for new office space commencing on December 1, 2012.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.

Table Of Contents

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis reviews our consolidated financial condition as of September 30, 2012 and March 31, 2012, the consolidated results of operations for the three months and six months ended September 30, 2012 and 2011 and, as appropriate, factors that may affect future financial performance. The discussion should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q. Unless context requires otherwise, as used in this Management’s Discussion and Analysis (i) the “current period” means the three months and six months ended September 30, 2012, (ii) the “prior period” means the three months and six months ended September 30, 2011, (iii) an increase or decrease compares the current period to the prior period, and (iv) non-comparative amounts refer to the current period.

FORWARD-LOOKING STATEMENTS

This report contains certain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Act. Forward-looking statements relate to expectations, beliefs, projections, future plans, strategies, anticipated events, trends and other matters that are not historical facts and may include words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "will," "should," "may," and other similar expressions. These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and changes in circumstances that might cause future events, achievements or results to differ materially from those expressed or implied by the forward-looking statements. Readers are directed to discussions of risks and uncertainties that may be found in this report and other documents filed by the Company with 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.

Broker-Dealer Services

We provide 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. We also provide 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 representative’s customers through ICA.

Table Of Contents

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, particularly in high margin lines such as advisory services and brokerage.

Support provided to assist representatives in pursuing consistent, profitable sales growth takes many forms, including automated trading systems, 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.

OUR PROCESS

Online Brokerage

Registered representatives have direct market access to submit security transactions for their clients through the use of an online brokerage platform for trade execution serviced by Pershing acting as our clearing firm.

Check and Application

Check and application revenue is obtained through a process where a check and a product application is delivered to us for processing that includes principal review and submission to the variable annuity, mutual fund, direct participation or other investment product company. Investments in technology are facilitating our migration over time from a paper intensive to a more paperless process. This shortens the transaction cycle, reduces errors and creates greater efficiencies.

Bond Brokerage

Our fixed-income brokerage desk uses a network of regional and primary dealers to execute trades across a broad array of fixed income asset classes. The desk also utilizes dealer-only electronic services that allow the desk to offer inventory and to execute trades. Our fixed income traders work with our representatives to develop portfolios for clients.

Asset Allocation

Asset allocation services are made available through ICA. Our services include the design, selection and rebalancing of investment portfolios on behalf of our representatives' clients. We also provide tools, services and guidance that enable our representatives to provide these investment services directly to their clients. These services, for the most part, are conducted through our online brokerage platform. Other allocation services are performed directly by fund companies.

CRITICAL ACCOUNTING POLICIES

In General

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The Company believes that of its significant accounting policies and litigation and regulatory matters to the Company’s condensed consolidated financial statements contained herein), those dealing with revenue recognition, allowance for doubtful accounts receivable, taxes and accrual of legal expenses 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 condensed consolidated financial statements. By their nature, estimates involve judgment based upon available information. Actual results or amounts can and do differ from estimates and the differences can have a material

Table Of Contents

effect on the condensed 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 on a fully-disclosed basis. If either the customer or a 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 company 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 condensed consolidated balance sheet. The determination of these reserve amounts requires significant judgment on the part of management. Management considers 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 an employee or representative of the Company; 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 condensed consolidated financial statements and is recognized as a charge/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 settlement of a legal proceeding may be greater or less than the reserved amount. See “Note 6, Litigation and Regulatory Matters”.

KEY INDICATORS OF FINANCIAL PERFORMANCE FOR MANAGEMENT

Management periodically reviews and analyzes 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.

Table Of Contents

PRODUCTIVITY OF REPRESENTATIVES

Management believes that improving 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,

·	recruiting higher-producing representatives, and

·	terminating low quality representatives.

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 rolling 12-month period. Data for the 12-months ended September 30, 2012 and 2011 are presented below:


		Twelve Months Ended				Change
		September 30, 2012		September 30, 2011		Dollar	Percentage
Rep-generated revenue:
Commission	$	62,737,738	$	67,774,960	$	(5,037,222)	-7.4%
Advisory		15,782,395		15,939,915		(157,520)	-1.0%
Other fee income		1,084,962		681,167		403,795	59.3%
	$	79,605,095	$	84,396,042	$	(4,790,947)	-5.7%

Number of representatives		470		499		(29)	-5.8%

Average revenue per representative	$	169,373	$	169,130	$	242	0.1%

We believe that the consistency in the per capita rep-generated revenue is a direct result of recent recruitment of higher-producing representatives, and a stronger practice management program, offsetting slowed commission activity.

Table Of Contents

COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

Results of Operations


	Three Months Ended September 30,		Change
	2012	2011	Dollar	Percentage
Revenues:
Commission	$ 15,779,387	$ 15,658,586	$ 120,801	0.8%
Advisory fees	3,979,313	4,083,036	(103,723)	-2.5%
Other fee income	337,226	108,570	228,656	210.6%
Other income	226,839	319,721	(92,882)	-29.1%
Total revenue	20,322,765	20,169,913	152,852	0.8%

Expenses:
Commissions and advisory fees expense	16,126,655	16,231,516	(104,861)	-0.6%
Compensation and benefits	1,460,708	2,659,815	(1,199,107)	-45.1%
Regulatory, legal and professional	977,627	1,009,451	(31,824)	-3.2%
Brokerage, clearing and exchange fees	364,697	519,511	(154,814)	-29.8%
Technology and communications	327,240	309,016	18,224	5.9%
Marketing and promotion	231,424	337,053	(105,629)	-31.3%
Occupancy and equipment	178,191	218,048	(39,857)	-18.3%
Other administrative	221,748	266,875	(45,127)	-16.9%
Interest	4,835	8,997	(4,162)	-46.3%
Total expenses	19,893,125	21,560,282	(1,667,157)	-7.7%

Operating income (loss)	429,640	(1,390,369)	1,820,009	-130.9%
Provision (benefit) for income taxes	149,420	(513,007)	662,427	-129.1%

Net income (loss)	$ 280,220	$ (877,362)	1,157,582	-131.9%

Adjusted EBITDA:	$ 563,387	$ (374,883)	$ 938,270	-250.3%

Adjustments to conform adjusted EBITDA to GAAP Net income (loss):
Income tax provision	(149,420)	513,007	(662,427)	-129.1%
Interest expense	(4,835)	(8,997)	4,162	-46.3%
Depreciation and amortization	(80,996)	(97,995)	16,999	-17.3%
Non-cash compensation for transfer of beneficial interest to former Chairman	-	(568,095)	568,095	-100.0%
Non-cash compensation	(47,916)	(19,858)	(28,058)	141.3%
Non-recurring professional fees	-	(320,541)	320,541	-100.0%

Net income (loss)	$ 280,220	$ (877,362)	$ 1,157,582	-131.9%

ADJUSTED EBITDA

Earnings before interest, taxes, depreciation and amortization (“EBITDA”), as adjusted by eliminating other

Table Of Contents

non-cash expense, gains or losses on sales of assets, and various non-recurring items (“adjusted EBITDA”), is a key metric we use in evaluating our financial performance. Adjusted EBITDA eliminates items that we believe are not part of our core operations, are non-recurring items of revenue or expense, or do not involve a cash outlay, such as stock-related compensation and professional fees incurred in connection with the Company’s registration statement on Form S-3 that closed on August 2, 2011 and related matters. 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.

Second quarter Adjusted EBITDA, was $0.56 million, an increase of 250.3% from a $0.37 million loss before interest, taxes, depreciation, amortization, non-recurring professional fees, and non-cash compensation in the comparative quarter. This increase is primarily due to the rise in operating income in the current period.

REVENUE

Revenues increased modestly by $0.15 million or by 0.80 % primarily due to an increase in other fee income.

Revenues from commissions increased by 0.80% or by $0.12 million as a result of our direct business in sales from variable annuities offset by a decrease in commissions from brokerage.

Our advisor-directed managed assets program continues to contribute the majority of advisory services revenue; however, revenues decreased by $0.16 million in the A-MAP program. This decrease was offset by an increase in the A-MAP FT program, another representative directed asset managed program performed for a flat fee rate.

Other fee income increased primarily as a result of technology gross charges earned, as well as licensing fees, annual administrative fees, and financial planning fees.

The decrease in other revenue, which consists of net marketing revenues and interest income , resulted primarily from a decrease in marketing allowances for events.

EXPENSES

Total expenses decreased by $1.67 million, or 7.73 %, principally as a result of decreases in compensation and benefits, plus reductions is all other major expenses.

Commissions and advisory fees paid to our representatives represent a percentage of revenue of our broker-dealer; accordingly, much of the $0.10 million decrease in commissions and advisor fees payout reflects a decrease in our ratio of commission payout as compared to the total of representative-produced revenue.

The decrease in compensation and benefits is attributable to the cost management initiatives the Company implemented in January 2012, offset by increased health benefit costs and one-time separation costs associated with former employees. Also, a final payment was made in August 2012 to our former Chairman satisfying the terms of a one-year post-retirement consulting agreement.

The decrease in regulatory, legal and professional expenses was driven principally by a decrease in nonrecurring professional fees related to our registration statement on Form S-3 and related matters which were completed in the prior period. Offsetting this decrease was an increase in legal settlements, and an increase in legal fees incurred to resolve a legal dispute with our Landlord, specific to our tenancy at 230 Broadway Lynnfield, MA.

Table Of Contents

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 and obtaining comprehensive insurance coverage.

Costs for brokerage, clearing, and exchange fees declined which correlated to the decrease in overall trading volume and from our termination of a quarterly reporting service contract with our clearing firm.

Technology and communications remained relatively flat for the comparative periods, but marketing and promotion expenses declined as a result of canceling some of our advertisements we had in financial services publications.

Occupancy and equipment expenses also declined as a result of expiration of an office lease agreement in Topsfield, Massachusetts. Finally, other administrative expenses declined from savings on postage and delivery, office supplies, and other general office related expenses.

We had an income tax provision of $0.15 million for the three months ended September 30, 2012 as compared to $0.51 million income tax benefit for the prior period. The income tax rates for the 2012 and 2011 periods do not bear a customary relationship to effective tax rates primarily as a result of the increase in the permanent differences created by various accruals for each of the periods presented, particularly regulatory assessments, costs that were associated with our registration statement filing, and non-deductible executive compensation.

OPERATING AND NET INCOME

Results of operations were positively impacted by reduced operating costs in all categories. Specifically, we had reduced total compensation costs as the Company realigned its operating expenses with its top line revenues and profit margins. The Company reported $0.43 million in operating income as compared to $1.39 million of operating loss for the prior period. The Company’s net income was $0.28 million, or $0.04 per basic and diluted net income per share, compared to net loss of $0.88 million, or $0.13 basic and diluted net loss per share, for the prior period.

The Company’s net profit of $0.28 million was principally the result of decreased compensation costs, as well as an ongoing evaluation of strategic costs. The Company implemented specific expense reductions during the fourth quarter of last year to lessen exposure to operating losses while applying resources to sustain our recruiting and technology initiatives, all the while addressing growing compliance requirements. The Company is focused on growing revenues via recruiting new representatives to our corporate advisory platform ICA, as well as organically, therefore we continue to expand offerings in our internally developed CapitalCONNECT technology platform and related practice management programs.

COMPARISON OF THE SIX MONTHS ENDED SEPTEMBER 30, 2012 AND 2011


	Six Months Ended September 30,		Change
	2012	2011	Dollar	Percentage
Revenues:
Commission	$ 31,867,893	$ 32,575,093	$ (707,200)	-2.2%
Advisory fees	8,089,985	8,266,088	(176,103)	-2.1%
Other fee income	676,330	211,963	464,367	219.1%
Other income	491,082	559,494	(68,412)	-12.2%
Total revenue	41,125,290	41,612,638	(487,348)	-1.2%

Expenses:
Commissions and advisory fees expense	32,736,807	33,326,157	(589,350)	-1.8%
Compensation and benefits	3,039,968	4,762,840	(1,722,872)	-36.2%
Regulatory, legal and professional	1,853,258	2,285,240	(431,982)	-18.9%
Brokerage, clearing and exchange fees	702,798	1,024,971	(322,173)	-31.4%
Technology and communications	624,218	681,944	(57,726)	-8.5%
Marketing and promotion	472,698	644,754	(172,056)	-26.7%
Occupancy and equipment	364,299	448,679	(84,380)	-18.8%
Other administrative	438,778	627,646	(188,868)	-30.1%
Interest	13,803	16,941	(3,138)	-18.5%
Total expenses	40,246,627	43,819,172	(3,572,545)	-8.2%

Operating income (loss)	878,663	(2,206,534)	3,085,197	-139.8%
Provision (benefit) for income taxes	336,760	(73,460)	410,220	-558.4%

Net income (loss)	$ 541,903	$ (2,133,074)	2,674,977	-125.4%

Adjusted EBITDA:	$ 1,147,384	$ (729,434)	$ 1,876,818	-257.3%

Adjustments to conform adjusted EBITDA to GAAP Net income (loss):
Income tax provision	(336,760)	73,460	(410,220)	-558.4%
Interest expense	(13,803)	(16,941)	3,138	-18.5%
Depreciation and amortization	(164,017)	(204,305)	40,288	-19.7%
Non-cash compensation	(90,901)	(67,927)	(22,974)	33.8%
Non-cash compensation for transfer of beneficial interest to former Chairman	-	(568,095)	568,095	-100.0%
Non-recurring professional fees	-	(619,832)	619,832	-100.0%

Net income (loss)	$ 541,903	$ (2,133,074)	$ 2,674,977	-125.4%

Table Of Contents

ADJUSTED EBITDA

See information, above, regarding the relevance, calculation and use of adjusted EBITDA set forth in the comparison of the three month periods ended September 30, 2012 and 2011.

REVENUE

Revenues decreased by $0.49 million or by1.20% primarily due to a reduction in commission revenue while advisory fees had slightly decreased compared to the prior period. The decline in commission revenue is attributed to lower trading volume resulting from investor’s cautious sentiment due to ongoing negative market conditions. This decline in brokerage revenue was offset by an increase in our direct business.

Our advisor-directed managed assets program, A-MAP, where investment advisory services are provided directly by our independent representatives, continues to contribute the majority of advisory services revenue. As mentioned in the three months ended analysis, A-MAP revenues declined offset by an increase in A-MAP FT.

Other fee income increased for reasons consistent with details that were explained in the three months ended analysis.

The decrease in other revenue, which consists of net marketing revenues and interest income, resulted

Table Of Contents

primarily from an increase in marketing allowances from product sponsor programs reflecting an increase in sales volumes of investment company products offset by a decrease in net marketing allowances for events.

EXPENSES

Total expenses decreased by $3.57 million, or 8.20 %, principally as a result of decreases in commissions and advisors fees paid to our representatives, compensation and benefits, and regulatory, legal and non-recurring professional fees.

Commissions and advisory fees paid to our representatives represent a percentage of revenue of our broker-dealer; accordingly, much of the $0.59 million decrease in commissions and advisor fees payout reflects a corresponding decrease in revenue. Our ratio of commission payout as compared to the total of representative-produced revenue increased as a result of forgivable loan amortization, advisory platform fees, and a reduction in trading volume.

The explanation for variances in the remaining operating expense categories was consistent with that of the three months ended discussion and analysis, except for technology and communication expenses where expenses declined as a result of replacing some of the service contracts with new vendors that offered better service and pricing arrangements.

We had an income tax provision of $0.34 million for the six months ended September 30, 2012 as compared to $0.07 million income tax benefit for the prior period.

OPERATING AND NET INCOME

The Company reported $0.88 million in operating income as compared to $2.21 million of operating loss for the prior period. The Company’s net income was $0.54 million, or $0.08 per basic and diluted net income per share, compared to net loss of $2.13 million, or $0.32 basic and diluted net loss per share, for the prior period.

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 September 30, 2012, cash and cash equivalents totaled $4.48 million as compared to $4.54 million as of March 31, 2012. Working capital as of September 30, 2012 was $5.43 million as compared to $4.16 million as of March 31, 2012. The ratio of current assets to current liabilities was 1.91 to 1 as of September 30, 2012, as compared to 1.61 to 1 as of March 31, 2012.

Operations provided $1.25 million in cash for the current period, as compared to $0.24 million of operating cash provided in the prior period. When comparing the current period cash flow to the prior period cash flow from operating activities the significant changes were from net income and from account balances held at our clearing firm.

For our current level of operating activities, we believe that our operations and current capital resources will be sufficient to fund our working capital needs for the next twelve months. The Company may, however, seek additional capital within the next 12 months, should it elect to continue pursuing a strategy that incorporates the use of both forgivable and non-forgivable loans to induce newly-recruited financial advisors to join ICC.

Net cash flows used in investing activities in the current period represent purchases in equipment. Net cash flows used in the prior period also represent purchases in equipment, along with the collection of principal payments on a note receivable, capitalization of software for internal use, and contributions on an executive life

Table Of Contents

insurance policy.

Cash flows for financing activities in the current period increased slightly when compared to the prior period as we paid $1.30 million and $0.94 million in loan payments to finance E&O insurance premiums, respectively, for the periods ended September 30, 2012 and 2011. The Company has a line of credit (“line”) with specific financial covenants with its financial institution. This line was renewed and amended, effective April 19, 2012. Although there were no borrowings, the Company achieved the required operating results to meet those covenants as of September 30, 2012.

REGULATORY NET CAPITAL

Cash disbursements can have a material impact on our registered broker dealer’s regulatory net capital. ICC is subject to the SEC Uniform Net Capital Rule (Rule 15c3-1) which requires our broker-dealer subsidiary to maintain minimum net capital. As of March 31, 2011 and going forward, 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, if any, 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 September 30, 2012, ICC had net capital of $2.25 million (i.e., an excess of $2.00 million) as compared to net capital of approximately $1.43 million (i.e., an excess of $1.18 million) as of March 31, 2012.

Table Of Contents

Commitments and Contingencies

We are obligated under a lease agreement covering office space, which expires on March 31, 2015. Options to renew for additional terms are included under the lease agreement. The lease contains provisions for escalation of minimum lease payments contingent upon increases in real estate taxes and condo association fees. The Company is currently attempting to resolve litigation with the lessor, specific to the tenancy at 230 Broadway Lynnfield, MA, as a result of property damages that are preventing occupancy and use of all leased space.

The total minimum rental due in future periods under these existing agreements as of September 30, 2012 is as follows for the years ended March 31,


		2013	$ 141,125
		2014	276,354
		2015	282,214
		2016	24,000
		2017	24,000
			$ 747,692

Total lease expense for office space approximated $0.06 and $0.09 million for the three months ended and $0.12 and $0.17 million for the six months ended September 30, 2012 and 2011, respectively.

ITEM 4. CONTROLS AND PROCEDURES

Report of Management on Internal Control Over Financial Reporting

Disclosure controls are procedures designed to ensure that information required to be disclosed in the Company's reports filed under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, 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, not absolute, assurance of achieving the desired control objectives, as the Company's are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of September 30, 2012, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective in enabling us to record, process, summarize and report information required to be included in our periodic SEC filings within the required time period, and to ensure that information required to be disclosed in such reports that we file or submit under the Securities Exchange Act is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions required regarding required disclosure.

There have been no changes in our internal controls over financial reporting that occurred during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Table Of Contents

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company operates in a highly litigious and regulated business, and the Company often is made a defendant in arbitrations and other legal proceedings that are incidental to our securities business. The Company typically 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. For the majority of pending claims, the Company's current errors and omissions (E&O) policy limits the Company’s maximum exposure in any one case to $100,000 or $100,000/$250,000 ($250,000 is effective January 2012 for alternative investment product only related settlements) in any one case, subject to policy limitations and exclusions. 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 $350,000, subject to policy limitations and exclusions.

ITEMS 2 – 5.

None.


DELAWARE	04-3284631
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)


Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [X]
(Do not check if a smaller reporting company)


CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
		September 30, 2012		March 31, 2012
Assets
Current Assets
Cash and cash equivalents	$	4,482,284	$	4,537,713
Deposit with clearing organization, restricted		175,000		175,000
Accounts receivable		4,928,839		4,525,157
Loans receivable from registered representatives (current), net of allowance		597,150		654,560
Prepaid income taxes		171,138		137,658
Securities owned at fair value		257,375		235,454
Prepaid expenses		801,595		674,780
		11,413,381		10,940,322

Property and equipment, net		223,091		340,007

Long Term Assets
Loans receivable from registered representatives		985,948		1,002,621
Non-qualified deferred compensation investment		1,565,853		1,327,806
Cash surrender value life insurance policies		159,510		157,991
		2,711,311		2,488,418
Other Assets
Deferred tax asset, net		1,104,770		1,550,010
Other asset		1,324		-
Capitalized software, net		129,823		172,240
		1,235,917		1,722,250

TOTAL ASSETS	$	15,583,700	$	15,490,997

Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$	1,006,260	$	820,540
Accrued expenses		1,367,248		1,408,324
Commissions payable		2,830,750		2,787,467
Notes payable		307,296		1,605,688
Unearned revenues		452,561		146,198
Securities sold, not yet purchased, at fair value		17,996		8,186
		5,982,111		6,776,403
Long-Term Liabilities
Non-qualified deferred compensation plan		1,712,358		1,458,169
		1,712,358		1,458,169

Total liabilities		7,694,469		8,234,572

Stockholders' Equity:
Common stock, $.01 par value, 10,000,000 shares authorized;
6,684,242 issued and 6,680,357 outstanding at September 30, 2012
6,689,009 issued and 6,685,124 outstanding at March 31, 2012		66,841		66,890
Additional paid-in capital		12,516,665		12,425,713
Accumulated deficit		(4,664,140)		(5,206,043)
Less: Treasury stock, 3,885 shares at cost		(30,135)		(30,135)
Total stockholders' equity		7,889,231		7,256,425

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	15,583,700	$	15,490,997

See notes to condensed consolidated financial statements.



Number	Description	Location
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)	(8)(Exh. 10.2)
3.2	Employment Agreement with Timothy B. Murphy (3)	(8)(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)	(8)(Exh. 10.3)
10.10	Registration Agreement with Theodore E. Charles et. al.	(9)(Exh. 10.1)
10.11	Agreement with Theodore E. Charles	(10)(Exh. 10.1)
10.12	Amended and Restated Equity and Cash Bonus Incentive Plan with Timothy B. Murphy and Kathleen L. Donnelly	(11) (Exh.10.12)
10.13	Amended and Restated Equity and Cash Bonus Incentive Plan with Timothy B. Murphy and Kathleen L. Donnelly (voluntarily declined)	(12) (Exh.10.12)
31.1	Certification of Timothy B. Murphy pursuant to Rule 13a-14(a)	(1)
31.2	Certification of Kathleen L. Donnelly pursuant to Rule 13a-14(a)	(1)
32.1	Certification of Timothy B. Murphy pursuant to 18 U.S.C. Section 1350	(1)
32.2	Certification of Kathleen L. Donnelly pursuant to 18 U.S.C. Section 1350	(1)
101.INS	XBRL Instance Document	(1)
101.SCH	XBRL Taxonomy Extension Schema	(1)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase	(1)
101.DEF	XBRL Taxonomy Extension Definition Linkbase	(1)
101.LAB	XBRL Taxonomy Extension Label Linkbase	(1)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	(1)