<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 19, 2001
REGISTRATION NO. 333-43664
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
INVESTORS CAPITAL HOLDINGS, LTD.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
------------------------------
<TABLE>
<S> <C> <C>
MASSACHUSETTS 6211 04-3284631
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
Timothy B. Murphy
230 Broadway
Lynnfield, MA 01940
781-593-8565
(Address of registrant's principal executive
offices and of agent for service)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C>
JAMES M. CARABINA, ESQ. WILLIAM M. PRIFTI, ESQ.
343 Broadway 5 Market Square, Suite 108
Providence, RI 02909 Amesbury, Massachusetts 01913
(401) 368-7988 (978) 388-4942
C. DAVID WELLER, ESQ.
230 Broadway
Lynnfield, MA 01940
(781) 593-8565
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form is to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT TO BE MAXIMUM OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) OFFERING PRICE REGISTRATION FEE(2)
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share.............. 1,150,000 $8.00 $9,200,000 $2,428.80
Underwriters Warrants............................... 100,000 $0.001 $100.00 $0.00
Common Stock Underlying Underwriters Warrants....... 100,000 $11.20 $1,120,000 $295.70
Total............................................... $10,320,100 $2,724.50
</TABLE>
(1) The offering price has been estimated and the registration fee has been
computed pursuant to Rule 457(a).
(2) A registration fee of $2,724.50 was paid at the time of the initial filing
of this registration statement based on an estimate of the maximum aggregate
offering price.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD.
-------------------------------------
CROSS REFERENCE SHEET SHOWING LOCATION IN THE PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND CAPTION LOCATION OR HEADINGS IN PROSPECTUS
--------------------------------------- -------------------------------------------
<S> <C> <C>
1. Front of Registration Statement and Outside Outside Front Cover Page
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information and Risk Factors Summary and Risk Factors
4. Use of Proceeds How We Intend to Use the Proceeds From the
Offering
5. Determination of Offering Price How We Determined the Offering Price
6. Dilution Dilution
7. Selling Security Holders Not applicable
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Legal Proceedings
10. Directors, Executive Officers, Promoters Management
and Control Persons
11. Security Ownership of Certain Beneficial Principal Shareholders
Owners and Management
12. Description of Capital Stock Description of the Stock
13. Interest of Named Experts and Counsel Not applicable
14. Disclosure of Commission Position on Not applicable
Indemnification for Securities Act
Liabilities
15. Organization Within Last Five Years Not applicable
16. Description of Business Summary; Risk Factors; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business of the Company; and Consolidated
Financial Statements
17. Management's Discussion and Analysis or Management's Discussion and Analysis of
Plan Financial Condition and Results of
Operations
18. Description of Property Business of the Company--Properties
19. Certain Relationships and Related Certain Relationships and Related
Transactions Transactions
20. Market for Common Equity and Related Front Cover Page; Summary; Risk Factors and
Stockholder Matters Market for the Common Equity and Related
Stockholder Matters
21. Executive Compensation Management
22. Financial Statements Consolidated Financial Statements
23. Changes in and Disagreements With Not Applicable
Accountants on Accounting and Financial
Disclosure
</TABLE>
<PAGE>
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION DATED JANUARY 19, 2001
1,000,000 SHARES OF COMMON STOCK
INVESTORS CAPITAL HOLDINGS, LTD.
[LOGO]
This is our initial public offering of common stock. The initial offering
price per share is expected to be $8.00. No public market currently exists for
the shares of common stock. This is a firm commitment underwriting. Our shares
of common stock are approved for listing on the American Stock Exchange upon
official notice of issuance under the symbol "ICG."
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public offering price....................................... $8.00 $8,000,000
Underwriting discounts and commissions...................... .80 800,000
Proceeds, before expenses, to Investors Capital Holdings,
Ltd....................................................... $7.20 $7,200,000
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Our underwriters have an option to acquire an additional 150,000 shares to
cover any overallotment.
SCHNEIDER SECURITIES, INC.
INVESTORS CAPITAL CORPORATION
The date of this prospectus is , 2001 .
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary..................................................... 3
Risk Factors................................................ 5
Forward Looking Statements.................................. 6
How We Intend to Use the Proceeds From the Offering......... 7
Capitalization.............................................. 8
Dilution.................................................... 8
Selected Consolidated Financial and Other Information....... 9
Management's Discussion and Analysis of Financial Condition
and Results of Operation.................................. 10
Our Business................................................ 14
Management.................................................. 22
Principal Shareholders...................................... 27
Certain Relationships and Related Transactions.............. 28
Description of the Company's Common Stock................... 29
Shares Eligible for Future Sale............................. 29
Underwriting................................................ 30
Transfer Agent.............................................. 32
Legal Matters............................................... 32
Experts..................................................... 32
Where You Can Find More Information......................... 33
Index to Financial Statements............................... F-1
</TABLE>
i
<PAGE>
SUMMARY
You should read the entire prospectus carefully to understand this offering,
especially the Risk Factors section beginning on page 5 and the financial
statements beginning on page F-3.
OUR COMPANY
We are a financial services holding company offering financial planning
services and investments, such as mutual funds, individual equities, variable
annuities and other insurance products through our representatives. We operate
through our wholly-owned securities brokerage firm for transactions in other
securities primarily as an accommodation to our clients. We also provide
portfolio management through our wholly-owned investment adviser.
Our brokerage subsidiary, Investors Capital Corporation, was formed in 1992
and operates in all 50 states, Puerto Rico and the District of Columbia and
contributes 90% of the total gross revenues of our Company. This company is duly
registered with the Securities and Exchange Commission and offers investment
services to some 80,000 active customers. As of September 30, 2000 we have
approximately 1,100 registered representatives, 65% of which are licensed to
sell mutual funds, unit investment trusts, variable annuity products and
variable life insurance. The remaining 35% are licensed to sell all securities
products. We provide to our customers, services relating to corporate equity and
debt securities, U.S. Government securities, municipal securities, mutual funds,
variable annuities and life insurance, market information, internet online
trading, portfolio tracking and records management.
Our investment adviser, Eastern Point Advisors, Inc., offers to some 4,000
clients, portfolio construction and management services and advises two mutual
funds we formed in 1999, the Investors Capital Twenty Fund and the Investors
Capital Internet and Technology Fund.
Our principal offices are located at 230 Broadway, Lynnfield, MA 01940. Our
telephone number is (781) 593-8565. We maintain a website at
www.investorscapital.com. Information contained on our web site is for
informational purposes only and is not incorporated by reference into this
prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us................... 1,000,000 shares
Common stock to be outstanding after the
offering................................... 5,645,311 shares
The American Stock Exchange.................. Our common stock has been approved for
listing on the American Stock Exchange upon
official notice of issuance under the symbol
"ICG".
Estimated net proceeds....................... $7,200,000
Use of proceeds.............................. We intend to use the net proceeds of this
offering for general corporate purposes,
including working capital, internet presence
and expansion of operations and sales and
marketing capabilities.
</TABLE>
3
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA
The following table sets forth certain summary consolidated historical and
pro forma financial and operating information of the Company. The following
information should be read in conjunction with the financial statements and the
notes to the financial statements. We terminate brokers for compliance and
regulatory violations as well as for low or no production and failure to remit
to us their required annual registration fees.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------------- ---------------------------
1999 2000 1999 2000
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues from commission and advisory
services............................... $14,568,550 $ 22,457,574 $ 10,192,460 $ 14,352,038
Commission and advisory services
expense................................ 11,688,664 18,349,434 8,435,547 11,818,880
----------- ------------ ------------ ------------
Gross Profit............................. 2,879,886 4,108,140 1,756,913 2,533,158
Selling and administrative expenses...... 2,667,997 4,034,705 1,788,662 2,133,441
----------- ------------ ------------ ------------
Operating income (loss).................. 211,889 73,435 (31,749) 399,717
Net other income......................... 32,866 67,942 25,120 36,092
----------- ------------ ------------ ------------
Income (loss) before taxes............... 244,755 141,377 (6,629) 435,809
Income taxes............................. 137,500 83,000 10,000 181,500
----------- ------------ ------------ ------------
Net income (loss)........................ 107,255 58,377 (16,629) 254,309
Other comprehensive income (loss)........ 31,948 (18,066)
----------- ------------ ------------ ------------
Total comprehensive income (loss)........ 107,255 90,325 (16,629) 236,243
Net income (loss) per share.............. $ 0.02 $ 0.02 $ (0.004) $ 0.05
Weighted average shares outstanding,
basic.................................. 4,573,296 4,609,491 4,609,491 4,645,311
Weighted average shares outstanding,
diluted................................ 4,746,296 4,782,491 4,782,491 4,818,311
OTHER DATA:
Representatives........................ 794 996 892 1,091
States represented..................... 50 50 50 50
Brokers added.......................... 272 257 117 131
Brokers terminated and resigned........ 161 138 55 65
Assets under management................ $95,266,560 $146,692,177 $100,225,432 $164,529,519
</TABLE>
The following table presents a summary of our consolidated balance sheet at
September 30, 2000:
- on an actual basis;
- on an as adjusted basis to reflect the sale of 1,000,000 shares in this
offering at an assumed initial public offering price of $8 per share after
deducting the estimated underwriting discount and offering expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 434,194 $ 7,084,194
Working capital...................................... 904,610 7,554,610
Total assets......................................... 4,278,444 10,928,444
Total liabilities.................................... 2,195,488 2,195,488
Shareholders' equity................................. 2,082,956 8,732,956
</TABLE>
4
<PAGE>
RISK FACTORS
An investment in our common stock involves risk. You should carefully
consider the risks described below and the other information in this prospectus,
including our financial statements and the notes to the financial statements,
before you decide to buy our common stock.
WE MAY INCUR LOSSES IF OUR INVESTMENT PROFESSIONALS FAIL TO COMPLY WITH
REGULATORY REQUIREMENTS
All of our investment professionals are required by law to be licensed with
our subsidiaries, the registered representatives with the broker-dealer and the
investment adviser representatives and solicitors with the investment adviser.
Pursuant to these requirements, these investment professionals are subject to
our supervision in the area of compliance with applicable federal and state
securities laws, rules and regulations, as well as the rules and regulations of
self-regulatory organizations such as the NASD. The violation of any regulatory
requirements by us or our investment professionals could jeopardize our
broker-dealer or investment adviser license and could subject us to liability to
customers.
WE DEPEND UPON THEODORE G. CHARLES AND TIMOTHY B. MURPHY AS KEY PERSONNEL, THE
LOSS OF EITHER MAY ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL CONDITION.
Our success is largely dependent on the skills, experience and performance
of certain key personnel; particularly Theodore E. Charles, our chairman, chief
executive officer and president whose long-term relationships with our
investment professionals and product sponsors has been and continues to be the
driving force to our company's success, and Timothy B. Murphy, our treasurer and
chief financial officer. The loss of either Messrs. Charles and Murphy could
have an adverse effect on our business, financial condition and results of
operations.
WE CONSTANTLY RUN THE RISK OF CUSTOMER FRAUD WHICH COULD HARM OUR EARNINGS AND
PROFITS
We are exposed to the risk of significant losses as a result of customer
fraud. Activities such as authorizing trades and not accepting those trades if
anticipated stock movement is not achieved; paying for transactions with bad
funds; improperly stating investment experience, net worth and income amount and
tolerance for risk, all of which could result in the expenditure of time, money
and actual loss, with the latter exposing us to the potential for arbitration.
WE CONSTANTLY RUN THE RISK OF INVESTMENT PROFESSIONAL AND EMPLOYEE FRAUD WHICH
COULD HARM OUR EARNINGS AND PROFITS
Employees and investment professionals expose us to the risk of significant
losses as a result of employee errors, investment professional misconduct and
fraud. Such misconduct could include binding us to transactions that exceed
authorized limits or present unacceptable risks, or hiding from us unauthorized,
unsuccessful or improper activities. It is not always possible to deter employee
or investment professional misconduct, and the precautions we take to prevent
and detect this activity may not be effective in all cases.
WITHOUT IMPLEMENTATION OF ADEQUATE INTERNAL CONTROLS, OUR ABILITY TO MAKE MONEY
COULD BE SEVERELY RESTRICTED
Our broker-dealer subsidiary has not been in compliance with its required
net capital reserve. Failure to improve our accounting procedures and internal
controls could result in regulatory sanctions being applied against our
broker-dealer subsidiary, which sanctions could severely restrict our
activities, require us to pay substantial fines and limit our ability to make
money.
5
<PAGE>
VOLATILITY OF THE MARKET PLACE
The stock market recently has experienced significant price fluctuations.
Those fluctuations often have been unrelated to the operating performance of the
specific companies whose stock is traded. These fluctuations, as well as general
economic, market and political conditions, may adversely affect the market price
of the common stock.
SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE PUBLIC MARKET FOLLOWING
THE OFFERING COULD ADVERSELY AFFECT OUR STOCK'S MARKET PRICE
We have 4,668,314 shares of common stock on a fully diluted basis which are
"restricted securities." Of that amount, 381,031 shares are currently available
for resale following the offering, with an additional 80,538 available for
resale after April 1, 2001. Resale of any of the foregoing could immediately
affect, substantially and adversely, our stock's market price and could, both
short-term and long-term, adversely affect the development of a public market in
the stock.
WE ARE INVOLVED IN MATERIAL LEGAL PROCEEDINGS, WHICH MAY ADVERSELY AFFECT OUR
ABILITY TO CONDUCT BUSINESS
We currently have claims from customers which, if we were to be found liable
for such claims, could have a significant impact on our earnings and profits.
WE RELY HEAVILY ON OUR CLEARING FIRM AND TERMINATION OF OUR AGREEMENT WITH THEM
COULD HARM OUR BUSINESS
Our current clearing agreement is with Pershing. It may be terminated by
either party on ninety days written notice. Termination of this agreement could
harm our business. Among other things, we rely on our clearing firm for the
internet trading capabilities of equity securities which is a growing portion of
our business.
Our clearing agreement is on a fee-for-service basis. Our clearing firm
processes most of the securities transactions for our account and the accounts
of our clients. Services of our clearing firm include billing and credit
extension, control and receipt, custody and delivery of securities, for which we
pay a transaction charge. We are dependent on the operational capacity and the
ability of our clearing firm for the orderly processing of transactions. In
addition, by engaging the processing services of a clearing firm, certain
capital reserve requirements and other complex regulatory requirements imposed
by federal and state securities laws are not applicable to us. We have agreed to
indemnify and hold our clearing firm harmless from certain liabilities or
claims, including claims arising from the transactions of our clients.
FORWARD-LOOKING STATEMENTS
We have used certain forward-looking statements and information that are
based on our beliefs as well as assumptions made by and information currently
available to us in this prospectus. Words such as "anticipate," "believe,"
"estimate," "expect," "intend," and "should" may constitute forward-looking
statements. These statements reflect our current views with respect to future
events and are subject to certain risks, uncertainties and assumptions relating
to the operations, results of operations, liquidity, growth strategies,
competitive factors, pricing pressures, changes in legal and regulatory
requirements, interest rate fluctuations, and general economic conditions, as
well as other factors described in this prospectus. Should one or more of these
risks materialize, or should underlying assumptions prove incorrect, actual
results or outcomes may vary materially from those described in this document as
anticipated, believed, estimated, expected or intended.
6
<PAGE>
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
We presently anticipate the net proceeds from the sale of the common stock
after expenses will amount to $6,650,000.
We currently intend to use the net proceeds as follows:
- $1,250,000 to establish three or more company-owned and operated offices
located in Massachusetts, Florida and California. Through appropriately
licensed company employees, these offices will make available to the
public, mutual funds, variable annuities and life insurance, individual
stocks and bonds, and portfolio construction and management services;
- $1,550,000 over the next 18 months to further develop our internet web
site for our clients and representatives. This will allow us to create a
state-of-the-art web site to provide our clients and brokers with account
information and access, efficient on-line trading, market, tax and other
financial information, financial calculators and shopping for
non-financial products and services;
- $1,250,000 for sales and marketing of our mutual funds and investment
advisory services. Our mutual funds and advisory services are currently
marketed primarily by our affiliated registered representatives. We intend
to use this portion of the proceeds to expand the distribution of these
products and services to other financial institutions and directly to the
investing public through extensive local and national print and electronic
advertising, as well as through the hiring of company-employed
wholesalers;
- $1,000,000 for possible acquisitions of mutual funds, insurance agencies,
broker-dealers and investment advisers. We have no present agreements,
plans, arrangements or understandings regarding any acquisitions and
management will have broad discretion to allocate the proceeds; and
- $1,600,000 for working capital.
Pending any such uses of the proceeds of this offering, we will invest the
net proceeds of this offering in short-term, investment grade, interest-bearing
instruments. We believe that the net proceeds from the offering together with
funds generated from operations, will meet our anticipated capital funding needs
for at least the next 18 months.
7
<PAGE>
CAPITALIZATION
The following table presents our capitalization as of September 30, 2000,
adjusted to give effect to the sale of 1,000,000 shares of common stock in this
offering at an assumed initial price to the public of $8.00 per share and the
application of the estimated net proceeds of approximately $6,650,000.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
-----------------------
AS
ACTUAL ADJUSTED
---------- ----------
<S> <C> <C>
Shareholders' equity:
Common stock, $0.01 par value, 10,000,000 shares authorized;
4,645,311 shares (actual), 5,645,311 shares (as adjusted)
issued and outstanding.................................... $ 31,628 $ 41,628
Additional paid-in-capital................................ 1,744,602 8,384,602
Retained earnings......................................... 292,844 292,844
Unrealized gain on securities............................. 13,882 13,882
---------- ----------
Total shareholders' equity and capitalization............... $2,082,956 $8,732,956
========== ==========
</TABLE>
DILUTION
The difference between the initial price per share to the public of common
stock and the net tangible book value per share after the completion of the
offering constitutes the dilution to investors in this offering. Net tangible
book value per share of common stock is determined by dividing our net tangible
book value, total tangible assets less total liabilities, by the number of
shares of common stock outstanding.
As of September 30, 2000, our net tangible book value was $2,082,956 or
$0.45 per share of common stock. Net tangible book value represents the amount
of our total assets, less any intangible assets and total liabilities. After
giving effect to the sale of the 1,000,000 shares of common stock offered
through this prospectus, and after deducting the underwriting discount of 10%
and other estimated expenses of the offering, estimated to be $550,000, our
adjusted pro forma net tangible book value as of September 30, 2000, would have
been $8,732,956 or $1.55 per share. This represents an immediate increase in net
tangible book value of $1.10 per share to existing shareholders and an immediate
dilution of $6.45 per share to investors in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price............................... $8.00
Net tangible book value before offering................... $0.45
Increase attributable to investors in this offering....... $1.10
Net tangible book value after offering.................... $1.55
Dilution to new investors................................... $6.45
</TABLE>
The table below provides the following as of September 30, 2000: (a) a
comparison of the total number of shares of common stock purchased from us,
(b) the total consideration paid and (c) the average price per share paid by
existing common shareholders and to be paid by investors who purchase shares of
common stock in this offering at an assumed initial price to the public of $8.00
per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT DOLLARS PERCENT PER SHARE
--------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing common shareholders................. 4,645,311 82.3 $1,563,309 16.3 $0.34
New investors................................ 1,000,000 17.7 8,000,000 83.7 $8.00
Total...................................... 5,645,311 100.0% 9,563,309 100.0%
</TABLE>
8
<PAGE>
SELECTED FINANCIAL DATA AND OTHER INFORMATION
The following table presents our selected financial data. The information
set forth below should be read together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our historical
financial statements and notes to those statements included in the prospectus.
Our statements of income data set forth below for the fiscal years ended
March 31, 2000 and 1999 are derived from our audited financial statements
included elsewhere in this prospectus which have been audited by Cayer Prescott
Clune & Chatellier, LLP, independent certified public accountants, whose report
is also included in this prospectus.
The statements of operations data for the six months ended September 30,
2000 and 1999 and the balance sheet data as of September 30, 2000 are derived
from unaudited financial statements included in this prospectus and, in the
opinion of management, include all normal and recurring adjustments that are
necessary for a fair presentation of our financial position and results of
operations for these periods. The historical financial information may not be
indicative of our future performance.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------ ---------------------------
1999 2000 1999 2000
------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues from commission and advisory
services........................... $14,568,550 $ 22,457,574 $ 10,192,460 $ 14,352,038
Commission and advisory services
expense............................ 11,688,664 18,349,434 8,435,547 11,818,880
----------- ------------ ------------ ------------
Gross profit......................... 2,879,886 4,108,140 1,756,913 2,533,158
Selling and administrative
expenses........................... 2,667,997 4,034,705 1,788,662 2,133,441
----------- ------------ ------------ ------------
Operating income (loss).............. 211,889 73,435 (31,749) 399,717
Net other income..................... 32,866 67,942 25,120 36,092
----------- ------------ ------------ ------------
Income (loss) before taxes........... 244,755 141,377 (6,629) 435,809
Income taxes......................... 137,500 83,000 10,000 181,500
----------- ------------ ------------ ------------
Net income (loss).................... 107,255 58,377 (16,629) 254,309
Other comprehensive income (loss).... 31,948 (18,066)
----------- ------------ ------------ ------------
Total comprehensive income (loss).... 107,255 90,325 (16,629) 236,243
=========== ============ ============ ============
Net income (loss) per share.......... $ 0.02 $ 0.02 $ (0.004) $ 0.05
Weighted average shares outstanding,
basic.............................. 4,573,296 4,609,491 4,609,491 4,645,311
Weighted average shares outstanding,
diluted............................ 4,746,296 4,782,491 4,782,491 4,818,311
OTHER DATA:
Representatives.................... 794 996 892 1,091
States represented................. 50 50 50 50
Brokers added...................... 272 257 117 131
Brokers terminated and resigned.... 161 138 55 65
Assets under management............ $95,266,560 $146,692,177 $100,225,432 $164,529,519
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
----------------------- -----------------------
1999 2000 1999 2000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................. $1,112,534 $ 844,603 $ 764,919 $ 434,194
Total assets.............................. 2,863,542 4,100,065 3,327,850 4,278,444
Total current liabilities................. 1,348,419 2,220,352 1,576,610 2,154,488
Shareholders' equity...................... $1,497,123 $1,846,713 $1,717,240 $2,082,956
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
OVERVIEW
We are a financial services holding company that, through our subsidiaries,
provides investment advisory, insurance, financial planning 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 any one of or by a multiple of these external factors.
In addition, the passage of the Graham-Leach-Bliley Act in November of 1999
repealed depression-era laws that separated commercial, investment banking and
insurance activities. Such repeal may result in the intensification of the
environment in which we compete by increasing the number of companies doing
business in the financial services arena.
RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 2000 VERSUS SIX MONTHS ENDED SEPTEMBER 30, 1999
During the six months ended September 30, 2000, our revenues increased by
$4,159,578 to $14,352,038 from $10,192,460 for the six months ended
September 30, 1999. Operating income increased by $431,466 to $399,717 for the
six months ended September 30, 2000 as compared to operating loss of $31,749 for
the six months ended September 30, 1999. During the six months ending
September 30, 2000, revenues grew at a rate of 40.8% over the same period in the
prior year. Revenue increases during the period were primarily due to the growth
in the number of quality sales representatives who primarily sold variable
annuities and mutual funds.
Total commission revenue for the broker-dealer increased by $3,873,760 or
43.2% to $12,831,475 for the period ended September 30, 2000 from $8,957,715 for
the period ended September 30, 1999. Commission revenue from the sale of mutual
funds increased by $1,037,189, or 29.6%, to $4,537,555 for the period ended
September 30, 2000 from $3,500,366 for the period ended September 30, 1999.
Commission revenue from the sale of variable annuity products increased by
$2,317,680, or 49.6%, to $6,986,357 for the period ended September 30, 2000 from
$4,668,677 for the period ended September 30, 1999. This overall increase in
commission revenue was due to the continued growth of our sales and marketing
staff.
Total expenses increased by $3,728,112, or 37%, to $13,952,321 for the
period ended September 30, 2000 from $10,224,209 for the period ended
September 30, 1999. Expenses increased in all areas due to our continued
expansion of operations, marketing efforts and increases in staffing.
Commissions and advisory fees paid to our sales force increased by
$3,383,333, or 40.1%, to $11,818,880 for the period ended September 30, 2000
from $8,435,547 for the period ended September 30, 1999. As a percentage of
revenue, these expenses decreased by 0.41% for the period ended September 30,
2000 when compared to the period ended September 30, 1999. This was attributed
to a competitive reduction in our advisory fees charged that offset an increase
in commissions paid to a higher quality and more productive sales force.
Compensation and benefits increased by $450,072, or 60.5%, to $1,193,899 for
the period ended September 30, 2000 from $743,827 for September 30, 1999. As a
percentage of revenue, these expenses increased by 1.0% for the period ended
September 30, 2000 when compared to the period ended September 30, 1999. This
increase in compensation and benefits is primarily attributable to accommodate
our growth from the prior year from the hiring of several new employees and also
an increase in executive compensation. We employed 32 salaried employees at
September 30, 1999 as compared to 46 at September 30, 2000.
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SIX MONTHS ENDED SEPTEMBER 30, 2000 VERSUS SIX MONTHS ENDED SEPTEMBER 30, 1999
(CONTINUED)
Our income tax provision increased from $10,000 for the period ended
September 30, 1999 to $181,500 for the period ended September 30, 2000.
Our net income from operations increased by $270,938 to $254,309 for the
period ended September 30, 2000 as compared to a net loss of $16,629 for the
period ended September 30, 1999. This change is a result of cumulative growth
per the nature of the industry. Also, our selling and administrative expenses
decreased by 2.6% as a percentage of revenue. Finally, gross profit improved by
$776,245 during the comparative period.
Total comprehensive income for the period ended September 30, 2000 was
$236,243, which includes an unrealized loss on marketable securities in the
amount of $18,066. We had no other comprehensive income for the period ended
September 30, 1999.
FISCAL YEAR ENDED MARCH 31, 2000 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1999
Our total revenue for the fiscal year ended March 31, 2000 was $22,457,574
as compared to $14,568,550 for the fiscal year ended March 31, 1999; an increase
of $7,889,024 or 54.2%. This increase in revenue was primarily due to an
increase in commission revenue and investment advisory fee income.
Total commission revenue for the broker-dealer increased by $7,843,273 or
58.8% to $21,178,471 for the period ended March 31, 2000 from $13,335,198 for
the period ended March 31, 1999. Commission revenue from the sale of mutual
funds increased by $1,775,610 or 30.0% to $7,693,418 for the period ended
March 31, 2000 from $5,917,808 for the period ended March 31, 1999. Commission
revenue from the sale of variable annuity products increased by $5,407,678, or
100.6% to $10,784,812 for the period ended March 31, 2000 from $5,377,134 for
the period ended March 31, 1999. This overall increase in commission revenue was
due primarily to the increase in and maturation of our sales and marketing
staff.
Total expenses increased by $8,027,478, or 55.9% to $22,384,139 for the
period ended March 31, 2000 from $14,356,661 for the period ended March 31,
1999. Expenses increased in all areas due to our expanded operations and
marketing efforts, increases in staffing, costs associated with the settlement
of certain litigation and the development and subsequent launch of two mutual
funds.
Commissions and advisory fees paid to our sales force increased by
$6,660,770 or 56.9% to $18,349,434 for the period ended March 31, 2000 from
$11,688,664 for the period ended March 31, 1999. As a percentage of revenue,
these expenses increased by 1.5% for the period ended March 31, 2000 when
compared to the period ended March 31, 1999.
Compensation and benefits increased by $603,379 or 56.5% to $1,672,020 for
the period ended March 31, 2000 from $1,068,641 for the period ended March 31,
1999. As a percentage of revenue, these expenses increased by 0.11% for the
fiscal year ended March 31, 2000 when compared to the fiscal year ended
March 31, 1999. This increase in compensation and benefits is primarily
attributable to increased sales and the addition of 12 new salaried employees
during the fiscal year ended March 31, 2000. We employed 27 salaried employees
on March 31, 1999 and 39 salaried employees on March 31, 2000.
Our income tax provision decreased from $137,500 for the fiscal year ended
March 31, 1999 to $83,000 for the fiscal year ended March 31, 2000.
Our net income decreased by $48,878 or 45.6% to $58,377 for the period ended
March 31, 2000 from $107,255 for the period ended March 31, 1999. This change is
a direct result of our mutual fund start-up costs of $83,000, of which we had no
similar expenses for the fiscal year ended, March 31, 1999. This change is also
a result of the costs associated with the settlement of certain litigation for
$165,000 of which we, again, had no similar expense for the year ended
March 31, 1999.
Total comprehensive income for the period ended March 31, 2000 was $90,325,
which includes an unrealized gain on marketable securities in the amount of
$31,948. We had no other comprehensive income for the period ended March 31,
1999.
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LIQUIDITY AND CAPITAL RESOURCES
We believe that return on equity primarily is based on the use of capital in
an efficient manner. Historically, we have financed our operations primarily
through private equity and internally generated cash flow and not by incurring
debt.
As of September 30, 2000, we had cash and cash equivalents which totaled
$434,194 as compared to $764,919 on September 30, 1999. Working capital on
September 30, 2000 was $904,610 as compared to $1,215,230 on September 30, 1999.
Cash and cash equivalents as of March 31, 2000 were $844,603 as compared to
$1,112,534 on March 31, 1999. Working capital on March 31, 2000 was $1,082,349
as compared to $1,126,965 as of March 31, 1999. Our ratio of current assets to
current liabilities was 1.49 to 1 on March 31, 2000 as compared to 1.84 to 1 on
March 31, 1999.
As of March 31, 2000, our net capital ratio for the broker-dealer was (17)
to 1 as compared to 16.9 to 1 for our fiscal year ended March 31, 1999. In order
to participate in this offering as a co-underwriter, the SEC requires that we
maintain a net capital of $100,000 and a ratio of aggregate indebtedness to net
capital not to exceed 15 to 1. This SEC requirement is also referred to as the
"net capital ratio" or the "net capital rule." Indebtedness generally includes
all money owed by a company, and net capital includes cash and assets that are
easily converted into cash. SEC rules also prohibit "equity capital," which,
under the net capital rule, includes the subordinated loans from being withdrawn
or cash dividends from being paid if our net capital ratio would exceed 10 to 1
if we would have less than our minimum required net capital. On March 31, 2000,
we had a negative net capital of $110,386 as compared to net capital of $62,800
at March 31, 1999. This resulted in a net capital deficiency of $235,804 and
$7,955, respectively, for the applicable years.
For the six months ended September 30, 2000, we had a negative net capital
of $43,893 and a negative net capital of $182,096 at September 30, 1999. This
resulted in a net capital deficiency of $165,318 and $286,412 for the respective
periods. The ratio of aggregate indebtedness was (41.5) to 1 at September 30,
2000 and (8.59) to 1 at September 30, 1999.
On November 9, 2000, we discovered that our broker-dealer subsidiary had
underaccrued commissions payable in the amount of $442,000 as of September 30,
2000. This was due to period-ending cut-off procedures, which were not
appropriately applied for the monthly periods ended March 31, 1998 through
September 30, 2000. These underaccrued commissions occurred in the last 5 days
of a month where the receipt of income did not have a corresponding commission
payable expense item applied against it. This resulted from unallocated income
from insurance companies and mutual funds where the appropriate off-setting
entry was not made. This adjustment impacted us by causing (1) the net income
for the year ended March 31, 1999 to be restated to reflect the recognition of
$134,000 of expenses not previously recorded and the net income for the year
ended March 31, 2000 to be restated to reflect the recognition of $102,000 of
expenses not previously recorded; (2) the provision for income taxes for the
year ended March 31, 1999 to be reduced by $59,000 and the provision for income
taxes for the year ended March 31, 2000 to be reduced by $26,000; and
(3) retained earnings for the year ended March 31, 1999 to be reduced by $75,000
and retained earnings for the year ended March 31, 2000 to be reduced by
$76,000. Failure to meet net capital requirements could result in regulatory
discipline and fines. No regulatory action has been taken against our
broker-dealer subsidiary for this net capital deficiency. As a result, at
September 30, 2000, our broker-dealer subsidiary was in noncompliance with its
required net capital reserve in the amount of approximately $165,000. Under NASD
regulations, our broker-dealer subsidiary was required to and did notify the SEC
and the NASD of the noncompliance within the required time frame. On
November 9, 2000, we made a capital infusion into the broker-dealer subsidiary
in the amount of $200,000 in order to correct the net capital deficiency.
To prevent any future similar occurrences, we instituted more effective
reporting cut-off procedures, which we believe, will result in the proper
recording of commissions payable in every period. As an additional preventive
measure, we have retained the services of an independent consultant, who
specializes in broker-dealer compliance issues, to review our procedures in this
area.
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Net cash provided by operating activities was $20,953 for the year ended
March 31, 2000 as compared to net cash provided by operating activities of
$141,352 for the year ended March 31, 1999. This decrease in cash flow provided
by operating activities was primarily the result of an increase in commissions
and receivables that had not yet been received at fiscal year end. Also, we had
a related-party receivable increase in the amount of $62,441 during the fiscal
year ended March 31, 2000 as compared to our prior fiscal year. This was
attributable to moneys loaned to our principal stockholder, Theodore E. Charles.
Net cash used for operating activities was $128,271 for the period ended
September 30, 2000 as compared to net cash used for operating activities of
$329,296 for the period ended September 30, 1999.
Offsetting these major decreases in cash flow from operations were increases
of accrued expenses and commissions payable to certain of our registered
representatives that had not yet been paid on March 31, 2000.
Net cash used in investing activities was $591,689 for the year ended
March 31,2000 as compared to $147,211 for the year ended March 31, 1999. This
decrease in cash flow used in investing activities was primarily the result of
an increase in plant and equipment acquisitions and investments used to increase
the clearing deposits required by our broker-dealer's clearing firm. Finally,
cash flows provided from financing activities increased by $320,307 as compared
to last year from the issuance of warrants exercised by our group of private
investors. Net cash used for investing activities was $25,677 for the period
ended September 30, 2000 as compared to net cash used for investing activities
of $364,300 for the period ended September 30, 1999. Based on currently proposed
plans and assumptions relating to the implementation of our business plan, we
believe that the proceeds of this offering, combined with cash flow from
operations, will enable us to fund our planned operations for a period of at
least 18 months from the date of this prospectus.
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June of 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date FASB
Statement No. 133 and SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities--an amendment of SFAS No. 133". These
statements outline the accounting treatment for all derivative activity. We do
not use derivative instruments and these accounting statements will not have an
effect on us.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use", effective for fiscal years beginning after December 15, 1998.
SOP 98-1 requires that certain costs of computer software developed or obtained
for internal use be capitalized and amortized over the useful life of the
related software. Holdings adopted this statement beginning in fiscal 1999.
EFFECTS OF INFLATION
Holdings' assets are primarily liquid in nature and are not significantly
affected by inflation. Management believes that the replacement cost of property
and equipment will not materially affect operating results. However, the rate of
inflation affects our expenses, including employee compensation and benefits,
communications and occupancy, which may not be readily recoverable through
charges for services provided.
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OUR BUSINESS
OVERVIEW
Incorporated in July of 1995, Investors Capital Holdings, Ltd. is a
financial services holding company that operates primarily through its
subsidiaries in two segments of the financial services industry. These two
segments provide for the offering of (1) services related to corporate equity
and debt securities, U.S. Government securities, municipal securities, mutual
funds, variable annuities, variable life insurance, market information, internet
online trading and portfolio tracking and records management and (2) financial
planning services, investment advisory and asset management services and the
management of two retail mutual funds.
SUPPORT TO OUR REPRESENTATIVES
INVESTORS CAPITAL CORPORATION. Investors Capital Corporation, an NASD
registered broker-dealer also registered with the Securities and Exchange
Commission is headquartered in Lynnfield, Massachusetts and is a wholly-owned
subsidiary of Investors Capital Holdings, Ltd. Doing business in all 50 states,
Puerto Rico and the District of Columbia, Investors Capital Corporation makes
available multiple investment products and provides support, technology and
back-office service to its network of approximately 1100 representatives. Our
representatives sell investment products that are securities under federal and
state law. Accordingly they are required to and are registered as
representatives with our brokerage subsidiary. Similar registrations may be
required by these persons as investment adviser representatives under the
investment advisers acts of federal and state law. As noted previously, our
emphasis in regard to these persons is financial planning rather than stock
trading or other brokerage transactions. Our in-house training program for these
representatives emphasizes long range aspects of financial planning and
investment products. We believe that through the continuing education we provide
to our securities brokers, our clients can become better informed and therefore
better serviced. This entity generates 90% of Holdings' total revenues.
We seek to recruit primarily experienced, productive registered
representatives who have an average of more than 10 years of industry experience
by offering them an attractive commission payout that averages approximately 80%
and the independence of owning and operating their own offices. Generally each
such office pays substantially, if not all, of the costs associated with its
establishment and operation. We provide technical, regulatory, supervisory,
compliance and other support services to our independent investment
professionals. This allows expansion of our operations with relative minimal
capital outlay by our firm. Continuing to add experienced, productive registered
representatives is an integral part of our growth strategy.
The commission payouts to our registered representatives are negotiable and
currently average approximately 85% of the gross dealer concession generated
from the sale of securities. Pursuant to the terms of our agreement with our
registered representatives and as permitted by current NASD rules, we provide
our representatives with continuing commissions on preexisting business in the
event of their retiring from the securities industry or death. Also, in this
agreement, each of our representatives grants to us the right to offset against
commissions any losses we sustain as a result of their actions, omissions and
errors. Our agreement with our representatives is terminable by either party
with 10 days prior written notice and does not contain either a confidentiality
or non-compete provision.
Our products and services to our representatives include:
- TECHNOLOGY RESOURCES: Utilizing the latest in technology, our
representatives are able to perform the following activities on-line:
- Opening of new accounts;
- Monitoring of existing accounts;
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- Trading;
- Locating and exploring approved products;
- Downloading client data; and
- Researching reports or inquiries on companies, securities and other
pertinent financial topics
- PRODUCT CHOICES: Allowing our representatives to choose from a wide
variety of investment products sponsored by well-respected and financially
sound companies is critical to our brokers' success as well as ours. We
follow a selective process in determining approved products to be offered
to clients by our representatives. In addition, we continuously monitor
the product list as deemed necessary.
- MARKETING: Producing compliance- and NASD-approved marketing materials to
be used by our representatives enhances their professional stature in the
public's eye. The marketing resources produced by Investors Capital
Corporation include:
- Corporate and product brochures;
- Technology resources;
- Client letters;
- Seminars; and
- Advertising and public relations.
FOCUS. Our focus is on representatives who offer their clients assistance
in attaining their long-range financial goals. Utilizing primarily experienced
representatives, our client list is widely diversified in terms of goals,
financial resources and geography. During the fiscal year ended March 31, 2000,
the average revenue per broker was $22,980 as compared to $20,178 for our fiscal
year ended March 31, 1999. Additionally, on March 31, 2000, we had a total of
996 representatives in our national network, as compared to 794 for the same
period last year.
SUPERVISION. Our broker-dealer subsidiary's compliance staff includes
individuals with significant industry experience. Four of these individuals,
including two experienced compliance attorneys, are located in the home office.
The remaining compliance individuals, most of whom have in excess of 10 years of
industry experience, termed Offices of Supervisory Jurisdiction by the NASD, are
field supervisors situated across the country and charged with compliance
responsibilities for a defined group of brokers. By positioning these compliance
individuals in the field we are able to more closely scrutinize and monitor the
activities of our brokers thereby ensuring, as much as humanly possible, their
compliance with the requisite rules and regulations. Such a field supervisor is
assigned to each new securities broker affiliated with our broker-dealer
subsidiary. Our in-house computer systems and programs currently under
development, will further assist us in compliance matters.
As compliance is an area for which representatives seek and value assistance
to keep abreast of and in step with, the latest industry regulations, our
compliance department provides, among other things:
- Advertising and sales literature review;
- Field inspections followed up with written findings and recommendations;
- Weekly faxes and monthly conference calls on selected compliance topics;
and
- Workshops and in-house publications on various compliance matters.
CLEARING. We utilize the services of another broker-dealer to clear our
transactions. Our clearing agreement is on a fee-for-service basis. Our clearing
firm processes most of the securities transactions for our account and the
accounts of our clients. Services of our clearing firm include billing and
credit
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extension, control and receipt, custody and delivery of securities, for which we
pay a transaction charge. We rely on the operational capacity and the ability of
our clearing firm for the orderly processing of transactions. In addition, by
engaging the processing services of a clearing firm, certain capital reserve
requirements and other complex regulatory requirements imposed by federal and
state securities laws are not be applicable to us.
As of the end of our most recent fiscal year, March 31, 2000, revenue
generated from our broker-dealer's activities can be broken into the following
percentages:
- Commissions from the sale of mutual funds and unit investment trusts: 39%
- Commissions from the sale of variable annuities and variable life
insurance: 52%
- Commissions from the sale of individual stocks and bonds: 5%
- Commissions from the sale of direct participation programs: 2%
- Other miscellaneous commission and fee income: 2%
INVESTMENT ADVISORY SERVICES
EASTERN POINT ADVISORS, INC. Our investment adviser subsidiary provides
investment advisory and asset management services directly to the investing
public through its managed asset programs. These programs involve managed
portfolios of load and no-load mutual funds, variable annuities and/or
individual securities and are provided to the public through more than 230
investment adviser representatives and solicitors. As of September 30, 2000, we
had approximately $151 million under management in these managed asset programs
with average weekly contributions of new money in excess of $1 million since
January of 2000. The maximum annual fee charged for these services is 2.25%,
which is paid by the customer in quarterly installments. Eastern Point Advisors
contributes 10% of Holdings' total revenues.
In addition, our investment adviser subsidiary is the investment advisor to
our two retail mutual funds, the Investors Capital Twenty Fund and the Investors
Capital Internet and Technology Fund. Until recently, these two mutual funds
were marketed to the public solely by registered representatives of Investors
Capital Corporation. Recently, our investment advisor subsidiary has begun
making its portfolios available to other broker-dealers. We have signed selling
agreements to make our managed asset programs available to registered
representatives of certain other broker-dealers as well as to allow our two
mutual funds to be marketed by investment professionals affiliated with certain
selected broker-dealers in addition to Investors Capital Corporation. These
wholesaling activities increase the exposure of both the managed asset programs
and the mutual funds. While there is no assurance, we expect this increased
exposure to increase revenues.
As of September 30, 2000, Eastern Point Advisors had approximately
$12.9 million under management in these two mutual funds. The annual fee charged
by Eastern Point Advisors to the funds for its services is 1.50%, which,
beginning on October 1, 2000, is paid monthly.
As of September 30, 2000 we had some 230 investment adviser representatives
and solicitors registered with the various state securities departments. These
investment adviser representatives and solicitors are also registered
representatives of our wholly-owned brokerage subsidiary. Licensing requirements
for these investment adviser representatives are dictated by the state in which
they conduct business. As such, prior to their clients utilizing our investment
advisory services, each investment adviser representative and solicitor must
satisfy the requisite state licensing requirements which are typically the NASD
Series 6 or 7 securities license coupled with a Series 65 or 66 license.
ASSET ALLOCATION STRATEGY. Eastern Point Advisor's asset allocation
strategy, utilized by approximately 4,000 investors as of September 30, 2000, is
based on the principle that, by investing in a combination of asset classes, we
may reduce risk while seeking to provide enhanced returns. Thus, by combining
asset
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classes that typically do not move in tandem, the volatility of the customer's
investment portfolio may be lowered while, at the same time, provide the
opportunity for possible increased long-term returns.
In implementing this asset allocation strategy for each individual customer,
we utilize the following three steps:
- Based upon a customer's ascertained tolerance for risk, investment goals,
age, time horizon, investment experience and financial and personal
situation, determined through the use of detailed questionnaires completed
during personal interviews, we will recommend an overall investment
allocation consisting of a suggested percentage of stocks, bonds and cash.
- Should the customer agree with the recommended overall investment
allocation, we will then select what we believe to be the appropriate
investment vehicles for the particular customer from the universe of
mutual funds, variable annuities and individual securities.
- Following implementation of the recommended portfolio, our investment
adviser subsidiary monitors the performance of the portfolio, communicates
the model's performance to the client at least quarterly and makes any
necessary changes based upon performance, changes in a customer's
financial situation, goals or risk tolerance or any other factor relevant
to the composition of the customer's portfolio.
FEE-BASED COMPENSATION STRUCTURE. As required by the Investment Advisers
Act of 1940, compensation is based on an annual fee calculated as a percentage
of total assets under management rather than a transaction-based commission.
INSURANCE OPERATIONS
ICC Insurance Agency, Inc., our wholly-owned insurance agency subsidiary,
facilitates the sale by our registered representatives of variable life
insurance and variable annuities. In certain states, in order to transact
variable life and annuity business, a separately licensed insurance entity is
required. This is the role filled by ICC Insurance Agency. This entity is
properly licensed in all states in which such licensing is required. One hundred
percent of all funds realized by this entity flow through as revenue to our
broker-dealer subsidiary.
MUTUAL FUNDS
THE INVESTORS CAPITAL TWENTY FUND AND THE INVESTORS CAPITAL INTERNET AND
TECHNOLOGY FUND. These are our two growth-oriented mutual funds. The Twenty Fund
became available for sale on October 19, 1999 and the Internet and Technology
Fund became available for sale on November 19, 1999. We created these two mutual
funds to complement our existing product lines with the rationale that our
mutual funds would provide investors with a convenient way to meet their
financial goals and, at the same time, provide new sales opportunities for
representatives of our broker-dealer subsidiary.
Each of these funds invests in a portfolio of common stocks believed to
offer capital appreciation potential. As such, our mutual funds may be more
suitable for those investors who seek capital appreciation and are willing to
accept a significant degree of volatility and risk.
The Investors Capital Twenty Fund utilizes a non-diversified portfolio of 20
to 30 common stocks of companies of any size, regardless of industry or sector,
which may include smaller emerging companies. As of September 30, 2000, the
Investors Capital Twenty Fund had assets of $11,039,581. The Investors Capital
Internet and Technology Fund invests in common stocks and securities convertible
into common stocks primarily of domestic companies principally engaged in the
internet, internet-related activities and technology. As of September 30, 2000,
the Investors Capital Internet and Technology Fund had assets of $1,836,454.
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Class A Shares of these mutual funds carry a maximum one-time, up-front
sales charge to the investor of 5.75%. This sales charge decreases as the dollar
amount of the investor's investment increases. Class C Shares have no such
up-front sales charge but, in addition to annual management fees, carry a 1.00%
per year annual fee.
OUR STRATEGY
Key elements to achieve our corporate objectives include:
INCREASE BRAND AWARENESS. We plan to increase our brand recognition to
attract new securities broker clients. We are developing a comprehensive
marketing plan to attract more clients and experienced representatives, build
market awareness, educate the investing public and develop brand name
recognition and loyalty. We intend to accomplish this strategy through direct
marketing, advertising through our marketing department, use of our web site, a
public relations program, live seminars, print advertising and television air
time. In addition, we have committed to opening company-operated offices in
selected strategic geographic locations across the country.
EXPAND CLIENT RELATIONSHIPS. We intend to expand our relationships with
representatives and investors by increasing our sales and marketing efforts. We
plan to target sophisticated and experienced investors and financial
institutions of all sizes, including professional money managers and registered
investment advisers. Because these participants typically execute more trades
per year than traditional retail investors and expect lower commissions,
real-time access to information and quick order execution, the market for their
business is currently underserviced. We believe that we can profitably fill this
market niche.
PROVIDE VALUE-ADDED SERVICES TO OUR CLIENTS. We will continue to provide
our clients with access to a pool of well-trained representatives, access to
up-to-date market and other financial information and direct access to our trade
desk that is online with various stock exchanges and institutional buyers and
sellers. We will also continue to provide trading before and after traditional
market hours to our clients.
CREATE TECHNOLOGICALLY INNOVATIVE SOLUTIONS TO SATISFY CLIENTS' NEEDS. We
intend to continue our active efforts in pursuing additional technologies to
service the rapidly evolving financial services industry. Specifically, we are
developing our web site to enable our clients to trade equity securities more
efficiently via the internet, monitor the history and current status of their
accounts at any time on-line, access all types of financial and other
information to enhance their situations and purchase other, non-financial
products and services. Also, we are in the process of developing personalized
internet web sites for our representatives. These personalized sites will
provide the clients of our representatives, through the use of passwords and
firewalls, a secure and private interface directly to our proprietary web site.
This will allow these clients to do market research, buy and sell securities
on-line, monitor their accounts, utilize financial calculators and purchase
non-financial goods and services.
BUILD AND EXPAND OUR CORPORATE PRESENCE. We intend to expand our branch
office locations to strategically situated metropolitan locations throughout the
United States. We initially intend to expand our offices to Massachusetts,
California and Florida. We also continue to explore strategic alliances,
acquisitions and other opportunities to provide our clients with the best
possible services and products.
EXPAND OUR PRODUCT AND SERVICE OFFERING THROUGH STRATEGIC RELATIONSHIPS. We
will continue to actively pursue alliances with various companies to increase
trading volume, capitalize on cross-selling opportunities, create additional
markets for our asset management programs and mutual fund sales, take advantage
of emerging market trends and create operational efficiencies and further
enhance our name recognition. We have no present agreements, plans, arrangements
or understandings regarding any acquisitions and have not identified any
specific criteria that such acquisitions must meet.
18
<PAGE>
COMPETITION
Our competitors vary in size, scope and breadth of services offered. We
encounter direct competition from numerous other brokerage firms that have
electronic brokerage services and full research capabilities. We also encounter
competition from established full-commission brokerage firms as well as
insurance companies with securities brokerage subsidiaries, financial
institutions, mutual fund sponsors and others who utilize financial planning
representatives paying their own office costs and expenses. Competitors
utilizing similar representatives include Linsco Private Ledger, Corporate
Securities, Walnut Street Securities, the Robert Thomas division of Raymond
James and various insurance companies with securities brokerage subsidiaries.
Also, as demand for discounted brokerage services increases, our market is
becoming more competitive. In particular, we anticipate that competition for
electronic brokerage services will intensify as investor demand for such
services increases. We also recognize and intend to capitalize on the fact that
when investing large amounts of money, investors typically may prefer personal
attention from an experienced industry professional rather than inexpensive
internet access to trading.
Some of our competitors have significantly greater financial, technical,
marketing and other resources and certain of our competitors also offer a wider
range of services and financial products and have greater name recognition and
more extensive client bases. These competitors may be able to respond more
quickly to new or changing opportunities, technologies, and client requirements,
and may be able to undertake more extensive promotional activities, offer more
attractive terms to clients, and adopt more aggressive pricing policies.
Moreover, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties or may
consolidate to enhance their services and products.
We believe that our ability to compete depends upon many factors both within
and outside our control, including:
- Our ability to attract and retain our network of investment professionals;
- The effectiveness, ease of use, performance and features of our technology
and services;
- Client perceptions of the effectiveness of our services and technology;
- The price and quality of our services;
- Our ability to service our clients effectively and efficiently;
- The timing and acceptance of our new products and services and
enhancements to existing products and services developed by us or our
competitors; and
- Our reputation in the financial services industry.
MUTUAL FUNDS. Mutual funds are continuously being introduced to the
investing public. These funds are being offered by new, as well as existing,
mutual fund companies. Many of our mutual fund competitors have greater
financial, technical, marketing and distribution resources. We believe that we
can become competitive through our sales force and through selling agreements
with other broker dealers.
HOW WE ARE REGULATED
BROKER-DEALER REGULATION. The securities industry is subject to extensive
regulation under both federal and state law. The SEC is the federal agency
responsible for administering the federal securities laws. In general,
broker-dealers are required to register with the SEC under the Securities
Exchange Act of 1934, as amended. Our wholly-owned subsidiary, Investors Capital
Corporation is a broker-dealer registered with the SEC. Under the Securities
Exchange Act of 1934, every registered broker-dealer that does business with the
public is required to be a member of and is subject to the rules of the NASD.
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<PAGE>
The NASD has established conduct rules for all securities transactions among
broker-dealers and private investors, trading rules for the over-the-counter
markets and operational rules for its member firms. The NASD conducts
examinations of member firms, investigates possible violations of the federal
securities laws and its own rules and conducts disciplinary proceedings
involving member firms and associated individuals. The NASD administers
qualification testing for all securities principals and registered
representatives for its own account and on behalf of the state securities
authorities. We are also subject to regulation under state law. We are currently
registered as a broker-dealer in all 50 states, Puerto Rico and the District of
Columbia.
The SEC and other regulatory bodies in the United States have rules with
respect to net capital requirements that affect our broker-dealer subsidiary.
These rules are designed to ensure that broker-dealers maintain adequate
regulatory capital in relation to their liabilities, types of securities
business conducted and the size of their customer business. These rules have the
effect of requiring that a substantial portion of a broker-dealer's assets be
kept in cash or highly liquid investments. Failure to maintain the required net
capital may subject a firm to suspension or revocation of its registration with
the SEC and suspension and expulsion by the NASD and other regulatory bodies,
and ultimately may require its liquidation. The rules could restrict
underwriting, trading activities, our ability to withdraw capital, pay
dividends, pay interest on and repay the principal of any debt among, other
matters that could be affected. On one occasion, due to a single-line accounting
oversight item, we incurred non-compliance which was immediately corrected and
is expected to be non-recurring.
REGISTERED INVESTMENT ADVISER REGULATION. The Investment Advisers Act of
1940 regulates the registration of and the compensation that may be charged by
an SEC registered investment adviser. Investment advisers are subject to the
same oversight by the SEC and the various states as are broker-dealers.
Investment advisers are required to register with the SEC, except those that are
only required to register with the appropriate state regulatory agency, are
required to periodically file reports and are subject to periodic or special
examinations. Rules promulgated under the Advisers Act govern advertisements by
investment advisers and the custody or possession of funds or securities of a
client. Most states require registration by investment advisers unless an
exemption is available and impose annual registration fees. Some states also
impose minimum capital requirements. There can be no assurance that compliance
with existing and future requirements and legislation will not be costly and
time consuming or otherwise adversely impact our business in this area.
As a registered investment adviser under the Investment Advisers Act of
1940, our wholly-owned subsidiary, Eastern Point Advisors, is subject to
regulations which cover various aspects of its business, including compensation
arrangements. Under the Advisers Act, every investment advisory agreement with
clients must expressly provide that such contract may not be assigned by the
advisor without the consent of the client. Under the Investment Company Act of
1940, every investment adviser's agreement with a registered investment company
must provide for the agreement's automatic termination in the event it is
assigned. Under both the Advisers Act and the Investment Company Act, an
investment advisory agreement is deemed to have been assigned when there is a
direct or indirect transfer of the Agreement, including a direct assignment or a
transfer of a "controlling block" of the adviser's voting securities or, under
certain circumstances, upon the transfer of a "controlling block" of the voting
securities of its parent corporation. A transaction is not, however, an
assignment under the Advisers Act or the Investment Company Act if it does not
result in a change of actual control or management of the investment adviser.
Any assignment of Eastern Point Advisors' investment advisory agreements would
require, as to any registered investment company client, the approval of a
majority of its shareholders, and as to other advisory clients, the consent of
such clients to such assignments.
REGULATIONS APPLICABLE TO THE USE OF THE INTERNET. Due to the increasing
popularity and use of the internet and other online services, various regulatory
authorities are considering laws and/or regulations with respect to the internet
or other online services covering issues such as user privacy, pricing, content
copyrights and quality of services. In addition, the growth and development of
the market for online
20
<PAGE>
commerce may prompt more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online.
Also, the recent increase in the number of complaints by online traders
could lead to more stringent regulations of online trading firms and their
practices by the SEC, NASD and other regulatory agencies. The applicability to
the internet and other online services of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes and personal
privacy is also uncertain and may take years to resolve. Finally, as our
services are available over the internet in multiple states, and as we have
numerous clients residing in these states, these jurisdictions may claim that we
are required to qualify to do business as a foreign corporation in each such
state. While Investors Capital Corporation is currently registered as a
broker-dealer in all 50 states, Puerto Rico and the District of Columbia, we are
qualified to do business as a foreign corporation in only a few states. Failure
by our company to qualify as a broker-dealer in other jurisdictions or as an
out-of-state or "foreign" corporation in a jurisdiction where it is required to
do so could subject us to taxes and penalties for the failure to qualify. Our
business could be harmed by any new legislation or regulation, the application
of laws and regulations from jurisdictions whose laws do not currently apply to
our business or the applications of existing laws and regulations to the
internet and other online services.
EMPLOYEES
As of September 30, 2000, we have 46 full-time employees, all of which are
located at our principal office in Lynnfield, Massachusetts. No employee is
covered by a collective bargaining agreement or is represented by a labor union.
We consider our employee relations to be excellent. We also enter into
independent contractor arrangements with other individuals on an as-needed basis
to assist with programming and developing proprietary technologies.
PROPERTIES
Our principal executive offices are located in an approximately 5,250 square
foot facility at 230 Broadway, Lynnfield, Massachusetts. This facility is an
office condominium, approximately 3,200 square feet of which is owned by
Arlsburg Trust, the trustee of which is the principal stockholder of Holdings,
Theodore E. Charles, and leased to Investors Capital Corporation and Eastern
Point Advisors. The remainder is leased from an unrelated entity. The combined
current annual rent is $156,106 and is comparable to current market rates for
similar space in our geographic area. The leases expire in August, 2003.
LEGAL PROCEEDINGS
Our broker-dealer subsidiary is currently engaged in one material NASD
Arbitration in which four of our registered representatives are alleged to have
made misrepresentations in the sale of unsecured promissory notes in a Florida
company that has since filed for bankruptcy protection. Claimants' attorney has
segregated this action into two separate complaints, Rimmler, et al. v.
Investors Capital Corporation and Brown, et al. v. Investors Capital
Corporation. Our broker-dealer did not pre-approve these sales, had no knowledge
of them and further did not receive any compensation from these sales. We are
involved in this matter under agency principles for our alleged failure to
supervise the registered representatives involved. This action was originally
filed with the NASD on February 3, 2000 in Boca Raton, Florida. Damages are
alleged in the amount of approximately $900,000.00. We believe that we have an
adequate defense to the allegations, we have vehemently denied any wrongdoing
and will vigorously defend ourselves in this matter.
On January 3, 2001, an action was brought against our broker-dealer
subsidiary by 21st Century Group, Inc. in the Circuit Court of Sarasota, Florida
seeking common law indemnification in the amount of $160,208. This
indemnification action stems from an April 7, 1999 judgment against 21st Century
for that amount rendered by the same court in the case of Crabill v. 21st
Century Group, Inc. vs. Investors Capital Corp. Our broker-dealer subsidiary was
named as a third-party defendant in this case which we successfully defended and
the case against us was dismissed. As such, we believe this January 3, 2001
action is wholly without merit on grounds of estoppel and res judicata.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table presents information about each of our executive
officers and directors. All directors hold office until the next annual meeting
of stockholders or until successors have been duly elected and qualified. There
are no arrangements or understandings between any director and any other person
pursuant to which he or she was selected as a director.
<TABLE>
<CAPTION>
TERM
NAME AGE POSITION(S) HELD EXPIRES
---- -------- --------------------------------------- --------
<S> <C> <C> <C>
Theodore E. Charles.................... 57 President, Chairman of the Board, Chief 2001
Executive Officer, and Director
Timothy B. Murphy...................... 35 Treasurer, Chief Financial Officer, and 2001
Director
Janice M. Charles...................... 49 Secretary 2001
James J. McCarthy...................... 40 Director 2001
David R. Smith......................... 38 Director 2001
L. Gregory Gloeckner................... 47 Director 2001
</TABLE>
THEODORE E. CHARLES, founder of Holdings in July of 1995, serves as chairman
of the board, chief executive officer and president. Mr. Charles also serves as
the chief executive officer of Investors Capital Corporation and Eastern Point
Advisors. In addition, he is the founder and co-owner of two other
unconsolidated companies: Investors Marketing Services, Inc. in June of 1989 and
Eastern Point Distributors, LLC, in April of 1999.
Since November 1997, Mr. Charles has been a director of Revere Federal
Savings Bank of Revere, Massachusetts, a public company, whose securities are
traded on the Over the Counter Bulletin Board Market.
Mr. Charles received his Bachelors degree from Ithaca College, Ithaca, New
York in May of 1964. He also has graduate hours from the University of Hartford,
Hartford, Connecticut and St. Lawrence University, Canton, New York.
Mr. Charles was previously a life insurance agent with National Life of Vermont.
He currently holds various securities licenses, including the series 6, 63, 7
and 24. Mr. Charles is a member of the Financial Planning Association and has
been since 1985. He was formerly Chairman of the Shareholder Advisory Board of
Life USA Insurance Company and is a former member of the Board of Trustees of
the Museum Council, Museum of Fine Arts in Boston. Mr. Charles is married to
Janice M. Charles.
TIMOTHY B. MURPHY is also a July 1995 founder of Holdings and currently
serves as treasurer, chief financial officer and a director. Since August of
1994, Mr. Murphy has also served as president of Investors Capital Corporation.
In addition, since January of 1995 Mr. Murphy has been president of Eastern
Point Advisors. He entered the securities industry in May of 1991 as an
operations manager, assisting brokers in the Boston regional office of Clayton
Securities. From February through August of 1994, he was a compliance officer of
Baybanks Brokerage in Burlington, Massachusetts and a vice president of G.R.
Stuart & Company, a brokerage firm located in Maynard, Massachusetts.
Mr. Murphy earned a Bachelor of Science degree in Finance from Babson College,
Wellesley, Massachusetts in May 1986. He holds various securities licenses,
including the series 4, 7, 24, 27, 53, 63 and 65. Mr. Murphy is a member of the
New England Securities Compliance Group and past member of the National Society
of Compliance Professionals.
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<PAGE>
JANICE M. CHARLES is also a July 1995 founder and secretary of Holdings. She
serves as treasurer of Eastern Point Advisors, and is vice president of
Investors Marketing Services, Inc., an insurance brokerage firm located in
Danvers, Massachusetts. Ms. Charles holds a May 1972 Bachelor of Arts degree
from Regis College in Weston, Massachusetts, a Masters degree from Lowell State
College in Lowell, Massachusetts and graduate degree hours at Boston University,
Boston, Massachusetts. Ms. Charles is married to Theodore E. Charles.
JAMES J. McCARTHY is currently the president and chief executive officer of
Revere Federal Savings Bank of Revere, Massachusetts, a public company, whose
securities are traded on the Over the Counter Bulletin Board Market. At Revere
Federal Savings, Mr. McCarthy is responsible for instituting full-service
commercial banking operations and successfully completing a November 1998
partial public offering of the bank. He also manages the daily operations of the
institution, including strategic planning, financial investment, marketing and
personnel. He has had these responsibilities since October 1989. Mr. McCarthy
received his Bachelor of Science degree in Business Administration from
Northeastern University in Boston, Massachusetts in June of 1983 and his
Certified Public Accountant designation in November of the same year.
DAVID R. SMITH is a founding partner and Managing Director of Charter
Financial Publishing Network in Shrewsbury, New Jersey. Founded in March 2000,
CFPN publishes, markets and distributes information for the financial services
industry. He is co-founder of, and currently oversees sales, marketing and
circulation for FINANCIAL ADVISOR magazine, along with other newsletters, books
and investment charts distributed by CFPN. He was previously Senior Vice
President of Dow Jones Financial Publishing Corporation, where he served as
Publisher of DOW JONES INVESTMENT ADVISOR and Associate Publisher of DOW JONES
ASSET MANAGEMENT magazines since October of 1987. Mr. Smith attended Hobart
College in Geneva, New York from August of 1992 through January of 1983 and
graduated from Monmouth College in West Long Branch, New Jersey in June of 1985.
L. GREGORY GLOECKNER is senior vice president of Conseco Services, LLC.
Mr. Gloeckner has been in this position since June of 1999 dealing with
insurance and investment products. During the period from November 1997 to the
present he has also directed the efforts of Conseco's wholly-owned broker-
dealer. Mr. Gloeckner has been in the investment industry for over twenty years.
Prior to joining Conseco, he concurrently served as Vice President of both
Monarch Life Insurance Company and First Variable Life Insurance Company.
Mr. Gloeckner obtained his BSBA in Accounting from Franklin University in
Columbus, Ohio in August of 1979.
The Audit Committee consists of Messrs. Gloeckner, Smith, and McCarthy. The
Audit Committee is responsible for the review of our annual audit report
prepared by our independent auditors. The review includes a detailed discussion
with the independent auditors and recommendation to the full Board concerning
any action to be taken regarding the audit.
The Compensation Committee consists of Messrs. Charles, Murphy, Smith,
Gloeckner and McCarthy. The Compensation Committee will be responsible for
review of all executive compensation and personnel matters.
DIRECTOR COMPENSATION
Holdings does not currently compensate its directors who are employees.
Non-employee directors are compensated $500 per meeting for their attendance at
board meetings. Members of the Audit Committee receive an additional $1,000 for
attendance at each Audit Committee meeting. Directors are not paid for
attendance to committee meetings.
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<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid by us during the fiscal
years ended March 31 for our chief executive officer and one other executive
officer whose annual compensation exceeded $100,000 for the 1999 and 2000 fiscal
years. The aggregate amount of perquisites and other personal benefits did not
exceed the lesser of $50,000 or 10% of the total of Messrs. Charles' and
Murphy's annual salary and bonus. All information in the table below is for the
April 1 to March 31 fiscal years. Other Annual Compensation is company matching
401(k) contributions. All Other Compensation is personal life insurance premiums
paid by Holdings.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------- ----------------------------------------------
FISCAL SALARY BONUS OTHER ANNUAL RESTRICTED STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION AWARDS ($) (#) COMPENSATION
--------------------------- -------- -------- -------- ---------------- ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Theodore E. Charles.......... 2000 $232,692 none $4,788 none none $6,635
Chairman of the Board, 1999 $150,000 none $4,212 none none $6,635
Chief Executive Officer,
President and Director
Timothy B. Murphy............ 2000 $147,116 none $3,000 none none $1,265
Treasurer, Chief Financial 1999 $103,846 none $3,606 none none none
Officer and Director
</TABLE>
EMPLOYMENT AGREEMENTS
On August 8, 2000 we entered into full-time employment agreements with
Theodore E. Charles and Timothy B. Murphy. For each, the term of employment is 3
years, which, on the third anniversary of the commencement date, automatically
extends for a 3 year period unless earlier terminated. Under the employment
agreements, Messrs. Charles and Murphy are entitled to receive an annual base
salary of $400,000 and $200,000, respectively. Adjustments to the annual base
salary amounts are at the discretion of the board of directors, taking into
account appropriate cost of living adjustments and general compensation
increases based on performance.
Also, Messrs. Charles and Murphy may present to the Compensation Committee
proposals as to an annual bonus or incentive program, which proposals may or may
not be accepted by the board of directors, acting in good faith, and at their
discretion.
If the Company fails to renew the employment term or terminates the
employment either with or without cause of Mr. Charles or if there is a "change
in control" of the Company, he is entitled to receive 60 months' base salary at
the time of termination plus, to the extent earned and not already paid, any
bonus payable for the prior fiscal year plus an amount equal to any bonus
payable with respect to the current fiscal year. The base salary is payable in
installments on such dates on which it would be paid if Mr. Charles had not been
terminated. The bonus payment is payable in a lump-sum within 30 days of
termination.
If Holdings fails to renew the employment term or terminates the employment
either with or without cause of Mr. Murphy or if there is a "change in control"
he is entitled to receive 36 months' base salary at the time of termination
plus, to the extent earned and not already paid, any bonus payable for the prior
fiscal year plus an amount equal to any bonus payable with respect to the
current fiscal year. The base salary is payable in installments on such dates on
which it would be paid if Mr. Murphy had not been terminated. The bonus payment
is payable in a lump-sum within 30 days of termination.
A "change in control" shall be deemed to have taken place if a person
becomes the beneficial owner, directly or indirectly, of securities of Holdings
representing 75% or more of the total number of votes that may be cast for the
election of company directors or as the result of, or in connection with, any
tender or
24
<PAGE>
exchange offer, merger, consolidation or other business combination, sale of
assets or one or more contested elections, or any combination of the foregoing
transactions in which the persons who were directors immediately prior to the
transaction shall cease to constitute a majority of the board of directors of
Holdings or of any successor.
The employment agreements also contain a provision that neither Mr. Charles
nor Mr. Murphy will compete or engage in a business competitive with our current
or anticipated business during the term of the employment agreement and for a
period of 6 months thereafter. A state court may determine not to enforce this
provision or to otherwise limit its enforceability.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
As permitted by the Massachusetts General Laws, our articles of organization
and by-laws provide that no director will be personally liable to Holdings or to
its shareholders for monetary damages for breach of fiduciary duty as director,
except that the limitation shall not eliminate or limit liability (1) for any
breach of a director's duty of loyalty to Holdings or its shareholders, (2) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) dealing with liability for unauthorized
distributions and loans to insiders, or (4) for any transaction from which the
director derived an improper personal benefit.
Our articles and bylaws further provide for the indemnification of our
directors and officers to the fullest extent permitted under Massachusetts law,
including circumstances in which indemnification is otherwise discretionary.
A principal effect of these provisions is to limit or eliminate the
potential liability of our directors for monetary damages arising from breaches
of their duty of care, unless the breach involves one of the four exceptions set
out above. These provisions may also shield directors from liability under
federal and state securities laws. Insofar as indemnification for liabilities
under the Securities Act may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.
STOCK BENEFIT PLANS
At a meeting of our stockholders held on September 20, 1996, an incentive
stock option plan was adopted. This plan provides incentives in the form of
stock option grants and/or restricted stock grants to our key employees who
contribute materially to our success and profitability and also permits
flexibility and the means to reward directors and other non-employees who render
valuable contributions to our success. The total number of shares which may be
issued pursuant to options granted under this plan is 300,000. The number of
options, the grant date and the associated vesting schedules are determined at
the discretion of our board of directors.
As of September 30, 2000, options for 50,000 shares had been granted
pursuant to this plan, of which 23,000 remain outstanding. The exercise price of
the outstanding options is $3.34 per share, which was the fair market value of a
share of common stock at the date of grant. To date, none of these options have
been exercised.
In total, options convertible into 173,000 shares of Holdings' common stock
are outstanding as of the date of this prospectus. 150,000 of these options are
convertible at a price of $1.00 per share and 23,000 are convertible at a price
of $3.34 per share. If exercised, all of the shares of common stock issued would
be restricted pursuant to Rule 144 of the Securities Act.
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<PAGE>
Also under the provisions of this plan, our board of directors has voted to
issue to employees and certain registered representatives up to 200,000 of
additional stock options subject to, and conditioned upon, amendment of the plan
and compliance with federal and state securities laws. The grant of these stock
options will not become operative until all of the preceding conditions are met.
These options will be granted with an exercise price equal to the public
offering price as finally determined, will be subject to a 2 year holding period
prior to exercise and will lapse if unexercised 5 years after the grant date.
401(K) PLAN
Following 3 months of service, employees are eligible to participate in our
401(k) Plan under which we match 100% of the first 3% of each participating
employee's salary. The company contribution for the fiscal year ended March 31,
2000 was $18,433 and $17,651 for the fiscal year ended March 31, 1999.
MAJOR MEDICAL PLAN
Employees have access to full major medical health benefits. We pay for the
cost of individual coverage and the employees pay for the additional cost of
family coverage.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table presents information regarding beneficial ownership of
our common stock as of the date of this prospectus and as adjusted to reflect
the sale of 1,000,000 shares of common stock in this offering by: (1) each
person who owns beneficially more than five percent (5%) of our outstanding
common stock, (2) each of the named executive officers, (3) each director and
(4) all directors and executive officers as a group.
The persons named in table below have sole voting and dispositive power over
all shares of common stock shown as beneficially owned by them, except as
otherwise indicated in the footnotes to this table.
The business address of Mr. Charles and Mr. Murphy is c/o Investors Capital
Holdings, Ltd., 230 Broadway, Lynnfield, Massachusetts, 01940. The business
address of Ms. Charles is c/o Investors Marketing Services, 168 Centre Street,
Danvers, Massachusetts 01923. The business address of Mr. Smith is 600 Broad
Street, Shrewsbury, New Jersey 07702. The business address of Mr. Gloeckner is
c/o Conseco Services, LLC, 11815 Pennsylvania Street, Carmel, Indiana, 46032.
The business address of Mr. McCarthy is c/o Revere Federal Savings Bank, 310
Broadway, Revere, Massachusetts, 02151. Theodore E. Charles and Janice M.
Charles are husband and wife. Mrs. Charles disclaims beneficial ownership of her
husband's shares. Mr. Murphy holds options for 150,000 shares of common stock of
Investors Capital Holdings, Ltd. at an exercise price of $1.00 per share. The
shares underlying these options are reflected in the numbers below.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY OWNED
NUMBER OF SHARES ----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED PRIOR TO OFFERING AFTER OFFERING
--------------------------------------- ------------------ ----------------- --------------
<S> <C> <C> <C>
Theodore E. Charles.............................. 3,585,000 74.8% 61.9%
Timothy B. Murphy................................ 281,250 5.9% 4.9%
Janice M. Charles................................ 0 0.0% 0.0%
David R. Smith................................... 30,000 0.6% 0.5%
James J. McCarthy................................ 0 0.0% 0.0%
L. Gregory Gloeckner............................. 0 0.0% 0.0%
All directors and executive officers as a group
(6 persons).................................... 3,896,250 81.3% 67.3%
</TABLE>
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITIONS
On August 31, 1995, Holdings acquired all of the outstanding common stock of
Investors Capital Corporation and Eastern Point Advisors, Inc. The principal
stockholder of each of these entities was Theodore E. Charles, our principal and
controlling stockholder. Mr. Charles received 90,000 shares of Holdings common
stock in return for his ownership interest in Investors Capital Corporation, and
$37,221 for his interest in Eastern Point Advisors, based on the actual expenses
incurred in the organization and the early development of Eastern Point
Advisors. At the time of these acquisitions, our board of directors was of the
opinion that the terms of these transactions were fair and in the best interest
of Holdings and its stockholders.
On August 9, 2000, Holdings acquired all of the outstanding common stock of
ICC Insurance Agency, Inc. Our principal stockholder, Theodore E. Charles and
his spouse, Janice M. Charles owned all of the outstanding shares of stock of
this entity. The purchase price for this acquisition was $100,000 and was paid
in cash out of operating revenues. At the time of this acquisition, our board of
directors was of the opinion that the terms of this transaction were fair and in
the best interest of Holdings and its stockholders.
INVESTORS MARKETING SERVICES, INC.
Investors Marketing Services, Inc. is jointly owned by our principal
shareholder, Theodore E. Charles and his spouse, Janice M. Charles. This entity
performs a fulfillment function for our subsidiaries by preparing, collating and
mailing registration kits to registered representatives and creates graphics and
other art work for various marketing materials produced for these subsidiaries.
It also prepares the assembly, shipping and postage of literature pertaining to
the subsidiaries. The rates charged for these services are comparable to rates
charged by other non-affiliated companies for performing the same or similar
services. For the fiscal year ending March 31, 2000 the cost for these services
was $28,471.
OTHER RELATED TRANSACTIONS
James J. McCarthy, one of our directors, is currently the president and
chief executive officer of Revere Federal Savings Bank of Revere, Massachusetts.
Our broker-dealer subsidiary rents space in this bank for the purpose of
marketing securities and investment advisory services to the bank's customers.
During the fiscal year ended March 31, 2000, the aggregate dollar amount of
these rental payments was insignificant.
David R. Smith, one of our directors, is the managing director of Charter
Financial Publishing Network in Shrewsbury, New Jersey which publishes FINANCIAL
ADVISOR magazine. Our broker-dealer subsidiary places recruiting advertisements
in this magazine, among others, and incurs costs therefor. The aggregate dollar
amount of these costs for the fiscal year ended March 31, 2000 was
insignificant.
L. Gregory Gloeckner, who joined the Company as a director, is senior vice
president of Conseco Services, LLC. Through our broker-dealer subsidiary, we
market, and are expected to continue to market, the variable annuity products of
Conseco Services. We also market similar products of other companies. As a
result, our broker-dealer subsidiary receives commissions from Conseco Services,
the vast majority of which, are then passed on to registered representatives as
compensation. The aggregate dollar amount of these commissions paid to our
broker-dealer subsidiary during the fiscal year ended March 31, 2000 was
$1,818,670.
We rent approximately 3,200 square feet of our principal executive offices
from Arlsburg Trust, the trustee of which is the principal shareholder of
Holdings, Theodore E. Charles. The current annual rent for this portion of our
space is $114,454 which is comparable to current market rates for similar space
in our geographic area.
28
<PAGE>
As of September 30, 2000, we had loaned $147,264 to Theodore E. Charles, our
principal shareholder and $5,895 to Timothy B. Murphy, our treasurer and chief
financial officer. There are no formal repayment terms and the amount loaned
accrues interest at the rate of 8% per year.
DESCRIPTION OF THE COMPANY'S COMMON STOCK
We have authorized capital stock consisting of 10,000,000 shares of common
stock, par value $0.01 per share, of which 5,645,311 shares will be outstanding
following this offering. There currently does not exist an established trading
market for our common stock. As of September 30, 2000, there are eighty-nine
record holders of our common stock. To date, we have paid no dividends to our
common stockholders and do not anticipate paying any such dividends in the
foreseeable future.
COMMON STOCK
Each holder of our common stock on the applicable record date is entitled to
receive dividends declared by the board of directors out of funds legally
available. In the event of liquidation, the holders of common stock are entitled
to share pro rata in any distribution of assets after payment or providing for
the payment of liabilities. Each holder of common stock is entitled to one vote
for each share held of record on the applicable record date on all matters
presented to a vote of shareholders, including the election of directors.
Holders of common stock have no cumulative voting rights or preemptive rights to
purchase or subscribe for any stock or other securities, and there are no
conversion rights or redemption or sinking fund provisions with respect to this
stock. All outstanding shares of common stock are, and the shares of common
stock sold in this offering will be, when issued, fully paid and nonassessable.
SPECIAL MEETING OF SHAREHOLDERS
Our articles of organization and bylaws provide that special meetings of our
shareholders may be called only by the board of directors, the president or
holders of at least 10% of the outstanding voting stock.
AMENDMENT OF BYLAWS
Our bylaws may be altered, amended or repealed by the board of directors or
the affirmative vote of the holders of at least a majority of our outstanding
shares of common stock.
SHARES ELIGIBLE FOR FUTURE SALE
After the offering we will have 5,645,311 shares of common stock
outstanding. Of this amount, the 1,000,000 shares being offered hereby will be
freely tradable unless held by affiliates. The remaining 4,645,311 shares of
common stock will be "restricted securities" as defined in Rule 144 of the
Securities Act of 1933, and will become eligible for public sale subject to the
volume limitations and other conditions of Rule 144 commencing one year from the
date of their issuance. However, with regard to the 3,746,250 shares owned by
executive officers and directors, our directors and executive officers have
entered into written agreements not to sell or otherwise dispose of their shares
of common stock beneficially owned by them for the 12 months after the date of
this prospectus.
In general, under Rule 144, a person who has owned shares of our common
stock for at least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
- One percent of the number of shares of common stock then outstanding,
which will equal approximately 56,453 shares immediately after this
offering; or
- The average weekly trading volume of the common stock on the American
Stock Exchange during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
29
<PAGE>
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, for whom Schneider Securities, Inc. is acting as
representative, have severally agreed to purchase from us, and we have agreed to
sell to them, the respective number of shares of common stock set forth opposite
each underwriter's name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Schneider Securities, Inc...................................
Investors Capital Corporation...............................
Total..................................................... 1,000,000
</TABLE>
Investors Capital Corporation, the co-underwriter, has had no experience in
public underwritings and has limited experience in private corporate finance.
The underwriting agreement provides that the obligations of the several
underwriters thereunder are subject to delivery of legal opinions of counsel and
to the accuracy of our representatives and warranties and compliance with our
covenants as set forth in the underwriting agreement. The nature of the
underwriters' obligation is such that they are committed to purchase and pay for
all shares of common stock, other than those covered by the over-allotment
option discussed below, if any are purchased.
The underwriters propose to offer the shares of common stock directly to the
public at the initial public offering price set forth on the cover page of this
prospectus, and to other securities dealers, who may include the underwriters,
at such price, less a concession to them not in excess of $ per share. The
underwriters may allow, and such selected dealers may reallow, a concession not
in excess of $ per share of common stock to other brokers and dealers.
After this offering, the price to the public, concession, allowance and
reallowances may be changed by the representatives. The representatives have
informed us that they do not intend to confirm sales to any account over which
they exercise discretionary authority.
We have granted an option to the underwriters, exercisable during the 30-day
period following the final date of the prospectus, to purchase up to 150,000
shares of common stock at the offering price less underwriting discounts and
commissions set forth on the cover page of this prospectus and the
over-allotments in the sale of the shares. If the underwriters exercise this
option, each of the underwriters will become obligated to purchase approximately
the same percentage of additional shares of common stock as the number of shares
of common stock to be purchased by it in the above table bears to the total
amount offered. We will become obligated to sell these shares to the
underwriters to the extent the option is exercised. If any additional shares of
common stock are purchased, the underwriters will offer these additional shares
on the same terms.
The following tables show the per share total underwriting discounts to be
paid to the underwriters. Such amounts are shown assuming both no exercise and
full exercise of the underwriters' over-allotment option to purchase additional
shares.
<TABLE>
<CAPTION>
PAID BY COMPANY
----------------------
NO EXERCISE FULL
----------- --------
<S> <C> <C>
Exercise per share.......................................... $ $
total....................................................... $ $
</TABLE>
30
<PAGE>
We have also granted to the representative, on completion of the offering,
warrants to purchase up to 100,000 shares of common stock of Holdings. The
warrants will be exercisable at a price equal to 165% of the initial public
offering price for a period of four years, commencing one year from the
effective date of this registration statement. Any holder of the warrants shall
be permitted to exchange, in a cashless transaction, all or part of the warrants
for our common stock. The cashless exchange shall be permitted commencing one
year after the issue date of the warrants. Commencing one year from the
effective date of this offering, the warrants will contain a 5-year one-time
registration demand and a 7-year "piggyback" registration rights with respect to
the common stock issuable upon the exercise of the underwriters' warrants. The
underwriters' warrants will be restricted from sale, transfer, assignment, or
hypothecation for a period of one year from the effective date of the offering
except to officers or partners of the underwriters and members of the selling
group and/or their officers or partners. The exercise price and the number of
shares issuable upon exercise may, under some circumstances, be adjusted to
prevent dilution.
We will, at this close of the offering, enter into a consulting agreement
with Schneider Securities, Inc., as a financial consultant at $3,000 per month
for a 36 month period. Schneider Securities, Inc. will provide advice as to our
trading market, will attempt to interest other broker dealers in our stock and
will provide an ongoing critique as we pursue our business strategy and plans.
The consulting agreement will terminate if the offering does not close or either
party elects to terminate the underwriting letter of intent.
We have agreed with Schneider Securities that for a period of 36 months from
the closing date of the offering, they may designate an observer to our board of
directors, who will be entitled to attend and receive notice of all meetings of
the board. The observer, who has not been determined, will be reimbursed for
out-of-pocket travel expenses incurred in attending such meetings, but will
otherwise not be compensated by Holdings.
We, our officers, directors and 5% shareholders have agreed not to offer or
sell our securities for a period of 12 months. We will use our best efforts to
have all other current shareholders agree not to offer, sell or otherwise
dispose of any of our shares of common stock or our other equity securities for
a period of 6 months after the date of this prospectus.
The underwriters do not intend to offer or sell the common stock to accounts
over which they exercise discretionary authority unless they have received prior
written specific approval of the client.
We have agreed to indemnify the underwriters against certain liabilities
under the Securities Act. Insofar as indemnification arising under the
Securities Act of 1933 may be permitted to underwriters, we have been informed
that, in the opinion of the SEC, such indemnification is against public policy
as expressed in the Act and is therefore unenforceable.
In order to facilitate this offering, certain persons participating in this
offering may, pursuant to Regulation M, engage in transactions that stabilize,
maintain or otherwise affect the price of our common stock during and after the
offering, such as the following:
- The underwriters may over-allot or otherwise create a short position in
the common stock for their own account by selling more shares of common
stock than we have sold to them;
- The underwriters may elect to cover any such short position by purchasing
shares of common stock in the open market or by exercising the
over-allotment option;
- The underwriters may stabilize or maintain the price of our common stock
by bidding for or purchasing shares of common stock in the open market;
- The underwriters may engage in passive market making transactions; and
- The underwriters may impose penalty bids, under which selling concessions
allowed to syndicate members or other broker-dealers participating in this
offering are reclaimed if shares of common
31
<PAGE>
stock previously distributed in the offering are repurchased in connection
with stabilization transactions or otherwise
The effect of these transactions may be to stabilize or maintain the market
price at a level about that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of our common stock to
the extent that it discourages resales thereof. No representation is made as to
the magnitude or effect of any such stabilization or other transactions. Such
transactions may be effected on the Nasdaq Market and, if commenced, may be
discontinued at any time.
Because of the relationship between us and our wholly-owned broker-dealer
subsidiary, Investors Capital Corporation, the offering is being conducted in
accordance with Rule 2720 of the NASD. This Rule requires that the initial
public offering price can be no higher than that recommended by a qualified
independent underwriter, as defined therein. Schneider Securities, Inc. has
served in that capacity and performed due diligence investigations and reviewed
and participated in the preparation of the registration statement of which this
prospectus forms a part. Schneider Securities, Inc., as representative of the
underwriters, will receive a non-accountable expense allowance of 3% of the
gross offering proceeds upon closing of the offering of which $60,000 will have
been prepaid.
DETERMINATION OF OFFERING PRICE. Prior to this offering, there has been no
public market for our common stock. Consequently, we determined the initial
public offering price with the underwriters. Among the factors considered in
such negotiations were:
- Prevailing market conditions;
- An assessment of our management team;
- Our results of operations in recent periods;
- The present stage of our development;
- The market capitalizations of other companies which we believe to be
comparable to us; and
- Estimates of our business potential
There can be no assurance that an active trading market will develop for our
common stock or that our common stock will trade in the public market subsequent
to this offering at or above the initial public offering price. The initial
public offering price should not be considered an indication of the actual value
of our common stock. Such price is subject to change as a result of market
conditions and other factors. We cannot assure you that our common stock can be
resold at or above the initial public offering price.
TRANSFER AGENT
The transfer agent and registrar for our common stock is Computershare Trust
Company, Inc. of Lakewood, Colorado.
LEGAL MATTERS
The legality of the securities offered hereby has been passed upon for the
Company by James M. Carabina, Esq. of Providence, Rhode Island, 02909. In
September 1995, Attorney Carabina was issued 131,250 shares of stock, which he
currently owns. Certain legal matters concerning this offering and qualified
independent underwriter matters and for the underwriters have been performed by
William M. Prifti, Esq., of Amesbury, Massachusetts.
EXPERTS
Our consolidated financial statements for the years ended March 31, 2000 and
1999, included in this prospectus, have been included in reliance upon the
report of Cayer Prescott Clune & Chatellier, LLP, of
32
<PAGE>
Providence, Rhode Island, independent certified public accountants, appearing
elsewhere in this prospectus, and upon the authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Investors Capital Holdings, Ltd. has filed with the SEC a registration
statement containing this prospectus and any amendments to the prospectus on
Form SB-2 under the Securities Act of 1933 with respect to the common stock
being offered. As permitted by the rules and regulations of the SEC, this
prospectus does not contain all the information set forth in the registration
statement. This information may be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and the Regional Offices of the SEC located
in the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and at 7 World Trade Center, 13th Floor, New York, New York 10048. Copies
of those filings can be obtained from the SEC's Public Reference Section,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, the SEC maintains a web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC, including us. The
statements contained in this prospectus as to the contents of any contract or
other document filed as an exhibit to the registration statement are, of
necessity, brief descriptions of the exhibits and are not necessarily complete;
each statement is qualified by reference to the contract or document. You may
also call the SEC at 1-800-SEC-0330 for more information.
In connection with this offering, Holdings has registered its common stock
with the SEC under Section 12 of the Securities Exchange Act of 1934, and upon
such registration, Holdings and its stockholders will become subject to the
proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by directors, officers and greater than 10% stockholders and
the annual and periodic reporting and certain other requirements of the
Securities Exchange Act of 1934. These reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the SEC set forth above, and copies of these materials can be obtained from the
SEC's Public Reference Section at prescribed rates. We intend to furnish our
shareholders with annual reports containing audited financial statements and any
other periodic reports we deem appropriate or as may be required by law.
33
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AUDITED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT................................ F-2
FINANCIAL STATEMENTS........................................ F-3
Consolidated Balance Sheets as of March 31, 1999 and 2000
and September 30, 2000 (unaudited)...................... F-3
Consolidated Statements of Operations for the years ended
March 31, 1999 and 2000 and for the six months ended
September 30, 1999 and 2000 (unaudited)................. F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended March 31, 1999 and 2000 and for the
six months ended September 30, 1999 and 2000
(unaudited)............................................. F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1999 and 2000 and for the six months ended
September 30, 1999 and 2000 (unaudited)................. F-6-F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-8
</TABLE>
F-1
<PAGE>
[LOGO]
CERTIFIED PUBLIC ACCOUNTANTS
BUSINESS CONSULTANTS
Providence, Rhode Island
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Investors Capital Holdings, Ltd., and Subsidiaries
Lynnfield, Massachusetts
We have audited the accompanying consolidated balance sheets of INVESTORS
CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES as of March 31, 1999 and 2000, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES as of March 31, 1999 and 2000,
and the consolidated results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
Providence, Rhode Island
November 28, 2000
F-2
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, SEPTEMBER 30,
1999 2000 2000
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $1,112,534 $ 844,603 $ 434,194
Securities.................................................. 253,087 236,696
Deposits with clearing organizations........................ 25,000 175,000 175,000
Accounts receivable......................................... 1,194,820 1,721,370 1,962,872
Notes receivable related parties............................ 27,839 90,280 153,159
Prepaid expenses............................................ 111,691 77,376 56,492
Prepaid income taxes........................................ 138,985 38,685
Deferred income taxes....................................... 3,500 2,000 2,000
---------- ---------- ----------
TOTAL CURRENT ASSETS.................................... 2,475,384 3,302,701 3,059,098
---------- ---------- ----------
PROPERTY AND EQUIPMENT, NET................................. 206,187 397,751 385,772
---------- ---------- ----------
OTHER ASSETS:
Other assets................................................ 166,971 353,613 788,574
Deferred income taxes....................................... 15,000 46,000 45,000
---------- ---------- ----------
TOTAL OTHER ASSETS...................................... 181,971 399,613 833,574
---------- ---------- ----------
TOTAL ASSETS............................................ $2,863,542 $4,100,065 $4,278,444
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Commissions payable......................................... $ 978,426 $1,455,231 $1,725,743
Note payable................................................ 71,040
Accounts payable............................................ 280,014 544,544 347,708
Accrued expenses............................................ 5,014 127,537 63,037
Income taxes payable........................................ 84,965
Deferred income taxes....................................... 22,000 18,000
---------- ---------- ----------
TOTAL CURRENT LIABILITIES............................... 1,348,419 2,220,352 2,154,488
---------- ---------- ----------
LONG-TERM LIABILITIES:
Deferred income taxes....................................... 18,000 33,000 41,000
---------- ---------- ----------
TOTAL LIABILITIES....................................... 1,366,419 2,253,352 2,195,488
---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 5,250,000 shares at
March 31, 1999 and 2000, authorized 10,000,000 shares at
September 30, 2000, issued and outstanding 4,573,671,
4,645,311, and 4,645,311 shares, respectively at March 31,
1999 and 2000 and September 30, 2000...................... 30,814 31,628 31,628
Additional paid-in-capital.................................. 1,486,151 1,744,602 1,744,602
Retained earnings (deficit)................................. (19,842) 38,535 292,844
Accumulated other comprehensive income:
Unrealized gains on securities.............................. 31,948 13,882
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY.............................. 1,497,123 1,846,713 2,082,956
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $2,863,542 $4,100,065 $4,278,444
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
------------------------- -----------------------------
MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
----------- ----------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
COMMISSION AND ADVISORY FEE INCOME........ $14,568,550 $22,457,574 $10,192,460 $14,352,038
COST OF COMMISSION AND ADVISORY FEES...... 11,688,664 18,349,434 8,435,547 11,818,880
----------- ----------- ----------- -----------
GROSS PROFIT.............................. 2,879,886 4,108,140 1,756,913 2,533,158
----------- ----------- ----------- -----------
SELLING AND ADMINISTRATIVE EXPENSES:
Administrative.......................... 2,001,488 3,179,792 1,436,857 1,888,756
Selling................................. 666,509 854,913 351,805 244,685
----------- ----------- ----------- -----------
TOTAL SELLING AND ADMINISTRATIVE
EXPENSES............................ 2,667,997 4,034,705 1,788,662 2,133,441
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS)................... 211,889 73,435 (31,749) 399,717
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income......................... 38,835 69,064 28,360 43,028
Interest expense........................ (5,969) (13,130) (3,240) (6,936)
Realized gain on sale of investments.... 12,008
----------- ----------- ----------- -----------
NET OTHER INCOME...................... 32,866 67,942 25,120 36,092
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE TAXES................ 244,755 141,377 (6,629) 435,809
PROVISION FOR INCOME TAXES................ 137,500 83,000 10,000 181,500
----------- ----------- ----------- -----------
NET INCOME (LOSS)......................... 107,255 58,377 (16,629) 254,309
OTHER COMPREHENSIVE INCOME:
Unrealized gain (loss) on securities.... 31,948 (18,066)
----------- ----------- ----------- -----------
TOTAL COMPREHENSIVE INCOME (LOSS)..... $ 107,255 $ 90,325 $ (16,629) $ 236,243
=========== =========== =========== ===========
Earnings per share--basic and diluted..... $ 0.02 $ 0.02 $ (0.004) $ 0.05
=========== =========== =========== ===========
Weighted average common shares
outstanding, basic...................... 4,573,296 4,609,491 4,609,491 4,645,311
=========== =========== =========== ===========
Weighted average common shares
outstanding, diluted.................... 4,746,296 4,782,491 4,782,491 4,818,311
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
STOCK ADDITIONAL ACCUMULATED OTHER
-------------------- PAID IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS (DEFICIT) INCOME TOTAL
--------- -------- ---------- ------------------ ------------------ ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 1, 1998, AS
RESTATED..................... 4,572,921 $30,867 $1,503,593 $(127,097) $ 0 $1,407,363
Additional capital............. 750 7 2,498 2,505
Cancellation of shares......... (60) (19,940) (20,000)
Net income..................... 107,255 107,255
--------- ------- ---------- --------- -------- ----------
BALANCE AT MARCH 31, 1999, AS
RESTATED..................... 4,573,671 30,814 1,486,151 (19,842) 0 1,497,123
Additional capital............. 71,640 814 258,451 259,265
Net income..................... 58,377 58,377
Unrealized gain on
securities................... 31,948 31,948
--------- ------- ---------- --------- -------- ----------
BALANCE AT MARCH 31, 2000, AS
RESTATED..................... 4,645,311 31,628 1,744,602 38,535 31,948 1,846,713
Net income (unaudited)......... 254,309 254,309
Unrealized loss on securities
(unaudited).................. (18,066) (18,066)
--------- ------- ---------- --------- -------- ----------
BALANCE AT SEPTEMBER 30, 2000
(UNAUDITED).................. 4,645,311 $31,628 $1,744,602 $ 292,844 $ 13,882 $2,082,956
========= ======= ========== ========= ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
--------------------- -----------------------------
MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
--------- --------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $ 107,255 $ 90,325 $ (16,629) $ 236,243
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities:
Depreciation............................... 25,665 52,986 12,223 35,981
Deferred income taxes...................... 17,500 7,500 500 5,000
Unrealized (gain) loss..................... (55,948) 18,066
Changes in assets and liabilities:
Accounts receivable........................ (73,085) (526,550) (367,724) (241,502)
Receivables from related parties........... (21,009) (62,441) (28,519) (62,879)
Prepaid expenses........................... (46,261) 34,315 (31,169) 20,884
Prepaid income taxes....................... (138,985) (142,745) 100,300
Other assets............................... (166,971) (159,142) 115,812 (249,540)
Accounts payable........................... 246,066 264,530 (94,415) (196,836)
Accrued expenses........................... (58,864) 122,523 29,827 (64,500)
Income taxes payable....................... 111,056 (84,965) (84,965)
Commissions payable........................ 476,805 278,508 270,512
--------- -------- --------- ---------
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES............................. 141,352 20,953 (329,296) (128,271)
--------- -------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........... (147,211) (244,550) (186,086) (24,002)
Purchase of investments...................... (197,139) (28,214) (1,675)
Deposits with clearing organizations......... (150,000) (150,000)
--------- -------- --------- ---------
NET CASH USED FOR INVESTING ACTIVITIES..... (147,211) (591,689) (364,300) (25,677)
--------- -------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock... 7 814 739
Additional paid in capital................... 2,498 258,451 246,007
Deferred stock offering costs................ (27,500) (185,421)
Repurchase of shares of common stock......... (20,007)
Note payable................................. 71,040 99,235
Repayment of note payable.................... (71,040)
--------- -------- --------- ---------
NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES............................... (17,502) 302,805 345,981 (256,461)
--------- -------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
----------------------- -----------------------------
MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
---------- ---------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET DECREASE IN CASH AND CASH EQUIVALENTS... (23,361) (267,931) (347,615) (410,409)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR...................................... 1,135,895 1,112,534 1,112,534 844,603
---------- ---------- ---------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR...... $1,112,534 $ 844,603 $ 764,919 $ 434,194
========== ========== ========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest................................ $ 5,969 $ 13,130 $ 3,240 $ 6,936
========== ========== ========== =========
Income taxes............................ $ 9,269 $ 319,747 $ 14,229 $ 58,600
========== ========== ========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 2000
(INFORMATION AS OF SEPTEMBER 30, 1999 AND 2000 AND
FOR THE SIX MONTHS THEN ENDED IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company and its wholly owned subsidiaries, Investors Capital Corporation
and Eastern Point Advisors, Inc. are engaged throughout the United States in the
financial service industry as general securities brokers and asset managers.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of this Company
and its wholly-owned subsidiaries, Investors Capital Corporation (ICC) and
Eastern Point Advisors, Inc. (EPA). All significant inter-company items and
transactions have been eliminated in the consolidation.
INTERIM FINANCIAL INFORMATION
The financial information as of September 30, 1999 and 2000 and for the six
months then ended is unaudited, but includes all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management are necessary in
order to make the financial statements not misleading at such dates and for
those periods. Operating results for the six months ended September 30, 2000 are
not necessarily indicative of the results that may be expected for the entire
year.
REVENUE RECOGNITION
Securities transactions and related commission revenues and expenses are
recorded on a settlement date basis. The Company earns an advisory fee based on
a client's portfolio value on portfolios managed by its investment advisor
subsidiary. These fees are recorded under the accrual method.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flow, cash and cash equivalents includes cash
in checking and savings accounts and short-term investments with original
maturities of three months or less.
OTHER ASSETS
Other assets are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, SEPTEMBER 30,
1999 2000 2000
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Website development costs................... $ 47,659 $ 90,259 $157,699
Miscellaneous noncurrent receivables........ 115,812 232,354 314,454
Deferred stock offering costs............... 27,500 212,921
Investment in common stock of ICC Insurance
Agency.................................... 100,000
Security deposit............................ 3,500 3,500 3,500
-------- -------- --------
Total....................................... $166,971 $353,613 $788,574
======== ======== ========
</TABLE>
F-8
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 2000
(INFORMATION AS OF SEPTEMBER 30, 1999 AND 2000 AND
FOR THE SIX MONTHS THEN ENDED IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which includes
cash, cash equivalents, accounts receivable, accounts payable, and note payable
approximate their fair value at the balance sheet date due to their short-term
nature.
INVESTMENTS
The carrying amount and fair value of investment securities at March 31,
2000 are as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED FAIR
COST GAIN VALUE
-------- ---------- --------
<S> <C> <C> <C>
Securities available for sale:
Common stock................................ $197,139 $55,948 $253,087
======== ======= ========
</TABLE>
The carrying amount and fair value of investment securities at
September 30, 2000 are as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED FAIR
COST GAIN VALUE
-------- ---------- --------
<S> <C> <C> <C>
Securities available for sale:
Common stock................................ $198,814 $37,882 $236,696
======== ======= ========
</TABLE>
PROPERTY AND EQUIPMENT
Furniture, equipment and leasehold improvements are stated at cost.
Maintenance and repairs are charged to operations. Depreciation is provided
utilizing the straight-line method over their useful lives, generally 7 years.
COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income". This
statement establishes standards for the reporting and display of comprehensive
income and its components. This statement requires that an enterprise classify
items of other comprehensive income by nature in a financial statement, and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
balance sheet. The Company's other comprehensive income represents the
unrealized gain (loss) on securities available for sale in addition to net
income.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109 which
requires the establishment of a deferred tax asset or liability for the
recognition of future deductions or taxable
F-9
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 2000
(INFORMATION AS OF SEPTEMBER 30, 1999 AND 2000 AND
FOR THE SIX MONTHS THEN ENDED IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amounts, and operating loss and tax credit carryforwards. Deferred tax expense
or benefit is recognized as a result of the change in deferred asset or
liability during the year.
BUSINESS DEVELOPMENT
The Company expenses all promotional costs as incurred and advertising costs
upon first exhibition of the advertisement. Substantially all business
development costs relate to advertising and mutual fund start up costs. Business
development expenses amounted to $245,231 and $379,894 for the years ended
March 31, 1999 and March 31, 2000, respectively. Business development expenses
amounted to $194,508 and $259,022 for the six-month periods ended September 30,
1999 and September 30, 2000, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
SEGMENT REPORTING
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of Enterprise and Related Information" ("FAS 131").
FAS 131 supersedes FAS 14, "Financial Reporting for Segments of a Business
Enterprise", replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. FAS 131 also requires
disclosures about products and services, geographic areas, and major customers.
The adoption of FAS 131 did not affect the Company's financial position or
results of operations, but did affect the disclosure of segment information.
RECLASSIFICATIONS
Certain amounts from prior years have been reclassified for consistency with
current year presentation. These reclassifications were not material to the
consolidated financial statements.
2. TRANSACTIONS WITH RELATED PARTIES
The Company leases office space from the Arlsburg Trust, the trustee of whom
is the principal stockholder of the Company. For the years ending March 31, 1999
and 2000, rent of $64,570 and $114,454, respectively, was paid to Arlsburg
Trust. For the six-month periods ending September 30, 1999 and 2000, rent of
$52,115 and $75,120, respectively was paid to Arlsburg Trust.
ICC Insurance Agency, Inc., the sole stockholders of which are the principal
stockholders of ICH, facilitates the sale of insurance and annuity products. One
hundred percent of all funds realized by this entity flow through as revenue to
ICC. Effective August 9, 2000, the Company's Board of Directors
F-10
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 2000
(INFORMATION AS OF SEPTEMBER 30, 1999 AND 2000 AND
FOR THE SIX MONTHS THEN ENDED IS UNAUDITED)
2. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
approved the stock purchase agreement between the Company's principal
stockholders and the Company, whereby the Company agrees to purchase all of the
capital stock of ICC Insurance Agency for $100,000.
The Company is owed money pursuant to demand notes from senior executives
which accrue interest at 8% per year. As of March 31, 1999 and 2000 the balances
of the notes were $27,839 and $90,280 respectively. As of September 30, 2000 the
Company was owed $153,159 on the notes.
3. NET CAPITAL
The broker-dealer subsidiary of the Company is subject to the Securities and
Exchange Commission's regulations and operating guidelines, which require the
Company to maintain a specified amount of net capital, as defined, and a ratio
of aggregate indebtedness to net capital, as defined, not exceeding 15 to 1.
The Company's net capital as computed under 15c3-1 was $62,800 at March 31,
1999 which resulted in a net capital deficiency of the required net capital of
$70,755 in the amount of $7,955. The ratio of aggregate indebtedness at
March 31, 1999 was 16.9 to 1. The Company's net capital as computed under 15c3-1
was $(110,386) at March 31, 2000 which resulted in a net capital deficiency of
the required net capital of $125,418 in the amount of $235,804. The ratio of
aggregate indebtedness at March 31, 2000 was (17.0) to 1.
The Company's net capital as computed under 15c3-1 was $(182,096) at
September 30, 1999 which resulted in a net capital deficiency of the required
net capital of $104,316 in the amount of $286,412. The ratio of aggregate
indebtedness at September 30, 1999 was (8.59) to 1. The Company's net capital as
computed under 15c3-1 was $(43,893) at September 30, 2000 which resulted in a
net capital deficiency of the required net capital of $121,425 in the amount of
$165,318. The ratio of aggregate indebtedness at September 30, 2000 was (41.5)
to 1.
4. CASH AND CASH EQUIVALENTS
At March 31, 1999, the carrying amount of the Company's deposits was
$1,112,534 and the bank balance was $1,404,952. Of the bank balance, $577,105
was covered by federal depository insurance and $827,847 was uninsured.
At March 31, 2000, the carrying amount of the Company's deposits was
$844,603 and the bank balance was $1,117,286. Of the bank balance, $346,836 was
covered by federal depository insurance and $770,450 was uninsured.
At September 30, 2000, the carrying amount of the Company's deposits was
$434,194 and the bank balance was $492,889. Of the bank balance, $182,090 was
covered by federal depository insurance and $310,799 was uninsured.
F-11
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 2000
(INFORMATION AS OF SEPTEMBER 30, 1999 AND 2000 AND
FOR THE SIX MONTHS THEN ENDED IS UNAUDITED)
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, SEPTEMBER 30,
1999 2000 2000
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Equipment................................... $151,401 $212,643 $228,422
Furniture and fixtures...................... 76,365 137,654 145,877
Leasehold improvements...................... 22,529 144,548 144,548
-------- -------- --------
TOTAL PROPERTY AND EQUIPMENT.............. 250,295 494,845 518,847
Less: accumulated depreciation.............. (44,108) (97,094) (133,075)
-------- -------- --------
NET PROPERTY AND EQUIPMENT................ $206,187 $397,751 $385,772
======== ======== ========
</TABLE>
Depreciation expense for the years ended March 31, 1999 and March 31, 2000
was $25,665 and $52,986, respectively. Depreciation expense for the six months
ended September 30, 1999 and September 30, 2000 was $12,223 and $35,981,
respectively.
6. INCOME TAX MATTERS
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
--------- --------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT TAX EXPENSE (REFUND):
Federal....................... $ 90,000 $66,500 $(3,500) $130,000
State......................... 33,000 31,000 4,000 42,500
-------- ------- ------- --------
TOTAL....................... 123,000 97,500 500 172,500
-------- ------- ------- --------
Deferred tax expense (refund):
Federal....................... 10,500 (10,500) 7,500 7,000
State......................... 4,000 (4,000) 2,000 2,000
-------- ------- ------- --------
TOTAL....................... 14,500 (14,500) 9,500 9,000
-------- ------- ------- --------
Income tax expense.............. $137,500 $83,000 $10,000 $181,500
======== ======= ======= ========
</TABLE>
Deferred income taxes are the result of timing differences between book and
taxable income and consist primarily of net operating loss carryforwards,
unrealized gains, mutual fund start up costs and
F-12
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 2000
(INFORMATION AS OF SEPTEMBER 30, 1999 AND 2000 AND
FOR THE SIX MONTHS THEN ENDED IS UNAUDITED)
6. INCOME TAX MATTERS (CONTINUED)
differences between depreciation expense for financial statement purposes versus
tax return purposes. Net deferred tax assets (liabilities) within each tax
jurisdiction consisted of the following at:
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------
ASSET LIABILITY NET
-------- --------- --------
<S> <C> <C> <C>
Federal........................................... $12,500 $ 4,000 $8,500
State............................................. 6,000 14,000 (8,000)
------- ------- ------
TOTAL........................................... $18,500 $18,000 $ 500
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
-------------------------------
ASSET LIABILITY NET
-------- --------- --------
<S> <C> <C> <C>
Federal.......................................... $35,000 $43,000 $(8,000)
State............................................ 13,000 12,000 1,000
------- ------- -------
TOTAL.......................................... $48,000 $55,000 $(7,000)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 (UNAUDITED)
-------------------------------
ASSET LIABILITY NET
-------- --------- --------
<S> <C> <C> <C>
Federal......................................... $34,000 $46,000 $(12,000)
State........................................... 13,000 13,000
------- ------- --------
TOTAL......................................... $47,000 $59,000 $(12,000)
======= ======= ========
</TABLE>
A reconciliation of the differences between the effective income tax rate
and the statutory federal tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
------------------- -------------------
1999 2000 1999 2000
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax at U.S. statutory rate............ $113,000 $61,000 $ 5,000 $157,000
State taxes, net of federal benefit... 24,500 18,000 4,000 29,000
Other................................. 4,000 1,000 (4,500)
-------- ------- ------- --------
TOTAL............................... $137,500 $83,000 $10,000 $181,500
======== ======= ======= ========
</TABLE>
7. SEGMENT INFORMATION
The Company's reportable segments include investment services offered
through its broker-dealer (ICC) and asset management services offered through
its registered investment adviser (EPA). This investment services segment
includes securities, insurance, financial planning and related services. This
segment earns commissions as a broker for its customers in the purchase and sale
of securities on major
F-13
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 2000
(INFORMATION AS OF SEPTEMBER 30, 1999 AND 2000 AND
FOR THE SIX MONTHS THEN ENDED IS UNAUDITED)
7. SEGMENT INFORMATION (CONTINUED)
exchanges. Asset management services generates recurring annual revenue from
fees received on the management of customer accounts. This segment provides
asset management and portfolio design services to two mutual funds and a variety
of investors.
Segment data presented includes the allocation of all corporate overhead to
each segment. Intersegment revenue and expense are eliminated between segments.
Information concerning operations in the Company's segments of business is as
follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
----------- ----------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NON-INTEREST REVENUES:
Investment services..................... $12,623,455 $20,091,914 $ 9,046,566 $12,913,257
Asset management........................ 1,945,095 2,365,660 1,145,894 1,438,781
----------- ----------- ----------- -----------
TOTAL................................. $14,568,550 $22,457,574 $10,192,460 $14,352,038
=========== =========== =========== ===========
NET INTEREST AND DIVIDENDS:
Investment services..................... $ 38,835 $ 69,064 $ 28,360 $ 43,028
Asset management........................
----------- ----------- ----------- -----------
TOTAL................................. $ 38,835 $ 69,064 $ 28,360 $ 43,028
=========== =========== =========== ===========
INCOME (LOSS):
Investment services..................... $ 114,584 $ 68,495 $ (35,459) $ 240,196
Asset management........................ (7,329) 21,830 18,830 (3,953)
----------- ----------- ----------- -----------
TOTAL................................. $ 107,255 $ 90,325 $ (16,629) $ 236,243
=========== =========== =========== ===========
YEAR-END TOTAL ASSETS:
Investment services..................... $ 2,252,096 $ 3,487,871 $ 2,757,122 $ 3,633,882
Asset management........................ 611,446 612,194 570,728 644,562
----------- ----------- ----------- -----------
TOTAL................................. $ 2,863,542 $ 4,100,065 $ 3,327,850 $ 4,278,444
=========== =========== =========== ===========
</TABLE>
8. CONCENTRATIONS OF CREDIT RISK
The Company is engaged in various trading and brokerage activities whose
counterparties primarily include the general public. In the event counterparties
do not fulfill their obligations, the Company may be exposed to risk. The risk
of default depends on the credit worthiness of the counterparty or issuer of the
instrument. It is the Company's policy to review, as necessary, the credit
standings of each counterparty with which it conducts business.
F-14
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 2000
(INFORMATION AS OF SEPTEMBER 30, 1999 AND 2000 AND
FOR THE SIX MONTHS THEN ENDED IS UNAUDITED)
9. COMMITMENTS AND CONTINGENCIES
The Company has been named a defendant in certain legal actions arising
primarily from securities and activities, which primarily allege violations of
securities laws and seek unspecified damages, which could be substantial. While
the ultimate resolution of these actions cannot be currently determined, in the
opinion of management, after consultation with legal counsel, the actions will
be resolved with no material adverse effect on the financial statements of the
Company. However, if during any period a potential adverse contingency should
become probable, the results of operations in that period could be materially
affected.
The Company leases office space in Lynnfield, Massachusetts. The facility
lease, which was entered into on August 13, 1998 and expires in August, 2003 is
classified as an operating lease. Rent for the years ended March 31, 1999 and
2000 and the six months ended September 30, 1999 and 2000 totaled $27,768 and
$41,652; and $20,826 and $21,038, respectively.
Future minimum lease payments are as follows:
<TABLE>
<S> <C>
2001........................................................ $ 43,200
2002........................................................ 43,200
2003........................................................ 43,200
2004........................................................ 18,000
--------
Total................................................... $147,600
========
</TABLE>
10. STOCK OPTION PLANS
1994 STOCK OPTION PLAN
As of September 1, 1994, the Company issued a stock option plan (the "1994
Plan") which provides for the granting of options to an officer of the Company.
Following a three for two stock split in 1997, a maximum of 150,000 shares of
common stock may be issued under the 1994 Plan. The number of shares and grant
date are determined at the discretion of the Company's board of directors.
F-15
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 2000
(INFORMATION AS OF SEPTEMBER 30, 1999 AND 2000 AND
FOR THE SIX MONTHS THEN ENDED IS UNAUDITED)
10. STOCK OPTION PLANS (CONTINUED)
A summary of option transactions for the 1994 Plan during the years ended
March 31, 1999 and 2000 and the six months ended September 30, 2000 is shown
below:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at April 1, 1998........................ 150,000 $1.00
Granted............................................. 0
Exercised........................................... 0
Canceled............................................ 0
-------
Outstanding at March 31, 1999....................... 150,000 $1.00
Granted............................................. 0
Exercised........................................... 0
Canceled............................................ 0
-------
Outstanding at March 31, 2000....................... 150,000 $1.00
Granted (unaudited)................................. 0
Exercised (unaudited)............................... 0
Canceled (unaudited)................................ 0
-------
Outstanding at September 30, 2000 (unaudited)....... 150,000 $1.00
=======
Available for issuance at March 31, 1999 and 2000
and September 30, 2000............................ 0
=======
</TABLE>
A summary of options outstanding as of March 31, 1999 and 2000 and
September 30, 2000 is shown below:
<TABLE>
<CAPTION>
EXERCISE NUMBER OF SHARES
PRICE OUTSTANDING
--------------------- ----------------
<S> <C>
$1.00 150,000
=======
</TABLE>
1996 STOCK OPTION PLAN
As of October 1, 1997, the Board of Directors issued an incentive stock
option plan (the "1996 Plan"). Key employees and associates are eligible to
receive options and the aggregate number of shares to be delivered under the
1996 Plan shall not exceed 300,000 shares. Each option shall be granted, and the
number of shares and the vesting schedules of such shares subject thereto shall
be determined by the Board.
F-16
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 2000
(INFORMATION AS OF SEPTEMBER 30, 1999 AND 2000 AND
FOR THE SIX MONTHS THEN ENDED IS UNAUDITED)
10. STOCK OPTION PLANS (CONTINUED)
A summary of option transactions for the 1996 Plan during the years ended
March 31, 1999 and 2000 and the six months ended September 30, 2000 is shown
below:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at April 1, 1998........................ 50,000 $3.34
Granted............................................. 0
Exercised........................................... 0
Canceled............................................ 27,000
-------
Outstanding at March 31, 1999....................... 23,000 $3.34
Granted............................................. 0
Exercised........................................... 0
Canceled............................................ 0
-------
Outstanding at March 31, 2000....................... 23,000 $3.34
Granted (unaudited)................................. 0
Exercised (unaudited)............................... 0
Canceled (unaudited)................................ 0
-------
Outstanding at September 30, 2000 (unaudited)....... 23,000 $3.34
=======
Available for issuance at March 31, 1999 and 2000
and September 30, 2000............................ 277,000 $3.34
=======
</TABLE>
A summary of options outstanding as of March 31, 1999 and 2000 and
September 30, 2000 is shown below:
<TABLE>
<CAPTION>
EXERCISE NUMBER OF SHARES
PRICE OUTSTANDING
--------------------- ----------------
<S> <C>
3.34....$..... 23,000
======
</TABLE>
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." In accordance with the
provisions of SFAS No. 123, the Company has elected to apply APB Opinion 25 and
the related Interpretations in accounting for stock options issued to employees.
Accordingly, the Company does not recognize compensation cost in connection with
its employee stock options. If the Company had elected to recognize compensation
cost for employee stock options based on the fair value at the grant date as
prescribed by SFAS No. 123, net income and earnings per share (basic and
diluted) would not have been reduced or increased due to the fact that there
were no stock options granted during the years ended March 31, 1999 and 2000.
11. EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share." This statement establishes standards for
computing and presenting earnings per share. It
F-17
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 2000
(INFORMATION AS OF SEPTEMBER 30, 1999 AND 2000 AND
FOR THE SIX MONTHS THEN ENDED IS UNAUDITED)
11. EARNINGS PER SHARE (CONTINUED)
requires presentation of basic and diluted earnings per share on the face of the
income statement for all entities with complex capital structures and requires
reconciliation of the computation of basic earnings per share to diluted
earnings per share. Basic earnings per share is computed by dividing income
available to common shareholders (the numerator) by the weighted average number
of shares outstanding for the period (the denominator). The computation of
diluted earnings per share is similar to basic earnings per share, except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if potentially dilutive common securities had
been converted into common stock.
The following shares of stock options were included in the computation of
diluted EPS:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
---------- ---------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Stock options................... 173,000 173,000 173,000 173,000
======= ======= ======= =======
</TABLE>
12. RETIREMENT PLAN
The Company adopted a 401(k) retirement plan effective January 1, 1998. The
plan covers all employees with at least one or more years of service. Employees
employed on the plan's effective date do not have to satisfy the service
requirement. The Company's contribution is based on matching 100% of the first
3% of salary deferral elected by each eligible employee. The Company's
contribution for the year ended March 31, 1999 and 2000 was $17,651 and $18,433,
respectively. The Company's contribution for the six months ended September 30,
1999 and 2000 was $9,417 and $10,919, respectively.
13. PRIOR PERIOD ADJUSTMENT
The retained earnings at March 31, 1998, has been restated and decreased by
$49,200 by recording additional commissions payable of $79,000, and recording a
decrease in the provision for income taxes of $29,800.
The Company previously reported its financial position and results of
operations for the fiscal years ended March 31, 1999 and 2000. Subsequent to the
issuance of those financial statements, additional facts have been discovered
which require adjustment to those 1999 and 2000 financial statements.
Accordingly, net income for the year ended March 31, 1999 has been restated to
reflect the recognition of $134,000 of expenses not previously recorded while
the provision for income taxes has been reduced by $59,000. As a result,
retained earnings as of March 31, 1999 have been reduced by $75,000.
Net income for the year ended March 31, 2000 has been restated to reflect
the recognition of $102,000 of expenses not previously recorded, while the
provision for income taxes has been reduced by $26,000. As a result, retained
earnings as of March 31, 2000 have been reduced by $76,000.
F-18
<PAGE>
INVESTORS CAPITAL HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 2000
(INFORMATION AS OF SEPTEMBER 30, 1999 AND 2000 AND
FOR THE SIX MONTHS THEN ENDED IS UNAUDITED)
14. SUBSEQUENT EVENT
On November 9, 2000, it was discovered that the broker dealer subsidiary
(ICC) had underaccrued commissions payable in the amount of $442,000 as of
September 30, 2000. As a result, at September 30, 2000, ICC was in noncompliance
of its required net capital reserve in the amount of approximately $165,000 (see
Note 3). Under NASD regulations, the Company was required to and did notify the
SEC and NASD of the noncompliance within the required time frame. On
November 9, 2000, $200,000 of capital was transferred from Investors Capital
Holdings to ICC to correct the net capital noncompliance.
F-19
<PAGE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THE PROSPECTUS OR
INFORMATION WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE
YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY ONLY BE USED WHERE
IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS MAY
ONLY BE ACCURATE AS OF THE DATE OF THIS PROSPECTUS
Until , 2001 (25 days after the date of this prospectus), all
dealers effecting transactions in the shares of common stock, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
[LOGO]
1,000,000 SHARES
OF COMMON STOCK
PROSPECTUS
SCHNEIDER SECURITIES, INC.
INVESTORS CAPITAL CORPORATION
, 2001
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Investors Capital Holdings, Ltd. (the "Registrant") has authority under
Massachusetts General Laws to indemnify its Directors and Officers to the extent
provided for in such statute. The Registrant's Articles of Organization and
Bylaws provide that the Registrant may insure, shall indemnify and shall advance
expenses on behalf of its Officers and Directors to the fullest extent not
prohibited by law. The Registrant is also a party to indemnification agreements
with each of its directors and officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this registration statement (other
than underwriting discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 2,724.50
NASD filing fee............................................. 1,532
American Stock Exchange listing fee......................... 27,500
Printing and engraving expenses............................. 60,000
Accounting fees and expenses................................ 250,000
Legal fees and expenses..................................... 150,000
Blue Sky fees and expenses.................................. *****
Transfer Agent's fees and expenses.......................... 5,000
Unaccountable expenses...................................... 40,000
Miscellaneous............................................... 13,243.50
-----------
TOTAL..................................................... $ 550,000
===========
</TABLE>
ALL AMOUNTS EXCEPT THE SECURITIES AND EXCHANGE COMMISSION REGISTRATION FEE,
THE NASD FILING FEE AND THE AMERICAN STOCK EXCHANGE LISTING FEE ARE ESTIMATED.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
1. As of September 30, 2000, the Company had granted 50,000 options
pursuant to the 1996 Stock Incentive Plan. The options were granted
without registration pursuant to Section 4(2) of the Act. Of these 50,000
options, 27,000 were cancelled as not vested and 23,000 remain
outstanding. All of the outstanding options granted have an exercise
price of $3.34 per share. Outstanding options which have not vested will
vest pro rata over a three year period. The stock incentive plan was
approved by the shareholders at the annual meeting of shareholders held
on September 20, 1996.
2. In September, 1995 the Company commenced an offering of securities under
Rule 506 of Regulation D, which consisted of 5,000 shares of common stock
and warrants exercisable into 2,000 shares of common stock, sold as a
unit. The offering concluded in August, 1996. The warrants which were
part of the unit were issued on October 1, 1996 and expired on
September 30, 1998. Investors Capital Corporation, Inc., a subsidiary of
the Company, acted as selling broker and received commissions in the
amount of $47,500. Warrant purchasers were accredited investors, or, if
not, had to represent to the Company in writing that the purchaser,
either alone, or with his purchaser representative, had such knowledge
and experience in financial and business matters that he was capable of
evaluating the merits and risks of the prospective investment, or the
Company reasonably believes immediately prior to making any sale that
such purchaser comes within this description. The Company required each
purchaser execute a
II-1
<PAGE>
subscription agreement representing his/her status prior to purchase. The
warrants purchased had an expiration date of September 30, 1998. At a
special meeting of stockholders held on September 23, 1997, the number of
shares warrantholders would be allowed to purchase was increased to
180,000. By September 30, 1998, warrants to purchase 114,625 shares of
our stock were exercised by 30 warrantholders at an exercise price of
$2.22. During the exercise period, the Company delivered to
warrantholders a copy of its current audited financial information. All
of the remaining warrants have expired.
3. On March 31, 1998, a senior executive as part of his employment
agreement, was issued 10,000 shares of our stock at a price per share
equal to the par value of $.01. His employment was terminated on
September 25, 1998 and he is no longer associated with the Company in any
capacity.
4. On October 1, 1998, we granted to certain representatives of our
broker-dealer subsidiary, warrants to purchase 149,718 shares of our
stock at an exercise price of $3.34. The warrants had an expiration date
of March 31, 1999. The warrants were issued pursuant to a plan of grant
that provided incentives to key persons who may be employees or
non-employees who contribute materially to the success and profitability
of the Company. Because of the plan of grant, the warrants were issued
without registration pursuant to Section 4(2) of the Act. Warrants to
purchase 80,538 shares of stock were exercised by 29 representatives. The
remaining warrants not exercised have expired. No selling commissions
were paid concerning the issuance of or exercise of the warrants. Each
person who exercised warrants was required to execute a subscription
agreement which required purchasers to represent their status as an
accredited investor, or, if not an accredited investor, that the
purchaser had such knowledge and experience in financial and business
matters that he/she was capable of evaluating the merits and risks of the
prospective investment or the Company had a reasonable belief that
immediately prior to making any sale that such purchaser came within this
description.
All of the foregoing offers and sales were effected pursuant to the
exemption from registration afforded by Section 4(2) of The Securities Act of
1933, as amended. The recipients in each case represented their intention to
acquire the securities for investment only and not with a view to distribution;
appropriate restrictive legends were noted on the stock certificates and on the
stock records of the Company.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See the Exhibits Index filed as part of this registration statement.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement;
2. For determining liability under the Securities Act, to treat each
post-effective amendment as a new Registration Statement of the
securities offered, and the offering of the securities at that time to be
the initial bona fide Offering;
3. To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering; and
4. To provide to the Underwriters at the closing, specified in the
Underwriting Agreement, certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery
to each purchaser.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense or any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant also hereby undertakes:
1. For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, in the Town of
Lynnfield, Commonwealth of Massachusetts, on January 19, 2001.
<TABLE>
<S> <C> <C>
INVESTORS CAPITAL HOLDINGS, LTD.
Date: January 19, 2001 By: /s/ THEODORE E. CHARLES
-----------------------------------------
Theodore E. Charles
PRESIDENT, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby makes, constitutes and
appoints Theodore E. Charles, his true and lawful attorney, with full power to
sign for each person and in such person's name and capacity indicated below, and
with full power of substitutions, any and all amendments to this Registration
Statement, hereby ratifying and confirming such person's signature as it may be
signed by said attorney to any and all amendments.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
/s/ THEODORE E. CHARLES
--------------------------------------
Theodore E. Charles
President, Chairman and Chief Executive
Officer
January 19, 2001
--------------------------------------
Date
*
--------------------------------------
L. Gregory Gloeckner
Director
January 19, 2001
--------------------------------------
Date
*
--------------------------------------
James J. McCarthy
Director
January 19, 2001
--------------------------------------
Date
*
--------------------------------------
Timothy B. Murphy
Director, Treasurer and Chief Financial Officer
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
January 19, 2001
--------------------------------------
Date
*
--------------------------------------
David J. Smith
Director
January 19, 2001
--------------------------------------
Date
* by: /s/ THEODORE E. CHARLES
------------------------------------
Theodore E. Charles
(Attorney in fact for each of
the persons indicated above)
II-4
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- ------------------------------------------------------------
<C> <S>
1.1* Agreement Among Underwriters
1.2* Underwriting Agreement
1.3* Selected Dealers Agreement
1.4* Underwriters' Warrant Agreement
1.5* Consulting Agreement
3.1* Articles of Organization, as amended
3.2* By-Laws
4.1** Form of Stock Certificate of the Company
5.1** Opinion of James Carabina, Esq. with Respect to Legality of
Securities Being Offered
10.1* Employment Agreement with Theodore E. Charles
10.2* Employment Agreement with Timothy B. Murphy
10.3* 1996 Stock Incentive Plan
10.4* Stock Purchase Agreement of ICC Insurancy Agency, Inc.
10.5* Form of Lock-Up Agreement
21.1* Subsidiaries
23.1** Consent of James Carabina, Esq. (included in Exhibit 5.1)
23.2* Consent of Cayer Prescott Clune & Chatellier, LLP
24.1* Power of Attorney (included in signature pages)
27.1* Financial Data Schedule
</TABLE>
------------------------
* Previously filed.
** To be filed by amendment.
