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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended                         Commission File No:  001-12629
    September 30, 2004

                      OLYMPIC CASCADE FINANCIAL CORPORATION
             (Exact Name of Registrant as specified in its charter)


           DELAWARE                                             36-4128138
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                             Identification No.)


            875 NORTH MICHIGAN AVENUE, SUITE 1560, CHICAGO, IL 60611
         (Address, including zip code, of principal executive offices)


       Registrant's telephone number, including area code: (312) 751-8833


Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common - Stock $.02
                                                                     par value
                                                             (Title of class)

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of  Regulation  S-K of this  chapter is not  contained  herein,  and will not be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. | |

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). YES | | NO |X|

As of December 17, 2004,  the  aggregate  market value of voting and  non-voting
common equity held by  non-affiliates  of the  registrant,  based on the closing
sales price for the registrant's common stock, as quoted on the Over-the-Counter
Bulletin Board was  approximately  $4,150,000  (calculated  by excluding  shares
owned  beneficially  by directors and  officers).  As of December 17, 2004 there
were 4,995,878 shares of the registrant's common stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement filed with the Securities and Exchange
Commission  (the  "SEC") in  connection  with the  Company's  Annual  Meeting of
Shareholders  to be held on or about March 22, 2005 (the  "Company's  2005 Proxy
Statement") are incorporated by reference into Part III hereof.

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                                     PART I

ITEM 1. BUSINESS

Statements  made in this report that relate to future plans,  events,  financial
results or  performance  are  forward-looking  statements  as defined  under the
Private  Securities  Litigation  Reform Act of 1995.  These statements are based
upon current information and expectations.  Actual results may differ materially
from those  anticipated  as a result of  certain  risks and  uncertainties.  For
details concerning these and other risks and uncertainties,  see Part I, Item 1,
"Risk Factors" of this report,  as well as the Company's  other reports on Forms
10-K, 10-Q and 8-K  subsequently  filed with the SEC from time to time.  Readers
are cautioned not to place undue reliance on these  forward-looking  statements,
which speak only as of the date hereof.  The Company undertakes no obligation to
republish revised forward-looking  statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.

GENERAL

Olympic Cascade Financial Corporation,  a Delaware corporation organized in 1996
("Olympic" or the "Company"),  is a financial  services  organization  operating
through  its  wholly  owned  subsidiary,   National  Securities  Corporation,  a
Washington  corporation  organized  in 1947  ("National").  National  conducts a
national  securities  brokerage  business  through its main  offices in Seattle,
Washington and New York,  New York, as well as 45 other branch  offices  located
throughout the country, and one office outside the country.  National's business
includes  securities   brokerage  for  individual  and  institutional   clients,
market-making  trading  activities,   asset  management  and  corporate  finance
services.

National provides a broad range of securities  brokerage and investment services
to a diverse retail and  institutional  clientele,  as well as corporate finance
and investment  banking  services to  corporations  and  businesses.  National's
brokers  operate as independent  contractors.  A registered  representative  who
becomes an affiliate of National  establishes  his own office and is responsible
for the  payment of  expenses  associated  with the  operation  of such  office,
including rent, utilities,  furniture,  equipment,  stock quotation machines and
general office supplies. In return, the registered representative is entitled to
retain a higher  percentage  of the  commissions  generated  by his sales than a
registered  representative at a traditional  employee-based brokerage firm. This
arrangement  allows National to operate with a reduced amount of fixed costs and
lowers the risk of operational losses for non-production.

RECENT TRANSACTIONS

RECAPITALIZATION TRANSACTIONS

In fiscal year 2002, the Company completed a series of transactions  under which
certain new investors  (collectively,  the  "Investors")  obtained a significant
ownership in the Company  through a $1,572,500  investment in the Company and by
purchasing  a majority of shares  held by Steven A.  Rothstein  and family,  the
former  Chairman,  Chief  Executive  Officer and  principal  shareholder  of the
Company (the "Investment  Transaction").  The Investors included Triage Partners
LLC  ("Triage"),  an affiliate of Steven B. Sands,  the current  Chairman of the
Company,  and One Clark LLC ("One Clark"), an affiliate of Mark Goldwasser,  the
current Chief Executive  Officer and President of the Company.  Triage purchased
an aggregate of 7,863 shares of the  Company's  Series A  Convertible  Preferred
Stock,  $.01 par value per share  (the  "Series  A  Preferred  Stock")  from the
Company and One Clark  purchased an  aggregate of 7,862 shares of the  Company's
Series A Preferred Stock from the Company,  which is convertible  into shares of
the Company's  common stock,  $.02 par value per share (the "Common Stock") at a
price of $1.50 per share. The Company  incurred  $100,000 of legal costs related
to these capital  transactions.  In connection with the Investment  Transaction,
Triage also purchased  285,000 shares of Common Stock from Mr. Rothstein and his
affiliates  at a price of $1.50 per share.  In addition,  Mr.  Rothstein and his
affiliates granted Triage a three-year voting proxy on the balance of their

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Common Stock (274,660  shares)  expiring on December 28, 2004. In March 2004 the
Company's Board of Directors  declared an in-kind dividend of Series A Preferred
Stock,  resulting in the issuance to both Triage and One Clark of an  additional
954 shares.  As of September 30, 2004,  Triage and One Clark own 8,817 and 8,816
shares, respectively, of the Company's Series A Preferred Stock.

Concurrent with the Investment Transaction, two unrelated individual noteholders
holding $2.0 million of the Company's debt converted one-half of their debt into
the same  class of  Series A  Preferred  Stock  that was sold in the  Investment
Transaction.  The  noteholders  also had  100,000 of their  200,000  warrants to
acquire  shares of Common  Stock  repriced  from an exercise  price of $5.00 per
share to $1.75 per share.  In January  2004,  the two  noteholders  extended the
maturity  dates on the remaining  $1.0 million of notes from January 25, 2004 to
July 31, 2005. Also,  effective February 1, 2004, the interest rate on each note
was increased to 12% from 9% per annum.  Additionally,  each of the noteholders'
warrants to  purchase,  in the  aggregate,  100,000  shares of Common Stock at a
price of $5.00 per share  expiring on February 1, 2004 was repriced to $1.25 per
share,  and the expiration  date of such warrants was extended to July 31, 2005.
The expiration date for the noteholders' warrants to purchase, in the aggregate,
an additional  100,000  shares of Common Stock at a price of $1.75 per share was
also extended from January 25, 2004 to July 31, 2005.

In  February  2001,  National  executed  a  $1.0  million  secured  demand  note
collateral  agreement with Peter Rettman, an employee of National and a director
of the  Company,  to  borrow  securities  that  can be used by the  Company  for
collateral  agreements.  The note  bears  interest  at 5% per annum that is paid
monthly,  and  initially  matured on  February  1, 2004.  The note  holder  also
received a warrant to purchase 75,000 shares of Common Stock at a price of $5.00
per share that initially expired on February 1, 2004. In February 2004, the term
of the $1.0 million  secured  demand note was extended to March 1, 2005, and the
warrant to purchase 75,000 shares of Common Stock at a price of $5.00 per share,
that was to expire on February 1, 2004, was repriced to $1.25 per share, and the
expiration  date of such warrant was extended to July 31, 2005.  The  expiration
date for the  noteholder's  warrant to purchase an  additional  75,000 shares of
Common  Stock at a price of $1.75 per share was also  extended  from January 25,
2004 to July 31, 2005.

PRELIMINARY LETTER OF INTENT WITH FIRST MONTAUK FINANCIAL CORP.

In October  2004,  the Company  entered into a  preliminary  letter of intent to
consummate a merger or other similar  combination  with First Montauk  Financial
Corp.,  a publicly  traded  company  whose  wholly  owned  subsidiary  is also a
registered  broker-dealer  with a similar  business to  National.  The letter of
intent is subject to numerous conditions,  including: satisfactory completion of
due diligence, finalization of the terms of the combination and structure of the
transaction,  negotiation,  preparation and execution of definitive  transaction
documents,  compliance with state and federal  securities laws and  regulations,
and corporate,  shareholder and regulatory approvals.  No assurance can be given
that the  Company  will enter into a  definitive  agreement  with First  Montauk
Financial Corp.

SECURITIES TRANSACTIONS

In the fourth  quarter of fiscal year 2002,  the Company  raised an aggregate of
$210,000 pursuant to the sale of Series A Preferred Stock (on the same terms and
conditions  as the equity sold to the  Investors) to the  individual  retirement
account of Mr. Rothstein.

In the first  quarter of fiscal  year 2003,  the Company  consummated  a private
placement of its  securities  (the "Private  Offering")  to a limited  number of
accredited  investors  pursuant  to Rule  501 of  Regulation  D under  the  1933
Securities  Act, as amended  (the  "Securities  Act").  Each unit in the Private
Offering  sold for $0.65  and  consisted  of one  share of Common  Stock and one
three-year warrant to purchase one share of Common Stock at a per share price of
$1.25. Net proceeds of $554,500 closed in the first quarter of fiscal year 2003,
and the Company  correspondingly  issued  1,016,186  shares of Common  Stock and
1,016,186  warrants.  National  acted as the  placement  agent on a best efforts
basis for the private offering. In consideration of the services rendered by

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National, at each closing, National was (i) paid a cash fee equal to ten percent
(10%) of the gross  proceeds  received  by us at each  closing,  and (ii) issued
warrants to purchase 10% of the number of shares of Common Stock included in the
units  exercisable at $0.65 per share and warrants to purchase 10% of the number
of shares of Common Stock  issuable  upon  exercise of warrants  included in the
units at an  exercise  price of $1.25 per  share.  The  offering  period for the
private offering expired on February 17, 2003.

In  January  2003,  the  Company  issued  76,923  shares of  Common  Stock and a
three-year  warrant to purchase 76,923 shares of Common Stock at $1.25 per share
to D'Ancona & Pflaum LLC, as payment of approximately $51,000 of legal fees that
were accrued as of September 30, 2002.  The warrants  issued in connection  with
the  Private  Offering  and the  warrants  issued to D'Ancona & Pflaum have been
included  along  with the  proceeds  of the  shares  of Common  Stock  issued as
additional paid-in capital.

In January 2004, the Company consummated a private offering of its securities to
a limited  number of accredited  investors  pursuant to Rule 506 of Regulation D
under the  Securities Act wherein the Company issued an aggregate of $200,000 of
three-year,  10%  senior  subordinated  promissory  notes  to five  unaffiliated
parties.  The noteholders  received three-year warrants to purchase an aggregate
of 50,000 shares of Common Stock at an exercise  price of $1.40 per share,  with
an allocated fair value of approximately  $40,000. In December 2004, the Company
rescinded  a note in the  principal  amount of $25,000 and a warrant to purchase
6,250 shares of Common Stock.

In February 2004, the Company  consummated a private  offering of its securities
to a limited number of accredited investors pursuant to Rule 506 of Regulation D
under the  Securities Act wherein the Company issued an aggregate of $850,000 of
three-year,  10%  senior  subordinated  promissory  notes  to four  unaffiliated
parties.  The noteholders  received three-year warrants to purchase an aggregate
of 170,000 shares of Common Stock at an exercise price of $1.50 per share,  with
an  allocated  fair  value  of  approximately  $143,000.  National  acted as the
placement  agent for the private  offering.  The offering period for the private
offering expired on May 30, 2004.

The  Company is  accreting  the total  allocated  fair value of the  warrants of
$183,000 over the three-year term of these promissory  notes. Such accretion has
been  included  in  "Interest"  in  the  accompanying   consolidated   financial
statements.  The holders of the warrants  received certain  registration  rights
relating to the Common Stock issuable upon exercise of the warrants.

In July 2004, the Company filed a  Registration  Statement on Form S-3 under the
Securities  Act for the resale of certain  shares of Common  Stock and shares of
Common Stock issuable upon the exercise of certain warrants previously issued in
connection with private placement  transactions,  and certain warrants that were
issued in the private  placements that have been completed in the current fiscal
year. The Registration Statement became effective on August 11, 2004.

In the fourth  quarter of fiscal year 2004,  the Company  consummated  a private
placement of its securities to a limited number of accredited investors pursuant
to Rule 501 of Regulation D under the Securities  Act. Each unit in the offering
sold for $1.60 and  consisted of two shares of Common  Stock and one  three-year
warrant to purchase one share of Common Stock at a per share price of $1.50. Net
proceeds of  approximately  $930,000 closed in the fourth quarter of fiscal year
2004, and the Company  correspondingly  issued  1,250,000 shares of Common Stock
and 625,000 warrants.

CLEARING RELATIONSHIPS

In August  2001,  the Company  entered  into an  agreement  with First  Clearing
Corporation   ("First   Clearing"),   a  wholly  owned  subsidiary  of  Wachovia
Corporation,  under which First Clearing  provided clearing and related services
for National (the "Clearing  Agreement").  The Clearing  Agreement  expanded the
products and  services  capabilities  for  National's  retail and  institutional
business,  and enabled National to consolidate its existing clearing  operations
and reduced the fixed overhead associated with its self-clearing activities.

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The  conversion  from a  self-clearing  firm to First Clearing began in December
2001 and was completed in March 2002. In connection with the Clearing Agreement,
the Company executed a ten-year promissory note in favor of First Clearing under
which the Company immediately borrowed $1,000,000. The funds were contributed by
the  Company  to  National,  and were  used as a deposit  to  secure  National's
performance under the Clearing  Agreement.  The Clearing Agreement also provided
for another  $1,000,000  loan that was extended to the Company upon  substantial
completion  of the  conversion  on  December  31,  2001,  which  funds were also
contributed  by the  Company  to  National.  Principal  and  interest  under the
promissory note were forgivable based on achieving certain business  performance
and trading volumes of the Company over the life of the loan.

In connection with the Clearing Agreement,  additional borrowings were available
to  the  Company  upon  the   attainment  by  National  of  certain  volume  and
profitability  goals.  In finalizing the  conversion,  a dispute arose among the
Company,  US Clearing  (one of its former  clearing  firms) and First  Clearing,
regarding the responsibility for debit balances in certain trading accounts. The
three  parties  agreed  to share  the  debit  balance  write-offs  equally.  The
Company's  share of this  settlement,  $548,000,  was advanced to the Company by
First Clearing and added to the existing promissory note. Additionally, National
received its clearing deposit, net of miscellaneous  expenses,  of $975,000 from
US  Clearing,  and  concurrently  terminated  its  clearing  agreement  with  US
Clearing.

In the first quarter of fiscal year 2003,  First Clearing  loaned the Company an
additional $375,000 in the form of clearing fee rebates.  The loan was due to be
repaid in January 2004.

In December 2003, the Company engaged in various  discussions  with the National
Association of Securities  Dealers,  Inc. (the "NASD")  relating to the Security
Agreement between National and First Clearing, and its effect on the computation
of National's  net capital.  As a result of these  discussions,  on December 15,
2003, the Company and First Clearing  agreed in principle to the following:  (1)
National's  clearing  deposit was reduced from  $1,000,000 to $500,000;  (2) the
excess  $500,000 was paid to First Clearing to reduce the Company's  outstanding
loan balance on its  promissory  note;  and (3) the Security  Agreement  between
National and First Clearing was terminated.  Furthermore, First Clearing forgave
payment of the $375,000 loan that was due to be paid in January 2004,  resulting
in a $375,000  gains on  extinguishments  of debt in the first quarter of fiscal
year 2004.

In February 2004,  the Company paid First  Clearing  $250,000 to fully repay its
promissory note that had a balance of approximately  $1,006,000 at such time. As
a  result  of the  repayment  of  this  note,  the  Company  realized  gains  on
extinguishments  of debt of  approximately  $756,000  in the  second  quarter of
fiscal year 2004.  Additionally,  National and First Clearing mutually agreed to
terminate their clearing relationship.

On June 22, 2004,  National  entered into an agreement  with Fiserv  Securities,
Inc.  ("Fiserv")  to clear its brokerage  business.  The  conversion  from First
Clearing to Fiserv was  completed in the first week of October  2004. As part of
this  transaction,   Fiserv  provided  National  with  an  $800,000   conversion
assistance  payment,  $250,000 of which was paid upon  execution of the clearing
agreement,  $250,000 of which was paid in mid-August 2004, and $300,000 of which
was paid in October 2004.  The Company  believes that the overall  effect of the
new clearing  relationship  will be beneficial to the Company's cost  structure,
liquidity and capital resources.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

The Company realized approximately 88% of its total revenues in fiscal year 2004
from  brokerage  services,  principal and agency  transactions,  and  investment
banking.  During fiscal year 2004,  brokerage  services,  that consist of retail
brokerage  commissions,  represent 74% of total  revenues,  principal and agency
transactions, that consist of net dealer inventory gains, represent 12% of total
revenues, and investment banking, that consist of corporate finance commissions

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and fees,  represent 2% of total revenues.  For a more detailed  analysis of our
results by segment, see Item 7, "Management Discussion and Analysis of Financial
Condition and Results of Operation."

BROKERAGE SERVICES

Brokerage  services to retail clients are provided  through the Company's  sales
force of investment executives at National.

NATIONAL SECURITIES CORPORATION

National is  registered  as a  broker-dealer  with the SEC and is licensed in 50
states,  the District of Columbia and Puerto Rico.  National is also a member of
the NASD, the Municipal Securities  Rulemaking Board ("MSRB") and the Securities
Investor Protection Corporation ("SIPC").

National's  goal is to meet the  needs of its  investment  executives  and their
clients. To foster individual service, flexibility and efficiency, and to reduce
fixed costs,  investment  executives at National act as independent  contractors
responsible  for  providing  their  own  office  facilities,  sales  assistants,
telephone and quote  service,  supplies and other items of overhead.  Investment
executives  are given broad  discretion to structure  their own practices and to
specialize in different  areas of the  securities  market subject to supervisory
procedures.  In addition,  investment  executives have direct access to research
materials, management, traders, and all levels of support personnel.

The brokerage services provided by the investment executives at National include
execution of purchases and sales of stocks,  bonds, mutual funds,  annuities and
various other securities for individual and institutional  customers.  In fiscal
year 2004, stocks represent  approximately 81% of the Company's business,  bonds
represent  approximately  11% of the  Company's  business,  and mutual funds and
annuities make up the remaining 8% of the Company's business.  The percentage of
each type of business  varies  over time as the  investment  preferences  of the
Company's customers change based on market conditions.

Typically,  National  does not  recommend  particular  securities  to customers.
Recommendations to customers are determined by individual  investment executives
based upon their own research and analysis,  subject to applicable NASD customer
suitability  standards.  Most  investment  executives  perform  fundamental  (as
opposed to technical) analysis.  Solicitations may be by telephone,  seminars or
newsletters.  Investment  executives may request trading to acquire an inventory
position to facilitate sales to customers (subject to the investment executive's
own  risk).   Supervisory  personnel  review  trading  activity  from  inventory
positions to ensure compliance with applicable standards of conduct.

Investment executives in the brokerage industry are traditionally compensated on
the basis of set percentages of total commissions and mark-ups  generated.  Most
brokerage firms bear  substantially  all of the costs of maintaining their sales
forces,  including  providing office space, sales assistants,  telephone service
and  supplies.  The average  commission  paid to  investment  executives  in the
brokerage  industry  generally  ranges  from  30% to 50%  of  total  commissions
generated.

Since National  requires most of its  investment  executives to absorb their own
overhead and expenses,  it pays a higher  percentage of the net  commissions and
mark-ups  generated by its  investment  executives,  as compared to  traditional
investment  executives in the brokerage industry.  This arrangement also reduces
fixed  costs and  lowers  the risk of  operational  losses  for  non-production.
National's  operations include execution of orders,  processing of transactions,
internal   financial   controls  and  compliance   with   regulatory  and  legal
requirements.

As a result of the slowdown in the financial  markets and the  Company's  change
from a  self-clearing  brokerage  firm to an  introducing  brokerage  firm,  the
Company has scaled back its  employee  staff.  As of  September  30,  2004,  the
Company had 83 employees and 307 independent  contractors.  Of these totals, 324
were registered representatives. Persons who have entered into independent

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contractor  agreements are not considered  employees for purposes of determining
the Company's  obligations for federal and state  withholding,  unemployment and
social security taxes. The Company's independent contractor arrangements conform
with accepted  industry  practice,  and therefore,  the Company does not believe
there is a material risk of an adverse  determination  from the tax  authorities
that would have a  significant  effect on the  Company's  ability to recruit and
retain  investment  executives,  or on  the  Company's  current  operations  and
financial  results  of  operations.  No  employees  are  covered  by  collective
bargaining agreements, and the Company believes its relations are good with both
its employees and independent contractors.

The Company's  business plan includes the growth of its retail and institutional
brokerage business. The financial markets experienced a slowdown in fiscal years
2000 and 2001 that  continued  through the first half of fiscal  year 2003.  The
markets  improved  in the second  half of fiscal year 2003 and the first half of
fiscal year 2004,  but weakened again in the second half of fiscal year 2004. In
response  to  theses  slowdowns,   the  Company  scaled  back  certain  business
activities,  including:  proprietary trading,  market-making trading, and online
investing services.  The Company believes that consolidation within the industry
is  inevitable.  Concerns  attributable  to the  weakened  market and  increased
competition  help explain the  increasing  number of  acquisition  opportunities
continuously introduced to the Company. The Company is focused on maximizing the
profitability of its existing  operations,  while it continues to seek selective
strategic acquisitions.

In August 2001, the Company entered into an agreement with First Clearing, under
which First Clearing  provided  clearing and related  services for National.  In
December 2001, the Company commenced clearing with First Clearing.  The Clearing
Agreement  significantly  expanded the products  and services  capabilities  for
National's retail and institutional  business by providing National's registered
representatives  with  access to  information  from  First  Clearing,  including
various daily market  analysis  reports,  equity research  reports,  software to
analyze customer  portfolios,  as well as asset management  products and various
other  equity,  debt and  mutual  fund  offerings.  Additionally,  the  Clearing
Agreement enabled National to consolidate its existing  clearing  operations and
reduced fixed overhead associated with its self-clearing activities.

On June 22, 2004,  National  entered into an agreement  with Fiserv to clear its
brokerage   business.   The  conversion   from  First  Clearing  to  Fiserv  was
substantially completed in the first week of October 2004.

Periodic reviews of controls are conducted,  and  administrative  and operations
personnel  meet  frequently  with  management  to review  operating  conditions.
Compliance and operations  personnel  monitor  compliance with applicable  laws,
rules and regulations.

WESTAMERICA INVESTMENT GROUP

In December 2001, the Company's former subsidiary, WestAmerica Investment Group,
("WestAmerica"),  voluntarily  withdrew its membership  with the NASD and ceased
conducting  business  as a  broker-dealer,  and filed for  Chapter 7  Bankruptcy
protection in accordance  with the U.S.  Bankruptcy  Code.  Until December 2001,
WestAmerica  was registered as a  broker-dealer  with the SEC and licensed in 44
states, Puerto Rico and the District of Columbia.  WestAmerica was also a member
of the NASD, the MSRB and the SIPC.  WestAmerica offered traditional  securities
brokerage and financial  planning business and fee-based  investment  management
business to its retail  clients.  WestAmerica  had been  operating as a separate
legal entity,  and the Company  believes it will not have any ongoing  liability
for any unpaid obligations of WestAmerica.

CANTERBURY SECURITIES CORPORATION

The   Company's   former   subsidiary,    Canterbury   Securities    Corporation
("Canterbury")  was registered as a broker-dealer  with the SEC and was licensed
in  Illinois.  Canterbury  was acquired in June 2000 for cash of $30,000 and the
issuance of  five-year  warrants to acquire  5,000  shares of Common  Stock at a
price of $6.375 per share. Canterbury was a member of the NASD, the MSRB and the
SIPC. Canterbury formerly engaged in private placement transactions.  Canterbury
had  no  retail  customer  accounts  and  operated  pursuant  to  the  exemptive
provisions of SEC Rule 15c3-3(k)(2)(i). Since its acquisition, Canterbury had no
activity. In May 2002, pursuant to an agreement made simultaneous with the

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Investment Transaction, the Company sold Canterbury for its book value to Steven
A.  Rothstein,  the former  Chairman,  Chief  Executive  Officer  and  principal
shareholder of the Company.

PRINCIPAL AND AGENCY TRANSACTIONS

The  Company  buys  and  maintains   inventories  in  equity   securities  as  a
"market-maker"  for sale of those  securities  to other dealers and to customers
through  National.  The  Company may also  maintain  inventories  in  corporate,
government and municipal debt securities for sale to customers.

In October  2000,  the  Company  opened a branch  office of National in New York
City. This office specializes in broker-to-broker  fixed income transactions and
equity market making activities.  At National,  a staff of four traders and five
assistants in its New York and Seattle offices manage an inventory of securities
and conduct  market-making  activities.  In February 2001, National expanded its
New York market-making trade activities.  By July 2001, National made markets in
approximately 2,000 securities comprised mainly of equities traded on the NASDAQ
and OTC Bulletin Board. As a result of the losses attributable to a slow-down in
the  broader  market,   National  subsequently  has  substantially  reduced  its
market-making  trading  activities.  As of September 30, 2004,  National did not
make markets in any  securities,  in  preparation  for the  commencement  of its
clearing  relationship with Fiserv.  National anticipates that it will engage in
some market-making trading activity in the future, which would include companies
for which National managed or co-managed a public offering.

The  Company's  trading  departments  require  a  commitment  of  capital.  Most
principal  transactions  place the Company's capital at risk. Profits and losses
are dependent upon the skill of the traders,  price movements,  trading activity
and the size of inventories. Since the Company's trading activities occasionally
may involve speculative and thinly capitalized stocks, including stabilizing the
market for securities  which it has  underwritten,  the Company imposes position
limits to reduce its potential for loss.

In  executing  customer  orders to buy or sell a security  in which the  Company
makes a market, the Company may sell to, or purchase from,  customers at a price
that is  substantially  equal to the current  inter-dealer  market price plus or
minus a mark-up or  mark-down.  The  Company may also act as agent and execute a
customer's purchase or sale order with another broker-dealer market-maker at the
best  inter-dealer  market price available and charge a commission.  The Company
believes its mark-ups,  mark-downs and commissions are competitive  based on the
services it provides to its customers.

In  executing  customer  orders  to  buy or  sell  listed  and  over-the-counter
securities in which it does not make a market,  the Company generally acts as an
agent and charges  commissions that the Company believes are competitive,  based
on the services the Company provides to its customers.

INVESTMENT BANKING

National provides corporate finance and investment  banking services,  including
underwriting  the sale of securities to the public and arranging for the private
placement of securities with investors.  National's corporate finance operations
provide a broad range of financial and corporate  advisory  services,  including
mergers and  acquisitions,  project  financing,  capital  structure and specific
financing  opportunities.  National has also underwritten both equity securities
and convertible corporate bonds as initial or secondary public offerings.

COMPETITION

The Company is engaged in a highly competitive business.  With respect to one or
more aspects of its business,  its competitors  include member  organizations of
the NYSE and other  registered  securities  exchanges  in the United  States and
Canada, and members of the NASD. Many of these  organizations have substantially
greater  personnel  and  financial  resources  and more sales  offices  than the
Company. Discount brokerage firms affiliated with commercial banks provide

                                      -8-
<PAGE>

additional  competition,  as well as companies that provide  electronic  on-line
trading. In many instances,  the Company is also competing directly for customer
funds with investment opportunities offered by real estate, insurance,  banking,
and savings and loans industries.  For a further  discussion of risks facing the
Company, please see "Risk Factors."

GOVERNMENT REGULATION AND SUPERVISION

The  securities  industry  and  National's  business  is  subject  to  extensive
regulation  by the SEC,  state  securities  regulators  and  other  governmental
regulatory  authorities.  The  principal  purpose  of these  regulations  is the
protection  of  customers  and the  securities  markets.  The SEC is the federal
agency charged with the  administration of the federal  securities laws. Much of
the regulation of broker-dealers, however, has been delegated to self-regulatory
organizations  that adopt  rules,  subject to approval by the SEC,  which govern
their members and conduct  periodic  examinations  of member firms'  operations.
Securities firms are also subject to regulation by state securities  commissions
in  the  states  in  which  they  are  registered.   National  is  a  registered
broker-dealer  with the SEC and a member of the NASD.  It is licensed to conduct
activities as a broker-dealer in all 50 states.

In addition,  as a registered  broker-dealer and member of the NASD, National is
subject to the SEC's net capital rule,  which is designed to measure the general
financial integrity and liquidity of a broker-dealer.  Net capital is defined as
the net worth of a broker-dealer  subject to certain  adjustments.  In computing
net capital,  various  adjustments are made to net worth that exclude assets not
readily  convertible  into cash.  Additionally,  the  regulations  require  that
certain assets, such as a broker-dealer's position in securities, be valued in a
conservative  manner so as to avoid  over-inflation of the  broker-dealer's  net
capital.

The Securities  Exchange Act of 1934, as amended (the "Exchange  Act"),  and the
NASD Conduct Rules require the Company's  subsidiary to supervise the activities
of its investment  executives.  As part of providing such supervision,  National
maintains Written  Supervisory  Procedures and a Compliance  Manual.  Compliance
personnel  and  outside   auditors   conduct   inspections   of  branch  offices
periodically to review  compliance with the Company's  procedures.  A registered
principal  provides onsite  supervision at each of the Company's larger offices.
The other  offices  (averaging  two  investment  executives  per office) are not
required by NASD rules to have a registered  principal on site and are therefore
supervised by registered  principals of National.  Designated  principals review
customer  trades to ensure  compliance  with the NASD  Conduct  Rules  including
mark-up guidelines.

In May 2002,  without  admitting  or denying  the alleged  violations,  National
accepted  and  consented  to  the  entry  of  the  following  findings  by  NASD
Regulation:  at various times in 2001,  the firm  violated SEC Rule 17-A-4,  SEC
Rule 17-A-3, NASD Rule 3010, NASD Rule 3110, and NASD rule 6620(A). The firm was
censured and fined $7,500 in a settlement dated May 2, 2002.

In July 2002,  without  admitting  or denying the alleged  violations,  National
accepted  and  consented  to  the  entry  of  the  following  findings  by  NASD
Regulation:  at various  times in 2000 and 2001,  the firm violated NASD Conduct
Rule 11870.  The firm was censured  and fined $1,000 in a settlement  dated July
2002.

In September 2002, without admitting or denying the alleged violations, National
accepted  and  consented  to  the  entry  of  the  following  findings  by  NASD
Regulation: at various times in 2001, the firm violated NASD Conduct Rules 2110,
Rule 6240(a)(3), and Rule S6240(b)(3). The firm was censured and fined $7,500 in
a settlement dated September 27, 2002.

In July 2003,  without  admitting  or denying the alleged  violations,  National
accepted  and  consented  to  the  entry  of  the  following  findings  by  NASD
Regulation:  at various times in 2001,  the firm violated SEC Rule 11Ac1-4.  The
firm was censured and fined $7,500 in a settlement dated July 24, 2003.

                                      -9-
<PAGE>

In September 2003, without admitting or denying the alleged violations, National
accepted  and  consented to the entry of the  following  findings by the Florida
Office of  Financial  Regulation:  at various  times in 2001 and 2002,  the firm
violated  certain record  keeping  rules.  The firm agreed to update its Written
Supervisory Procedures, and the firm was fined $15,000 in a final administrative
order dated September 5, 2003.

In  January  2004,  National  entered  into a  consent  order  with the State of
Missouri for alleged failure to supervise one  representative by allowing him to
maintain incomplete or blank securities related business forms signed by clients
or  potential  clients  in  violation  of  record  keeping   requirements  under
409.4-411(c)(1)  of the 2003  Act.  The firm  agreed  to  provide  its  Missouri
registered agents with notice to cease this activity immediately and destroy all
such forms; the firm was fined $13,000.

The NASD was engaged in an  industry-wide  investigation  of mutual fund trading
activities. National is one of the numerous broker-dealers that was contacted by
the  NASD  with  respect  to this  investigation.  The NASD  identified  certain
customer  mutual fund  transactions  ordered  through  National  during the time
period from October 2000 to February  2003 that it believed  constituted  mutual
fund timing and/or excessive trading  activity.  National engaged in discussions
and negotiations  with the NASD to informally  resolve these matters.  In August
2004,  such  resolution  resulted in a  settlement,  whereby  National,  without
admitting or denying any violations,  agreed to make both  restitution and pay a
fine to the NASD, that in the aggregate approximate $600,000.  Additionally, the
Company  is  obligated  to pay the fines  imposed  by the NASD on two  executive
officers totaling $50,000 pursuant to its indemnification obligations.

VENTURE CAPITAL

In March 2001, the Company had its initial  closing of Robotic  Ventures Fund I,
L.P. (the "Fund"),  a venture  capital fund  dedicated to investing in companies
engaged in the business of robotics and artificial intelligence. The Fund raised
a total of $5.2 million,  $265,000 of which was capital directly invested by the
Company into the Fund,  representing a 5.1% limited partnership  interest in the
Fund. The Company serves as the managing  member of Robotic  Ventures Group LLC,
the general  partner of the Fund (the "Fund General  Partner").  As the managing
member of the Fund General  Partner,  the Company is entitled to a 2% management
fee paid by the Fund. Additionally,  the Company invested $1,000, and owns 24.5%
of the  limited  liability  company  membership  interests  in the Fund  General
Partner,  which is entitled to 20% of the  profits  generated  by the Fund after
investors in the Fund receive the return of their invested capital, representing
a 4.9% indirect interest in the profits of the Fund. The Company keeps the books
and records of the Fund and oversees the Fund's investments.  From time to time,
employees of National will work with and advise the Fund's investee companies on
its business plan,  capital structure and future goals. The Company has not been
compensated  or engaged to provide any  management  or advisory  services to the
investee  companies.  In  February  2002,  due  to a  dramatic  slowdown  in the
technology  venture  markets,  the Fund  returned a majority  of the  uninvested
capital to the investors,  representing  approximately  50% of the funds raised,
and no further management fees are to be paid.

The carrying  amount of the  Company's  investment  in the Fund was $107,000 and
$107,000 at  September  30,  2004 and  September  30,  2003,  respectively.  The
Company's  investment in the Fund is accounted for in accordance with the equity
method of accounting. The Company recognized a loss on this investment of $0 and
$29,000 during fiscal years 2004 and 2003, respectively. During the formation of
the Fund, the Company incurred various start-up  expenses that were subsequently
reimbursed by the Fund.

                                      -10-
<PAGE>

RISK FACTORS

The  financial  statements  contained in this report and the related  discussion
describe and analyze the Company's  financial  performance and condition for the
periods  indicated.  For the most part,  this  information  is  historical.  The
Company's  prior  results,  however,  are  not  necessarily  indicative  of  the
Company's future performance or financial condition. The Company, therefore, has
included  the  following  discussion  of certain  factors  that could affect the
Company's future performance or financial  condition.  These factors could cause
the Company's  future  performance or financial  condition to differ  materially
from  its  prior  performance  or  financial   condition  or  from  management's
expectations  or  estimates of the  Company's  future  performance  or financial
condition.  These factors,  among others,  should be considered in assessing the
Company's  future  prospects  and prior to making an  investment  decision  with
respect to the Company's  stock. The risks described below are not the only ones
facing  us.  Additional  risks not  presently  known to us or that we  currently
believe are immaterial may also impair our business operations.

OPERATING RESULTS HAVE RESULTED IN REPORTING LOSSES.

Although the Company was  profitable in fiscal year 2004, it realized  losses in
both the third and fourth  quarters  of fiscal  year 2004,  and it has  reported
losses of approximately  $843,000, $3.4 million and $7.9 million in fiscal years
2003, 2002 and 2001,  respectively.  There is no assurance that the Company will
be profitable in the future. The Company's losses were primarily attributable to
the market  slowdowns and reduced trading  activity and volatility.  The Company
anticipates that with improved market  conditions and increased  revenues it may
again be profitable for the fiscal year; however, there can be no assurance that
current  levels of revenue  realized in fiscal year 2004 will  continue and that
recent  profitability will continue to be realized.  If we are unable to achieve
or sustain profitability,  we may need to curtail,  suspend or terminate certain
operations.

THE COMPANY MAY REQUIRE ADDITIONAL FINANCING.

In order  for the  Company  to have  the  opportunity  for  future  success  and
profitability,  it periodically may need to obtain additional financing,  either
through  borrowings,  public  offerings,  private  offerings,  or  some  type of
business  combination  (e.g.,  merger,  buyout,  etc.). The Company has actively
pursued a variety of funding sources, and has consummated certain  transactions,
including the Investment  Transaction and private  offerings in order to address
the capital  requirements of the Company.  The Company may need to seek to raise
additional  capital  through  other  available  sources,   including   borrowing
additional  funds from third parties and there can be no assurance  that it will
be successful in such pursuits.  Additionally, the issuance of new securities to
raise  capital will cause the  dilution of shares held by current  stockholders.
Accordingly,  if we are unable to generate adequate cash from operations, and if
we are unable to find sources of funding, it would have an adverse impact on our
liquidity and operations.

IF THE COMPANY IS UNABLE TO PAY ITS OUTSTANDING  DEBT  OBLIGATIONS WHEN DUE, THE
COMPANY'S OPERATIONS MAY BE MATERIALLY ADVERSELY AFFECTED.

At September 30, 2004, we had an aggregate indebtedness of $2,855,000,  of which
$2,000,000  matures in during  fiscal year 2005.  The Company  cannot assure you
that our operations  will generate  funds  sufficient to repay our existing debt
obligations  as they come due. The Company's  failure to repay its  indebtedness
and make  interest  payments as required by our debt  obligations,  could have a
material adverse affect on the Company's operations.

THE COMPANY'S LETTER OF INTENT WITH FIRST MONTAUK FINANCIAL CORP. IS PRELIMINARY
AND THERE IS NO ASSURANCE THAT A TRANSACTION WILL BE CONSUMMATED.

                                      -11-
<PAGE>

On October 12, 2004, the Company  announced that it had entered into a letter of
intent with First Montauk  Financial Corp. for a merger or other  combination of
the  companies.  First Montauk  Financial  Corp. is the parent  company of First
Montauk Securities Corp., a registered securities broker/dealer headquartered in
Red Bank,  New Jersey.  The letter of intent is subject to numerous  conditions,
including:  satisfactory completion of due diligence,  finalization of the terms
of the combination and structure of the  transaction;  negotiation,  preparation
and execution of definitive  transaction  documents,  compliance  with state and
federal  securities  laws  and  regulations,  and  corporate,   shareholder  and
regulatory approvals. As a result of the foregoing uncertainties,  no assurances
can be given that the transaction will be consummated.

EVEN IF A TRANSACTION  WITH FIRST MONTAUK  FINANCIAL CORP. IS  CONSUMMATED,  THE
COMPANY MAY NOT REALIZE THE FINANCIAL AND STRATEGIC GOALS THAT ARE  CONTEMPLATED
BY SUCH TRANSACTION.

Even if a merger or other  combination  agreement  between the Company and First
Montauk  Financial Corp. is consummated,  the financial and strategic goals that
are  contemplated  by such  transaction may not be realized.  In addition,  such
transaction  could  be  dilutive  to  earnings,  and we could  overpay  for such
transaction.  Additionally, we may not be successful in our efforts to integrate
the companies.  Integration  of the companies  will divert  management and other
resources  from  other  important  matters,  and we could  experience  delays or
unusual expenses in the integration process.  Further, we may become responsible
for liabilities  associated with First Montauk Financial Corp.'s business to the
extent they are not covered by indemnification or by insurance.

BECAUSE THE COMMON STOCK MAY BE SUBJECT TO "PENNY STOCK"  RULES,  THE MARKET FOR
THE COMMON STOCK MAY BE LIMITED.

If the Common Stock becomes subject to the Securities and Exchange  Commission's
(the "SEC") penny stock  rules,  broker-dealers  may  experience  difficulty  in
completing   customer   transactions  and  trading  activity  in  the  Company's
securities  may be  adversely  affected.  If at any time the Common  Stock has a
market  price per share of less than $5.00,  and the  Company  does not have net
tangible assets of at least $2,000,000 or average revenue of at least $6,000,000
for the preceding  three years,  transactions in the Common Stock may be subject
to the "penny  stock"  rules  promulgated  under the Exchange  Act.  Under these
rules,  broker-dealers  who  recommend  such  securities  to persons  other than
institutional accredited investors:

      o     must  make a  special  written  suitability  determination  for  the
            purchaser;

      o     receive the purchaser's  written agreement to a transaction prior to
            sale;

      o     provide the purchaser with risk disclosure  documents which identify
            certain risks  associated with investing in "penny stocks" and which
            describe  the  market  for  these  "penny   stocks"  as  well  as  a
            purchaser's legal remedies; and

      o     obtain  a  signed  and  dated   acknowledgment  from  the  purchaser
            demonstrating  that the purchaser has actually received the required
            risk disclosure document before a transaction in a "penny stock" can
            be completed.

If the Common Stock becomes subject to these rules,  broker-dealers  may find it
difficult  to  effectuate  customer  transactions  and  trading  activity in the
Company's securities may be adversely affected. As a result, the market price of
the Company's  securities may be depressed,  and  stockholders  may find it more
difficult to sell the Company's securities.

NATIONAL IS SUBJECT TO VARIOUS RISK ASSOCIATED WITH THE SECURITIES INDUSTRY.

As a securities  broker-dealer,  National is subject to  uncertainties  that are
common in the securities industry. These uncertainties include:

      o     the  volatility of domestic and  international  financial,  bond and
            stock markets;

                                      -12-
<PAGE>

      o     extensive governmental regulation;

      o     litigation;

      o     intense competition;

      o     substantial   fluctuations   in  the  volume  and  price   level  of
            securities; and

      o     dependence on the solvency of various third parties.

As a result,  revenues  and  earnings  may vary  significantly  from  quarter to
quarter  and from year to year.  In  periods  of low  volume,  profitability  is
impaired  because certain  expenses remain  relatively  fixed. In the event of a
market  downturn,  our business  could be adversely  affected in many ways.  Our
revenues  are likely to decline in such  circumstances  and, if we are unable to
reduce expenses at the same pace, our profit margins would erode.

FAILURE TO COMPLY WITH NET CAPITAL  REQUIREMENTS  COULD  SUBJECT US TO SANCTIONS
IMPOSED BY THE SEC OR THE NASD.

National is subject to the SEC's net capital rule which requires the maintenance
of minimum  net  capital.  We compute  net capital  under the  alternate  method
permitted by the net capital rule.  National is required to maintain net capital
equal to the greater of $250,000 or a specified amount per security based on the
bid price of each security for which National is a market maker. The net capital
rule is designed to measure the general  financial  integrity and liquidity of a
broker-dealer.  Compliance with the net capital rule limits those  operations of
broker-dealers  that  require  the  intensive  use of  their  capital,  such  as
underwriting commitments and principal trading activities.  The rule also limits
the ability of  securities  firms to pay  dividends or make  payments on certain
indebtedness,  such as subordinated debt, as it matures.  The NASD may enter the
offices of a broker-dealer at any time, without notice, and calculate the firm's
net capital.  If the calculation  reveals a deficiency in net capital,  the NASD
may  immediately  restrict  or  suspend  certain or all of the  activities  of a
broker-dealer. National may not be able to maintain adequate net capital, or its
net capital may fall below  requirements  established by the SEC, and subject us
to disciplinary action in the form of fines, censure,  suspension,  expulsion or
the termination of business altogether.

THE  COMPANY'S  BUSINESS  COULD BE  ADVERSELY  AFFECTED  BY A  BREAKDOWN  IN THE
FINANCIAL MARKETS.

As a securities  broker-dealer,  National's  business is materially  affected by
conditions in the financial markets and economic conditions  generally,  both in
the United States and elsewhere  around the world.  Many factors or events could
lead to a breakdown in the financial markets including war,  terrorism,  natural
catastrophes  and other types of  disasters.  These types of events  could cause
people to begin to lose confidence in the financial markets and their ability to
function effectively. If the financial markets are unable to effectively prepare
for these  types of  events  and ease  public  concern  over  their  ability  to
function,  the  Company's  revenues  are  likely to  decline  and the  Company's
operations will be adversely affected.

MARKET FLUCTUATIONS MAY REDUCE THE COMPANY'S REVENUES AND PROFITABILITY.

The Company's revenue and profitability may be adversely affected by declines in
the volume of securities transactions and in market liquidity. Additionally, the
Company's  profitability may be adversely affected by losses from the trading or
underwriting  of  securities  or failure of third  parties to meet  commitments.
National  acts as a market maker in publicly  traded  common  stocks.  In market
making  transactions,  the Company undertakes the risk of price changes or being
unable to resell  the  common  stock it holds or being  unable to  purchase  the
common stock it has sold.  These risks are heightened by the illiquidity of many
of the common stocks the Company  trades and/or makes a market.  Any losses from
the Company trading activities, including as a result of unauthorized trading by
the Company's  employees,  could have a material adverse effect on the Company's
business, financial condition, results of operations or cash flows.

                                      -13-
<PAGE>

Lower   securities  price  levels  may  also  result  in  a  reduced  volume  of
transactions,  as well as losses  from  declines  in the market  value of common
stocks  held for  trading  purposes.  During  periods  of  declining  volume and
revenue,  the Company's  profitability would be adversely affected.  Declines in
market  values of common  stocks and the failure of issuers and third parties to
perform their obligations can result in illiquid markets.

COMPETITION  WITH  OTHER  FINANCIAL  FIRMS  MAY HAVE A  NEGATIVE  EFFECT  ON THE
COMPANY'S BUSINESS.

The  Company   competes   directly  with  national  and  regional   full-service
broker-dealers  and a broad range of other  financial  service firms,  including
banks and insurance  companies.  Competition has increased as smaller securities
firms have either ceased doing  business or have been acquired by or merged into
other firms.  Mergers and  acquisitions  have increased  competition  from these
firms, many of which have significantly greater financial,  technical, marketing
and other  resources  than the  Company  has.  Many of these  firms  offer their
customers  more  products and research  than  currently  offered by the Company.
These  competitors  may be able  to  respond  more  quickly  to new or  changing
opportunities,  technologies  and client  requirements.  The Company  also faces
competition  from  companies  offering  discount  and/or  electronic   brokerage
services,  including  brokerage  services provided over the Internet,  which the
Company  is  currently  not  offering  and  does  not  intend  to  offer  in the
foreseeable  future.  These  competitors  may have lower  costs or provide  more
services,  and may offer their  customers  more favorable  commissions,  fees or
other terms than those  offered by the  Company.  To the extent that issuers and
purchasers  of  securities  transact  business  without  the  assistance  of the
Company, the Company's operating results could be adversely affected.

THE  COMMON  STOCK  HAS BEEN  DELISTED  FROM THE  AMERICAN  STOCK  EXCHANGE  AND
ACCORDINGLY ITS LIQUIDITY AND PRICE MAY BE ADVERSELY AFFECTED.

The Common Stock was  previously  listed on The  American  Stock  Exchange  (the
"AMEX").  In February  2003,  the Company  received  notification  from the AMEX
indicating that it was not in compliance with the listing  standard  relating to
shareholders'  equity of less than  $2.0  million  and  losses  from  continuing
operations  and/or net losses in two out of our three most recent  fiscal years.
The Company submitted a plan to the AMEX indicating  compliance within a maximum
of 18 months.  In May 2003,  the AMEX  notified the Company that it had accepted
its plan of compliance and granted the Company an extension of time to August 5,
2004 to satisfy the financial standards requirement.  The Company,  however, was
unable to comply with the listing  standard.  Consequently,  on November 1, 2004
the  Common  Stock  was  removed  from  the AMEX and  commenced  trading  on the
Over-the-Counter  Bulletin Board. Such alternative is generally considered to be
a less efficient market, and the Company's stock price, as well as the liquidity
of the Common Stock, may be adversely impacted as a result.

THE COMPANY IS CURRENTLY  SUBJECT TO  EXTENSIVE  SECURITIES  REGULATION  AND THE
FAILURE TO COMPLY WITH THESE  REGULATIONS COULD SUBJECT THE COMPANY TO PENALTIES
OR SANCTIONS.

The  securities  industry  and the  Company's  business are subject to extensive
regulation  by the SEC,  state  securities  regulators  and  other  governmental
regulatory   authorities.   The   Company   is  also   regulated   by   industry
self-regulatory  organizations,  including the NASD and the MSRB.  National is a
registered broker-dealer with the SEC and member firms of the NASD.

Broker-dealers  are  subject  to  regulations  which  cover all  aspects  of the
securities business, including sales methods and supervision,  trading practices
among  broker-dealers,  use and safekeeping of customers'  funds and securities,
capital  structure  of  securities  firms,  record  keeping,  and the conduct of
directors, officers and employees. The regulatory environment is also subject to
change.

Compliance  with many of the  regulations  applicable to the Company  involves a
number of risks,  particularly  in areas  where  applicable  regulations  may be
subject to varying interpretation. These regulations often serve to limit the

                                      -14-
<PAGE>

Company's  activities,  including through net capital,  customer  protection and
market  conduct  requirements.  If the  Company  is  found to have  violated  an
applicable  regulation,  administrative or judicial proceedings may be initiated
against  the  Company  that may  result in a  censure,  fine,  civil  penalties,
issuance of  cease-and-desist  orders,  the  deregistration or suspension of the
Company's  broker-dealer  activities,  the suspension or disqualification of the
Company's officers or employees,  or other adverse consequences.  The imposition
of any of these or other penalties  could have a material  adverse effect on the
Company's operating results and financial condition.

THE  COMPANY  RELIES ON  CLEARING  BROKERS  AND  UNILATERAL  TERMINATION  OF THE
AGREEMENTS WITH THESE CLEARING BROKERS COULD DISRUPT THE COMPANY'S BUSINESS.

The  Company  changed  from a  self-clearing  brokerage  firm to an  introducing
brokerage  firm,  using third party  clearing  brokers to process its securities
transactions and maintain customer accounts on a fee basis for the Company.  The
clearing  brokers also provide billing  services,  extend credit and provide for
control  and  receipt,  custody  and  delivery  of  securities.   The  Company's
broker-dealers  depend on the  operational  capacity and ability of the clearing
brokers for the orderly processing of transactions. In addition, by engaging the
processing  services of a clearing firm, the Company is exempt from some capital
reserve  requirements and other regulatory  requirements  imposed by federal and
state  securities laws. If the clearing  agreements are unilaterally  terminated
for any reason,  the Company would be forced to find alternative  clearing firms
without  adequate  time to negotiate  the terms of a new clearing  agreement and
without adequate time to plan for such change. There can be no assurance that if
there were a unilateral  termination of its clearing  agreement that the Company
would be able to find an alternative  clearing firm on acceptable  terms to them
or at all.

In December  2003,  National and its clearing  firm,  First  Clearing,  mutually
agreed to terminate  their clearing  relationship  by June 30, 2004. On June 22,
2004,  National  entered into an agreement  with Fiserv to act as clearing agent
for its brokerage  business.  The  conversion  from First Clearing to Fiserv was
substantially completed in the first week of October 2004.

The Company permits its clients to purchase securities on a margin basis or sell
securities  short,  which means that the  clearing  firm  extends  credit to the
client secured by cash and securities in the client's account. During periods of
volatile markets, the value of the collateral held by the clearing brokers could
fall below the amount  borrowed by the client.  If margin  requirements  are not
sufficient  to cover  losses,  the clearing  brokers sell or buy  securities  at
prevailing  market prices,  and may incur losses to satisfy client  obligations.
The Company's has agreed to indemnify the clearing brokers for losses they incur
while extending credit to the Company's clients.

CREDIT RISK EXPOSES THE COMPANY TO LOSSES CAUSED BY FINANCIAL OR OTHER  PROBLEMS
EXPERIENCED BY THIRD PARTIES.

The  Company  is  exposed  to the risk  that  third  parties  that owe it money,
securities  or other assets will not perform  their  obligations.  These parties
include trading counterparts,  customers,  clearing agents, exchanges,  clearing
houses,  and other financial  intermediaries as well as issuers whose securities
the Company holds.  These parties may default on their  obligations  owed to the
Company  due to  bankruptcy,  lack of  liquidity,  operational  failure or other
reasons.  This risk may arise,  for example,  from holding  securities  of third
parties,  executing  securities  trades that fail to settle at the required time
due to non-delivery by the  counterparty or systems failure by clearing  agents,
exchanges,  clearing  houses or other  financial  intermediaries,  and extending
credit  to  clients  through  bridge  or  margin  loans or  other  arrangements.
Significant  failures by third parties to perform their  obligations owed to the
Company could adversely affect the Company's  revenues and perhaps the Company's
ability to borrow in the credit markets.

                                      -15-
<PAGE>

ADVERSE  RESULTS OF CURRENT  LITIGATION  AND POTENTIAL  SECURITIES LAW LIABILITY
WOULD RESULT IN FINANCIAL LOSSES AND DIVERT MANAGEMENT'S ATTENTION TO BUSINESS.

Many aspects of the Company's  business involve  substantial risks of liability.
There has been an increase in litigation and  arbitration  within the securities
industry in recent  years,  including  class  action suits  seeking  substantial
damages.  The Company is subject to potential claims by dissatisfied  customers,
including  claims alleging they were damaged by improper sales practices such as
unauthorized trading, sale of unsuitable securities,  use of false or misleading
statements  in the sale of  securities,  mismanagement  and breach of  fiduciary
duty.  National may be liable for the unauthorized acts of its retail brokers if
it fails to adequately  supervise their conduct. As an underwriter,  the Company
may be subject to substantial  potential  liability  under federal and state law
and  court  decisions,   including  liability  for  material  misstatements  and
omissions in securities offerings.  The Company may be required to contribute to
a  settlement,  defense  costs  or a final  judgment  in  legal  proceedings  or
arbitrations  involving a past underwriting and in actions that may arise in the
future.  National  carries  "Errors and Omissions"  insurance to protect against
arbitrations;  however,  the policy is limited in items and amounts  covered and
there can be no assurance that it will cover a complaint. The adverse resolution
of any legal  proceedings  involving the Company  could have a material  adverse
effect on the Company's business,  financial condition, results of operations or
cash flows.

THE COMPANY  DEPENDS ON SENIOR  EMPLOYEES AND THE LOSS OF THEIR  SERVICES  COULD
HARM OUR BUSINESS.

The  Company  depends  on  the  continued   services  of  its  management  team,
particularly  Mark  Goldwasser,  the  Company's  President  and Chief  Executive
Officer, as well as its ability to hire additional members of management, and to
retain and  motivate  its other  officers  and key  employees.  In July 2003 the
compensation committee of the Company and Mr. Goldwasser agreed to enter into an
employment  agreement for an annual base salary of $300,000.  Mr. Goldwasser has
been salaried at that rate since July 2003.  The Company's  future  success also
depends  on its  continuing  ability  to attract  and  retain  highly  qualified
personnel.

THE COMPANY FACES SIGNIFICANT COMPETITION FOR REGISTERED REPRESENTATIVES.

From time to time registered  representatives  affiliated with National  employs
may choose to leave our  company  to pursue  other  opportunities.  The level of
competition  for  registered  representatives  remains  intense.  The  loss of a
significant number of registered  representatives could materially and adversely
affect the Company's operating results.

THE PRICE OF THE COMMON STOCK IS VOLATILE.

The price of the Common Stock has fluctuated  substantially.  (See Part II, Item
5). The market price of the Common  Stock may be highly  volatile as a result of
factors specific to the Company and the securities  markets in general.  Factors
affecting  volatility  may  include:  variations  in  the  Company's  annual  or
quarterly  financial  results  or those of its  competitors;  conditions  in the
economy in general;  and changes in  applicable  laws or  regulations,  or their
judicial  or  administrative   interpretations  affecting  the  Company  or  its
subsidiary or the  securities  industry.  In addition,  volatility of the market
price of the Common Stock is further affected by its thinly traded nature.

WE HAVE RESTRICTED  SHARES  OUTSTANDING THAT MAY DEPRESS THE PRICE OF THE COMMON
STOCK.

As of September 30, 2004, of the 4,984,332  outstanding  shares of Common Stock,
1,350,000 shares may be deemed restricted shares and, in the future, may be sold
in compliance  with Rule 144 under the Securities  Act. Rule 144 provides that a
person holding  restricted  securities for one year may sell shares in brokerage
transactions,  subject to limitations based on the number of shares  outstanding
and  trading  volume.  A person who is not  affiliated  with us and who has held
restricted  securities for two years is not subject to these limitations as long
as the other  conditions  of Rule 144 are met.  Such sales may have a depressive
effect on the price of the Common Stock in the open market.

                                      -16-
<PAGE>

THE  COMPANY'S  PRINCIPAL  SHAREHOLDERS  INCLUDING  OUR  DIRECTORS  AND OFFICERS
CONTROL A LARGE  PERCENTAGE OF OUR SHARES OF COMMON STOCK AND CAN  SIGNIFICANTLY
INFLUENCE OUR CORPORATE ACTIONS.

At the present time, the Company's  executive  officers,  directors and entities
that these  individuals  are  affiliated  with own  approximately  21% of Common
Stock, including shares of Common Stock issuable upon conversion of the Series A
Preferred  Stock, and excluding stock options and warrants.  Accordingly,  these
individuals  and entities will be able to  significantly  influence most, if not
all,  of our  corporate  actions,  including  the  election  of  directors,  the
appointment of officers, and potential merger or acquisition transactions.

ITEM 2. PROPERTIES

The Company owns no real property.  Its corporate  headquarters  are shared with
National  in leased  space in  Chicago,  Illinois  and New York,  New York.  The
Company leases office space in Boca Raton,  Florida, and through its subsidiary,
the Company leases office space in Chicago,  New York,  Seattle,  Washington and
Los Angeles,  California.  Independent contractors individually lease the branch
offices that are operated by those independent contractors.

Leases expire at various times through June 2012. The Company  believes the rent
at each of its  locations  is at current  market  rates.  At current  production
levels, the Company believes that certain of its leased space in Chicago and New
York is excessive, and has sublet this space to third parties.

ITEM 3. LEGAL PROCEEDINGS

Fastpoint Communications, Inc. - In June 2002, National was named, together with
others, as a defendant in a class action lawsuit relating to a series of private
placements of securities in Fastpoint Communications, Inc. in the Superior Court
for the State of California for the County of San Diego,  Case No GIC 791372. In
August 2002,  plaintiffs filed an amended complaint alleging violations of state
statutory and common law as well as of Section 12 of the Securities Act of 1933,
15 U.S.C. ss. 77l. Plaintiffs are seeking  approximately  $14.0 million,  but no
specific  amount of damages has been sought  against  National in the complaint.
The complaint  asserts claims in connection  with  National's  role as placement
agent in a series of private  placements of securities in Fastpoint.  Plaintiffs
allege that the  private  placement  memoranda  contained  false and  misleading
statements  or  omitted  facts  necessary  to make  statements  not  misleading.
National  filed its answer in April 2003. In January 2004,  the court entered an
order  denying  class  certification.  As a result of this order  denying  class
certification,  the only remaining  claims  against  National are the individual
claims asserted by the two class  representatives  totaling $60,000.  Plaintiffs
have  filed an appeal of this order and it is in the  process of being  briefed.
The action in the lower court,  including a pending motion for summary judgment,
has been stayed. The Company believes it has meritorious defenses and intends to
vigorously  contest  class  certification  and defend this action,  although the
ultimate  outcome of the matter cannot be determined at this time.  Accordingly,
the Company is unable to predict the outcome of this matter,  and no adjustments
have been made in the  consolidated  financial  statements  in  response to this
matter.

Craig M. Gould - In April 2002, a former executive officer of the Company, Craig
M. Gould,  commenced an action  against the Company,  in the matter titled Gould
vs. Olympic Cascade Financial Corporation,  et al., NASD No. 02-03542. Mr. Gould
claimed a breach of his employment contract,  and sought approximately  $850,000
in  damages.  The  arbitration  commenced  in July 2003,  and was  completed  in
December 2003. In January 2004, the  arbitration  panel awarded  damages against
the Company of  approximately  $400,000  that was  accrued in the quarter  ended
December  31, 2003.  The Company paid this award during the quarter  ended March
31, 2004.

                                      -17-
<PAGE>

NASD - The NASD was  engaged in an  industry-wide  investigation  of mutual fund
trading  activities.  National is one of the  numerous  broker-dealers  that was
contacted by the NASD with respect to this  investigation.  The NASD  identified
certain  customer mutual fund  transactions  ordered through National during the
time period from  October  2000 to  February  2003 that it believed  constituted
mutual  fund timing  and/or  excessive  trading  activity.  National  engaged in
discussions and negotiations with the NASD to informally  resolve these matters.
Such resolution resulted in a settlement, whereby National, without admitting or
denying any  violations,  agreed to make both  restitution and pay a fine to the
NASD, that in the aggregate approximate $600,000.  Additionally,  the Company is
obligated  to pay  the  fines  imposed  by the  NASD on two  executive  officers
totaling $50,000 pursuant to its  indemnification  obligations.  The Company has
included the $650,000 in  "Professional  fees" for the year ended  September 30,
2004.  The unpaid  balance of  approximately  $562,000 at September 30, 2004 has
been included in "Accounts  Payable,  Accrued Expenses and Other Liabilities" in
the accompanying consolidated statements of financial condition.

The Company is also a defendant in various other arbitrations and administrative
proceedings, lawsuits and claims, seeking damages aggregating approximately $1.1
million  (exclusive of specified  punitive  damages of  approximately  $300,000,
unspecified  punitive  damages related to certain claims and expected  insurance
coverage).  The Company has filed a counterclaim for  approximately  $220,000 in
one such  proceeding.  These matters arise out of the normal course of business.
The Company intends to vigorously  defend itself in these actions,  and believes
that the  eventual  outcome of these  matters  will not have a material  adverse
effect on the Company.  However, the ultimate outcome of these matters cannot be
determined at this time. The amounts related to such matters that are reasonably
estimable  and which  have been  accrued  at  September  30,  2004 and 2003,  is
$731,000  and  $366,000,  respectively,  and have  been  included  in  "Accounts
Payable,   Accrued   Expenses  and  Other   Liabilities"  in  the   accompanying
consolidated  statements  of  financial  condition.  The Company has included in
"Professional fees" litigation and NASD related expenses of $1,674,000, $945,000
and  $499,000  for the fiscal years ended  September  30,  2004,  2003 and 2002,
respectively.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There  were no matters  submitted  to a vote of  security  holders in the fourth
quarter of fiscal year ended September 30, 2004.


                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED
        STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

On November 1, 2004, the Common Stock commenced  trading under the symbol "OLYD"
on the Over-the-Counter  Bulletin Board. Previously,  the Common Stock traded on
the AMEX under the symbol "OLY".

The high and low sales  prices  for the Common  Stock for the period  October 1,
2002 to September 30, 2004, as listed on the AMEX, were as follows:

                                      -18-
<PAGE>

PERIOD                                        HIGH               LOW
------                                        ----               ---

October 1, 2002/December 31, 2002             $0.60             $0.25
January 1, 2003/March 31, 2003                $0.45             $0.25
April 1, 2003/June 30, 2003                   $1.00             $0.20
July 1, 2003/September 30, 2003               $1.73             $0.85

October 1, 2003/December 31, 2003             $1.69             $1.17
January 1, 2004/March 31, 2004                $3.13             $1.30
April 1, 2004/June 30, 2004                   $2.50             $1.35
July 1, 2004/September 30, 2004               $1.85             $0.60

The closing  price of the Common Stock on December  17,  2004,  as quoted on the
Over-the-Counter Bulletin Board, was $.89 per share.

SHAREHOLDERS

As of September  30, 2004,  the Company had  approximately  1,000  shareholders,
including those shareholders holding stock in street name and trust accounts.

DIVIDENDS

Delaware  law  authorizes  the  Company's  Board of Directors to declare and pay
dividends with respect to the Common Stock either out of its surplus (as defined
in the Delaware  Corporation  Law) or, in case there is no such surplus,  out of
its net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year;  provided,  however,  that no dividend may be paid out of
net  profits  unless  the  Company's   capital  exceeds  the  aggregate   amount
represented  by the  issued  and  outstanding  stock  of all  classes  having  a
preference in the distribution of assets. The Company's ability to pay dividends
in the future also may be restricted by its operating subsidiary's obligation to
comply with the net capital  requirements  imposed on  broker-dealers by the SEC
and the NASD.  Prior to the  issuance  of the  Series A  Preferred  Stock in the
Investment Transaction,  no shareholder held preferential rights in liquidation.
The Company has never  declared a cash dividend and does not  presently  foresee
declaring one in the coming fiscal year.

The holders of the Series A Convertible  preferred stock are entitled to receive
dividends  on a  quarterly  basis at a rate of 9% per  annum,  per  share.  Such
dividends  are  cumulative  and accrue  whether or not declared by the Company's
Board of  Directors,  but are  payable  only  when,  as and if  declared  by the
Company's  Board of Directors.  In March 2004, the Company's  Board of Directors
declared  an  in-kind  dividend  in the  aggregate  of 3,352  shares of Series A
Preferred  Stock,  in payment of  approximately  $503,000 of  dividends  accrued
through  January  31,  2004.  Such  shares  were  issued on March 31,  2004.  At
September 30, 2004, the amount of accumulated  dividends on the Company's 31,177
issued and outstanding shares of Series A Preferred Stock was $182,000.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Item 12 of Part III contains information  concerning  securities  authorized for
issuance under our equity compensation plans.

RECENT SALES OF UNREGISTERED SECURITIES

The securities  described  below were sold by us during fiscal year 2003 without
being  registered  under the Securities  Act. All such sales made in reliance on
Section 4(2) and/or Rule 506 promulgated  thereunder of the Securities Act were,
to the best of our knowledge,  made to investors that,  either alone or together
with a representative that assisted such investor in connection with the

                                      -19-
<PAGE>

applicable investment, had such sufficient knowledge and experience in financial
and business  matters to be capable of evaluating the merits and risks connected
with the  applicable  investment.  In January  2004,  the Company  consummated a
private  offering of its securities to a limited number of accredited  investors
wherein the Company  issued an aggregate of $200,000 of  three-year,  10% senior
subordinated  promissory  notes to five  unaffiliated  parties.  The noteholders
received  three-year  warrants to purchase an aggregate of 50,000  shares of the
Company's  common  stock  at an  exercise  price  of $1.40  per  share,  with an
allocated fair value of approximately  $40,000.  The warrants are exercisable at
any time within three years from their  issuance.  In December 2004, the Company
rescinded  a note in the  principal  amount of $25,000 and a warrant to purchase
6,250 shares of Common Stock.

In February 2004, the Company  consummated a private  offering of its securities
to a limited  number of  accredited  investors  wherein  the  Company  issued an
aggregate of $850,000 of three-year, 10% senior subordinated promissory notes to
four  unaffiliated  parties.  The noteholders  received  three-year  warrants to
purchase an aggregate of 170,000 shares of the Common Stock at an exercise price
of $1.50 per share, with an allocated fair value of approximately  $143,000. The
warrants are  exercisable  at any time within  three years from their  issuance.
National  acted as the placement  agent for the private  offering.  The offering
period for the private offering expired on May 30, 2004.In the fourth quarter of
fiscal year 2004, the Company  consummated a private placement of its securities
to a limited number of accredited investors.  Each unit in the offering sold for
$1.60 and consisted of two shares of the Common Stock and one three-year warrant
to  purchase  one share of  Common  Stock at a per  share  price of  $1.50.  The
warrants are exercisable at any time within three years from their issuance. Net
proceeds of $930,500  closed in the fourth  quarter of fiscal year 2004, and the
Company  correspondingly  issued  1,250,000  shares of Common  Stock and 625,000
warrants.

ITEM 6. SELECTED FINANCIAL DATA

Set forth below is the historical financial data with respect to the Company for
the fiscal years ended 2004,  2003,  2002, 2001 and 2000.  This  information has
been derived from, and should be read in conjunction with, the audited financial
statements,  which appear  elsewhere in this report.  The financial data for the
fiscal  years  ended  2002,  2001 and 2000 have been  restated  to  reflect  the
discontinued  operations of the Company's former  subsidiary,  WestAmerica.  The
information  for the fiscal year 2002 has been revised to reflect the cumulative
dividends  on the Series A Preferred  Stock.  All  information  is  expressed in
thousands of dollars except for per share information.


<TABLE>
<CAPTION>
                                                                                      Fiscal Year
                                                          --------------------------------------------------------------------------
                                                             2004             2003            2002            2001            2000
                                                          --------------------------------------------------------------------------
<S>                                                       <C>              <C>             <C>             <C>             <C>
Net revenues                                              $ 63,591         $ 50,158        $ 42,002        $ 50,224        $ 56,213
Net income (loss) from continuing
  operations before extraordinary items                        566             (843)         (3,745)         (7,338)          1,356
Preferred stock dividends                                     (266)            (250)           (168)              -               -
Net income (loss) per common share
  from continuing operations                                  0.05            (0.34)          (1.73)          (3.33)           0.64
Total assets                                                 9,722            8,735           7,948          77,599          92,696
Long-term obligations                                          866            1,536           3,969           3,000             608
Stockholders' equity (deficit)                               1,929             (329)            (91)            622           8,039
Cash dividends                                                   -                -               -               -               -
</TABLE>


                                      -20-
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The Private Securities  Litigation Reform Act of 1995 provides a safe harbor for
forward-looking  statements.  This Report may contain  certain  statements  of a
forward-looking nature relating to future events or future business performance.
Any such statements that refer to the Company's  estimated or anticipated future
results  or other  non-historical  facts are  forward-looking  and  reflect  the
Company's  current  perspective  of  existing  trends  and  information.   These
statements   involve  risks  and  uncertainties  that  cannot  be  predicted  or
quantified and,  consequently,  actual results may differ  materially from those
expressed  or  implied  by  such  forward-looking  statements.  Such  risks  and
uncertainties  include, among others, risks and uncertainties detailed in Item 1
above. Any  forward-looking  statements  contained in or incorporated  into this
Report  speak only as of the date of this  Report.  The  Company  undertakes  no
obligation to update publicly any forward-looking statement, whether as a result
of new information, future events or otherwise.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The SEC recently issued proposed guidance for disclosure of critical  accounting
policies and estimates.  The Company's most critical  accounting policies relate
to income  recognition,  income taxes,  and  stock-based  compensation.  The SEC
defines  "critical  accounting  estimates" as those that require  application of
management's most difficult,  subjective or complex judgments, often as a result
of the need to make  estimates  about the effects of matters that are inherently
uncertain and may change in subsequent  periods.  In fiscal years 2004 and 2003,
the  Company  estimated  its  ability to collect  the  receivables  due from its
registered representatives. These receivables are derived from debts owed to the
Company and from money  advanced to the registered  representatives  that may be
forgiven  over  time  based  on  the  representatives'   affiliation  with,  and
production  at,  National.  The Company  also  estimated  the amount of reserves
necessary to cover existing contingencies.

RESULTS OF OPERATIONS

FISCAL YEAR 2004 COMPARED WITH FISCAL YEAR 2003

The  Company's  fiscal year 2004  resulted  in an  increase  in  revenues  and a
comparatively  lesser  increase in expenses  compared with fiscal year 2003. The
increase  in  revenues  is  primarily  due to the  improved  securities  markets
experienced  during the first six months of fiscal  year  2004,  which  weakened
during  the  second   six  months  of  the  fiscal   year,   and  the  gains  on
extinguishments  of debt. As a result of this overall  improvement,  the Company
reported net income  before  income taxes of $566,000  compared  with a net loss
before   income   taxes  of  $843,000  for  the  fiscal  years  2004  and  2003,
respectively. This represents an improvement of $1,409,000 from the prior year.

                                      -21-
<PAGE>

<TABLE>
<CAPTION>
                                                         Fiscal Year                      Increase (Decrease)
                                             -------------------------------------  -------------------------------
                                                   2004                2003              Amount          Percent
                                             -----------------   -----------------  -----------------  ------------
<S>                                               <C>                 <C>                <C>              <C>
Commissions                                       $46,881,000         $34,218,000        $12,663,000       37%
                                             -----------------   -----------------  -----------------
Proprietary trading                                 6,642,000          10,249,000         (3,607,000)     (35%)
Market making                                         645,000           1,115,000           (470,000)     (42%)
Mark-ups and mark-downs                               117,000             200,000            (83,000)     (42%)
                                             -----------------   -----------------  -----------------
Net dealer inventory gains                          7,404,000          11,564,000         (4,160,000)     (36%)
Investment banking                                  1,548,000             425,000          1,123,000      264%
Interest and dividends                              3,420,000           1,416,000          2,004,000      142%
Transfer fees and clearance services                2,806,000           1,850,000            956,000       52%
Gains on extinguishments of debt                    1,131,000                   -          1,131,000       n/a
Other                                                 401,000             685,000           (284,000)     (41%)
                                             -----------------   -----------------  -----------------
                                                  $63,591,000         $50,158,000        $13,433,000       27%
                                             =================   =================  =================
</TABLE>

Total revenues increased $13,443,000, or 27%, in fiscal year 2004 to $63,591,000
from  $50,158,000  in fiscal  year  2003.  This  increase  is mainly  due to the
improved securities markets in the first six months of fiscal year 2004 compared
to  fiscal  year  2003,  that  increased  commission  revenues,  the  number  of
commission tickets generated,  and the charge per ticket that affects commission
revenue,  and the gains on  extinguishments  of debt.  During  fiscal year 2004,
trading  volume  increased by  approximately  7%,  compared to fiscal year 2003.
Commission   revenue  increased   $12,663,000,   or  37%,  to  $46,881,000  from
$34,218,000  during fiscal year 2004 compared with fiscal year 2003.  Net dealer
inventory gains,  which includes profits on proprietary  trading,  market making
activities and customer mark-ups and mark-downs,  decreased $4,160,000,  or 36%,
to $7,404,000 from $11,564,000 during fiscal year 2004 compared with fiscal year
2003.  While all categories of net dealer  inventory  gains  decreased in fiscal
year 2004, the decrease is primarily due to a reduction in  proprietary  trading
in the bond market, reflecting an overall decline in this market compared to the
strength  realized  in the  equity  markets  during  the first six months of the
current  fiscal year, and the reduction in the Company's  market-making  trading
activities. During fiscal year 2004, revenues from proprietary trading decreased
$3,607,000,  or 35% to $6,642,000 from $10,249,000 in fiscal year 2003; revenues
from market  making  activities  decreased  $470,000,  or 42%, to $645,000  from
$1,115,000  in fiscal  year  2003;  and  revenues  from  customer  mark-ups  and
mark-downs  decreased $83,000,  or 42%, to $117,000 from $200,000 in fiscal year
2003.

Investment  banking revenue  increased  $1,123,000,  or 264%, to $1,548,000 from
$425,000 in fiscal year 2004  compared  with fiscal year 2003.  The  increase in
investment banking revenues is primarily  attributed to the Company's completion
of  private  placements  and an initial  public  offering  in fiscal  year 2004.
Interest and dividend  income  increased  $2,004,000 or 142%, to $3,420,000 from
$1,416,000 in fiscal year 2004  compared with fiscal year 2003.  The increase in
interest  income is attributable to an increase in the amount of customer debits
in National's  customers'  accounts and an increase in the interest rate charged
to such debits from the prior year. Transfer fees increased $956,000, or 52%, to
$2,806,000 in fiscal year 2004 from $1,850,000 in fiscal year 2003. The increase
is due to an increase in transaction volume associated with the Company's retail
brokerage business, and increased fees charged on certain accounts.

The Company  realized gains on  extinguishments  of debt of $1,131,000  from its
prior  clearing  firm,  First  Clearing,  in fiscal  year 2004.  Other  revenue,
consisting  of asset  management  fees and  miscellaneous  transaction  fees and
trading fees,  decreased  $284,000,  or 41%, to $401,000  from  $685,000  during
fiscal year 2004  compared to fiscal year 2003.  The  decrease is due to reduced
fees  attributable  to a reduction  in the volume of  institutional  business in
fiscal year 2004 compared to the same period last year.

                                      -22-
<PAGE>

<TABLE>
<CAPTION>
                                               Fiscal Year                          Increase (Decrease)
                                             -------------------------------------  -------------------------------
                                                   2004                2003              Amount          Percent
                                             -----------------   -----------------  -----------------  ------------
<S>                                              <C>                 <C>                 <C>              <C>
Commission expense related to:
       Commission revenue                        $ 38,980,000        $ 26,931,000        $12,049,000       45%
       Net dealer inventory gains                   3,714,000           7,312,000         (3,598,000)     (49%)
       Investment banking                           1,238,000             340,000            898,000      264%
                                             -----------------   -----------------  -----------------
Commissions                                        43,932,000          34,583,000          9,349,000       27%
Employee compensation                               5,449,000           4,021,000          1,428,000       36%
Clearing fees                                       2,391,000           2,714,000           (323,000)     (12%)
Communications                                      2,589,000           2,693,000           (104,000)     (4%)
Occupancy and equipment costs                       2,983,000           2,891,000             92,000       3%
Professional fees                                   2,559,000           1,526,000          1,033,000       68%
Litigation settlement                                 400,000                   -            400,000       n/a
Interest                                              397,000             193,000            204,000      106%
Taxes, licenses and registration                      560,000             407,000            153,000       38%
Other administrative expenses                       1,765,000           1,973,000           (208,000)     (11%)
                                             -----------------   -----------------  -----------------
                                                 $ 63,025,000        $ 51,001,000        $12,024,000       24%
                                             =================   =================  =================
</TABLE>

In comparison with the 27% increase in total revenues,  total expenses increased
$12,024,000  or 24%, to  $63,025,000 in fiscal year 2004 compared to $51,001,000
in fiscal  year 2003.  The  increase  in total  expenses  is a result of greater
commission expenses directly associated with commission  revenues.  The increase
in total  expenses  was  minimized by  management's  efforts to  streamline  its
operations and reduce fixed  expenses  associated  with its salaried  employees,
communication and occupancy expenses.

Commission expense,  which includes expenses related to commission revenue,  net
dealer inventory gains and investment banking,  increased $9,349,000, or 27%, to
$43,932,000 in fiscal year 2004 from $34,583,000 in fiscal year 2003. Commission
expense  related  to  commission  revenue  increased  $12,049,000,  or  45%,  to
$38,980,000 in fiscal year 2004 from $26,931,000 in fiscal year 2003; commission
expense related to net dealer inventory gains decreased  $3,598,000,  or 49%, to
$3,714,000  in fiscal  year 2004  from  $7,312,000  in  fiscal  year  2003;  and
commission expense related to investment banking increased $898,000, or 264%, to
$1,238,000 in fiscal year 2004 from $340,000 in fiscal year 2003. All categories
of commission  expense as a percentage of the related  revenues were  relatively
consistent  between  fiscal  year 2004 and fiscal  year 2003.  The  increase  of
commission  expense as a percentage of commission  revenues is  attributable  to
changes in the production of particular brokers, not all of whom are compensated
at the same commission rate. The decrease of commission  expense as a percentage
of net dealer  inventory gains is attributable to the reduction in the Company's
market-making  trading  activities.   Commission  expense  as  a  percentage  of
investment banking revenue was relatively unchanged between fiscal year 2004 and
fiscal year 2003.  Commission  expense  includes the amortization of advances to
registered  representatives  of $763,000  and  $710,000 for fiscal year 2004 and
2003,  respectively.  These amounts fluctuate based upon the amounts of advances
outstanding  and the time period for which the registered  representatives  have
agreed to be affiliated with National.

Employee  compensation  expense increased  $1,428,000,  or 36%, to $5,449,000 in
fiscal  year  2004 from  $4,021,000  in  fiscal  year  2003.  This  increase  is
attributable  to the  hiring of new  employees,  salary  increases  for  certain
employees and the establishment of a bonus pool for senior management.  Overall,
combined  commission  and employee  compensation  expense,  as a  percentage  of
revenue  increased  slightly  to 78% from 77% in  fiscal  years  2004 and  2003,
respectively.

Clearing fees decreased $323,000, or 12%, to $2,391,000 in fiscal year 2004 from
$2,714,000  in fiscal  year  2003.  Although  there was an  increase  in trading
volume, clearing fees, as a percentage of related revenues,  decreased due to an
increase in the number of lower  priced  tickets  from the prior year.  Clearing
fees in fiscal year 2004 were reduced by the $800,000 conversion assistance

                                      -23-
<PAGE>

payment the Company  received  from its new  clearing  firm,  Fiserv,  to offset
conversion  costs  incurred  by the  Company.  Clearing  fees  were  reduced  by
forgiveness of debt,  that was fully repaid in February 2004, from the Company's
prior  clearing  firm  based on ticket  volume in the  amount  of  $251,000  and
$454,000 in fiscal year 2004 and 2003, respectively.

Communication expenses decreased $104,000 or 4% to $2,589,000 from $2,693,000 in
fiscal  year 2004  compared  to fiscal  year 2003.  The  decrease  is due to the
reduction in the Company's  market-making  trading  activities.  Occupancy costs
increased  $92,000,  or 3%, to  $2,983,000  from  $2,891,000 in fiscal year 2004
compared to fiscal year 2003.  The increase in  occupancy  expense is due to the
expansion of office facilities in order to accommodate new brokers. Professional
fees increased $1,033,000,  or 68%, to $2,559,000 from $1,526,000 in fiscal year
2004 compared to fiscal year 2003. The increase in  professional  fees is due to
an increase in the legal fees relating to various lawsuits and arbitrations, and
the legal fees, fines and restitution payments related to the NASD investigation
of mutual fund trading  activities and other  regulatory  matters.  Professional
fees include  litigation and NASD related expenses of $1,674,000 and $945,000 in
fiscal year 2004 and 2003,  respectively.  In January 2004, an arbitration panel
awarded  damages  against the Company of  approximately  $400,000  related to an
employment  contract  with a former  employee  of the  Company.  This amount was
recorded as "Litigation settlement" and paid in fiscal year 2004.

Interest  expense  increased  $204,000,  or 106%,  to $397,000  from $193,000 in
fiscal year 2004  compared to fiscal year 2003.  The increase is due to interest
on the notes  issued by the  Company in the second  quarter of fiscal year 2004,
and the amortization of $113,000 attributable to newly issued notes and modified
notes. Taxes, licenses and registration  increased $153,000, or 38%, to $560,000
from $407,000 in fiscal year 2004 compared to fiscal year 2003.  The increase in
taxes,  licenses and registration expense is due to an increase in the number of
brokers  associated with the Company from the prior year.  Other  administrative
expenses  decreased $208,000 or 11% to $1,765,000 from $1,973,000 in fiscal year
2004 compared to fiscal year 2003. The decrease in other administrative expenses
is due to the Company's efforts to control its fixed operating expenses,  net of
an  increase  in  the  allowance  for   uncollectible   accounts  on  its  other
receivables,  related to registered  representatives  formerly  associated  with
National  in the amount of $200,000  and  $441,000 in fiscal year 2004 and 2003,
respectively.

The Company  reported income before income taxes of $566,000 in fiscal year 2004
compared to a net loss before income taxes of $843,000 in fiscal year 2003.

Overall,  the net income attributable to common stockholders in fiscal year 2004
was $300,000,  or basic net income  attributable to common  stockholders of $.08
per common share and diluted net income  attributable to common  stockholders of
$.07 per common share, as compared to the basic and diluted loss attributable to
common stockholders of $1,093,000, or $.34 per common share in fiscal year 2003.
The net income and net loss attributable to common stockholders for fiscal years
2004  and  2003  reflects   $266,000  and  $250,000  of  cumulative   dividends,
respectively, on the Company's Preferred Stock.

FISCAL YEAR 2003 COMPARED WITH FISCAL YEAR 2002

The  Company's  fiscal year 2003  resulted  in an  increase  in  revenues  and a
comparatively  lesser  increase in expenses  compared with fiscal year 2002. The
increase in revenues is primarily due to the improved  securities markets in the
second six months of fiscal  year 2003  compared  to a year ago.  As a result of
losses  incurred  primarily  in the first six months of fiscal  year  2003,  the
Company  reported a net loss from continuing  operations  before income taxes of
$843,000 compared with a net loss from continuing operations before income taxes
of $3,825,000 for fiscal year 2002, an  improvement of $2,982,000.  The decrease
in net loss is a result of the increase in revenues  combined with  management's
efforts to reduce the fixed costs associated with its business.

                                      -24-
<PAGE>

<TABLE>
<CAPTION>
                                               Fiscal Year                          Increase (Decrease)
                                             -------------------------------------  -------------------------------
                                                   2003                2002              Amount          Percent
                                             -----------------   -----------------  -----------------  ------------
<S>                                               <C>                 <C>                <C>              <C>
Commissions                                       $34,218,000         $28,168,000        $ 6,050,000       21%
                                             -----------------   -----------------  -----------------
Proprietary trading                                10,249,000           9,160,000          1,089,000       12%
Market making                                       1,115,000             891,000            224,000       25%
Mark-ups and mark-downs                               200,000             191,000              9,000       5%
                                             -----------------   -----------------  -----------------
Net dealer inventory gains                         11,564,000          10,242,000          1,322,000       13%
Investment banking                                    425,000             253,000            172,000       68%
Interest and dividends                              1,416,000           1,640,000           (224,000)     (14%)
Transfer fees and clearance services                1,850,000           1,343,000            507,000       38%
Other                                                 685,000             356,000            329,000       92%
                                             -----------------   -----------------  -----------------
                                                  $50,158,000        $ 42,002,000        $ 8,156,000       19%
                                             =================   =================  =================
</TABLE>

Total  revenues from  continuing  operations  increased  $8,156,000,  or 19%, in
fiscal year 2003 to  $50,158,000  from  $42,002,000  in fiscal  year 2002.  This
increase  is mainly  due to the  improved  securities  markets in the second six
months  of  fiscal  year  2003  compared  to fiscal  year  2002.  The  number of
commission  tickets  generated,  and the charge per  ticket  affects  commission
revenue and net dealer inventory gains.  During fiscal year 2003, trading volume
increased by approximately 18%, compared to fiscal year 2002. Commission revenue
increased $6,050,000, or 21%, to $34,218,000 from $28,168,000 during fiscal year
2003 compared with fiscal year 2002. Net dealer inventory gains,  which includes
profits on proprietary  trading,  market making activities and customer mark-ups
and mark-downs,  increased  $1,322,000,  or 13%, to $11,564,000 from $10,242,000
during fiscal year 2003 compared with fiscal year 2002. During fiscal year 2003,
revenues from proprietary  trading increased  $1,089,000,  or 12% to $10,249,000
from  $9,160,000 in fiscal year 2002;  revenues  from market  making  activities
increased $224,000, or 25%, to $1,115,000 from $891,000 in fiscal year 2002; and
revenues from  customer  mark-ups and  mark-downs  increased  $9,000,  or 5%, to
$200,000 from $191,000 in fiscal year 2002.  The increase in commission  revenue
and net dealer inventory gains is due to the improved  securities markets in the
second six months of fiscal year 2003.

Investment banking revenue increased $172,000, or 68%, to $425,000 from $253,000
in fiscal year 2003 compared  with fiscal year 2002.  The increase in investment
banking revenues is primarily  attributed to the Company's  completing a private
placement in the third quarter of fiscal year 2003. Interest and dividend income
decreased  $224,000 or 14%, to  $1,416,000  from  $1,640,000 in fiscal year 2003
compared with fiscal year 2002. The decrease in interest  income is attributable
to a decrease in the amount of customer debits in National's customers' accounts
during most of fiscal year 2003, and a decrease in interest rates from the prior
year.  Transfer fees  increased  $507,000,  or 38%, to $1,850,000 in fiscal year
2003 from  $1,343,000 in fiscal year 2002. The increase is due to an increase in
transaction  volume  associated with the Company's  retail  brokerage  business.
Other revenue, consisting of asset management fees and miscellaneous transaction
fees and trading  fees,  increased  $329,000,  or 92%, to $685,000 from $356,000
during fiscal year 2003 compared to fiscal year 2002.  The increase is primarily
due to increased transaction fees and trading fees.

                                      -25-
<PAGE>

<TABLE>
<CAPTION>
                                                           Fiscal Year                    Increase (Decrease)
                                             -------------------------------------  -------------------------------
                                                   2003                2002              Amount          Percent
                                             -----------------   -----------------  -----------------  ------------
<S>                                               <C>                 <C>                <C>              <C>
Commission expense related to:
       Commission revenue                         $26,931,000         $20,186,000        $ 6,745,000       33%
       Net dealer inventory gains                   7,312,000           5,965,000          1,347,000       23%
       Investment banking                             340,000             202,000            138,000       68%
                                             -----------------   -----------------  -----------------
Commissions                                        34,583,000          26,353,000          8,230,000       31%
Employee compensation                               4,021,000           5,091,000         (1,070,000)     (21%)
Clearing fees                                       2,714,000           4,241,000         (1,527,000)     (36%)
Communications                                      2,693,000           2,866,000           (173,000)     (6%)
Occupancy and equipment costs                       2,891,000           3,513,000           (622,000)     (18%)
Professional fees                                   1,526,000           1,093,000            433,000       40%
Interest                                              193,000             511,000           (318,000)     (62%)
Taxes, licenses and registration                      407,000             411,000             (4,000)     (1%)
Other administrative expenses                       1,973,000           1,748,000            225,000       13%
                                             -----------------   -----------------  -----------------
                                                 $ 51,001,000        $ 45,827,000        $ 5,174,000       11%
                                             =================   =================  =================
</TABLE>


In comparison with the 19% increase in total revenues,  total expenses increased
$5,174,000 or 11%, to  $51,001,000  for fiscal year 2003 compared to $45,827,000
in fiscal  year 2002.  The  increase  in total  expenses  is a result of greater
commission expenses directly associated with commission  revenues,  as well as a
$441,000  increase  in its  reserve  for  uncollectible  accounts  on its  other
receivables.  The  increase in total  expenses  was  minimized  by  management's
efforts to streamline its operations and reduce fixed expenses  associated  with
its salaried employees, communication and occupancy expenses.

Commission expense,  which includes expenses related to commission revenue,  net
dealer inventory gains and investment banking,  increased $8,230,000, or 31%, to
$34,583,000 in fiscal year 2003 from $26,353,000 in fiscal year 2002. Commission
expense  related  to  commission  revenue  increased  $6,745,000,   or  33%,  to
$26,931,000 in fiscal year 2003 from $20,186,000 in fiscal year 2002; commission
expense related to net dealer inventory gains increased  $1,347,000,  or 23%, to
$7,312,000  in fiscal  year 2003  from  $5,965,000  in  fiscal  year  2002;  and
commission expense related to investment banking revenue increased $138,000,  or
68%,  to $340,000  in fiscal  year 2003 from  $202,000 in fiscal year 2002.  All
categories  of commission  expense as a percentage of the related  revenues were
relatively  consistent between fiscal year 2003 and fiscal year 2002. Commission
expense includes the amortization of advances to registered  representatives  of
$710,000 and $584,000 in fiscal year 2003 and 2002, respectively.  These amounts
fluctuate based upon the amounts of advances outstanding and the time period for
which the registered representatives have agreed to be affiliated with National.

Employee  compensation  expense decreased  $1,070,000,  or 21%, to $4,021,000 in
fiscal year 2003 from  $5,091,000  in fiscal year 2002.  This decrease is due to
management's  ongoing efforts to reduce its fixed costs associated with salaried
employees.  Overall, combined commission and employee compensation expense, as a
percentage  of revenue  increased  slightly to 77% from 75% in fiscal years 2003
and 2002, respectively.

Clearing fees  decreased  $1,527,000,  or 36%, to $2,714,000 in fiscal year 2003
from  $4,241,000 in fiscal year 2002.  Although there was an increase in trading
volume,  clearing  fees as a percentage of related  revenues  decreased due to a
change in the number of lower priced  tickets from the prior  period,  and a one
time  clearing  charge of $548,000  incurred in fiscal year 2002.  Clearing fees
were reduced by forgiveness of debt from the Company's prior clearing firm based
on ticket  volume in the amount of $454,000 and $339,000 in fiscal year 2003 and
2002, respectively.

                                      -26-
<PAGE>

Communication expenses decreased $173,000 or 6% to $2,693,000 from $2,866,000 in
fiscal  year 2003  compared  to  fiscal  year  2002.  The  decrease  is due to a
reduction in voice and data charges. Occupancy costs decreased $622,000, or 18%,
to $2,891,000  from $3,513,000 in fiscal year 2003 compared to fiscal year 2002.
The decrease in occupancy expense is due to the Company's  renegotiating certain
long-term  office  leases,  and  finding  subtenants  to  occupy  unused  space.
Professional fees increased  $433,000,  or 40%, to $1,526,000 from $1,093,000 in
fiscal year 2003 compared to fiscal year 2002. The increase in professional fees
is due to an  increase  in the legal  fees  relating  to  various  lawsuits  and
arbitrations.  Professional fees include litigation and NASD related expenses of
$945,000 and $499,000 in fiscal year 2003 and 2002, respectively.

Interest expense decreased $318,000, or 62%, to $193,000 from $511,000 in fiscal
year 2003  compared to fiscal year 2002.  The decrease is  primarily  due to the
Company's change from a self-clearing brokerage firm to an introducing brokerage
firm during the first  quarter of fiscal  year 2002,  and a decrease in interest
rates in 2003 from 2002. Taxes,  licenses and registration  decreased $4,000, or
1%, to $407,000  from $411,000 in fiscal year 2003 compared to fiscal year 2002.
Other  administrative  expenses  increased  $225,000 or 13% to  $1,973,000  from
$1,748,000  in fiscal year 2003  compared to fiscal year 2002.  The  increase in
other administrative  expenses is due to the Company's increase of its allowance
for  uncollectible  accounts  on its other  receivables  related  to  registered
representatives  formerly  associated  with National,  by $441,000 during fiscal
year 2003, as compared to $209,000 in fiscal year 2002.

The Company  reported a loss from continuing  operations  before income taxes of
$843,000  in fiscal  year 2003  compared  to a loss from  continuing  operations
before income taxes of $3,825,000 for fiscal year 2002.

In the first  quarter  of fiscal  year  2002,  the  Company  recorded  a gain of
$300,000 from discontinued  operations related to the write-off of WestAmerica's
net liabilities.  Overall,  the diluted loss attributable to common stockholders
in fiscal year 2003 was $1,093,000, or $.34 per common share, as compared to the
diluted loss  attributable to common  stockholders  of $3,613,000,  or $1.60 per
common  share  in  fiscal  year  2002.  The  net  loss  attributable  to  common
stockholders  for fiscal years 2003 and 2002  reflects  $250,000 and $168,000 of
cumulative but unpaid preferred stock dividends,  respectively, on the Company's
Preferred Stock issued during fiscal year 2002.

LIQUIDITY AND CAPITAL RESOURCES

National,  as a registered  broker-dealer,  is subject to the SEC's  Uniform Net
Capital  Rule 15c3-1,  that  requires  the  maintenance  of minimum net capital.
National has elected to use the  alternative  standard  method  permitted by the
rule.  This  requires that  National  maintain  minimum net capital equal to the
greater of $250,000 or a specified amount per security based on the bid price of
each  security for which  National is a market  maker.  At  September  30, 2004,
National reported excess net capital of $1,154,000.

In December 2001, WestAmerica voluntarily withdrew its membership with the NASD,
ceased  conducting  business  as  a  broker-dealer,  and  filed  for  Chapter  7
Bankruptcy  protection in accordance with the U.S. Bankruptcy Code.  WestAmerica
has been operated as a separate legal entity,  and although the Company believes
it  will  not  have  any  ongoing  liability  for  any  unpaid   obligations  of
WestAmerica,  there can be no assurances that creditors of WestAmerica  will not
seek recovery of their claims from the Company.

Advances,  dividend  payments and other equity  withdrawals  from the  Company's
subsidiary  are restricted by the  regulations  of the SEC and other  regulatory
agencies.  These regulatory restrictions may limit the amounts that a subsidiary
may dividend or advance to the Company.

The Company  extends  unsecured  credit in the normal  course of business to its
brokers.  The  determination  of  the  appropriate  amount  of the  reserve  for
uncollectible accounts is based upon a review of the amount of credit extended,

                                      -27-
<PAGE>

the  length of time  each  receivable  has been  outstanding,  and the  specific
individual  brokers  from whom the  receivables  are owing.  The  allowance  for
doubtful  accounts  increased  by $200,000 in fiscal year 2004,  reflecting  the
amount of loss that can be reasonably estimated by management.

The  objective of liquidity  management  is to ensure that the Company has ready
access to sufficient  funds to meet  commitments,  fund deposit  withdrawals and
efficiently provide for the credit needs of customers.

As a result of the losses  throughout  fiscal  year 2001,  notably  those of the
fourth quarter,  attributable in part to the  unprecedented  events in September
2001,  the Company  concluded  that existing  capital would not be sufficient to
satisfy  existing  operations.  The Company  explored  various  transactions  to
finance the Company's  operations.  In December  2001,  the Company  completed a
series  of  transactions  (the  "Investment  Transaction")  that are more  fully
described in Part 1. The Company  continued to incur operating losses throughout
fiscal year 2002, and as a result,  the Company  believed that its then existing
capital  was  not  sufficient  to  satisfy  its  current  level  of  operations.
Accordingly,  the Company  pursued  additional  sources of capital  from various
potential  investors.  In the fourth  quarter of fiscal  year 2002,  the Company
completed  $210,000  of  investments  in the  form of an  issuance  of  Series A
Preferred Stock and continued to seek additional investments.

In the first  quarter of fiscal  year 2003,  the Company  consummated  a private
placement of its securities to a limited number of accredited investors pursuant
to Rule 501 of Regulation D under the Securities  Act. Each unit in the offering
sold for $0.65 and  consisted  of one share of Common  Stock and one  three-year
warrant to purchase one share of Common Stock at a per share price of $1.25. Net
proceeds of $554,500  closed in the first  quarter of fiscal year 2003,  and the
Company  correspondingly  issued  1,016,186 shares of Common Stock and 1,016,186
warrants.

In  January  2003,  the  Company  issued  76,923  shares of  Common  Stock and a
three-year  warrant to purchase 76,923 shares of Common Stock at $1.25 per share
to D'Ancona & Pflaum,  as payment of $50,000 of legal fees that were  accrued as
of September  30,  2002.  The warrants  issued in  connection  with the offering
consummated in the first quarter of fiscal year 2003 and the warrants  issued to
D'Ancona & Pflaum have been  included  along with the  proceeds of the shares of
Common Stock issued as additional paid-in capital.

In January 2004, the Company consummated a private offering of its securities to
a limited  number of accredited  investors  pursuant to Rule 506 of Regulation D
under the  Securities Act wherein the Company issued an aggregate of $200,000 of
three-year,  10%  senior  subordinated  promissory  notes  to five  unaffiliated
parties.  The noteholders  received three-year warrants to purchase an aggregate
of 50,000 shares of Common Stock at an exercise  price of $1.40 per share,  with
an allocated fair value of approximately  $40,000. In December 2004, the Company
rescinded  a note in the  principal  amount of $25,000 and a warrant to purchase
6,250 shares of Common Stock.

In February 2004, the Company  consummated a private  offering of its securities
to a limited number of accredited investors pursuant to Rule 506 of Regulation D
under the  Securities Act wherein the Company issued an aggregate of $850,000 of
three-year,  10%  senior  subordinated  promissory  notes  to four  unaffiliated
parties.  The noteholders  received three-year warrants to purchase an aggregate
of 170,000 shares of Common Stock at an exercise price of $1.50 per share,  with
an  allocated  fair  value  of  approximately  $143,000.  National  acted as the
placement  agent for the private  offering.  The offering period for the private
offering expired on May 30, 2004.

The Company is accreting  the total  allocated  fair value of $183,000  over the
three-year term of these promissory  notes.  Such accretion has been included in
"Interest" in the accompanying consolidated financial statements. The holders of
the warrants received certain  registration  rights relating to the Common Stock
issuable upon exercise of the warrants.

                                      -28-
<PAGE>

In July 2004, the Company filed a  Registration  Statement on Form S-3 under the
Securities  Act for the resale of certain  shares of Common  Stock and shares of
Common Stock issuable upon the exercise of certain warrants previously issued in
connection with private placement  transactions,  and certain warrants that were
issued in the private  placements that have been completed in the current fiscal
year. The Registration Statement became effective on August 11, 2004.

In the fourth  quarter of fiscal year 2004,  the Company  consummated  a private
placement of its securities to a limited number of accredited investors pursuant
to Rule 501 of Regulation D under the Securities  Act. Each unit in the offering
sold for $1.60 and  consisted of two shares of Common  Stock and one  three-year
warrant to purchase one share of Common Stock at a per share price of $1.50. Net
proceeds of  approximately  $930,000 closed in the fourth quarter of fiscal year
2004, and the Company  correspondingly  issued  1,250,000 shares of Common Stock
and 625,000 warrants.

In August 2001, the Company  entered into an agreement with First Clearing under
which First Clearing  provided  clearing and related services for National.  The
Clearing  Agreement   expanded  the  products  and  services   capabilities  for
National's   retail  and  institutional   business,   and  enabled  National  to
consolidate  its existing  clearing  operations  and reduced the fixed  overhead
associated with its self-clearing activities.

The  conversion  from a  self-clearing  firm to First Clearing began in December
2001 and was  completed in March 2002. It is standard  business  practice in the
brokerage   industry  for  clearing  firms  to  provide   financial  support  to
correspondent   clearing  firms.  As  such,  in  connection  with  the  Clearing
Agreement,  the Company  executed a ten-year  promissory  note in favor of First
Clearing under which the Company immediately borrowed $1,000,000. The funds were
contributed  by the  Company to  National,  and were used as a deposit to secure
National's performance under the Clearing Agreement. The Clearing Agreement also
provided  for another  $1,000,000  loan that was  extended  to the Company  upon
substantial  completion  of the  conversion  on December  31, 2001 that was also
contributed to National.  Principal and interest under the promissory  note were
forgivable annually based on achieving certain business  performance and trading
volumes of the Company over the life of the loan.

In connection with the Clearing Agreement,  additional borrowings were available
to  the  Company  upon  the   attainment  by  National  of  certain  volume  and
profitability  goals.  In finalizing the  conversion,  a dispute arose among the
Company,  US Clearing  (one of its former  clearing  firms) and First  Clearing,
regarding the responsibility for debit balances in certain trading accounts. The
three parties agreed to share the expense  equally.  The Company's share of this
settlement, $548,000, was advanced to the Company by First Clearing and added to
the  existing  promissory  note.  Additionally,  National  received its clearing
deposit,  net  of  miscellaneous   expenses,   of  $975,000  from  US  Clearing.
Concurrently, National terminated its clearing agreement with US Clearing.

In the first quarter of fiscal year 2003,  First Clearing  loaned the Company an
additional $375,000 in the form of clearing fee rebates.  The loan was due to be
repaid in January 2004.

In December  2003,  the  Company  engaged in various  discussions  with the NASD
relating to the Security Agreement between National and First Clearing,  and its
effect  on the  computation  of  National's  net  capital.  As a result of these
discussions,  on December 15,  2003,  the Company and First  Clearing  agreed in
principle to the  following:  (1) National's  clearing  deposit was reduced from
$1,000,000 to $500,000;  (2) the excess  $500,000 was paid to First  Clearing to
reduce the Company's  outstanding  loan balance on its promissory  note; and (3)
the  Security  Agreement  between  National and First  Clearing was  terminated.
Furthermore, First Clearing forgave payment of the $375,000 loan that was due to
be paid in January 2004,  resulting in a $375,000 gain on extinguishment of debt
in the first quarter of fiscal year 2004.

In February 2004,  the Company paid First  Clearing  $250,000 to fully repay its
promissory note that had a balance of approximately  $1,006,000 at such time. As
a result of the repayment of this note, the Company realized a gain on

                                      -29-
<PAGE>

extinguishment of debt of approximately $756,000 in the second quarter of fiscal
year  2004.  Additionally,  National  and  First  Clearing  mutually  agreed  to
terminate their clearing relationship.

On June 22, 2004,  National  entered into an agreement  with Fiserv to clear its
brokerage  business.  The conversion from First Clearing to Fiserv was completed
in the first week of October 2004. As part of this transaction,  Fiserv provided
National with an $800,000 conversion  assistance payment,  $250,000 of which was
paid upon  execution  of the clearing  agreement,  $250,000 of which was paid in
mid-August  2004,  and $300,000 of which was paid in October  2004.  The Company
believes  that the  overall  effect  of the new  clearing  relationship  will be
beneficial to the Company's cost structure, liquidity and capital resources.

In February 2004,  National and the holder of a $1.0 million secured demand note
that  initially  matured on February 1, 2004,  extended  the term of the secured
demand note to March 1, 2005.  Additionally,  two noteholders  have extended the
maturity  date on $1.0  million  of notes  issued  to them by the  Company  from
January 25, 2004 to July 31, 2005, and effective  February 1, 2004, the interest
rate on such notes was increased to 12% from 9% per annum.

As of  September  30, 2004,  advances to  registered  representatives  increased
$1,092,000 to $1,736,000  from $644,000 as of September 30, 2003.  This increase
is  attributable  to  advances  made to  registered  representatives  who became
affiliated  with  National  during  this  period,  and  advances  to  registered
representatives  already  affiliated  with  National  who agreed to renew  their
affiliation.

In the fiscal year ended  September 30, 2004, the Company  received  proceeds of
approximately  $321,000 from the exercise of outstanding  employee stock options
and warrants.

In October 2004, the Company  entered into a preliminary  letter of intent for a
merger or other similar  combination  with First  Montauk  Financial  Corp.  The
letter of intent is  subject to  numerous  conditions,  including:  satisfactory
completion of due diligence,  finalization  of the terms of the  combination and
structure  of  the  transaction;   negotiation,  preparation  and  execution  of
definitive transaction  documents,  compliance with state and federal securities
laws and regulations, and corporate, shareholder and regulatory approvals. For a
further discussion of risks facing the Company, please see "Risk Factors."

The Company  believes that with a continuation  of the overall  improved  market
conditions and the Company's  overall  increased volume of business  experienced
during fiscal year 2004, the Company will have sufficient  funds to maintain its
current  level of  business  activities  during  fiscal  year  2005.  If  market
conditions should weaken, the Company would need to consider  curtailing certain
of its business  activities,  further  reducing its fixed  overhead costs and/or
seek additional sources of financing.

The  following  table  shows the  contractual  obligations  of the Company as of
September 30, 2004:

<TABLE>
<CAPTION>
                                      Notes           Secured
      Fiscal Year Ending             Payable         Demand Note            Leases              Total
-------------------------------  --------------   -----------------   -----------------   ----------------
<S>                                <C>                 <C>                 <C>                <C>
             2005                  $ 1,050,000         $ 1,000,000         $ 1,716,000        $ 3,766,000
             2006                            -                   -           1,649,000          1,649,000
             2007                    1,050,000                   -           1,548,000          2,598,000
             2008                            -                   -           1,423,000          1,423,000
             2009                            -                   -             546,000            546,000
          Thereafter                         -                   -           1,585,000          1,585,000
Less: Deferred financing costs        (245,000)                  -                   -           (245,000)
                                   -----------         -----------         -----------        -----------
                                   $ 1,855,000         $ 1,000,000         $ 8,467,000        $11,322,000
                                   ===========         ===========         ===========        ===========

</TABLE>


                                      -30-
<PAGE>

INFLATION

The Company  believes that the effect of inflation on its assets,  consisting of
cash, securities, office equipment, leasehold improvements and computers has not
been significant.

NEW ACCOUNTING STANDARDS

In January 2003,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Interpretation 46, "Consolidation of Variable Interest Entities".  In general, a
variable  interest  entity is a corporation,  partnership,  trust,  or any other
legal structure used for business  purposes that either (a) does not have equity
investors  with voting  rights or (b) has equity  investors  that do not provide
sufficient  financial  resources  for the  entity  to  support  its  activities.
Interpretation  46 requires a variable  interest  entity to be consolidated by a
company if that  company  is subject to a majority  of the risk of loss from the
variable interest  entity's  activities or entitled to receive a majority of the
entity's   residual   returns  or  both.  The   consolidation   requirements  of
Interpretation  46 apply immediately to variable interest entities created after
January 31, 2003. For variable  interest  entities  created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after March 15, 2004. The adoption of  Interpretation
46 did not have an impact on the Company's consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The  Company's  primary  market  risk  arises  from the fact that it  engages in
proprietary trading and makes dealer markets in equity securities.  Accordingly,
the Company may be required to maintain  certain amounts of inventories in order
to facilitate  customer  order flow. The Company may incur losses as a result of
price movements in these  inventories due to changes in interest rates,  foreign
exchange rates,  equity prices and other political  factors.  The Company is not
subject to direct market risk due to changes in foreign exchange rates. However,
the Company is subject to market  risk as a result of changes in interest  rates
and equity prices, which are affected by global economic conditions. The Company
manages its exposure to market risk by limiting its net long or short positions.
Trading and inventory accounts are monitored daily by management and the Company
has instituted position limits.

Credit risk  represents the amount of accounting loss the Company could incur if
counterparties to its proprietary  transactions fail to perform and the value of
any  collateral  proves  inadequate.  Although  credit risk  relating to various
financing  activities  is reduced by the  industry  practice  of  obtaining  and
maintaining  collateral,  the Company  maintains more stringent  requirements to
further reduce its exposure.  The Company  monitors its exposure to counterparty
risk on a daily  basis by  using  credit  exposure  information  and  monitoring
collateral  values.  The Company  maintains a credit  committee,  which  reviews
margin  requirements  for  large  or  concentrated   accounts  and  sets  higher
requirements  or  requires a  reduction  of either  the level of margin  debt or
investment in high-risk securities or, in some cases,  requiring the transfer of
the account to another broker-dealer.

The Company  monitors its market and credit risks daily through internal control
procedures  designed to identify  and  evaluate  the various  risks to which the
Company is exposed. There can be no assurance,  however, that the Company's risk
management  procedures and internal  controls will prevent losses from occurring
as a result of such risks.

                                      -31-
<PAGE>

The following table shows the market values of the Company's securities held for
resale and securities sold, but not yet purchased as of September 30, 2004:

<TABLE>
<CAPTION>
                              Securities held        Securities sold, but
                                for resale            not yet purchased
                             -----------------       --------------------
<S>                           <C>                     <C>
Corporate stocks              $        36,000         $           1,000
Corporate bonds                         3,000                         -
Government obligations                110,000                    32,000
                             -----------------       -------------------
                              $       149,000         $          33,000
                             =================       ===================
</TABLE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Part IV, Item 14(a)(1) for a list of financial  statements  filed as part of
this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

There  were no  disagreements  with  accountants  on  accounting  and  financial
disclosure for the fiscal year ended September 30, 2004.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. Based on the evaluation of the
Company's  disclosure  controls and  procedures  (as defined in the Exchange Act
Rules  13a-15(e) and 15d-15(e))  required by the Exchange Act Rules 13a-15(b) or
15d-15(b),  the Company's  Chief  Executive  Officer and Acting Chief  Financial
Officer have concluded that, as of the end of the period covered by this report,
the Company's  disclosure controls and procedures were adequate and effective to
ensure that material  information  relating to the Company and its  consolidated
subsidiaries  would  be made  known to them by  others  within  those  entities,
particularly  during  the period in which  this  yearly  report on Form 10-K was
being prepared.

Changes in internal controls. There were no significant changes in the Company's
internal  controls or in other  factors  that could  significantly  affect those
controls  and  procedures  subsequent  to the  date  of our  evaluation  nor any
significant  deficiencies or material weaknesses in such disclosure controls and
procedures requiring corrective actions.

ITEM 9B. OTHER INFORMATION

There is no other  information  to be disclosed by the Company during the fourth
quarter of fiscal year 2004 that has not been  reported  on a current  report on
Form 8-K.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The other  information  required by this Item will be included in the  Company's
2005 Proxy Statement and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The  information  required by this Item will be included in the  Company's  2005
Proxy Statement and is incorporated herein by reference.

                                      -32-
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

The  information  required by this Item will be included in the  Company's  2005
Proxy Statement and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required by this Item will be included in the  Company's  2005
Proxy Statement and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The  information  required by this Item will be included in the  Company's  2005
Proxy Statement and is incorporated herein by reference.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)   The following financial statements are included in Part II, Item 8:

         1.     Financial Statements

                    Independent Auditors' Reports

                    Consolidated Financial Statements

                         Statements of Financial Condition, September 30, 2004
                           and September 30, 2003

                         Statements of Operations for the Years ended September
                           30, 2004, September 30, 2003 and September 30, 2002

                         Statement of Changes in Stockholders' Equity (Deficit)
                           for the Years ended September 30, 2004, September 30,
                           2003 and September 30, 2002

                         Statements of Cash Flows for the Years ended September
                           30, 2004, September 30, 2003 and September 30, 2002

                         Notes to Consolidated Financial Statements

         2.     Financial Statement Schedules

                    Schedules not listed above have been omitted because they
                    are not applicable or have been included in footnotes to the
                    consolidated financial statements.

(b)   See Exhibit Index.

                                      -33-
<PAGE>

                                   SIGNATURES


Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities  and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

OLYMPIC CASCADE FINANCIAL CORPORATION
(Registrant)

<TABLE>
<S>                                                    <C>
Date: December 28, 2004                                By:    /s/Mark Goldwasser
                                                             ------------------------------------------------------
                                                             Mark Goldwasser
                                                             President, Director and Chief Executive Officer

Date: December 28, 2004                                By:    /s/Robert H. Daskal
                                                             ------------------------------------------------------
                                                             Robert H. Daskal
                                                             Acting Chief Financial Officer
</TABLE>


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


<TABLE>
<S>                                                    <C>
Date: December 28, 2004                                By:    /s/Steven B. Sands
                                                             -------------------------------------------------------
                                                             Steven B. Sands, Chairman

Date: December 28, 2004                                By:   /s/Mark Goldwasser
                                                             -------------------------------------------------------
                                                              Mark Goldwasser,
                                                              President, Director and Chief Executive Officer

Date: December 28, 2004                                By:   /s/Norman J. Kurlan
                                                            --------------------------------------------------------
                                                               Norman J. Kurlan, Director

Date: December 28, 2004                                By:    /s/Gary A. Rosenberg
                                                             -------------------------------------------------------
                                                             Gary A. Rosenberg, Director

Date: December 28, 2004                                By:   /s/Robert J. Rosan
                                                            -----------------------------------------------
                                                             Robert J. Rosan, Director

Date: December 28, 2004                                By:   /s/Peter Rettman
                                                            -----------------------------------------------
                                                             Peter Rettman, Director
</TABLE>

                                      -34-
<PAGE>

                                  EXHIBIT INDEX

         3.1      Certificate of Incorporation,  as amended, previously filed as
                  Exhibit 3.5. to Form 10-Q in May 2004 and hereby  incorporated
                  by reference.

         3.2      The Company's Bylaws, as amended,  previously filed as Exhibit
                  3.3 to Form 10-Q in February 2002, and hereby  incorporated by
                  reference.

         3.3      The Company's By-Laws, as amended and restated on December 12,
                  2001.

         3.4      Certificate  of   Designations,   Preferences,   and  Relative
                  Optional  or Other  Special  Rights  of  Preferred  Stock  and
                  Qualifications, Limitations and Restrictions Thereof of Series
                  A Convertible Preferred Stock, as amended, previously filed as
                  Exhibit  3.6 to Form 10-Q in May 2004 and hereby  incorporated
                  by reference.

         10.1     Office lease, Chicago,  Illinois,  previously filed as Exhibit
                  10.27 to Form 10-K in December 1996 and hereby incorporated by
                  reference.

         10.2     Office lease, Spokane, Washington, previously filed as Exhibit
                  10.28 to Form 10-K in December 1996 and hereby incorporated by
                  reference.

         10.3     Amended office lease, Chicago,  Illinois,  previously filed as
                  Exhibit  10.29  to  Form  10-K in  December  1996  and  hereby
                  incorporated by reference.

         10.4     Purchase  agreement  between  shareholders  of Friend  and the
                  Company,  previously  filed as  Exhibit  10.30 to Form 10-K in
                  December 1997 and hereby incorporated by reference.

         10.5     Purchase agreement between shareholders of WestAmerica and the
                  Company,  previously  filed as  Exhibit  10.31 to Form 10-K in
                  December 1997 and hereby incorporated by reference.

         10.6     Purchase  agreement  between  shareholders  of Travis  and the
                  Company,  previously  filed as  Exhibit  10.32 to Form 10-K in
                  December 1997 and hereby incorporated by reference.

         10.7     Borrowing  agreement between  Seattle-First  National Bank and
                  the Company, previously filed as Exhibit 10.33 to Form 10-K in
                  December 1998 and hereby incorporated by reference.

         10.8     Note payable  agreement,  previously filed as Exhibit 10.34 to
                  Form  10-K  in  December  1998  and  hereby   incorporated  by
                  reference.

         10.9     Note payable  agreement,  previously filed as Exhibit 10.35 to
                  Form  10-K  in  December  1998  and  hereby   incorporated  by
                  reference.

         10.10    Note payable  agreement,  previously filed as Exhibit 10.36 to
                  Form  10-K  in  December  1998  and  hereby   incorporated  by
                  reference.

         10.11    Sales  agreement  between  Friend and the Company,  previously
                  filed as  Exhibit  10.37  to Form  10-K in  December  1998 and
                  hereby incorporated by reference.

         10.12    1996 Stock  Option  Plan,  previously  filed as Exhibit 4.1 to
                  Form  S-8  in  February  1999  and  hereby   incorporated   by
                  reference.

         10.13    1997 Stock  Option  Plan,  previously  filed as Exhibit 4.2 to
                  Form  S-8  in  February  1999  and  hereby   incorporated   by
                  reference.

         10.14    1999 Stock  Option  Plan,  previously  filed as Exhibit 4.3 to
                  Form  S-8  in  February  1999  and  hereby   incorporated   by
                  reference.

         10.15*   Employment  contract  dated  July  1999,  previously  filed as
                  Exhibit  10.15  to  Form  10-K in  December  1999  and  hereby
                  incorporated by reference.

         10.16*   Employment  contract  dated  July  1999  previously  filed  as
                  Exhibit  10.16  to  Form  10-K in  December  1999  and  hereby
                  incorporated by reference.

         10.17*   Employment  contract  dated  July  1999  previously  filed  as
                  Exhibit  10.17  to  Form  10-K in  December  1999  and  hereby
                  incorporated by reference.

         10.18*   Employment  contract  dated  July  1999  previously  filed  as
                  Exhibit  10.18  to  Form  10-K in  December  1999  and  hereby
                  incorporated by reference.

         10.19*   Employment  contract  dated  July  1999  previously  filed  as
                  Exhibit  10.19  to  Form  10-K in  December  1999  and  hereby
                  incorporated by reference.

         10.20    Office lease, Seattle,  Washington previously filed as Exhibit
                  10.20 to Form 10-K in December 1999 and hereby incorporated by
                  reference.

                                      -35-
<PAGE>

         10.21    2000 Stock  Option  Plan,  previously  filed as Exhibit 4.1 to
                  Form S-8 in June 2000 and hereby incorporated by reference.

         10.22*   Employment  contract  dated  June  2000,  previously  filed as
                  Exhibit   10.21  to  Form  10-Q  in  August  2000  and  hereby
                  incorporated by reference.

         10.23    Form of Note payable agreement dated January 2001,  previously
                  filed as  Exhibit  10.23 to Form  10-Q in May 2001 and  hereby
                  incorporated by reference.

         10.24    Secured Demand Note dated February 2001,  previously  filed as
                  Exhibit 10.24 to Form 10-Q in May 2001 and hereby incorporated
                  by reference.

         10.25    Loan and security  agreement  dated January  2001,  previously
                  filed as  Exhibit  10.25  to Form  10-Q in  February  2001 and
                  hereby incorporated by reference.

         10.26    2001  Stock  Option  Plan,  previously  included  in the Proxy
                  Statement-Schedule  14A  filed  in  January  2001  and  hereby
                  incorporated by reference.

         10.27    Audit committee charter,  previously filed as Exhibit 10.22 to
                  Form 10-Q in August 2000 and hereby incorporated by reference.

         10.28    Clearing Agreement,  previously filed as Exhibit 10.28 to Form
                  10-K in December 2001 and hereby incorporated by reference.

         10.29    First  Amendment to Clearing  Agreement,  previously  filed as
                  Exhibit  10.29  to  Form  10-K in  December  2001  and  hereby
                  incorporated by reference.

         10.30    Purchase  Agreement  by and among  Olympic  Cascade  Financial
                  Corporation, Mark Goldwasser and Triage Partners, LLC dated as
                  of December 14,  2001,  previously  filed as Exhibit  10.30 to
                  Form 8-K in January 2002 and hereby incorporated by reference.

         10.31    Stock Purchase Agreement between Steven A. Rothstein,  certain
                  other persons or entities and Triage Partners, LLC dated as of
                  December 14, 2001,  previously  filed as Exhibit 10.31 to Form
                  8-K in January 2002 and hereby incorporated by reference.

         10.32    Securities  Exchange  Agreement by and among  Olympic  Cascade
                  Financial Corporation, Gregory P. Kusnick, Karen Jo Gustafson,
                  Gregory C. Lowney and  Maryanne K. Snyder dated as of December
                  14,  2001,  previously  filed as Exhibit  10.32 to Form 8-K in
                  January 2002 and hereby incorporated by reference.

         10.33    Escrow  Agreement by and made among Olympic Cascade  Financial
                  Corporation,   Mark  Goldwasser,   Triage  Partners,  LLC  and
                  National Securities Corporation dated as of December 28, 2001,
                  previously  filed as Exhibit 10.33 to Form 8-K in January 2002
                  and hereby incorporated by reference.

         10.34    Second  Amendment to Clearing  Agreement,  previously filed as
                  Exhibit  10.34  to  Form  10-Q in  February  2002  and  hereby
                  incorporated by reference.

         10.35    Form of Warrant issued in December 2002.

         10.36    Form of Securities  Purchase  Agreement,  previously  filed as
                  Exhibit  10.36  to  Form  8-K  in  February  2004  and  hereby
                  incorporated by reference.

         10.37    Form of Note, previously filed as Exhibit 10.37 to Form 8-K in
                  February 2004 and hereby incorporated by reference.

         10.38    Form of Warrant, previously filed as Exhibit 10.38 to Form 8-K
                  in February 2004 and hereby incorporated by reference.

         10.39    Form of Registration  Rights  Agreement,  previously  filed as
                  Exhibit  10.39  to  Form  8-K  in  February  2004  and  hereby
                  incorporated by reference.

         10.40    Clearing Agreement,  previously filed as Exhibit 10.36 to Form
                  10-K in June 2004 and hereby incorporated by reference.

         10.41    Form of Warrant  issued in August 2004 filed as Exhibit  10.40
                  to  Form  8-K  in  August  2004  and  hereby  incorporated  by
                  reference.

         10.42    Form of  Registration  Rights  Agreement  dated in August 2004
                  filed as Exhibit  10.41 to Form 8-K in August  2004 and hereby
                  incorporated by reference.

         14.      The Code of Ethics.

         16.1     Change in Certifying Accountant,  previously filed in Form 8-K
                  in August 1998 and hereby incorporated by reference.

                                      -36-
<PAGE>

         16.2     Investment  Transaction,  previously  filed  in  Form  8-K  in
                  January 2002 and hereby incorporated by reference.

         16.3     Resignation of Director, previously filed in Form 8-K in April
                  2002 and hereby incorporated by reference.

         16.4     Change in its Independent Public Accountants, previously filed
                  in Form 8-K in May 2003 and hereby incorporated by reference.

         16.5     Change in its Independent Public Accountants, previously filed
                  in  Form  8-K in  October  2003  and  hereby  incorporated  by
                  reference.

         21.      Subsidiaries of Registrant.

         23.1     Consent of Feldman Sherb Erhlich & Co., P.C., previously filed
                  to Forms S-8 in  February  1999 and June 2000 and Forms S-3 in
                  May 1999 and June 1999 and hereby incorporated by reference.

         23.2     Consent of Moss Adams  LLP,  previously  filed to Forms S-8 in
                  February 1999 and June 2000 and Forms S-3 in May 1999 and June
                  1999 and hereby incorporated by reference.

         23.3     Consent of Camhy  Karlinsky & Stein LLP,  previously  filed to
                  Form S-8 in  February  1999 and Forms S-3 in May 1999 and June
                  1999 and hereby incorporated by reference.

         23.4     Consent of  D'Ancona & Pflaum LLC,  previously  filed to Forms
                  S-8 in June  2000 and June  2001 and  hereby  incorporated  by
                  reference.

         24.      Power of Attorney,  previously  filed to Forms S-3 in May 1999
                  and June 1999.

         31.1     Chief Executive Officer's  Certificate pursuant to Section 302
                  of the Sarbanes-Oxley Act of 2002.

         31.2     Acting  Chief  Financial  Officer's  Certificate  pursuant  to
                  Section 302 of the Sarbanes- Oxley Act of 2002.

         32.1     Chief Executive Officer's  Certificate pursuant to Section 906
                  of the Sarbanes-Oxley Act of 2002.

         32.2     Acting  Chief  Financial  Officer's  Certificate  pursuant  to
                  Section 906 of the Sarbanes- Oxley Act of 2002.

      *Compensatory agreements



                   REMAINDER OF PAGE INTENTIONALLY LEFT BLANK


                                      -37-

<PAGE>
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Audit Committee of the Board of Directors
Olympic Cascade Financial Corporation

We have audited the accompanying  consolidated statements of financial condition
of Olympic  Cascade  Financial  Corporation  (the "Company") as of September 30,
2004 and 2003, and the related consolidated statements of operations, changes in
stockholders'  equity  (deficit) and cash flows for each of the two years in the
period ended September 30, 2004. 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  standards  of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  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,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Olympic
Cascade  Financial   Corporation  at  September  30,  2004  and  2003,  and  the
consolidated  results of its  operations  and its cash flows for each of the two
years in the period ended September 30, 2004, in conformity with U.S.  generally
accepted accounting principles.



                                            /s/ Marcum & Kliegman LLP


New York, New York
December 3, 2004

                                      F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders and
Board of Directors
Olympic Cascade Financial Corporation


We have audited the accompanying  consolidated statement of operations,  changes
in stockholders' deficit and cash flows of Olympic Cascade Financial Corporation
for the year ended  September  30,  2002.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  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,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the consolidated  results of operations and
cash flows of Olympic Cascade Financial Corporation for the year ended September
30, 2002, in conformity with  accounting  principles  generally  accepted in the
United States of America.


                                               /s/ GRASSI & CO., CPAs, P.C.
                                               ----------------------------
                                               GRASSI & CO., CPAs, P.C.
                                               Certified Public Accountants

New York, New York
December 18, 2002

                                      F-2
<PAGE>

              OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                          ASSETS

                                                                                            September 30,   September 30,
                                                                                               2004              2003
                                                                                           --------------   ---------------
<S>                                                                                          <C>               <C>
CASH                                                                                           $ 351,000         $ 451,000
DEPOSITS WITH CLEARING ORGANIZATIONS                                                             995,000         1,041,000
RECEIVABLES FROM BROKER-DEALERS AND CLEARING ORGANIZATIONS                                     3,821,000         3,724,000
OTHER RECEIVABLES, net of allowance for uncollectible accounts of $850,000
           and $650,000 at September 30, 2004 and 2003, respectively                             889,000           709,000
ADVANCES TO REGISTERED REPRESENTATIVES                                                         1,736,000           644,000
SECURITIES HELD FOR RESALE, at market                                                            149,000           374,000
FIXED ASSETS, net                                                                                301,000           247,000
SECURED DEMAND NOTE                                                                            1,000,000         1,000,000
OTHER ASSETS                                                                                     480,000           545,000
                                                                                           --------------   ---------------
TOTAL ASSETS                                                                                 $ 9,722,000       $ 8,735,000
                                                                                           ==============   ===============

                                        LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

PAYABLE TO BROKER-DEALERS AND CLEARING ORGANIZATIONS                                           $ 115,000         $ 258,000
SECURITIES SOLD, BUT NOT YET PURCHASED, at market                                                 33,000           116,000
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES                                       4,790,000         4,520,000
NOTES PAYABLE                                                                                  1,855,000         3,170,000
                                                                                           --------------   ---------------
TOTAL LIABILITIES                                                                              6,793,000         8,064,000
                                                                                           --------------   ---------------
SUBORDINATED BORROWINGS                                                                        1,000,000         1,000,000
                                                                                           --------------   ---------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
    Preferred stock, $.01 par value, 200,000 and 100,000 shares authorized at
       September 30, 2004 and 2003, respectively; 50,000 and 30,000 shares
       designated as Series A at September 30, 2004 and 2003, respectively.                            -                 -
    Series A 9% cumulative convertible preferred stock, $.01 par value, 50,000 and
       30,000 shares authorized at September 30, 2004 and 2003, respectively;
       31,177 shares issued and outstanding (liquidation preference: $3,117,700)
       at September 30, 2004, and 27,825 shares issued and outstanding (liquidation
       preference: $2,782,500) at September 30, 2003                                                   -                 -
    Common stock, $.02 par value, 30,000,000 and 60,000,000 shares authorized
       at September 30, 2004 and 2003, respectively; 4,984,332 and 3,367,588
       issued and outstanding, at September 30, 2004 and 2003, respectively                      100,000            67,000
    Additional paid-in capital                                                                14,790,000        12,628,000
    Accumulated deficit                                                                      (12,961,000)      (13,024,000)
                                                                                           --------------   ---------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                                           1,929,000          (329,000)
                                                                                           --------------   ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                         $ 9,722,000       $ 8,735,000
                                                                                           ==============   ===============
</TABLE>

                See notes to consolidated financial statements.

                                      F-3
<PAGE>

          OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARY

                  CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                  Years Ended
                                                       ------------------------------------------------------------------
                                                        September 30, 2004      September 30, 2003   September 30, 2002
                                                       -------------------    -------------------------------------------
<S>                                                          <C>                   <C>                    <C>
REVENUES
      Commissions                                            $ 46,881,000          $ 34,218,000           $ 28,168,000
      Net dealer inventory gains                                7,404,000            11,564,000             10,242,000
      Investment banking                                        1,548,000               425,000                253,000
      Interest and dividends                                    3,420,000             1,416,000              1,640,000
      Transfer fees and clearance services                      2,806,000             1,850,000              1,343,000
      Gains on extinguishments of debt                          1,131,000                     -                      -
      Other                                                       401,000               685,000                356,000
                                                       -------------------    ------------------    -------------------
                                                               63,591,000            50,158,000             42,002,000
                                                       -------------------    ------------------    -------------------
EXPENSES
      Commissions                                              43,932,000            34,583,000             26,353,000
      Employee compensation and related expenses                5,449,000             4,021,000              5,091,000
      Clearing fees                                             2,391,000             2,714,000              4,241,000
      Communications                                            2,589,000             2,693,000              2,866,000
      Occupancy and equipment costs                             2,983,000             2,891,000              3,513,000
      Professional fees                                         2,559,000             1,526,000              1,093,000
      Litigation settlement                                       400,000                     -                      -
      Interest                                                    397,000               193,000                511,000
      Taxes, licenses, registration                               560,000               407,000                411,000
      Other administrative expenses                             1,765,000             1,973,000              1,748,000
                                                       -------------------    ------------------    -------------------
                                                               63,025,000            51,001,000             45,827,000
                                                       -------------------    ------------------    -------------------
Income (loss) from continuing operations before
      income taxes                                                566,000              (843,000)            (3,825,000)
Income tax benefit                                                      -                     -                 80,000
                                                       -------------------    ------------------    -------------------
Income (loss) from continuing operations                          566,000              (843,000)            (3,745,000)
                                                       -------------------    ------------------    -------------------
Income from discontinued operations, net of tax:
      Gain on disposal                                                  -                     -                300,000
                                                       -------------------    ------------------    -------------------
Net income (loss)                                                 566,000              (843,000)            (3,445,000)

Preferred stock dividends                                        (266,000)             (250,000)              (168,000)
                                                       -------------------    ------------------    -------------------
Net income (loss) attributable to common
  stockholders                                                  $ 300,000          $ (1,093,000)          $ (3,613,000)
                                                       ===================    ==================    ===================
INCOME (LOSS) PER COMMON SHARE

Basic:
      Income (loss) from continuing operations                     $ 0.08               $ (0.34)               $ (1.73)
      Income (loss) from discontinued operations                        -                     -                   0.13
                                                       -------------------    ------------------    -------------------
         Net income (loss) available to common
           stockholders                                            $ 0.08               $ (0.34)               $ (1.60)
                                                       ===================    ==================    ===================
Diluted:
      Income (loss) from continuing operations                     $ 0.07               $ (0.34)               $ (1.73)
      Income (loss) from discontinued operations                        -                     -                   0.13
                                                       -------------------    ------------------    -------------------
        Net income (loss) available to common
          stockholders                                             $ 0.07               $ (0.34)               $ (1.60)
                                                       ===================    ==================    ===================

Weighted average number of shares outstanding:
      Basic                                                     3,580,446             3,175,315              2,255,449
                                                       ===================    ==================    ===================
      Diluted                                                   4,106,742             3,175,315              2,255,449
                                                       ===================    ==================    ===================
</TABLE>

                See notes to consolidated financial statements.

                                      F-4
<PAGE>

              OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARY

      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

    YEARS ENDED SEPTEMBER 30, 2004, SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002

<TABLE>
<CAPTION>

                                        Preferred Stock           Common Stock      Additional
                                        ----------------   ----------------------    Paid-In
                                        Shares    Amount       Shares      Amount    Capital      Deficit        Total
                                        --------  ------   -----------  ---------  -----------  ------------   -----------
<S>                                       <C>     <C>        <C>         <C>       <C>          <C>            <C>
BALANCE, September 28, 2001                    -  $    -     2,236,449   $ 45,000  $ 9,313,000  $ (8,736,000)  $   622,000

Issuance of restricted common stock
   in exchange of note                         -       -        38,000          -       49,000             -        49,000
Issuance of preferred stock               17,825       -             -          -    1,683,000             -     1,683,000
Issuance of preferred stock in
  exchange of notes                       10,000       -             -          -    1,000,000             -     1,000,000
Net loss                                       -       -             -          -            -    (3,445,000)   (3,445,000)
                                        --------  ------   -----------  ---------  -----------  ------------   -----------

BALANCE, September 30, 2002               27,825       -     2,274,449     45,000   12,045,000   (12,181,000)     (91,000)

Issuance of restricted common stock:
     From private placement                    -       -     1,016,186     21,000      533,000             -       554,000
     Payment of legal fees                     -       -        76,923      1,000       50,000             -        51,000
Net loss                                       -       -             -          -            -      (843,000)     (843,000)
                                        --------  ------   -----------  ---------  -----------  ------------   -----------

BALANCE, September 30, 2003               27,825  $    -     3,367,558   $ 67,000  $12,628,000  $(13,024,000)$    (329,000)

Issuance of preferred stock dividends      3,352       -             -          -      503,000      (503,000)            -
Exercise of stock options                      -       -        26,003      1,000       25,000             -        26,000
Exercise of warrants                           -       -       240,771      5,000      290,000             -       295,000
Issuance of restricted common stock:
     From private placement                    -       -     1,250,000     25,000      905,000             -       930,000
     Settlement of arbitration                 -       -       100,000      2,000       98,000             -       100,000
Warrants issued in connection with debt        -       -             -          -      341,000             -       341,000
Net income                                     -       -             -          -            -       566,000       566,000
                                        --------  ------   -----------  ---------  -----------  ------------   -----------
BALANCE, September 30, 2004               31,177  $    -     4,984,332  $ 100,000  $14,790,000  $(12,961,000)  $ 1,929,000
                                        ========  ======   ===========  =========  ===========  ============   ===========
</TABLE>

                See notes to consolidated financial statements.

                                      F-5
<PAGE>

              OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                             Years ended
                                                                   ----------------------------------------------------------------
                                                                    September 30, 2004    September 30, 2003   September 30, 2002
                                                                   ------------------   -------------------   ---------------------
<S>                                                                  <C>                     <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                                 $       566,000         $    (843,000)      $    (3,445,000)
   Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities
         Depreciation and amortization                                       165,000               217,000               566,000
         Gains on extinguishments of debt                                 (1,131,000)                    -                     -
         Amortization of note discount                                       122,000                33,000                33,000
         Provision for doubtful accounts                                     200,000               441,000               209,000
         Forgiveness of loan                                                (251,000)             (453,000)             (339,000)
         Write-down of limited partnership investment                              -                29,000                     -
         Issuance of common stock in settlement of arbitration               100,000                     -                     -
         Change in net assets (liabilities) of discontinued
           operations                                                              -                     -              (300,000)
   Changes in assets and liabilities
         Cash, cash equivalents and securities                                     -                     -            37,188,000
         Restricted cash                                                           -               309,000                16,000
         Deposits with clearing organizations                                 46,000               448,000             3,165,000
         Receivables from broker-dealers, clearing
           organizations and others                                       (1,569,000)           (2,295,000)           27,828,000
         Securities held for resale, at market                               225,000               232,000               525,000
         Other assets                                                         65,000                53,000               313,000
         Payables                                                            127,000             1,892,000           (63,183,000)
         Securities sold, but not yet purchased, at market                   (83,000)               11,000              (687,000)
                                                                   ------------------   -------------------   -------------------
   Net cash provided by (used in) operating activities                    (1,418,000)               74,000             1,889,000
                                                                   ------------------   -------------------   -------------------
CASH FLOWS FROM INVESTING ACTIVITIES

         Purchase of fixed assets                                           (219,000)              (94,000)              (94,000)
                                                                   ------------------   -------------------   -------------------
   Net cash used in investing activities                                    (219,000)              (94,000)              (94,000)
                                                                   ------------------   -------------------   -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
         Borrowings (payments) on line of credit                                   -                     -            (3,500,000)
         Net proceeds from issuance of notes payable and
           warrants                                                        1,036,000                     -             1,548,000
         Payment of notes payable                                           (750,000)                    -               (13,000)
         Payments on capital lease                                                 -                     -              (300,000)
         Increase (decrease) in cash overdraft                                     -              (408,000)           (1,148,000)
         Net proceeds from issuance of preferred stock                             -                     -             1,683,000
         Net proceeds from issuance of common stock and
           warrants                                                          930,000               554,000                     -
         Exercise of stock options and warrants                              321,000                     -                     -
                                                                   ------------------   -------------------   -------------------
   Net cash provided by (used in) financing activities                     1,537,000               146,000            (1,730,000)
                                                                   ------------------   -------------------   -------------------
NET INCREASE (DECREASE) IN CASH                                             (100,000)              126,000                65,000

CASH BALANCE
         Beginning of the year                                               451,000               325,000               260,000
                                                                   ------------------   -------------------   -------------------

         End of the year                                             $       351,000         $     451,000       $       325,000
                                                                   ==================   ===================   ===================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
         Cash paid during the year for:
         Interest                                                    $       363,000         $     193,000       $       535,000
                                                                   ==================   ===================   ===================
         Income taxes                                                $             -         $           -       $        12,000
                                                                   ==================   ===================   ===================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES

         Exchange of notes payable for preferred stock               $             -         $           -       $     1,000,000
                                                                   ==================   ===================   ===================
         Exchange of notes payable for common stock                  $             -         $           -       $        49,000
                                                                   ==================   ===================   ===================
         Exchange of accounts payable for common stock               $             -         $      51,000       $             -
                                                                   ==================   ===================   ===================
         Conversion of accounts payable to loan payable              $             -         $     375,000       $             -
                                                                   ==================   ===================   ===================
         Warrants issued in connection with debt                     $       341,000         $           -       $             -
                                                                   ==================   ===================   ===================
         Preferred stock dividends                                   $       503,000         $           -       $             -
                                                                   ==================   ===================   ===================
</TABLE>

                See notes to consolidated financial statements.

                                      F-6
<PAGE>

                      OLYMPIC CASCADE FINANCIAL CORPORATION
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         SEPTEMBER 30, 2004, SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002

1.    ORGANIZATION

      Olympic Cascade  Financial  Corporation  ("Olympic" or the "Company") is a
      diversified financial services organization,  operating through its wholly
      owned  subsidiary,   National  Securities  Corporation  ("National").  The
      Company's  business  includes  securities  brokerage  for  individual  and
      institutional clients,  market-making trading activities, asset management
      and corporate  finance  services.  National is an  introducing  broker and
      clears  all  transactions  through  a  clearing  organization  on a  fully
      disclosed basis.

      In June  1997,  the  Company  acquired  all of the  outstanding  stock  of
      WestAmerica Investment Group ("WestAmerica"),  a Scottsdale, Arizona based
      broker-dealer specializing in retail brokerage services. In December 2001,
      WestAmerica   voluntarily   withdrew  its  membership  with  the  National
      Association of Securities  Dealers,  Inc. (the "NASD"),  ceased conducting
      business as a broker-dealer and filed for Chapter 7 Bankruptcy  protection
      in accordance with the U.S. Bankruptcy Code. Accordingly, the accompanying
      financial statements of WestAmerica have been reclassified as discontinued
      operations for all periods presented.

      In June  2000,  the  Company  acquired  all of the  outstanding  stock  of
      Canterbury  Securities  Corporation  ("Canterbury"),   an  Illinois  based
      broker-dealer focusing on private placement of securities.  Canterbury was
      acquired  for $30,000  plus the  issuance  of  warrants to purchase  5,000
      shares of the  Company's  common stock at an exercise  price of $6.375 per
      share.  Canterbury  had no activity  since its  acquisition.  In May 2002,
      pursuant to an agreement made simultaneous with the Investment Transaction
      (see Note  3b(i)),  the  Company  sold  Canterbury  for its book  value of
      $11,000 to Mr. Steven A. Rothstein,  the former Chief Executive Officer of
      the Company.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      a.    Principles of Consolidation - The consolidated  financial statements
            include the accounts of Olympic and its wholly owned subsidiary. All
            significant   inter-company  accounts  and  transactions  have  been
            eliminated in consolidation.

      b.    Estimates - The  preparation  of financial  statements in conformity
            with accounting  principles  generally accepted in the United States
            of America  requires  management to make  estimates and  assumptions
            that  affect  the  reported   amounts  of  assets  and  liabilities,
            disclosure of contingent  assets and  liabilities at 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.

      c.    Revenue Recognition - Customer security transactions and the related
            commission  income and  expense  are  recorded as of the trade date.
            Investment banking revenues include gains,  losses, and fees, net of
            syndicate expenses,  arising from securities  offerings in which the
            Company acts as an underwriter or agent. Investment banking revenues
            also include fees earned from providing financial advisory services.
            Investment  banking  management  fees are  recorded on the  offering
            date,  sales  concessions on the settlement  date, and  underwriting
            fees at the time the  underwriting  is  completed  and the income is
            reasonably   determinable.   Customers  who  are   financing   their
            transaction  on margin are charged  interest.  The Company's  margin
            requirements  are  in  accordance  with  the  terms  and  conditions
            mandated by First Clearing Corporation ("First Clearing") and Fiserv
            Securities,  Inc.  ("Fiserv"),  its clearing firms.  The interest is
            billed on the average daily balance of the margin account.


                                      F-7
<PAGE>

            Net dealer  inventory  gains  result  from  securities  transactions
            entered  into for the  account and risk of the  Company.  Net dealer
            inventory  gains are recorded on a trade date basis.  Transfer  fees
            are  charged  for  each  customer's  security  transaction,  and are
            recognized  as of the  trade  date.  Investment  advisory  fees  are
            account  management fees for high net worth clients.  These fees are
            billed  quarterly  and  recognized  at such time that  collection is
            probable.

      d.    Fixed Assets - Fixed assets are  recorded at cost.  Depreciation  is
            calculated  using the  straight-line  method based on the  estimated
            useful lives of the related  assets,  which range from five to seven
            years.  Leasehold improvements are amortized using the straight-line
            method over the shorter of the estimated  useful lives of the assets
            or the terms of the leases.  When  assets are  retired or  otherwise
            disposed  of,  the costs and  related  accumulated  depreciation  or
            amortization  are removed  from the accounts and any gain or loss on
            disposal is recognized.

      e.    Income  Taxes - The  Company  recognizes  deferred  tax  assets  and
            liabilities based on the difference between the financial statements
            carrying amounts and the tax basis of assets and liabilities,  using
            the  effective tax rates in the years in which the  differences  are
            expected to reverse.  A valuation  allowance related to deferred tax
            assets is also recorded when it is more likely than not that some or
            all of the deferred tax asset will not be realized.

      f.    Investment  in Limited  Partnership  - The Company  accounts for its
            investment in the limited  partnership in accordance with the equity
            method of  accounting.  Such asset has been included in other assets
            in the accompanying consolidated statements of financial condition.

      g.    Fair Value of Financial  Instruments - The carrying amounts reported
            in the  balance  sheet  for  cash,  receivables,  accounts  payable,
            accrued expenses and other liabilities approximates fair value based
            on the short-term maturity of these instruments.

      h.    Impairment of  Long-Lived  Assets - The Company  reviews  long-lived
            assets for impairment  whenever  circumstances and situations change
            such that there is an indication  that the carrying  amounts may not
            be recovered. At September 30, 2004, the Company has determined that
            there has been no impairment of its long-lived assets.

      i.    Income  (Loss) per Common Share - Basic  income  (loss) per share is
            computed  on the  basis of the  weighted  average  number  of common
            shares  outstanding.  Diluted income (loss) per share is computed on
            the  basis  of  the  weighted   average   number  of  common  shares
            outstanding  plus  the  potential   dilution  that  could  occur  if
            securities or other  contracts to issue common shares were exercised
            or converted.



                                      F-8
<PAGE>

<TABLE>
<CAPTION>
                                                                                  Fiscal Years Ended
                                                                       -----------------------------------------
                                                                       September 30, September 30,  September 30,
                                                                           2004          2003           2002
                                                                       -----------------------------------------
Numerator:
<S>                                                                    <C>            <C>            <C>
   Net income (loss)                                                   $   566,000    $  (843,000)   $(3,445,000)
   Preferred stock dividends                                              (266,000)      (250,000)      (168,000)
                                                                       -----------------------------------------
Numerator for basic earnings per share--net income (loss)
   attributable to common stockholders - as reported                   $   300,000    $(1,093,000)   $(3,613,000)
                                                                       =========================================
Denominator:
   Denominator for basic earnings per share--weighted average shares     3,580,446      3,175,315      2,255,449
                                                                       -----------------------------------------
   Effective of dilutive securities:
      Stock options                                                         36,182           --             --
      Warrants                                                             490,114           --             --
                                                                       -----------------------------------------
   Dilutive potential common shares                                        526,296           --             --
                                                                       -----------------------------------------
Denominator for diluted earnings per share--adjusted
   weighted-average shares and assumed conversions                       4,106,742      3,175,315      2,255,449
                                                                       =========================================
Basic:
   Income (loss) from continuing operations                            $      0.08    $     (0.34)   $     (1.73)
   Income (loss) from discontinued operations                                                               0.13
                                                                       -----------------------------------------
      Net income (loss) available to common stockholders               $      0.08    $     (0.34)   $     (1.60)
                                                                       =========================================
Diluted:
   Income (loss) from continuing operations                            $      0.07    $     (0.34)   $     (1.73)
   Income (loss) from discontinued operations                                                               0.13
                                                                       -----------------------------------------
      Net income (loss) available to common stockholders               $      0.07    $     (0.34)   $     (1.60)
                                                                       =========================================
</TABLE>

            Options and warrants to purchase 1,150,150 shares of common stock at
            prices  ranging  from $1.75 to $8.50 per share were  outstanding  at
            September  30,  2004,  but were not included in the  computation  of
            diluted  earnings per share because the respective  exercise  prices
            were greater than the average market price of the common stock,  and
            therefore, the effect would be anitdilutive.

      j.    Stock-Based  Compensation  - During  fiscal  year 2003,  the Company
            adopted  Statement of Financial  Accounting  Standards  ("SFAS") No.
            148,  "Accounting  for  Stock-Based  Compensation  - Transition  and
            Disclosure."  This statement  amended SFAS No. 123,  "Accounting for
            Stock-Based  Compensation."  As  permitted  under SFAS No. 123,  the
            Company  continues to apply the Accounting  Principles Board Opinion
            No. 25,  "Accounting  for Stock  Issued to  Employees."  As required
            under SFAS No.  148,  the  following  table  presents  pro forma net
            income  (loss)  attributable  to common  stockholders  for basic and
            diluted  net  income  (loss)  per  share as if the fair  value-based
            method had been applied to all awards.


                                      F-9
<PAGE>

<TABLE>
<CAPTION>
                                                                                   Fiscal Years Ended
                                                                       -----------------------------------------------
                                                                       September 30,    September 30,    September 30,
                                                                           2004            2003             2002
                                                                       -----------------------------------------------
<S>                                                                     <C>            <C>              <C>
Net income (loss) attributable to common stockholders - as reported     $ 300,000      $(1,093,000)     $(3,613,000)

Stock-based employee compensation cost determined under
fair value method, net of tax effects                                    (286,000)         (36,000)         (50,000)
                                                                       -----------------------------------------------
Net income (loss) attributable to common stockholders - pro forma       $  14,000      $(1,129,000)     $(3,663,000)
                                                                       ===============================================
Earnings (loss) per share

Basic earnings (loss) loss per share:
Net income (loss) attributable to common stockholders - as reported     $    0.08      $     (0.34)     $     (1.60)

Per share stock-based employee compensation cost
determined under fair value method, net of tax effects                      (0.08)           (0.01)           (0.02)
                                                                       -----------------------------------------------
Net income (loss) attributable to common stockholders - pro forma       $      --      $     (0.35)     $     (1.62)
                                                                       ===============================================
Diluted earnings (loss) loss per share:
Net income (loss) attributable to common stockholders - as reported     $    0.07      $     (0.34)     $     (1.60)

Per share stock-based employee compensation cost
determined under fair value method, net of tax effects                      (0.07)           (0.01)           (0.02)
                                                                       -----------------------------------------------
Net income (loss) attributable to common stockholders - pro forma       $      --      $     (0.35)     $     (1.62)
                                                                       ===============================================
</TABLE>

            The  Black-Scholes  option  valuation model was used to estimate the
            fair value of the  options  granted  during the fiscal  years  ended
            September 30, 2004,  2003 and 2002.  The model  includes  subjective
            input   assumptions  that  can  materially  affect  the  fair  value
            estimates.  The model was developed  for use in estimating  the fair
            value of traded options that have no vesting  restrictions  and that
            are fully  transferable.  For example,  the expected  volatility  is
            estimated based on the most recent  historical  period of time equal
            to the weighted average life of the options granted.  Options issued
            under the Company's  option plans have  characteristics  that differ
            from traded options. In the Company's opinion,  this valuation model
            does not  necessarily  provide a reliable single measure of the fair
            value of its employee stock options.  Principal  assumptions used in
            applying  the  Black-Scholes  model along with the results  from the
            model were as follows:



                                      F-10
<PAGE>

<TABLE>
<CAPTION>
                                                Fiscal Years Ended
                                  ----------------------------------------------
                                  September 30,    September 30,    September 30,
                                      2004             2003              2002
                                  ----------------------------------------------
<S>                               <C>             <C>               <C>
Assumptions:
Risk-free interest rate                 2.48%           4.01%             5.7%

Dividend                                0.00%           0.00%            0.00%

Expected life, in years                  3.0             5.0              5.0

Expected volatility                      123%            311%             286%

Results:
Fair value of options granted     $     1.47      $     0.52        $    0.02
</TABLE>

      k.    Concentrations  of Credit  Risk - The  Company is engaged in trading
            and providing a broad range of securities  brokerage and  investment
            services to a diverse group of retail and  institutional  clientele,
            as well as  corporate  finance and  investment  banking  services to
            corporations  and  businesses.   Counterparties   to  the  Company's
            business    activities    include    broker-dealers   and   clearing
            organizations,  banks and other financial institutions.  The Company
            uses clearing brokers to process  transactions and maintain customer
            accounts  on a fee  basis  for the  Company.  The  Company  uses two
            clearing brokers for substantially all of its business.  The Company
            permits the clearing firms to extend credit to its clientele secured
            by cash  and  securities  in the  client's  account.  The  Company's
            exposure to credit risk associated with the  non-performance  by its
            customers  and   counterparties   in  fulfilling  their  contractual
            obligations can be directly impacted by volatile or illiquid trading
            markets,   which  may  impair   the   ability   of   customers   and
            counterparties  to satisfy  their  obligations  to the Company.  The
            Company has agreed to indemnify the clearing brokers for losses they
            incur while  extending  credit to the Company's  clients.  It is the
            Company's policy to review, as necessary, the credit standing of its
            customers and each counterparty. Amounts due from customers that are
            considered  uncollectible by the clearing broker are charged back to
            the  Company  by  the  clearing  broker  when  such  amounts  become
            determinable.  Upon notification of a charge back, such amounts,  in
            total or in part,  are then either (i) collected from the customers,
            (ii) charged to the broker  initiating the  transaction and included
            in other receivables in the accompanying  consolidated statements of
            financial  condition,  and/or  (iii)  charged  as an  expense in the
            accompanying  consolidated statements of financial condition,  based
            on the particular facts and circumstances.

            The Company  maintains cash with major financial  institutions.  The
            Federal  Deposit  Insurance   Corporation  ("FDIC")  insures  up  to
            $100,000 at each  institution.  At times such amounts may exceed the
            FDIC limits.  At September 30, 2004 the uninsured  cash bank balance
            was  $157,000.  The  Company  believes  it is  not  exposed  to  any
            significant credit risks for cash.



                                      F-11
<PAGE>

      l.    Other  Receivables  - The Company  extends  unsecured  credit in the
            normal course of business to its brokers.  The  determination of the
            amount of  uncollectible  accounts  is based on the amount of credit
            extended   and  the  length  of  time  each   receivable   has  been
            outstanding,  as it relates to each individual broker. The allowance
            for  doubtful  accounts  reflects  the  amount  of loss  that can be
            reasonably  estimated  by  management,  and  is  included  in  other
            expenses in the accompanying consolidated statements of operations.

      m.    Advances  to  Registered  Representatives  -  Advances  are given to
            certain  registered   representatives  as  an  incentive  for  their
            affiliation with National.  The representative  signs an independent
            contractor agreement with National for a specified term, typically a
            three-year  period. The advance is then amortized on a straight-line
            basis over the amount of time the  representative is obligated to be
            affiliated with National,  and is included in commissions expense in
            the accompanying consolidated statements of operations. In the event
            the  representative's  affiliation with National terminates prior to
            the fulfillment of their contract, the representative is required to
            repay the unamortized balance.

      n.    Other  Assets - Other  assets  consist  of  investment  in a venture
            capital fund, pre-paid expenses and lease deposits.

      o.    Recent  Accounting  Pronouncements  - In January 2003, the Financial
            Accounting  Standards  Board  ("FASB")  issued   Interpretation  46,
            "Consolidation  of  Variable  Interest  Entities".   In  general,  a
            variable  interest entity is a corporation,  partnership,  trust, or
            any other legal structure used for business purposes that either (a)
            does not have equity  investors with voting rights or (b) has equity
            investors that do not provide sufficient financial resources for the
            entity to  support  its  activities.  Interpretation  46  requires a
            variable  interest  entity to be  consolidated  by a company if that
            company  is  subject  to a  majority  of the  risk of loss  from the
            variable  interest  entity's  activities  or  entitled  to receive a
            majority of the entity's residual returns or both. The consolidation
            requirements  of  Interpretation  46 apply  immediately  to variable
            interest  entities  created  after  January 31,  2003.  For variable
            interest entities created or acquired prior to February 1, 2003, the
            provisions of FIN 46 must be applied for the first interim or annual
            period   beginning   after   March  15,   2004.   The   adoption  of
            Interpretation   46  did  not  have  an  impact  on  the   Company's
            consolidated financial statements.

      p.    Management's  Liquidity  Plans - The market  conditions  experienced
            during fiscal years 2001 and 2002, and the first half of fiscal year
            2003, resulted in continuing operating losses and a reduction in the
            stockholders'  equity of the Company.  Accordingly,  the Company has
            pursued   additional  sources  of  capital  from  various  potential
            investors.

            In the first quarter of fiscal year 2004, National and the holder of
            the $1.0  million  secured  demand note that  matured on February 1,
            2004,  extended  the  maturity  date of the note to  March 1,  2005.
            Additionally,  two  noteholders  extended the maturity  date on $1.0
            million  of  notes  from  January  25,  2004 to July 31,  2005,  and
            effective  February 1, 2004,  the interest rate was increased to 12%
            from 9% per annum.



                                      F-12
<PAGE>

            In December 2003,  National's  clearing  deposit with First Clearing
            was reduced from  $1,000,000  to $500,000,  the excess  $500,000 was
            paid to First  Clearing  to reduce the  Company's  outstanding  loan
            balance on its  promissory  note,  and First  Clearing  forgave  the
            $375,000 loan that was due to be repaid in January 2004. In February
            2004,  the Company paid First  Clearing  $250,000 to fully repay its
            promissory  note that had a balance of  approximately  $1,006,000 at
            such time.

            In the first quarter of fiscal year 2004, the Company  consummated a
            private offering of its securities to a limited number of accredited
            investors  pursuant to Rule 506 of Regulation D under the Securities
            Act of 1933, as amended (the  "Securities  Act") wherein the Company
            issued  an   aggregate  of  $200,000  of   three-year,   10%  senior
            subordinated  promissory  notes to five  unaffiliated  parties.  The
            noteholders received three-year warrants to purchase an aggregate of
            50,000 shares of the Company's  common stock at an exercise price of
            $1.40 per  share,  with an  allocated  fair  value of  approximately
            $40,000.

            In  the  first  quarter  of  fiscal  year  2004,  the  Company  also
            consummated a private offering of its securities to a limited number
            of accredited  investors  pursuant to Rule 506 of Regulation D under
            the  Securities  Act  wherein  the Company  issued an  aggregate  of
            $850,000 of three-year,  10% senior subordinated promissory notes to
            four  unaffiliated  parties.  The  noteholders  received  three-year
            warrants to purchase an aggregate of 170,000 shares of the Company's
            common  stock  at an  exercise  price of $1.50  per  share,  with an
            allocated fair value of approximately $143,000.

            In the fourth quarter of fiscal year 2004, the Company consummated a
            private   placement  of  its  securities  to  a  limited  number  of
            accredited  investors pursuant to Rule 501 of Regulation D under the
            Securities Act. Each unit in the Private Offering sold for $1.60 and
            consisted  of two  shares  of the  Company's  common  stock  and one
            three-year  warrant to purchase  one share of the  Company's  common
            stock at a per share price of $1.50.  Net proceeds of  approximately
            $930,000 closed in the fourth quarter of fiscal year 2004

            The  Company  believes  that  with a  continuation  of  the  overall
            improved  market  conditions,  and the Company's  overall  increased
            volume of business, experienced during fiscal year 2004, the Company
            will have sufficient funds to maintain its current level of business
            activities  during  fiscal year 2005.  If market  conditions  should
            weaken, the Company would need to consider curtailing certain of its
            business  activities,  further  reducing  its fixed  overhead  costs
            and/or seek additional sources of financing.

3.    SIGNIFICANT AGREEMENTS AND TRANSACTIONS

      a.    CLEARING AGREEMENTS

            In August  2001,  National  entered  into an  agreement  with  First
            Clearing, a wholly-owned  subsidiary of Wachovia Corporation,  under
            which First Clearing  provided  clearing and other related  services
            for National.  The  conversion to First  Clearing  began in December
            2001 and was completed in March 2002.

            As part of the clearing agreement,  First Clearing agreed to execute
            orders,   prepare  and  mail  order   confirmations   to  National's
            customers,   prepare  and  mail  monthly  statements  to  National's
            customers,  and provide various other clearing and execution related
            services.  National  paid First  Clearing  fees for the  services it
            performs in  accordance  with  standard  industry  practices.  First
            Clearing  maintained  possession and control of National's  customer
            funds and securities in accordance with the broker-dealer  financial
            responsibility  rules promulgated under the Securities  Exchange Act
            of  1934,  as  amended,   and  other   applicable   laws,  rules  or
            regulations. National's customers maintained control of and received
            the benefits from their  customer  accounts.  National's  registered
            representatives  received the commissions  generated by transactions
            on the customer  accounts.  The customer was responsible for any and
            all losses for  transactions  on their account.  National,  however,
            indemnified   First  Clearing  for  debts  owed  by  customers  from
            transactions in their accounts.


                                      F-13
<PAGE>

            In connection with the clearing agreement,  the Company entered into
            a ten-year  promissory  note with  First  Clearing  under  which the
            Company immediately borrowed $1,000,000.  The funds were contributed
            by the  Company  to  National,  and were used as a deposit to secure
            National's  performance under the Clearing  Agreement.  The Clearing
            Agreement  also  provided  for  another  $1,000,000  loan  that  was
            extended  to  the  Company  upon   substantial   completion  of  the
            conversion on December 31, 2001 that the Company also contributed to
            National.  Principal  and interest  under the  promissory  note were
            forgivable  annually  based  on  certain  business  performance  and
            trading volumes of the Company.  Based on actual tickets, a total of
            $250,000,  $453,000 and $339,000 were forgiven in fiscal years 2004,
            2003 and 2002, respectively,  which has been recorded as a reduction
            in clearing fees expense in the accompanying consolidated statements
            of operations.

            In connection  with the clearing  agreement,  additional  borrowings
            were  available  to the Company upon the  attainment  by National of
            certain   volume  and   profitability   goals.   In  finalizing  the
            conversion,  a dispute arose among the Company,  US Clearing (one of
            its  former  clearing  firms)  and  First  Clearing,  regarding  the
            responsibility  for debit balances in certain trading accounts.  The
            three  parties  agreed to share the expense  equally.  The Company's
            share of this settlement,  $548,000,  was advanced to the Company by
            First   Clearing  and  added  to  the  existing   promissory   note.
            Additionally,   National  received  its  clearing  deposit,  net  of
            miscellaneous expenses, of $975,000 from US Clearing.  Concurrently,
            National terminated its clearing agreement with US Clearing.

            The agreement also required the payment of a termination fee ranging
            from  $2,000,000 to $400,000 if terminated  within years one through
            six of the  agreement.  Olympic  pledged  its  shares  of  stock  of
            National   to  secure  the   aforementioned   note.   In   addition,
            substantially all of the assets of National were  collateralized for
            the aforementioned loan.

            During the year ended September 30, 2003,  First Clearing loaned the
            Company an  additional  $375,000 in the form of clearing fee rebates
            that the Company  simultaneously  contributed to National.  The loan
            was due to be repaid in January 2004.

            In December 2003, the Company  engaged in various  discussions  with
            the NASD  relating to the Security  Agreement  between  National and
            First Clearing,  and its effect on the computation of National's net
            capital. As a result of these discussions, on December 15, 2003, the
            Company and First Clearing agreed in principle to the following: (1)
            National's clearing deposit was reduced from $1,000,000 to $500,000;
            (2) the excess  $500,000  resulting  from this reduction was paid to
            First Clearing to reduce the Company's  outstanding  loan balance on
            its  promissory  note  to  First  Clearing;  and  (3)  the  Security
            Agreement  between  National  and  First  Clearing  was  terminated.
            Furthermore,  First  Clearing  forgave  payment of the $375,000 loan
            that was due to be paid in January 2004, and the Company  realized a
            gain on  extinguishment  of debt of $375,000 in the first quarter of
            fiscal year 2004.



                                      F-14
<PAGE>

                      In February 2004, the Company paid First Clearing $250,000
                      to fully repay its  promissory  note that had a balance of
                      approximately  $1,006,000 at such time. As a result of the
                      repayment  of this note,  the  Company  realized a gain on
                      extinguishment  of debt of  approximately  $756,000 in the
                      second quarter of fiscal year 2004. Additionally, National
                      and First  Clearing  mutually  agreed to  terminate  their
                      clearing relationship.

                      On June 22, 2004,  National entered into an agreement with
                      Fiserv to clear its  brokerage  business.  The  conversion
                      from First Clearing to Fiserv was substantially  completed
                      in the  first  week  of  October  2004.  As  part  of this
                      transaction,  Fiserv  provided  National  with an $800,000
                      conversion assistance payment,  $250,000 of which was paid
                      upon  execution  of the  clearing  agreement,  $250,000 of
                      which was paid in mid-August  2004,  and $300,000 of which
                      was paid in October  2004.  The Company  believes that the
                      overall  effect of the new clearing  relationship  will be
                      beneficial to the Company's cost structure,  liquidity and
                      capital resources.

      b.    CAPITAL TRANSACTIONS

            (i)   During  fiscal  year  2002,  a  company  affiliated  with  the
                  President   of   Olympic   and   an    unaffiliated    company
                  (collectively,   the   "Investors")   obtained  a  significant
                  ownership  in  the  Company  (the  "Investment   Transaction")
                  through  purchasing  15,725  shares  of  Series A  convertible
                  preferred  stock  ("preferred  stock")  of Olympic at $100 per
                  share,  convertible  into common stock at a price of $1.50 per
                  share.

            (ii)  Concurrent with the closing of the above transaction, the then
                  current Chief Executive Officer and Chief Financial Officer of
                  Olympic  terminated  their  employment   agreements  with  the
                  Company and simultaneously  entered into consulting agreements
                  of  eighteen  and  twenty-seven  months,  respectively,  at  a
                  monthly  consideration  of  $10,000  for each  consultant.  In
                  addition,  the  Chief  Executive  Officer  was also  given the
                  option to  purchase  all of the shares of stock of  Canterbury
                  for its book value of approximately  $11,000,  which closed in
                  May  2002.  Such  officer  also  sold  285,000  shares  of the
                  Company's  common stock owned by the officer and his family to
                  the aforementioned unaffiliated company.

            (iii) In  December  2001,  Olympic  executed a  securities  exchange
                  agreement with the holders of Olympic's $2,000,000  promissory
                  note holders,  whereby $1,000,000 of such notes were exchanged
                  as payment for the issuance of 10,000  shares of the Company's
                  preferred stock at $100 per share. In addition, 100,000 of the
                  warrants issued pursuant to the original loan transaction were
                  repriced  from an  exercise  price of $5.00 per share to $1.75
                  per share.  No effect was given to the repriced  warrants,  as
                  the  Company's  common stock was selling at prices below $1.75
                  per share. In January 2004, the two  noteholders  extended the
                  maturity  dates on the notes from January 25, 2004 to July 31,
                  2005. Also,  effective  February 1, 2004, the interest rate on
                  each   note  was   increased   to  12%  from  9%  per   annum.
                  Additionally,  each of the noteholders'  warrants to purchase,
                  in the aggregate, 100,000 shares of common stock at a price of
                  $5.00 per share  expiring on February 1, 2004 was  repriced to
                  $1.25 per share,  and the expiration date of such warrants was
                  extended  to  July  31,  2005.  The  expiration  date  for the
                  noteholders'  warrants  to  purchase,  in  the  aggregate,  an
                  additional  100,000 shares of common stock at a price of $1.75
                  per share was also  extended from January 25, 2004 to July 31,
                  2005.   The   warrants   had  an   allocated   fair  value  of
                  approximately $158,000.



                                      F-15
<PAGE>

                  The Company is  accreting  the total  allocated  fair value of
                  $158,000  over the  eighteen-month  term of  these  promissory
                  notes.  Such  accretion has been included in "Interest" in the
                  accompanying consolidated financial statements.

            (iv)  In the  fourth  quarter  of  fiscal  2002,  the  former  Chief
                  Executive  Officer of the  Company  invested  $210,000  in the
                  Company by purchasing  2,100 shares of the preferred  stock at
                  $100 per share.

            (v)   In  the  first  quarter  of  fiscal  year  2003,  the  Company
                  consummated a private placement of its securities to a limited
                  number  of  accredited  investors  pursuant  to  Rule  501  of
                  Regulation   D  under  the   Securities   Act  (the   "Private
                  Offering").  Each unit in the Private  Offering sold for $0.65
                  and consisted of one share of the  Company's  common stock and
                  one three-year  warrant to purchase one share of the Company's
                  common  stock at a per share price of $1.25.  Net  proceeds of
                  $554,500  were  received  in the first  quarter of fiscal year
                  2003, and the Company  correspondingly issued 1,016,186 shares
                  of restricted common stock and 1,016,186 warrants.  In January
                  2003,  the Company  issued 76,923 shares of common stock and a
                  three-year  warrant to purchase  76,923 shares of common stock
                  at $1.25 per share to  D'Ancona  & Pflaum  LLC,  as payment of
                  approximately  $51,000 of legal  fees that were  accrued as of
                  September 30, 2002. The warrants issued in connection with the
                  Private  Offering and the warrants issued to D'Ancona & Pflaum
                  have been  included  along with the  proceeds of the shares of
                  common stock issued as additional paid-in capital.

            (vi)  In January 2004, the Company consummated a private offering of
                  its  securities to a limited  number of  accredited  investors
                  pursuant to Rule 506 of Regulation D under the  Securities Act
                  wherein  the  Company  issued  an  aggregate  of  $200,000  of
                  three-year,  10% senior subordinated  promissory notes to five
                  unaffiliated  parties.  The  noteholders  received  three-year
                  warrants  to  purchase an  aggregate  of 50,000  shares of the
                  Company's  common  stock at an  exercise  price  of $1.40  per
                  share, with an allocated fair value of approximately  $40,000.
                  In  December  2004,  the  Company  rescinded  a  note  in  the
                  principal  amount of $25,000 and a warrant to  purchase  6,250
                  shares of Common Stock.

                  In February 2004, the Company  consummated a private  offering
                  of its securities to a limited number of accredited  investors
                  pursuant to Rule 506 of Regulation D under the  Securities Act
                  wherein  the  Company  issued  an  aggregate  of  $850,000  of
                  three-year,  10% senior subordinated  promissory notes to four
                  unaffiliated  parties.  The  noteholders  received  three-year
                  warrants  to purchase an  aggregate  of 170,000  shares of the
                  Company's  common  stock at an  exercise  price  of $1.50  per
                  share, with an allocated fair value of approximately $143,000.
                  National  acted  as  the  placement   agent  for  the  private
                  offering. The offering period for the private offering expired
                  on May 30, 2004.



                                      F-16
<PAGE>

                  The Company is  accreting  the total  allocated  fair value of
                  $183,000 over the three-year term of these  promissory  notes.
                  Such   accretion  has  been  included  in  "Interest"  in  the
                  accompanying consolidated financial statements. The holders of
                  the warrants received certain  registration rights relating to
                  the common stock issuable upon exercise of the warrants.

            (vii) In July 2004,  the Company filed a  Registration  Statement on
                  Form S-3 under the  Securities  Act for the  resale of certain
                  shares of Common  Stock and  shares of Common  Stock  issuable
                  upon the  exercise of certain  Warrants  previously  issued in
                  connection with private  placement  transactions,  and certain
                  Warrants that were issued in the private  placements that have
                  been completed in the current  fiscal year.  The  Registration
                  Statement became effective on August 11, 2004.

            (viii)In the  fourth  quarter  of  fiscal  year  2004,  the  Company
                  consummated a private placement of its securities to a limited
                  number  of  accredited  investors  pursuant  to  Rule  501  of
                  Regulation  D under  the  Securities  Act.  Each  unit in this
                  offering  sold for $1.60 and  consisted  of two  shares of the
                  Company's common stock and one three-year  warrant to purchase
                  one share of the  Company's  common stock at a per share price
                  of $1.50.  Net  proceeds  of  $930,000  closed  in the  fourth
                  quarter of fiscal year 2004,  and the Company  correspondingly
                  issued  1,250,000  shares of the  Company's  common  stock and
                  625,000 warrants.

            (ix)  In September 2004, the Company issued 100,000 shares of common
                  stock as part of the settlement of an arbitration,  as payment
                  of approximately  $100,000.  Such payment has been included in
                  "Professional  fees", and the issuance of the shares of common
                  stock has been  included  in "Common  stock"  and  "Additional
                  paid-in capital", in the accompanying  consolidated  financial
                  statements.

4.    DISCONTINUED OPERATIONS

      In the first quarter of fiscal year 2002,  WestAmerica filed for Chapter 7
      Bankruptcy  protection in accordance with the U.S.  Bankruptcy  Code. This
      filing  eliminated  the  risk of loss for the  liabilities  in  excess  of
      assets, and accordingly,  that amount was reversed and reflected as income
      in the first  quarter of fiscal year 2002.  The Company did not  guarantee
      any  of  the  obligations  of   WestAmerica,   a  distinct  legal  entity.
      Consequently,  the Company  believes that it has no liability to creditors
      of WestAmerica.  As of December 3, 2004, no creditors of WestAmerica  have
      sought  recovery  from the  Company,  and the Company has been  advised by
      legal counsel that the bankruptcy case has been completed.



                                      F-17
<PAGE>

          The following is a summary of the Company's discontinued operations:

                                                      September 30,
                                                          2002
                                                      -------------
                Revenues                               $      --
                Loss from operations                          --
                Gain on disposal                         300,000
                                                       ---------
                Income from discontinued operations    $ 300,000
                                                       =========

5.    BROKER-DEALERS AND CLEARING ORGANIZATIONS RECEIVABLES AND PAYABLES

      At September 30, 2004 and 2003 the amounts  receivable  of $3,821,000  and
      $3,724,000,  respectively,  from brokers and dealers represent net amounts
      due for fees and commissions.  At September 30, 2004 and 2003, the amounts
      payable to broker  dealers and  clearing  organizations  of  $115,000  and
      $258,000, respectively,  represent amounts payable for inventory purchases
      on behalf of the Company and its customers.

6.    OTHER RECEIVABLES

      An analysis of other  receivables,  and the  allowance  for  uncollectible
      accounts on such  receivables  for the fiscal  years ended  September  30,
      2002, 2003 and 2004 is as follows:

<TABLE>
<CAPTION>
                                   Other                              Net
                                Receivables       Allowance       Receivables
                                -----------       ---------       -----------
<S>                             <C>              <C>              <C>
Balance, September 28, 2001     $   558,000      $  (209,000)     $   349,000
Additions                           858,000               --          858,000
Collections                         (52,000)              --          (52,000)
Provision                                --               --               --
                                ---------------------------------------------
Balance, September 30, 2002       1,364,000         (209,000)       1,155,000
Additions                            17,000               --           17,000
Collections                         (22,000)              --          (22,000)
Provision                                --         (441,000)        (441,000)
                                ---------------------------------------------
Balance, September 30, 2003       1,359,000         (650,000)         709,000
Additions                           435,000               --          435,000
Collections                         (55,000)              --          (55,000)
Provision                                --         (200,000)        (200,000)
                                ---------------------------------------------
Balance, September 30, 2004     $ 1,739,000      $  (850,000)     $   889,000
                                =============================================
</TABLE>


                                      F-18
<PAGE>

7.    ADVANCES TO REGISTERED REPRESENTATIVES

      An analysis of advances to  registered  representatives  for fiscal  years
      ended September 30, 2003 and 2004 is as follows:

                 Balance, September 30, 2002     $   799,000
                 Advances                            555,000
                 Amortization of advances           (710,000)
                                                 -----------
                 Balance, September 30, 2003         644,000
                 Advances                          1,855,000
                 Amortization of advances           (763,000)
                                                 -----------
                 Balance, September 30, 2004     $ 1,736,000
                                                 ===========

      The unamortized  advances outstanding at September 30, 2004, 2003 and 2002
      attributable  to registered  representatives  who ended their  affiliation
      with National prior to the  fulfillment  of their  obligation was $40,000,
      $35,000 and $8,000, respectively.

8.    SECURITIES HELD FOR RESALE AND SECURITIES SOLD, BUT NOT YET PURCHASED,  AT
      MARKET

      The following  table shows the market  values of the Company's  securities
      held for resale and securities sold, but not yet purchased as of September
      30, 2004 and 2003, respectively:
<TABLE>
<CAPTION>
                                           September 30, 2004                    September 30, 2003
                                  ------------------------------------- -----------------------------------
                                                         Securities                          Securities
                                      Securities        sold, but not      Securities       sold, but not
                                   held for resale      yet purchased    held for resale    yet purchased
                                  ------------------  ----------------- ----------------- -----------------
<S>                                   <C>                <C>                 <C>              <C>
Corporate stocks                      $ 36,000           $  1,000            $238,000         $ 63,000
Corporate bonds                          3,000               --                21,000            5,000
Government obligations                 110,000             32,000             115,000           48,000
                                      --------           --------            --------         --------
                                       149,000           $ 33,000            $374,000         $116,000
                                      ========           ========            ========         ========
</TABLE>

      Securities held for resale and securities  sold, but not yet purchased are
      recorded at fair value.  Fair value is generally  based upon quoted market
      prices.  If quoted market prices are not available,  or if liquidating the
      Company's  position is reasonably  expected to impact market prices,  fair
      value is determined  based upon other relevant  factors,  including dealer
      price  quotations,  price  activity  of similar  instruments  and  pricing
      models.  Pricing  models  consider the time value and  volatility  factors
      underlying the financial instruments and other economic measurements.

      Securities  sold,  but not yet  purchased  commit  the  Company to deliver
      specified securities at predetermined  prices. The transactions may result
      in market risk since, to satisfy the obligation,  the Company must acquire
      the securities at market prices,  which may exceed the values reflected in
      the consolidated statements of financial condition.



                                      F-19
<PAGE>

9.    FIXED ASSETS

      Fixed assets as of September 30, 2004 and 2003,  respectively,  consist of
      the following:
<TABLE>
<CAPTION>
                                                September 30, 2004  September 30, 2003  Estimated Useful Lives
                                                ------------------  ------------------  ----------------------
<S>                                                <C>                  <C>              <C>
Office machines                                    $   150,000          $    99,000      5 years
Furniture and fixtures                                 170,000              183,000      7 years
Interactive fixed assets                                  --                 56,000      5 years
Phone system                                            35,000               15,000      5 years
Electronic equipment                                   322,000              683,000      5 years
Leasehold improvements                                 233,000              166,000      Lesser of terms of leases or useful lives
                                                   -----------          -----------
                                                       910,000            1,202,000
Less accumulated depreciation and amortization        (609,000)            (955,000)
                                                   -----------          -----------
Fixed assets - net                                 $   301,000          $   247,000
                                                   ===========          ===========
</TABLE>
      Duringthe   year  ended   September  30,  2004,   the  Company  wrote  off
      approximately  $511,000 of retired  and fully  depreciated  fixed  assets.
      Depreciation  and  amortization  expense for the years ended September 30,
      2004, 2003 and 2002 was $165,000, $217,000 and $566,000, respectively.

      In April 1998 and June 1998,  the Company  entered into sale and leaseback
      agreements with an outside funding  company.  As part of the agreement the
      Company sold certain fixed assets to the funding  company for $930,000 and
      $250,000  in April 1998 and June 1998,  respectively,  and agreed to lease
      these assets back over a forty-eight month period. The Company recorded no
      gain or loss and  recorded  this  transaction  as a capital  lease.  These
      leases expired in fiscal year 2002.

10.   OTHER ASSETS

      Other assets as of September 30, 2004 and 2003,  respectively,  consist of
      the following:

<TABLE>
<CAPTION>
                                  September 30, 2004     September 30, 2003
                                  ------------------     ------------------
<S>                                   <C>                    <C>
Investment in limited partnership     $107,000               $107,000
Pre-paid expenses                      321,000                362,000
Deposits                                52,000                 76,000
                                      --------               --------
Total                                 $480,000               $545,000
                                      ========               ========
</TABLE>

11.   NOTES PAYABLE

      In January 2001, the Company  executed two promissory notes for $1,000,000
      each.  These  notes  bear  interest  at 9% per annum  with  interest  paid
      quarterly.  The principal of each note initially  matured in January 2004.
      In  connection  with each note,  warrants  were issued for the purchase of
      100,000 shares of the Company's common stock at an exercise price of $5.00
      per share.  The warrants were to expire on the maturity date,  were valued
      at $50,000 each, and were recorded as a discount to the respective  notes.
      As of September 30, 2004 and 2003, the aggregate  unamortized discount was
      $0 and $11,000, respectively. As discussed in Note 3b(iii), the holders of
      such notes executed a securities exchange agreement, whereby $1,000,000 of
      such notes were  exchanged as payment for the issuance of 10,000 shares of
      the Company's  preferred stock at $100 per share. In addition,  100,000 of
      the  warrants  issued  pursuant  to the  original  loan  transaction  were
      repriced from an exercise price of $5.00 per share to $1.75 per share.  As
      discussed in Note 3b(iii),  the two noteholders extended the maturity date
      on the remaining  $1,000,000  to July 31, 2005.  The Company is amortizing
      the total allocated fair value of $158,000 over the extended 18-month term
      of these notes.  Such  amortization has been included in "Interest" in the
      accompanying consolidated financial statements.



                                      F-20
<PAGE>

      As discussed in Note 3a, the Company  received loans from First  Clearing,
      payable  over the life of the  clearing  agreement,  that were  forgivable
      based upon the Company attaining certain trading volumes. These notes were
      forgiven  in fiscal  year  2004.  The note  balance  outstanding  and loan
      activity is as follows:

<TABLE>
<S>                               <C>
Balance, September 30, 2002       $ 2,209,000
Amount amortized                     (453,000)
                                  -----------
Balance, September 30, 2003         1,756,000
Principal payments                   (750,000)
Amount amortized and forgiven      (1,006,000)
                                  -----------
Balance, September 30, 2004       $      --
                                  ===========
</TABLE>

      As discussed in Note 3b(vi) in January  2004,  the Company  consummated  a
      private  offering  of its  securities  to a limited  number of  accredited
      investors   wherein  the  Company  issued  an  aggregate  of  $200,000  of
      three-year,  10% senior subordinated promissory notes to five unaffiliated
      parties.  The  noteholders  received  three-year  warrants  to purchase an
      aggregate of 50,000  shares of the  Company's  common stock at an exercise
      price of $1.40 per share,  with an allocated  fair value of  approximately
      $40,000.  In December 2004, the Company  rescinded a note in the principal
      amount of $25,000 and a warrant to purchase 6,250 shares of Common Stock.

      In  February  2004,  the  Company  consummated  a private  offering of its
      securities to a limited number of accredited investors wherein the Company
      issued an aggregate  of $850,000 of  three-year,  10% senior  subordinated
      promissory notes to four unaffiliated  parties.  The noteholders  received
      three-year  warrants  to purchase an  aggregate  of 170,000  shares of the
      Company's  common stock at an exercise  price of $1.50 per share,  with an
      allocated fair value of approximately $143,000.

      The Company is amortizing the total  allocated fair value of $183,000 over
      the three-year term of these promissory  notes. Such amortization has been
      included  in  "Interest"  in  the  accompanying   consolidated   financial
      statements.



                                      F-21
<PAGE>

      The  following  table  summarizes  notes payable at September 30, 2004 and
      2003, respectively:

<TABLE>
<CAPTION>
                                             September 30, 2004   September 30, 2003
                                             -------------------  -------------------
<S>                                               <C>                  <C>
Note payable to First Clearing                    $      --            $ 1,756,000
Notes payable to noteholders (net of discount
  of $0 and $11,000, respectively)                  1,000,000              989,000
Loan from First Clearing                                 --                375,000
Loan from former officer                               50,000               50,000
2004 Private Placements                             1,050,000                 --
                                                  -----------          -----------
                                                    2,100,000            3,170,000
Less: Deferred Financing Costs                       (245,000)                --
                                                                       -----------
                                                  -----------          -----------
                                                  $ 1,855,000          $ 3,170,000
                                                  ===========          ===========
</TABLE>

      The  following is a schedule by years of debt maturity as of September 30,
      2004:

<TABLE>
<CAPTION>
Fiscal year ending
<S>                                <C>
2005                               $ 1,050,000
2006                                      --
2007                                 1,050,000
                                   -----------
                                     2,100,000
Less: Deferred financing costs        (245,000)
                                   -----------
                                   $ 1,855,000
                                   ===========
</TABLE>

12.   SECURED DEMAND NOTE

      On  February  1,  2001,  National  entered  into  a  secured  demand  note
      collateral  agreement  with an employee of National  and a Director of the
      Company,  to  borrow  securities  that  can be  used  by the  Company  for
      collateral  agreements.  These  securities  have  been  initially  pledged
      through an unrelated  broker-dealer,  and have a borrowing  value totaling
      $1,000,000.  This note bears  interest at 5% per annum with  interest paid
      monthly.  The demand note,  which had an original  maturity of February 1,
      2004, was extended to March 1, 2005.  Certain of the securities  have been
      pledged as collateral  for a security  deposit for an office lease and two
      letters of credit,  in the  amounts of  $249,000,  $125,000  and  $38,000,
      respectively,  executed by the Company on behalf of  National.  No amounts
      have been drawn on these letters of credit.



                                      F-22
<PAGE>

13.   INCOME TAXES

      The income tax (provision) benefit consists of:

<TABLE>
<CAPTION>
                                                           Fiscal Years Ended
                                       --------------------------------------------------------------
                                       September 30, 2004    September 30, 2003    September 30, 2002
                                       --------------------------------------------------------------
<S>                                         <C>                   <C>                  <C>
Current federal income tax benefit          $   --                $   --               $ 90,000
Current state income tax provision              --                    --                (10,000)
                                            --------              --------             --------
                                            $   --                $   --               $ 80,000
                                            ========              ========             ========
</TABLE>

      The  income  tax  (provision)   benefit  related  to  income  (loss)  from
      continuing  operations before income taxes and extraordinary  items varies
      from the federal statutory rate as follows:

<TABLE>
<CAPTION>
                                                              Years Ended
                                       --------------------------------------------------------------
                                       September 30, 2004    September 30, 2003    September 30, 2002
                                       --------------------------------------------------------------
<S>                                         <C>                 <C>                  <C>
Statutory federal rate                      $  (192,000)          $   287,000          $ 1,287,000
State income taxes net of
federal income tax benefit                      (19,000)               27,000              124,000
Losses for which no benefit
is provided                                        --                (314,000)          (1,331,000)
Utilization of net operating
loss carryforwards                              211,000                  --                   --
                                            -----------           -----------          -----------
                                            $      --             $      --            $    80,000
                                            ===========           ===========          ===========
</TABLE>

      Significant  components  of the  Company's  deferred  tax assets  that are
      included in other assets in the accompanying  financial  statements are as
      follows:

<TABLE>
<CAPTION>
                                       September 30, 2004    September 30, 2003
                                       -----------------------------------------
<S>                                       <C>                 <C>
Net operating loss carryforwards           $ 3,593,000          $ 4,114,000
Reserves for uncollectible receivables         332,000              254,000
Other temporary differences                    207,000               10,000
                                           -----------          -----------
Total deferred tax asset                     4,132,000            4,378,000
Valuation allowance                         (4,132,000)          (4,378,000)
                                           -----------          -----------
Deferred tax asset                         $      --            $      --
                                           ===========          ===========
</TABLE>

      At September  30,  2004,  the Company had  available  net  operating  loss
      carryovers  of  approximately  $9.2  million  that may be applied  against
      future taxable  income and expires at various dates through 2023,  subject
      to certain limitations.  The Company has a deferred tax asset arising from
      such  net  operating  loss  carryforwards  and has  recorded  a  valuation
      allowance  for the full  amount  of such  deferred  tax  asset  since  the
      likelihood of  realization of the tax benefits  cannot be determined.  The
      valuation  allowance for deferred tax asset  decreased by $246,000  during
      the fiscal year ended  September 30, 2004 and increased by $835,000 during
      the fiscal year ended September 30, 2003.



                                      F-23
<PAGE>

14.   COMMITMENTS

      Employment  Agreements - During  fiscal  years 1999 and 2000,  the Company
      entered into  employment  agreements  with six executive  officers that in
      total provided for annual salaries aggregating $1,710,000. Pursuant to the
      Investment Transaction, four of these agreements were terminated in fiscal
      year 2002. One of these  agreements  was modified in conjunction  with the
      Investment Transaction. The final agreement was resolved in an arbitration
      (see Note 15).

      Leases - As of September  30, 2004,  the Company  leases  office space and
      equipment in various states  expiring at various dates through 2012 and is
      committed  under  operating  leases for future  minimum lease  payments as
      follows:


                     Fiscal Year Ending
                     ------------------
                     2005             $ 1,716,000
                     2006               1,649,000
                     2007               1,548,000
                     2008               1,423,000
                     2009                 546,000
                     Thereafter         1,585,000
                                      -----------
                                      $ 8,467,000
                                      ===========

      In February 2003, in connection  with the signing of a lease  extension in
      the New York  office,  the Company  was given a deferral of rent  totaling
      $360,000, over twelve months, commencing with the March 2003 rent payment.
      Such deferral,  accruing  interest at 6.25% per annum,  is to be repaid in
      monthly installments of approximately $19,000 starting in September 2006.

      Rental  expense under all operating  leases for the years ended  September
      30,  2004,  September  30, 2003 and  September  30,  2002 was  $2,006,000,
      $2,029,000 and $2,404,000, respectively.

15.   CONTINGENCIES

      In April 2002, a former executive officer of the Company,  Craig M. Gould,
      commenced  an  action  against  the  Company  claiming  a  breach  of  his
      employment  contract,  and sought  approximately  $850,000 in damages. The
      arbitration  commenced in July 2003 and was completed in December 2003. In
      January 2004, the arbitration panel awarded damages against the Company of
      approximately  $400,000 that was accrued in the quarter ended December 31,
      2003. The Company paid this award during the quarter ended March 31, 2004.



                                      F-24
<PAGE>

      In June 2002, National was named,  together with others, as a defendant in
      a class  action  lawsuit  relating  to a series of private  placements  of
      securities of Fastpoint Communications, Inc. in the Superior Court for the
      State of California  for the County of San Diego.  Plaintiffs  are seeking
      approximately  $14.0 million,  but no specific  amount of damages has been
      sought  against  National in the  complaint.  National filed its answer in
      April 2003.  In January  2004,  the court  entered an order  denying class
      certification. As a result of this order denying class certification,  the
      only remaining claims against National are the individual  claims asserted
      by the two class representatives  totaling $60,000.  Plaintiffs have filed
      an appeal of this  order and it is in the  process of being  briefed.  The
      action  in the  lower  court,  including  a  pending  motion  for  summary
      judgment,  has been stayed.  National believes it has meritorious defenses
      and  intends to  vigorously  defend this  action,  although  the  ultimate
      outcome of the matter cannot be determined at this time.  Accordingly,  no
      adjustments  have been made in the  consolidated  financial  statements in
      response to this matter.

      The NASD was  engaged in an  industry-wide  investigation  of mutual  fund
      trading  activities.  National is one of the numerous  broker-dealers that
      was  contacted  by the NASD with respect to this  investigation.  The NASD
      identified  certain  customer  mutual fund  transactions  ordered  through
      National during the time period from October 2000 to February 2003 that it
      believed constituted mutual fund timing and/or excessive trading activity.
      National  engaged  in  discussions  and  negotiations  with  the  NASD  to
      informally   resolve  these  matters.   Such  resolution   resulted  in  a
      settlement, whereby National, without admitting or denying any violations,
      agreed to make both  restitution  and pay a fine to the NASD,  that in the
      aggregate approximate $600,000.  Additionally, the Company is obligated to
      pay the  fines  imposed  by the NASD on two  executive  officers  totaling
      $50,000  pursuant  to its  indemnification  obligations.  The  Company has
      included the $650,000 in "Professional  fees" for the year ended September
      30, 2004.  The unpaid balance of  approximately  $562,000 at September 30,
      2004 has been included in "Accounts  Payable,  Accrued  Expenses and Other
      Liabilities"  in the  accompanying  consolidated  statements  of financial
      condition.

      The  Company  is  also a  defendant  in  various  other  arbitrations  and
      administrative   proceedings,   lawsuits   and  claims   seeking   damages
      aggregating  approximately  $1.1 million  (exclusive of specified punitive
      damages of approximately $300,000, unspecified punitive damages related to
      certain claims and expected insurance  coverage).  The Company has filed a
      counterclaim  for  approximately  $200,000 in one such  proceeding.  These
      matters arise out of the normal course of business. The Company intends to
      vigorously defend itself in these actions,  and believes that the eventual
      outcome of these  matters will not have a material  adverse  effect on the
      Company.  However,  the  ultimate  outcome  of  these  matters  cannot  be
      determined  at this time.  The amounts  related to such  matters  that are
      reasonably  estimable and which has been accrued at September 30, 2004 and
      2003,  is $731,000 and  $366,000,  respectively,  and has been included in
      "Accounts  Payable,   Accrued  Expenses  and  Other  Liabilities"  in  the
      accompanying  consolidated statements of financial condition.  The Company
      has included in  "Professional  fees" litigation and NASD related expenses
      of $2,074,000,  $945,000 and $499,000 for the fiscal years ended September
      30, 2004, 2003 and 2002, respectively.

16.   STOCKHOLDERS' EQUITY

      Shares  Authorized - During the year ended September 30, 2004, the Company
      decreased its authorized  number of shares of common stock from 60,000,000
      to  30,000,000,  increased  its  authorized  number of shares of preferred
      stock from  100,000  to 200,000  and  increased  the number of  authorized
      shares designated as Series A preferred stock from 30,000 to 50,000.



                                      F-25
<PAGE>

      Cumulative  Dividends on Convertible  Preferred Stock - The holders of the
      Series A Convertible  preferred stock are entitled to receive dividends on
      a quarterly basis at a rate of 9% per annum, per share. Such dividends are
      cumulative  and accrue  whether or not declared by the Company's  Board of
      Directors,  but are payable only when, as and if declared by the Company's
      Board of  Directors.  In March  2004,  the  Company's  Board of  Directors
      declared an in-kind  dividend in the aggregate of 3,352 shares of Series A
      Convertible  preferred  stock,  in payment of  approximately  $503,000  of
      dividends  accrued  through  January 31, 2004.  Such shares were issued on
      March 31, 2004. At September 30, 2004, the amount of accumulated dividends
      on the  Company's  31,177  issued  and  outstanding  shares  of  Series  A
      Convertible preferred stock was $182,000.

      Stock Options - The Company's  stock option plans provide for the granting
      of stock  options to  certain  key  employees,  directors  and  investment
      executives.  Generally,  options  outstanding  under the  Company's  stock
      option  plan are granted at prices  equal to or above the market  value of
      the stock on the date of grant, vest either immediately or ratably over up
      to five years, and expire five years subsequent to award.

      A summary  of the  status of the  Company's  stock  options  and  warrants
      outstanding is presented below.

      The following tables summarize information about stock options outstanding
      at September 30, 2004:


<TABLE>
<CAPTION>
Stock Options Under Plan
------------------------
                                                                                Weighted
                                                                              Average Price
                                 Authorized     Outstanding      Available      Per Share
                                 ----------     -----------      ---------      ---------
<S>                              <C>             <C>             <C>            <C>
Balance, September 28, 2001      2,422,084       1,271,508       1,150,576      $   5.66
Granted                               --           117,500        (117,500)
Exercised                             --              --              --
Forfeitures                       (430,584)       (543,640)        113,056
                                 ---------       ---------         -------
Balance, September 30, 2002      1,991,500         845,368       1,146,132      $   5.08
Granted                               --            30,000         (30,000)
Exercised                             --              --              --
Forfeitures                           --          (471,218)        471,218
                                 ---------       ---------         -------
Balance, September 30, 2003      1,991,500         404,150       1,587,350      $   5.08
Granted                               --           694,000        (694,000)
Exercised                          (26,003)        (26,003)           --
Forfeitures                           --           (46,997)         46,997
                                 ---------       ---------         -------
Balance, September 30, 2004      1,965,497       1,025,150         940,347      $   3.47
                                 =========       =========         =======
</TABLE>


                                      F-26
<PAGE>

<TABLE>
<CAPTION>

                                       Options Outstanding                           Options Exercisable
                   ---------------------------------------------------------  -------------------------------------
                                            Weighted
                                            Average            Weighted                             Weighted
     Range of                              Remaining            Average                              Average
     Exercise            Number           Contractual          Exercise           Number            Exercise
      Prices           Outstanding           Life               Prices          Exercisable          Prices
-----------------  -----------------  -------------------  -----------------  -----------------  ------------------
<S>                         <C>              <C>                <C>                    <C>             <C>
  $0.40-$2.00               130,000          2.77               $1.39                  100,834         $1.28
  $2.40-$2.75               640,000          4.32               $2.59                  240,000         $2.57
  $3.80-$3.88                28,900          1.14               $3.85                   28,900         $3.85
  $5.38-$5.75                15,000          0.96               $5.50                   15,000         $5.50
  $6.13-$7.25               180,000          0.73               $7.06                  180,000         $7.06
  $7.50-$8.50                31,250          0.49               $7.98                   31,250         $7.98
                   -----------------                                          -----------------
                          1,025,150                                                    595,984
                   =================                                          =================
</TABLE>

      The following tables summarize  information about warrants  outstanding at
      September 30, 2004.

<TABLE>
<CAPTION>
Warrants
--------
                                                      Weighted Average
                                        Shares         Exercise Price      Exercisable
                                        ------        ----------------     -----------
<S>                                      <C>              <C>                  <C>
Outstanding at September 28, 2001        462,925          $   3.69             462,925
                                                                             =========
Granted                                    5,000          $   5.00
Expired                                  (33,075)         $   4.76
                                        --------
Outstanding at September 30, 2002        434,850          $   3.63             434,850
                                                                             =========
Granted                                1,296,347          $   1.20
Expired                                  (47,250)         $   5.36
                                        --------
Outstanding at September 30, 2003      1,683,947          $   1.71           1,683,947
                                                                             =========
Granted                                  909,500          $   1.09
Exercised                               (240,771)         $   1.23
Expired                                  (27,600)         $   3.09
                                        --------
Outstanding at September 30, 2004      2,325,076          $   1.36           2,325,076
                                       =========                             =========
</TABLE>



                                      F-27
<PAGE>


<TABLE>
<CAPTION>
Warrants Outstanding and Exercisable
------------------------------------
                                                     Weighted
                                                      Average
                                Number               Remaining          Weighted Average
   Exercise Prices           Outstanding          Contractual Life       Exercise Prices
----------------------- ---------------------- ---------------------- ----------------------
<S>                                   <C>              <C>                    <C>
        $0.65                         91,619           1.23                   $0.65
        $0.80                         62,500           2.94                   $0.80
        $1.25                      1,138,957           1.17                   $1.25
        $1.40                         50,000           2.27                   $1.40
        $1.50                        797,000           2.78                   $1.50
        $1.75                        175,000           0.83                   $1.75
        $5.00                          5,000           2.16                   $5.00
        $6.38                          5,000           0.75                   $6.38
                        --------------------
                                   2,325,076
                        ====================
</TABLE>


17.   NET CAPITAL REQUIREMENTS

      National, as a registered  broker-dealer,  is subject to the SEC's Uniform
      Net Capital Rule 15c3-1,  which  requires the  maintenance  of minimum net
      capital.  National  has  elected to use the  alternative  standard  method
      permitted by the rule.  This requires that National  maintain  minimum net
      capital  equal to the  greater  of  $250,000  or a  specified  amount  per
      security  based on the bid price of each security for which  National is a
      market maker. At September 30, 2004,  National's net capital  exceeded the
      requirement by $1,154,000.

      Advances,   dividend  payments  and  other  equity  withdrawals  from  its
      subsidiaries  are  restricted  by the  regulations  of the SEC,  and other
      regulatory agencies.  These regulatory  restrictions may limit the amounts
      that a subsidiary may dividend or advance to the Company.

18.   EMPLOYEE BENEFITS

      The Company's  subsidiary  has a defined  401(k) profit  sharing plan (the
      "Plan") that covers substantially all of its employees. Under the terms of
      the Plan, employees can elect to defer up to 25% of eligible compensation,
      subject to certain limitations,  by making voluntary  contributions to the
      Plan. The Company's annual contributions are made at the discretion of the
      Board of Directors. During the fiscal years ended September 30, 2004, 2003
      and 2002, the Company made no contributions to the Plan.

19.   SUBSEQUENT EVENTS

      In October 2004, the Company  entered into a preliminary  letter of intent
      to  consummate a merger or other  similar  combination  with First Montauk
      Financial  Corp.  The letter of intent is subject to numerous  conditions,
      including:  satisfactory completion of due diligence,  finalization of the
      terms of the  combination and structure of the  transaction,  negotiation,
      preparation and execution of definitive transaction documents,  compliance
      with state and federal  securities  laws and  regulations,  and corporate,
      shareholder and regulatory approvals.



                                      F-28
<PAGE>

      In February  2003,  the Company  received  notification  from The American
      Stock Exchange (the "AMEX")  indicating that it was not in compliance with
      the listing standard  relating to  shareholders'  equity of less than $2.0
      million and losses from continuing operations and/or net losses in two out
      of our three most recent fiscal years. The Company submitted a plan to the
      AMEX indicating compliance within a maximum of 18 months. In May 2003, the
      AMEX notified the Company that it had accepted its plan of compliance  and
      granted the Company an  extension of time to August 5, 2004 to satisfy the
      financial  standards  requirement.  The  Company,  however,  was unable to
      comply with the listing  standard.  Consequently,  on November 1, 2004 the
      Common  Stock  was  removed  from the AMEX and  commenced  trading  on the
      Over-the-Counter Bulletin Board.

20.   UNAUDITED QUARTERLY DATA

      Selected Quarterly Financial Data (Dollars in thousands,  except per share
      data)

<TABLE>
<CAPTION>
                                                           December        March        June         September
                                                           31, 2002      31, 2003      30, 2003      30, 2003
                                                           --------      --------      --------      --------
<S>                                                        <C>           <C>           <C>           <C>
Revenues                                                   $ 10,593      $  9,393      $ 15,075      $ 15,097
                                                           ========      ========      ========      ========
Net income (loss)                                          $   (159)     $   (591)     $    363      $   (456)
Preferred stock dividends                                       (63)          (62)          (62)          (63)
                                                           --------      --------      --------      --------
Net income (loss) attributable  to common stockholders     $   (222)     $   (653)     $    301      $   (519)
                                                           ========      ========      ========      ========
Income (loss) per common share - Basic                     $  (0.08)     $  (0.20)     $   0.09      $  (0.15)
                                                           ========      ========      ========      ========
Income (loss) per common share - Diluted                   $  (0.08)     $  (0.20)     $   0.07      $  (0.15)
                                                           ========      ========      ========      ========
</TABLE>

<TABLE>
<CAPTION>
                                                           December        March        June         September
                                                           31, 2003      31, 2004      30, 2004      30, 2004
                                                           --------      --------      --------      --------
<S>                                                        <C>           <C>           <C>           <C>
Revenues                                                   $ 15,144      $ 20,230      $ 14,854      $ 13,363
                                                           ========      ========      ========      ========
Net income (loss)                                          $    464      $  1,297      $   (310)     $   (885)
Preferred stock dividends                                       (63)          (62)          (70)          (71)
                                                           --------      --------      --------      --------
Net income (loss) attributable  to common stockholders     $    401      $  1,235      $   (380)     $   (956)
                                                           ========      ========      ========      ========
Income (loss) per common share - Basic                     $   0.12      $   0.37      $  (0.11)     $  (0.23)
                                                           ========      ========      ========      ========
Income (loss) per common share - Diluted                   $   0.07      $   0.20      $  (0.11)     $  (0.23)
                                                           ========      ========      ========      ========
</TABLE>

      Income (loss) per share for each quarter was computed  independently using
      the  weighted-average  number of shares  outstanding  during the  quarter.
      However,  income  (loss)  per  share for the year was  computed  using the
      weighted-average  number  of shares  outstanding  during  the  year.  As a
      result,  the sum of the income  (loss) per share for the four quarters may
      not equal the full year income (loss) per share.



                                      F-29
<PAGE>

21.   FINANCIAL INFORMATION - OLYMPIC CASCADE FINANCIAL CORPORATION

      Olympic was  organized in 1996 and began  operations  on February 6, 1997.
      The following Olympic (parent company only) financial  information  should
      be read in conjunction with the other notes to the consolidated  financial
      statements.

                        STATEMENTS OF FINANCIAL CONDITION

                                     ASSETS

<TABLE>
<CAPTION>
                            September 30,  September 30,
                                2004           2003
                             ----------     ----------
<S>                          <C>            <C>
Cash                         $  157,000     $   23,000
Investment in subsidiary      3,696,000      2,839,000
Other assets                    168,000        214,000
                             ----------     ----------
                             $4,021,000     $3,076,000
                             ==========     ==========
</TABLE>

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<S>                                    <C>             <C>
Accounts payable, accrued expenses
  and other liabilities                $   237,000     $   235,000
Notes payable                            1,855,000       3,170,000
                                       -----------     -----------
                                         2,092,000       3,405,000
Stockholders' equity (deficit)           1,929,000        (329,000)
                                       -----------     -----------
                                       $ 4,021,000     $ 3,076,000
                                       ===========     ===========
</TABLE>

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     Years ended
                                                   ----------------------------------------------
                                                   September 30,    September 30,    September 30,
                                                      2004             2003             2002
                                                   -----------      -----------      -----------
<S>                                                <C>              <C>              <C>
Operating expenses                                 $(1,215,000)     $  (651,000)     $  (597,000)
Other income (expense)
     Interest and other income                            --               --             91,000
     Gains on extinguishments of debt                1,131,000             --               --
     Gain (loss) on investment in subsidiaries         650,000         (192,000)      (3,239,000)
                                                   -----------      -----------      -----------

Net income (loss) before income tax                    566,000         (843,000)      (3,745,000)
Discontinued operations, net of tax                       --               --            300,000

                                                   -----------      -----------      -----------
Net income (loss) before income tax                $   566,000      $  (843,000)     $(3,445,000)
                                                   ===========      ===========      ===========
</TABLE>

                                      F-30


<PAGE>

NOTE 21- FINANCIAL INFORMATION - OLYMPIC (CONTINUED)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                        Years ended
                                                                       ----------------------------------------------
                                                                      September 30,     September 30,    September 30,
                                                                          2004              2003            2002
                                                                       -----------      -----------      -----------
<S>                                                                    <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
         Net income (loss)                                             $   566,000      $  (843,000)     $(3,445,000)
         Adjustments to reconcile net income (loss) to net
            cash provided by (used in) operating activities
             (Gain) loss on investment in subsidiaries                    (650,000)         191,000        3,114,000
             Gains on extinguishments of debt                           (1,131,000)            --               --
             Amortization of note discount                                 122,000           33,000           33,000
             Forgiveness of loan                                          (251,000)        (453,000)        (339,000)
             Write-down of limited partnership investment                     --             29,000             --
         Issuance of common stock in settlement of arbitration             100,000             --               --
             Depreciation and amortization                                    --               --            238,000
             Changes in assets and liabilities                            (366,000)         210,000         (107,000)
                                                                       -----------      -----------      -----------
         Net cash provided by (used in) operating activities            (1,610,000)        (833,000)        (506,000)
                                                                       -----------      -----------      -----------
CASH FLOWS FROM INVESTING ACTIVITIES
         (Capital contributions to) advances from subsidiary - net         207,000          301,000       (2,486,000)
                                                                       -----------      -----------      -----------
         Net cash provided by (used in) investing activities               207,000          301,000       (2,486,000)
                                                                       -----------      -----------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES
         Exercise of stock options                                          26,000             --               --
         Exercise of warrants                                              295,000             --               --
         Proceeds from notes payable                                     1,036,000             --          1,548,000
         Issuance of common stock                                          930,000          554,000             --
         Issuance of preferred stock                                          --               --          1,683,000
         Payments on capital lease                                            --               --           (281,000)
         Payments on notes payable                                        (750,000)            --               --
                                                                       -----------      -----------      -----------
         Net cash provided by financing activities                       1,537,000          554,000        2,950,000
                                                                       -----------      -----------      -----------

NET (DECREASE) INCREASE IN CASH                                            134,000           22,000          (42,000)

CASH BALANCE

         Beginning of year                                                  23,000            1,000           43,000
                                                                       -----------      -----------      -----------
         End of year                                                   $   157,000      $    23,000      $     1,000
                                                                       ===========      ===========      ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
         Cash paid during the year for:

         Interest                                                      $   272,000      $   128,000      $   179,000
                                                                       ===========      ===========      ===========
         Income taxes                                                  $      --        $      --        $    12,000
                                                                       ===========      ===========      ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
            FINANCING ACTIVITIES
         Exchange of notes payable for preferred stock                 $      --        $      --        $ 1,000,000
                                                                       ===========      ===========      ===========
         Exchange of notes payable for common stock                    $      --        $      --        $    49,000
                                                                       ===========      ===========      ===========
         Exchange of accounts payable for common stock                 $      --        $    51,000      $      --
                                                                       ===========      ===========      ===========
         Conversion of accounts payable to loan payable                $      --        $   375,000      $      --
                                                                       ===========      ===========      ===========
         Deferred financing costs                                      $   341,000      $      --        $      --
                                                                       ===========      ===========      ===========
         Preferred stock dividends                                     $   503,000      $      --        $      --
                                                                       ===========      ===========      ===========
</TABLE>


                                      F-31