Investors Capital Holdings, Ltd. Report on form 10-Q                                                                                                          Quarter Ended  December 31, 2012

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

_____________

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2012

Commission File Number: 333-43664

INVESTORS CAPITAL HOLDINGS, LTD.

(Exact name of registrant as specified in its charter)

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

Six Kimball Lane, Suite 150

Lynnfield, Massachusetts01940

(Address of principal executive offices)

(781) 593-8565

(Registrant's telephone number, including area code)

  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]          No [  ]

  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X]  No [  ]

  Indicate by check mark whether the registrant is a an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).

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

  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes [  ]          No [X]

There were 6,677,863 shares outstanding of the issuer’s common stock, par value $.01 per share, as of February7, 2013.

Table of Contents

PART I

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PART II

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PART I        FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS

INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
		December 31, 2012		March 31, 2012
Assets
Current Assets
Cash and cash equivalents	$	4,551,387	$	4,537,713
Deposit with clearing organization, restricted		175,000		175,000
Accounts receivable		5,513,220		4,525,157
Loans receivable from registered representatives (current), net of allowance		753,451		654,560
Prepaid income taxes		156,596		137,658
Securities owned at fair value		237,068		235,454
Prepaid expenses		690,130		674,780
		12,076,852		10,940,322
Property and equipment, net		226,703		340,007
Long Term Assets
Loans receivable from registered representatives		945,539		1,002,621
Non-qualified deferred compensation investment		1,630,676		1,327,806
Cash surrender value life insurance policies		162,213		157,991
		2,738,428		2,488,418
Other Assets
Deferred tax asset, net		899,095		1,550,010
Other asset		22,392		-
Capitalized software, net		107,425		172,240
		1,028,912		1,722,250
TOTAL ASSETS	$	16,070,895	$	15,490,997
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$	601,088	$	820,540
Accrued expenses		1,426,013		1,408,324
Commissions payable		2,911,712		2,787,467
Notes payable		51,437		1,605,688
Unearned revenues		1,232,834		146,198
Securities sold, not yet purchased, at fair value		-		8,186
		6,223,084		6,776,403
Long-Term Liabilities
Non-qualified deferred compensation plan		1,762,177		1,458,169
		1,762,177		1,458,169
Total liabilities		7,985,261		8,234,572
Stockholders' Equity:
Common stock, $.01 par value, 10,000,000 shares authorized;
6,681,748 issued and 6,677,863 outstanding at December 31, 2012
6,689,009 issued and 6,685,124 outstanding at March 31, 2012		66,816		66,890
Additional paid-in capital		12,579,379		12,425,713
Accumulated deficit		(4,530,426)		(5,206,043)
Less: Treasury stock, 3,885 shares at cost		(30,135)		(30,135)
Total stockholders' equity		8,085,634		7,256,425
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	16,070,895	$	15,490,997
See notes to condensed consolidated financial statements.

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INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)		THREE MONTHS ENDED
		December 31,
		2012		2011
Revenue:
Commissions	$	15,510,183	$	14,404,727
Advisory fees		4,162,082		3,797,760
Other fee income		935,375		567,444
Other revenue		158,722		265,766
Total revenue		20,766,362		19,035,697
Expenses:
Commissions and advisory fees		16,125,987		14,751,775
Compensation and benefits		1,484,416		2,031,820
Regulatory, legal and professional services		1,378,066		721,595
Brokerage, clearing and exchange fees		385,100		471,905
Technology and communications		337,495		330,989
Marketing and promotion		188,808		170,547
Occupancy and equipment		170,539		203,488
Other administrative		409,092		354,725
Interest		3,588		10,527
Total operating expenses		20,483,091		19,047,371
Operating income (loss)		283,271		(11,674)
Provision (benefit) for income taxes		149,555		(440,160)
Net income	$	133,716	$	428,486
Basic  net income per share	$	0.02	$	0.07
Diluted net income per share	$	0.02	$	0.06
Weighted average shares used in basic per share calculations		6,647,700		6,553,824
Weighted average shares used in diluted per share calculations		6,647,700		6,692,520

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INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)		NINE MONTHS ENDED
		December 31,
		2012		2011
Revenue:
Commissions	$	47,378,076	$	46,979,821
Advisory fees		12,252,067		12,063,849
Other fee income		1,611,705		779,407
Other revenue		649,804		825,260
Total revenue		61,891,652		60,648,337
Expenses:
Commissions and advisory fees		48,862,794		48,077,932
Compensation and benefits		4,524,385		6,794,661
Regulatory, legal and professional services		3,231,325		3,006,836
Brokerage, clearing and exchange fees		1,087,898		1,496,876
Technology and communications		961,713		1,012,934
Marketing and promotion		661,505		815,300
Occupancy and equipment		534,839		652,167
Other administrative		847,870		982,372
Interest		17,390		27,468
Total operating expenses		60,729,719		62,866,546
Operating income (loss)		1,161,933		(2,218,209)
Provision (benefit) for income taxes		486,316		(513,621)
Net income (loss)	$	675,617	$	(1,704,588)
Basic and diluted net income (loss) per share	$	0.10	$	(0.26)
Weighted average shares used in basic per share calculations		6,628,389		6,548,194
Weighted average shares used in diluted  per share calculations		6,628,389		6,548,194

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INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHSENDED DECEMBER  31, 2012 AND 2011 (UNAUDITED)

		2012		2011
Cash flows from operating activities:
Net income (loss)	$	675,617	$	(1,704,588)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization		246,056		281,208
Change in valuation allowance on deferred tax asset		-		24,008
Deferred taxes		650,915		(538,975)
Stock-based compensation		121,256		102,355
Non-cash compensation for transfer of beneficial interest in life insurance to former chairman		-		568,095
Unrealized loss (gain) in marketable securities		16,252		854
Non-qualified deferred compensation investment		45,033		21,409
Market adjustment cash surrender value life insurance policy		(4,222)		4,896
Charge to commission expense (forgivable loans)		181,599		128,648
Allowance for bad debt expense		12,708		100,229
Change in operating assets and liabilities:
Accounts receivable		(988,063)		3,230,461
Prepaid expenses and other		(81,637)		635,930
Loans receivable from registered representatives		(236,116)		(429,143)
Income taxes		(18,938)		21,567
Accounts payable		(219,452)		(152,791)
Securities, net		(26,052)		(61,560)
Accrued expenses		17,689		(1,170,712)
Commissions payable		124,245		(653,047)
Unearned revenues		1,086,636		992,445
Net cash provided by operating activities		1,603,526		1,401,289
Cash flows from investing activities:
Acquisition of property and equipment		(67,937)		(71,952)
Cash surrender value life insurance policies		-		(36,443)
Payments on note receivable		-		101,214
Purchase of investments				(2,572)
Capitalized  software		-		(98,242)
Net cash used in investing activities		(67,937)		(107,995)
Cash flows from financing activities:
Excess tax benefit related to stock awards		32,336		-
Payments on note payable		(1,554,251)		(1,404,512)
Net cash used in financing activities		(1,521,915)		(1,404,512)
Net decrease in cash and cash equivalents		13,674		(111,218)
Cash and cash equivalents, beginning of period		4,537,713		4,587,195
Cash and cash equivalents, end of period	$	4,551,387	$	4,475,977
Supplemental disclosures of cash flow information:
Interest paid	$	14,569	$	27,468
Income taxes paid	$	-	$	-

See notes to condensed consolidated financial statements

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INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER31, 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 nine months period ended December  31, 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

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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 $7,240 and $37,167,for the three months ended December  31, 2012 and 2011 and $181,599 and $128,648 for the nine months endedDecember  31, 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 3.00% to 9.00% annually.  Loans to registered representatives included in receivables from employees and registered representatives are as follows:

		December 31, 2012		March 31, 2012
Forgivable loans	$	1,052,675	$	1,057,497
Other loans		816,357		757,018
Less:  allowance		(170,042)		(157,334)
Total loans	$	1,698,990	$	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 December  31,  2012 and March 31, 2012 was $347,342 and $391,560, respectively.

NOTE 3 - INCOMETAXES

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

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  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 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 December  31, 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 December  31, 2012:

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Fair Value Measurements on Recurring Basis
		Total		Level 1		Level 2		Level 3
Assets:
Securities owned at fair value
Mutual funds (1)	$	234,756	$	234,756	$	-	$	-
Asset backed securities		2,582		-		2,582		-
Total assets	$	237,338	$	234,756	$	2,582	$	-

(1) Certain mutual funds with a fair value of $270 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 $123,749 and $92,922 for the three months endedDecember  31, 2012 and 2011, respectivelyand 338,181and $275,155 for the nine months endedDecember  31,2012 and 2011, respectively.

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

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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 December  31, 2012 and March 31, 2012, the Company had accrued expenses of approximately $1,264,947and $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 December  31, 2012.  Key components of the December  31, 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 financial difficulties during or in connection with the recent recession,  (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 the Company’s equity incentive plans (the “Equity Plans”) as of December 31, 2012 have been either fully vested at the 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.

  The following activity occurred during the three months ended December 31, 2012 and 2011:

			Weighted Ave	Weighted Average
	Shares		Stock Price	Vested Life		Fair Value $
Non-vested at October 1, 2012	47,502	$	4.33	1.95 years	$	205,684
Granted	-		-			-
Less: vested	(7,805)		4.36			(34,030)
Less: canceled	(2,494)		4.32			(10,774)
Non-vested at December 31, 2012	37,203	$	4.33	1.76 years	$	161,089
			Weighted Ave	Weighted Average
	Shares		Stock Price	Vested Life		Fair Value $
Non-vested at October 1, 2011	22,692	$	3.75	1.72 years	$	85,095
Granted	44,401		4.90			217,565
Less: vested	(7,469)		3.92			(29,278)
Less: canceled	(132)		2.65			(350)
Non-vested at December 31, 2011	59,492	$	4.59	2.45 years	$	273,068

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  The Company’s net income for the three months ended December 31, 2012 includes $0.01 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 $0.01 million in stock compensation to directors, and $0.02 million in compensation to independent representatives under the Equity Plans. 

The following activity occurred during the nine months ended December 31, 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	(32,929)		4.45			(146,534)
Less: canceled	(7,270)		4.69			(34,096)
Non-vested at December 31, 2012	37,203	$	4.33	1.76 years	$	161,089
			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	44,401		4.90			217,565
Less: vested	(19,810)		3.79			(75,080)
Less: canceled	(990)		3.11			(3,079)
Non-vested at December 31, 2011	59,492	$	4.59	2.45 years	$	273,068

  The Company’s net income for the nine months ended December 31, 2012 includes $0.03 million of compensation costs related to the Company’s grants of restricted stock to directors and $0.09 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, $0.01 million of stock compensation to directors, and $0.06 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 December 31, 2012 and, 2011:

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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

  The intrinsic value of the stock options was $390,000 at December 31, 2012 and $465,000 at December 31, 2011.

  The following table summarizes further information about employee and Directors' fixed stock options outstanding as of December 31, 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

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

11

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:

		December 31, 2012
		Commissions		Advisory		ICH		ICH Securities		Totals
Non-interest revenue	$	16,471,237	$	4,212,060	$	(14,649)	$	-	$	20,668,647
Revenue from transaction with
other operating segments:		245,588		-		-		-	$	245,588
Interest and dividend income, net		97,706		-		3		6	$	97,715
Depreciation and amortization		80,872		1,167		-		-	$	82,039
Income (loss) from operations		(226,066)		526,885		(17,554)		6	$	283,271
Period end total assets		14,256,786		587,996		2,832,933		10,348	$	17,688,063
Corporate items and eliminations		-		-		(1,617,168)		-	$	(1,617,168)
		December 31, 2011
		Commissions		Advisory		ICH		ICH Securities		Totals
Non-interest revenue	$	15,048,055	$	3,844,355	$	49,072	$	-	$	18,941,482
Revenue from transaction with
other operating segments:		330,458		-		-		-	$	330,458
Interest and dividend income, net		93,392		-		806		17	$	94,215
Depreciation and amortization		85,297		1,167		-		-	$	86,464
Income (loss) from operations		(102,483)		310,946		(220,154)		17	$	(11,674)
Period end total assets		13,447,727		740,937		1,813,364		10,323	$	16,012,351
Corporate items and eliminations		-		-		(1,235,675)		-	$	(1,235,675)

+

 Segment reporting is as follows for the nine months ended:

		December 31, 2012
		Commissions		Advisory		ICH		ICH Securities		Totals
Non-interest revenue	$	49,270,354	$	12,421,432	$	(45,022)	$	-	$	61,646,764
Revenue from transaction with
other operating segments:		742,063		-		-		-	$	742,063
Interest and dividend income, net		244,866		-		3		19	$	244,888
Depreciation and amortization		244,889		1,167		-		-	$	246,056
Income (loss) from operations		(233,098)		1,704,281		(309,269)		19	$	1,161,933
Period end total assets		14,256,786		587,996		2,832,933		10,348	$	17,688,063
Corporate items and eliminations		-		-		(1,617,168)		-	$	(1,617,168)
		December 31, 2011
		Commissions		Advisory		ICH		ICH Securities		Totals
Non-interest revenue	$	48,101,958	$	12,218,242	$	31,485	$	-	$	60,351,685
Revenue from transaction with
other operating segments:		962,921		-		-		-	$	962,921
Interest and dividend income, net		293,880		-		2,739		33	$	296,652
Depreciation and amortization		280,041		1,167		-		-	$	281,208
Income (loss) from operations		(2,068,809)		1,325,765		(1,475,198)		33	$	(2,218,209)
Period end total assets		13,447,727		740,937		1,813,364		10,323	$	16,012,351
Corporate items and eliminations		-		-		(1,235,675)		-	$	(1,235,675)

12

13

NOTE 9- SUBSEQUENT EVENTS

On January 24, 2013, ICH closed on the purchase of a shell broker dealer and received FINRA approval for this new broker/dealer subsidiary, Advisor Direct Incorporated.

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.

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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 December  31, 2012 and March 31, 2012, the consolidated results of operations for the three months and nine months ended December  31, 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 nine months ended December  31, 2012, (ii) the “prior period” means the three months and nine months ended December  31, 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, 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:

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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.

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 a model portfolio established ICA which creates, manages, rebalances, reallocates, and reports onportfolios 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.

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.

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Asset Allocation

Asset allocation services are made available through ICA. Our services include the design, selection and rebalancing of investment portfolios in several advisory wrap programs. We also provide tools, services and guidance that enable our representatives to provide these advisory services directly to their clients.

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 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.

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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 productive and profitable 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 December 31, 2012 and 2011 are presented below:

		Twelve Months Ended				Change
		December 31, 2012		December 31, 2011		Dollar	Percentage
Rep-generated revenue:
Commission	$	63,843,194	$	65,164,622	$	(1,321,428)	-2.0%
Advisory		16,146,716		16,016,335		130,381	0.8%
Other fee income		1,452,893		720,160		732,733	101.7%
	$	81,442,803	$	81,901,117	$	(458,314)	-0.6%
Number of representatives		454		480		(26)	-5.4%
Average revenue per representative	$	179,389	$	170,627	$	8,762	5.1%

The consistency in the per capita rep-generated revenue is a direct result of recent recruitmentof higher-producing representatives, and a focused practice management program offsetting subdued commission activity.

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COMPARISON OF THE THREE MONTHS ENDED DECEMBER  31, 2012 AND 2011

Results of Operations

	Three Months Ended December 31,		Change
	2012	2011	Dollar	Percentage
Revenues:
Commission	$         15,510,183	$            14,404,727	$  1,105,456	7.7%
Advisory fees	4,162,082	3,797,760	364,322	9.6%
Other fee income	935,375	567,444	367,931	64.8%
Other income	158,722	265,766	(107,044)	-40.3%
Total revenue	20,766,362	19,035,697	1,730,665	9.1%
Expenses:
Commissions and advisory fees expense	16,125,987	14,751,775	1,374,212	9.3%
Compensation and benefits	1,484,416	2,031,820	(547,404)	-26.9%
Regulatory, legal and professional	1,378,066	721,595	656,471	91.0%
Brokerage, clearing and exchange fees	385,100	471,905	(86,805)	-18.4%
Technology and communications	337,495	330,989	6,506	2.0%
Marketing and promotion	188,808	170,547	18,261	10.7%
Occupancy and equipment	170,539	203,488	(32,949)	-16.2%
Other administrative	409,092	354,725	54,367	15.3%
Interest	3,588	10,527	(6,939)	-65.9%
Total expenses	20,483,091	19,047,371	1,435,720	7.5%
Operating income (loss)	283,271	(11,674)	294,945	-2526.5%
Provision (benefit)  for income taxes	149,555	(440,160)	589,715	-134.0%
Net income	$              133,716	$                 428,486	(294,770)	-68.8%
Adjusted EBITDA:	$              399,251	$                 238,993	$     160,258	67.1%
Adjustments to conform adjusted EBITDA to GAAP Net income:
Income tax provision(benefit)	(149,555)	440,160	(589,715)	-134.0%
Interest expense	(3,588)	(10,527)	6,939	-65.9%
Depreciation and amortization	(82,039)	(86,464)	4,425	-5.1%
Non-cash compensation	(30,353)	(19,858)	(10,495)	52.9%
Non-recurring professional fees	-	(133,818)	133,818	-100.0%
Net income	$              133,716	$                 428,486	$   (294,770)	-68.8%

ADJUSTED EBITDA

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

19

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.

Third quarter Adjusted EBITDA,was $0.40 million, an increase of 67.1% from  a  $0.24 million Adjusted EBITDA before interest,taxes, depreciation, amortization, non-recurring professional fees,and non-cash compensation in the comparative quarter. This increaseisprimarily due to the reduced operating income in the current period, as well as reduced non-recurring professional fees.

REVENUE

   Revenues increased by $1.73 million or by9.1% primarily due to anincrease in top line revenuefrom both commissions and advisory fees, coupled with growth in other fee income.

   Revenues from commissions increased by 7.7% or by $1.11 million primarilyas a result of commissions earned from brokerage transactions, specificallyin listed securities. The increase in brokerage transactions can be reflected from an improved equity market and overall investor sentiment about the stock market.

Our advisor managed program continues to contribute the majority of advisory fee revenue;however, revenues decreased in the A-MAP program. This decrease, along with a decrease in our F- MAP program revenues, was offset by an increase inrevenues and assets under management in our A-MAP FT program,  another advisor managed program which includes a flat fee structure. These changes resulted largely from a transition of assets to a  program more suited for our representatives’ client needs.  

Other fee income increased primarily as a result of licensing and annual administrative fees. Also there was an increase from technology fees earned from our proprietary technology platformlaunched in March, 2012.

  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 increased by $1.44 million, or 7.5%, principally as a result of an increase in commissions and advisory fees compensated to our independent representatives and from an increase in regulatory, legal and professional costs. Offsetting these increases was a decreasein compensation and benefits.

  Commissions and advisory fees paid to our representatives represent a percentage of revenue of our broker-dealer; accordingly, the ratio of commissions and advisor fees payout as a percentage of top line revenue in the current periodwas consistent with that of the prior period;however, because top line revenue increasedthere was a corresponding increase in commission payouts to our representatives.

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

 We will continue to incur legal fees and settlement costs as we operate in a litigious, regulated industry. In

20

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.

The decrease in compensation and benefits is attributable to the cost management initiatives the Company implemented in January 2012,including salary reductions with a reduction in force, offset by one-time separation costs associated with former employees. Also,the final payment was made in August 2012 to our former Chairman satisfying the terms of aone-year post-retirement consulting agreement, whereas in the prior period quarter his consulting fees totaled $0.11 million.

Costs for brokerage, clearing, and exchange fees declined in direct proportion to reduced trading volumes, as well as savings from the termination of a quarterly reporting service contract.

 Costs associated with occupancy and equipment decreased from the expiration of operating leases for locations in Miami and Topsfield, MA in the prior period. Other administrative expenses increased as a result of moving expenses incurred to relocate to our new headquarters, also in Lynnfield, MA and the related disposal of leasehold improvements.

  The other expense categories had minimal changes in comparing the current period to the prior period.

We had an income tax provision of $0.15 million for the three months ended December  31, 2012 as compared to $0.44 million income tax benefitfor 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 both the growth in top line revenues and reduced operating costs.  Specifically, we managed our compensation costs as the Company reduced its operating expenses to realign with our profit margins. The Company reported $0.28 million in operating income as compared to $0.01 million of operating loss for the prior period.  The Company’s net income was $0.13 million, or $0.02 per basic and diluted net income per share, compared to net income of $0.43 million, or $0.07 basic and $0.06 diluted net loss per share, for the prior period.

The Company’s net profit of $0.13 million was principally the result of decreased fixed, variable and discretionary operating costs.  The Company implemented specific expense reductions during the fourth quarter of last year to mitigate subdued trading activity while applying resources to bolster our recruiting and technology initiatives, all the while addressing on growing compliance requirements.

COMPARISON OF THE NINE MONTHS ENDED DECEMBER  31, 2012 AND 2011

	Nine Months Ended December 31,		Change
	2012	2011	Dollar	Percentage
Revenues:
Commission	$        47,378,076	$       46,979,821	$        398,255	0.8%
Advisory fees	12,252,067	12,063,849	188,218	1.6%
Other fee income	1,611,705	779,407	832,298	106.8%
Other income	649,804	825,260	(175,456)	-21.3%
Total revenue	61,891,652	60,648,337	1,243,315	2.1%
Expenses:
Commissions and advisory fees expense	48,862,794	48,077,932	784,862	1.6%
Compensation and benefits	4,524,385	6,794,661	(2,270,276)	-33.4%
Regulatory, legal and professional	3,231,325	3,006,836	224,489	7.5%
Brokerage, clearing and exchange fees	1,087,898	1,496,876	(408,978)	-27.3%
Technology and communications	961,713	1,012,934	(51,221)	-5.1%
Marketing and promotion	661,505	815,300	(153,795)	-18.9%
Occupancy and equipment	534,839	652,167	(117,328)	-18.0%
Other administrative	847,870	982,372	(134,502)	-13.7%
Interest	17,390	27,468	(10,078)	-36.7%
Total expenses	60,729,719	62,866,546	(2,136,827)	-3.4%
Operating income (loss)	1,161,933	(2,218,209)	3,380,142	-152.4%
Provision (benefit) for income taxes	486,316	(513,621)	999,937	-194.7%
Net income (loss)	$             675,617	$       (1,704,588)	2,380,205	-139.6%
Adjusted EBITDA:	$          1,546,635	$          (500,003)	$     2,046,638	-409.3%
Adjustments to conform adjusted EBITDA to GAAP Net income (loss):
Income tax provision	(486,316)	513,621	(999,937)	-194.7%
Interest expense	(17,390)	(27,468)	10,078	-36.7%
Depreciation and amortization	(246,056)	(281,208)	35,152	-12.5%
Non-cash compensation	(121,256)	(87,785)	(33,471)	38.1%
Non-cash compensation for transfer of beneficial interest to former Chairman	-	(568,095)	568,095	-100.0%
Non-recurring professional fees	-	(753,650)	753,650	-100.0%
Net income (loss)	$             675,617	$       (1,704,588)	$     2,380,205	-139.6%

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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 December 31, 2012 and 2011.

REVENUE

   Revenues increased by $1.24 million or by a modest 2.1% primarily due to an increase in top line revenues and from other fee income. The Company has seen the securities market rebound in the current period as reflected in the three months ended analysis.  In addition, the Company was actively involved in retaining and recruiting its representatives as their average revenue production increased in comparing the current period to the prior period.

Explanations for changes in advisory fees and other fee income are consistent with that of the three months ended analysis.

     The decrease in other revenue, which consists of net marketing revenues and interest income, resulted primarily from a decrease in net marketing allowances for annual events.  Lastly, we attribute reduced interest income to the current low interest rate environment.

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EXPENSES

  Total expenses decreased by $2.14 million, or 3.4 %, principally as a result of compensation costs and related benefits provided to a reduced headcount, as discussed in the three months ended analysis. This decrease was offset by increases in non-recurring legal and professional fees, greater commissions and advisory fees paid to our representatives in sync with revenue growth,  and expanded offerings in our internally developed CapitalCONNECT technology platform and related practice management programs.

Commissions and advisory fees paid to our representatives increased in proportion with revenue growth in Commissions and Advisory fees.The payout ratio alsoincreased when comparing reporting results of the prior nine month period whichin turn negatively impacted our profit margin.The increased payout ratio can be attributed toforgivable loan amortization anda reduction in our net retention on platform fees.

 The increase in regulatory, legal and professional, the decrease in brokerage, clearing and exchange fees as well as in occupancy and equipment,were consistent with details explained in the three months ended analysis.

Marketing and promotion expenses declined as the Company focused efforts on direct mail campaigns and reduced its branding and advertising spend in variousfinancial services publications.

Other administrative expenses declined primarily fromreduced directors andofficers insurance policy premiums, which increased in the prior periodin conjunction with the registration statement on Form S-3, and in bad debt expense as we wrote off $0.10 million in loans to representatives in the prior period versus $0.01 million in the current period.Offsetting these decreases were increases in other administrative expenses resulting from moving expenses incurred to relocate to our new headquarters, also in Lynnfield, MA and the related disposal of leasehold improvements.

We had an income tax provision of $0.49 million for the nine months ended December  31, 2012 as compared to $0.51 million income tax benefit for the prior period.

OPERATING AND NET INCOME

The Company reported $1.16 million in operating income as compared to $2.22 million of operating loss for the prior period.  The Company’s net  income was  $0.68 million, or $0.10 per basic and diluted net income per share, compared to net loss of $1.70 million, or $0.26 basic and diluted net loss per share, for the prior period.

The Company had reduced expenses in the majority of its expense categories and at the same time representative producing  revenues increased. Thus, the Company had achieved operating income of $1.16 million versus a $2.22 million operating loss in the prior period, a 152% turnaround. The Company will continue to focus on organic and recruited growth in productivity through continued integration of technology and practice management programs.

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 December 31, 2012, cash and cash equivalents totaled $4.55 million as compared to $4.54 million as of March 31, 2012. Working capital as of December  31, 2012 was $5.85 million as compared to $4.16 million as of March 31, 2012. The ratio of current assets to current liabilities was 1.94 to 1 as of December  31, 2012, as compared to 1.61 to 1 as of March 31, 2012.  

Operations provided $1.60 million in cash for the current period, as compared to $1.40 million of operating cash provided in the prior period. When comparing the current period cash flow to the prior period cash flow  

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from operating activities the significant changes were from net income,  from account balances held at our clearing firm, and from deferred income taxes due to the increase in the net operating loss in the prior period.

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 alsorepresent purchases in equipment, along with the collection of principal payments on a note receivable, capitalization of software for internal use, and contributions on anexecutive life insurance policy. Cash flows used in the current period from investing activities were fairly consistent with that of the prior period.

  Cash flows for financing activities in the current period increased slightly when compared to the prior period as we paid $1.55 million and $1.40 million in loan payments to finance E&O insurance premiums, respectively, for the periods ended December  31, 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 December  31, 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 December  31, 2012, ICC had net capital of $2.56million (i.e., an excess of $2.31 million) as compared to net capital of approximately $1.43 million (i.e., an excess of $1.18 million) as of March 31, 2012.

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Commitments and Contingencies

  We are currently obligated under alease agreement covering office space, which expires on March 31, 2015.   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 of this space, 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.

  Due to that litigation, on October 19, 2012 the Company entered into a lease for 14,045 square feet and began occupying that space on December 1, 2012.  This lease, which is for a term of sixteen months, expires March 31, 2014.

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

2013	$              132,859
2014	534,602
2015	282,214
2016	24,000
2017	24,000
	$              997,674

  Total lease expense for office space approximated $0.06 and $0.08 million for the three months ended and $0.18 and $0.25 million for the nine months ended December  31, 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 December  31, 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.

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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.

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ITEM 6.  EXHIBITS

Exhibit

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 Planwith 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)
99.1	Earnings Press Release	(13)(Exh.99.1)
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)

(1) Filed herewith.

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(2) Incorporated by reference to the indicated exhibit to the Registrant's Quarterly Report on Form 10-Q filed November 14, 2007.

(3) A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of this report.

(4) Incorporated by reference to the indicated exhibit to the Registrant’s Annual Report on Form 10-K filed June 30, 2005.

(5) Incorporated by reference to the indicated exhibit to the Registrant’s Registration Statement on Form S-8 (File No. 333-117807) filed July 30, 2004.

(6) Incorporated by reference to the indicated exhibit to the Registrant’s Registration Statement on Form S-8 (File No. 333-134885) filed June 9, 2006.

(7) Incorporated by reference to the indicated exhibit to the Registrant’s Annual Report on Form 10-K filed June 30, 2008.

(8) Incorporated by reference to the indicated exhibit to the Registrant’s Current Report on Form 8-K filed April 21, 2010.

(9) Incorporation by reference to the indicated exhibit of the Registrant’s Current Report on Form 8-K filed March 7, 2011.

(10) Incorporated by reference to the indicated exhibit to the Registrant’s Current Report on Form 8-K

          filed July 5, 2011.

(11)  Incorporated by reference to the indicated exhibit to the Registrant’s Current Report on Form 8-K

  filed November 01,2011.

12) Incorporated by reference to the indicated exhibit to the Registrant’s Current Report on Form 8-K

  filed November 29,2011.

13)  Incorporated by reference to the indicated exhibit to the Registrant’s Current Report on Form 8-K

          filed February 8, 2013.

  Any exhibit not included with this Form 10-Q 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., 6 Kimball Lane, Suite 150, Lynnfield, MA 01940-2320.

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SIGNATURES

  Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

INVESTORS CAPITAL HOLDINGS,LTD.

By:/s/ Kathleen L.Donnelly

Chief Accounting Officer

(Duly authorized officer)

Date: February 13, 2013

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