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, 2005

                      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|

Indicate by check mark whether the registrant is a shell company (as defined in
Exchange Act Rule 12b-2). YES |_| NO |X|

As of December 5, 2005, 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 $4,000,000 (calculated by excluding shares
owned beneficially by directors and officers). As of December 5, 2005 there were
5,045,878 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 15, 2006 (the "Company's 2006 Proxy
Statement") are incorporated by reference into Part III hereof.


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<PAGE>

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 36 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

Terminated Merger 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 business similar to National. In February 2005,
the Company and First Montauk Financial Corp. entered into a definitive merger
agreement that was amended and restated in June 2005. In October 2005, the
Company and First Montauk mutually agreed to terminate their proposed merger.
The Company expensed approximately $320,000 in "Professional fees" relating to
the proposed merger with First Montauk in fiscal year 2005.

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. The
conversion from a self-clearing firm to First Clearing began in December 2001


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<PAGE>

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 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 gain 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.

In June 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.

In March 2005, National Financial Services LLC ("NFS") acquired the clearing
business of Fiserv. In April 2005, National entered into a clearing agreement
with NFS that became effective in June 2005. As part of this transaction, NFS
provided National with a $1.0 million conversion fee credit to reimburse the
Company for the transitional, incremental costs incurred by National relating to
the conversion of its clearing business to NFS. National was paid $250,000 in
May 2005, and the remaining $750,000 was paid in July 2005. The clearing
agreement includes a termination fee if National terminates the agreement
without cause. Additionally, in June 2005, National entered into a clearing
agreement with Penson Financial Services, Inc. for the purpose of providing
clearing services that are not provided by NFS. The Company believes that the
overall effect of the new clearing relationships will be beneficial to the
Company's cost structure, liquidity and capital resources.


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<PAGE>

Securities Transactions

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 506 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. The offering period for the private offering
expired on February 17, 2003. In December 2005, the Company extended the
expiration date of the warrants issued in this private placement, including the
placement agent warrants, to December 23, 2006 from December 23, 2005.

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 were completed in fiscal year 2004. 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 506 of Regulation D under the Securities Act. Each unit in the offering


                                      -4-
<PAGE>

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 connection with Steven Sands' resignation as Chairman and as a director of
the Company, on April 1, 2005, the Company issued to his designee, Triage, a
three-year warrant to purchase 50,000 shares of the Company's common stock at
$1.25 per share. As a result of Mr. Sands' resignation, the options to purchase
10,000 shares of common stock of which he was the beneficial owner expired on
April 30, 2005.

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, a 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 former Chairman of the Company,
and One Clark LLC ("One Clark"), an affiliate of Mark Goldwasser, the current
Chairman, President and Chief Executive Officer 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
Common Stock (274,660 shares) that expired 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. In March 2005 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 606 shares. As of September 30, 2005,
Triage and One Clark own 9,423 and 9,422 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 August 2005, the two
noteholders extended the maturity date on the $1.0 million of notes from July
31, 2005 to July 31, 2007. Additionally, each of the noteholders' warrants to
purchase, in the aggregate, 100,000 shares of Common Stock at a price of $1.75
per share expiring on July 31, 2005 was repriced to $1.25 per share, and the
expiration date of such warrants was extended to July 31, 2007. The expiration
date for the noteholders' warrants to purchase, in the aggregate, an additional
100,000 shares of Common Stock at a price of $1.25 per share was also extended
from July 31, 2005 to July 31, 2007.


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<PAGE>

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. In February 2005, National and the holder extended the
term of the secured demand note to March 1, 2006. In August 2005, the
noteholder's warrant to purchase 75,000 shares of Common Stock at a price of
$1.75 per share, that was to expire on July 31, 2005, was repriced to $1.25 per
share, and the expiration date of such warrant was extended to July 31, 2007.
The expiration date for the noteholder's warrant to purchase an additional
75,000 shares of Common Stock at a price of $1.25 per share was also extended
from July 31, 2005 to July 31, 2007.

Financial Information about Industry Segments

The Company realized approximately 86% of its total revenues in fiscal year 2005
from brokerage services, principal and agency transactions, and investment
banking. During fiscal year 2005, brokerage services, that consist of retail
brokerage commissions, represent 85% of total revenues, principal and agency
transactions, that consist of net dealer inventory gains, represent 14% of total
revenues, and investment banking, that consist of corporate finance commissions
and fees, represent 1% 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 is registered as a broker-dealer with the SEC and is licensed in all 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 2005, stocks represent approximately 91% of the Company's business, bonds
represent approximately 2% of the Company's business, and mutual funds and
annuities make up the remaining 7% 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.


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<PAGE>

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, 2005, the
Company had 86 employees and 266 independent contractors. Of these totals, 311
were registered representatives. Persons who have entered into independent
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, and
continued to be weak in fiscal year 2005. In response to these 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.

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.

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. As a result of
the losses attributable to a slow-down in the broader market, National


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subsequently has substantially reduced its market-making trading activities. As
of September 30, 2005, National did not make markets in any securities. 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.
Corporate finance revenues will vary depending on National's participation in
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 New York Stock Exchange 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 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, the District of Columbia and
Puerto Rico.


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<PAGE>

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.

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, 2005,
National's net capital exceeded the requirement by $974,000.

The Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
NASD Conduct Rules require National 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 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.

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 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.


                                      -9-
<PAGE>

In December 2004, 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 2002 and 2003, the firm violated SEC Rule
11ac1-5. The firm was censured and fined $32,500 in a settlement dated December
31, 2004.

In February 2005, without admitting or denying the alleged violations, National
accepted and consented to the entry of the following findings by NASD
Regulation: (i) at various times in the 12 month period ending February 2004,
the firm violated NASD Rule 1017(a)(5) and NASD Conduct Rules 3010(a) and 2110;
(ii) at various times in 2001 the firm violated NASD Conduct Rules 3370(b)(4)(B)
and 2110; and (iii) at various times from September 2001 to November 2003 the
firm violated the net capital requirements of SEC Rule 15c3-1 and NASD Conduct
Rule 2110. The firm was fined $55,000 in a settlement dated March 31, 2005.
Additionally, the firm and a former executive officer were censured and fined
$30,000, jointly and severally, that the Company is obligated to pay pursuant to
its indemnification obligations.

In February 2005, National advised the State of Missouri that a subsidiary had
exceeded the de minimum exemptions for investment advisory accounts without the
required State Registration. In April 2005, the firm paid a fine of $2,500, and
the subsidiary received approval for registration in Missouri.

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 at
September 30, 2005 and September 30, 2004. 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, $0 and $29,000 during fiscal years
2005, 2004 and 2003, respectively. During the formation of the Fund, the Company
incurred various start-up expenses that were subsequently reimbursed by the
Fund.

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


                                      -10-
<PAGE>

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 a loss of
$1,183,000 in fiscal year 2005, 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, and the cessation of its market
making activities. The Company anticipates that when market conditions improve
and revenues increase it may again be profitable; however, there can be no
assurances as to the timing of when these market conditions will change. 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
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, 2005, we had total indebtedness of $2,819,000, of which
$1,000,000 matures during fiscal year 2006. 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.

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;


                                      -11-
<PAGE>

      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;
      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 were 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 is exposed to risks due to its investment banking activities.

Participation in an underwriting syndicate or a selling group involves both
economic and regulatory risks. An underwriter may incur losses if it is unable
to resell the securities it is committed to purchase, or if it is forced to
liquidate its commitment at less than the purchase price. In addition, under
federal securities laws, other laws and court decisions with respect to


                                      -12-
<PAGE>

underwriters' liabilities and limitations on the indemnification of underwriters
by issuers, an underwriter is subject to substantial potential liability for
misstatements or omissions of material facts in prospectuses and other
communications with respect to such offerings. Acting as a managing underwriter
increases these risks. Underwriting commitments constitute a charge against net
capital and our ability to make underwriting commitments may be limited by the
requirement that we must at all times be in compliance with the net capital
rule.

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 adversely affect its
operations.

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.

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. 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.


                                      -13-
<PAGE>

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 ("OTCBB"). The OTCBB is generally considered to
be a less efficient market, and the Company's stock price, as well as the
liquidity of its Common Stock, may be adversely impacted as a result.

There are risks associated with our stock trading on the OTCBB rather than on a
national exchange.

There may be significant consequences associated with our stock trading on the
OTCBB rather than a national exchange. The effects of not being able to list our
securities on a national exchange include:

      o     limited release of the market price of our securities;
      o     limited news coverage;
      o     limited interest by investors in our securities;
      o     volatility of our stock price due to low trading volume;
      o     increased difficulty in selling our securities in certain states due
            to "blue sky" restrictions; and
      o     limited ability to issue additional securities or to secure
            additional financing.

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
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.


                                      -14-
<PAGE>

The Company relies on clearing brokers and unilateral termination of the
agreements with these clearing brokers could disrupt the Company's business.

In fiscal year 2002, 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. The
clearing brokers also provide billing services, extend credit and provide for
control and receipt, custody and delivery of securities. The Company's
broker-dealer depends 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.

In March 2005, NFS acquired the clearing business of Fiserv. In April 2005,
National entered into a clearing agreement with NFS that became effective in
June 2005. Additionally, in June 2005, National entered into a clearing
agreement with Penson for the purpose of providing clearing services that are
not provided by NFS.

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 its 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.

Our risk management policies and procedures may leave us exposed to unidentified
risks or an unanticipated level of risk.

The policies and procedures we employ to identify, monitor and manage risks may
not be fully effective. Some methods of risk management are based on the use of
observed historical market behavior. As a result, these methods may not
accurately predict future risk exposures, which could be significantly greater
than the historical measures indicate. Other risk management methods depend on
evaluation of information regarding markets, clients or other matters that are


                                      -15-
<PAGE>

publicly available or otherwise accessible by us. This information may not be
accurate, complete, up-to-date or properly evaluated. Management of operational,
legal and regulatory risks requires, among other things, policies and procedures
to properly record and verify a large number of transactions and events. We
cannot assure that our policies and procedures will effectively and accurately
record and verify this information.

We seek to monitor and control our risk exposure through a variety of separate
but complementary financial, credit, operational and legal reporting systems. We
believe that we are able to evaluate and manage the market, credit and other
risks to which we are exposed. Nonetheless, our ability to manage risk exposure
can never be completely or accurately predicted or fully assured. For example,
unexpectedly large or rapid movements or disruptions in one or more markets or
other unforeseen developments could have a material adverse effect on our
results of operations and financial condition. The consequences of these
developments can include losses due to adverse changes in inventory values,
decreases in the liquidity of trading positions, higher volatility in earnings,
increases in our credit risk to customers as well as to third parties and
increases in general systemic risk.

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 particular 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 Chairman, 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 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.


                                      -16-
<PAGE>

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; economic conditions 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, 2005, of the 5,045,878 outstanding shares of Common Stock,
1,390,000 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.

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/or entities
that these individuals are affiliated with, and certain more than 5%
shareholders, own approximately 20% of our 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 and Seattle, Washington.
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.

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. Plaintiffs were seeking
approximately $14.0 million, but no specific amount of damages was 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 were the individual claims asserted by the two class
representatives totaling $60,000. Plaintiffs thereafter filed an appeal of the
order denying class certification. The action in the lower court, including a
pending motion for summary judgment, has been stayed. In May 2005, the
California Court of Appeal affirmed the order denying class certification. The
matter was subsequently settled with proceeds to be paid by National's insurer.


                                      -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 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
included the $650,000 in "Professional fees" in fiscal year 2004. The unpaid
balance of $187,000 and $562,000 at September 30, 2005 and September 30, 2004,
respectively, 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 the Company approximates at
$1.2 million (exclusive of unspecified punitive damages related to certain
claims and inclusive of expected insurance coverage). The Company has filed a
counterclaim for approximately $220,000 in one such proceeding. These matters
arise in 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, 2005 and 2004, is $206,000 and $169,000 (including legal fees),
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 other
NASD related expenses of $790,000, $1,424,000 and $945,000 for the fiscal years
ended September 30, 2005, 2004 and 2003, 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, 2005.

                                     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 OTCBB. Quotations on the OTCBB reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions. Previously, the Common Stock traded on the AMEX under the symbol
"OLY".

The following table sets forth the high and low closing sales prices for the
Common Stock as reported on the AMEX for the period from October1, 2003 to
October 31, 2004, and as reported on the OTCBB for the period from November 1,
2004 to September 30, 2005.


                                      -18-
<PAGE>

Period                                                     High             Low

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

October 1, 2004/December 31, 2004                          $1.10           $0.41
January 1, 2005/March 31, 2005                             $1.35           $0.85
April 1, 2005/June 30, 2005                                $1.40           $0.95
July 1, 2005/September 30, 2005                            $1.15           $0.70

The closing price of the Common Stock on December 5, 2005, as quoted on the
OTCBB, was $.80 per share.

Shareholders

As of September 30, 2005, 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. In March 2005, the Company's Board of Directors
declared an in-kind dividend in the aggregate of 2,143 shares of Series A
Preferred Stock, in payment of approximately $322,000 of dividends accrued
through March 31, 2005. Such shares were issued on April 30, 2005. At September
30, 2005, the amount of accumulated dividends on the Company's 33,320 issued and
outstanding shares of Series A Preferred Stock was approximately $150,000.

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 2004 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


                                      -19-
<PAGE>

with a representative that assisted such investor in connection with the
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 2005, 2004, 2003, 2002 and 2001. 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 and 2001 have been restated to reflect the discontinued
operations of the Company's former subsidiary, WestAmerica Investment Group. 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.


                                      -20-
<PAGE>

<TABLE>
<CAPTION>
                                                                            Fiscal Year
                                        -----------------------------------------------------------------------------------
                                            2005              2004              2003              2002              2001
                                        -----------------------------------------------------------------------------------
<S>                                     <C>               <C>               <C>               <C>               <C>
Net revenues                            $    45,730       $    63,591       $    50,158       $    42,002       $    50,224
Net income (loss) from continuing
  operations                                 (1,183)              566              (843)           (3,745)           (7,338)
Preferred stock dividends                      (290)             (266)             (250)             (168)               --
Net income (loss) per common share
  from continuing operations
    Basic                                     (0.29)             0.08             (0.34)            (1.73)            (3.33)
    Diluted                                   (0.29)             0.07             (0.34)            (1.73)            (3.33)
Weighted average number of shares
  used in computing income (loss)
  per share
    Basic                                 5,024,643         3,580,446         3,175,315         2,255,449         2,207,101
    Diluted                               5,024,643         4,106,742         3,175,315         2,255,449         2,207,101
Total assets                                  7,960             9,722             8,735             7,948            77,599
Total liabilities                             7,030             7,793             9,064             8,039            76,977
Stockholders' equity (deficit)                  930             1,929              (329)              (91)              622
Cash dividends                                   --                --                --                --                --
</TABLE>

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 2005 and 2004,
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.


                                      -21-
<PAGE>

Results of Operations

Fiscal Year 2005 Compared with Fiscal Year 2004

The Company's fiscal year 2005 resulted in a decrease in revenues, and a
comparatively lesser decrease in expenses compared with fiscal year 2004. The
decrease in revenues is primarily due to the weaker securities markets
experienced by the Company, and the Company's cessation of its market making
activities. As a result, the Company reported a net loss before income taxes of
$1,183,000 compared with net income before income taxes of $566,000 for the
fiscal years 2005 and 2004, respectively. This represents a reduction of
$1,749,000 from the prior year.

<TABLE>
<CAPTION>
                                                    Fiscal Year                       Increase (Decrease)
                                          -------------------------------       --------------------------------
                                              2005               2004              Amount              Percent
                                          ------------       ------------       ------------        ------------
<S>                                       <C>                <C>                <C>                          <C>
Commissions                               $ 33,134,000       $ 46,881,000       $(13,747,000)                (29%)
                                          ------------       ------------       ------------
Proprietary trading                          5,646,000          6,642,000           (996,000)                (15%)
Market making                                       --            645,000           (645,000)                n/a
Mark-ups and mark-downs                         64,000            117,000            (53,000)                (45%)
                                          ------------       ------------       ------------
Net dealer inventory gains                   5,710,000          7,404,000         (1,694,000)                (23%)
Investment banking                             528,000          1,548,000         (1,020,000)                (66%)
Interest and dividends                       2,739,000          3,420,000           (681,000)                (20%)
Transfer fees and clearance services         3,097,000          2,806,000            291,000                  10%
Gains on extinguishments of debt                    --          1,131,000         (1,131,000)                n/a
Other                                          522,000            401,000            121,000                  30%
                                          ------------       ------------       ------------
                                          $ 45,730,000       $ 63,591,000       $(17,861,000)                (28%)
                                          ============       ============       ============
</TABLE>

Total revenues decreased $17,861,000, or 28%, in fiscal year 2005 to $45,730,000
from $63,591,000 in fiscal year 2004. This decrease is mainly due to the weaker
securities markets that reduced commission revenues, the number of commission
tickets generated, and the charge per ticket that affects commission revenue.
During fiscal year 2005, total trading volume decreased 50%, compared to fiscal
year 2004. This decrease is attributable in part to the current cessation of the
Company's market making activities. Trading volume in this fiscal year related
to retail brokerage decreased 24%. Commission revenue decreased $13,747,000, or
29%, to $33,134,000 from $46,881,000 during fiscal year 2005 compared with
fiscal year 2004. Net dealer inventory gains, which includes profits on
proprietary trading, market making activities and customer mark-ups and
mark-downs, decreased $1,694,000, or 23%, to $5,709,000 from $7,404,000 during
fiscal year 2005 compared with fiscal year 2004. The decrease is due to a
reduction in proprietary trading in the bond market and the current cessation of
the Company's market making activities. During fiscal year 2005, revenues from
proprietary trading decreased $996,000, or 15%, to $5,646,000 from $6,642,000 in
fiscal year 2004, revenues from market making activities decreased to $0 from
$645,000 in fiscal year 2004, and revenues from customer mark-ups and mark-downs
decreased $53,000, or 45%, to $64,000 from $117,000 in fiscal year 2004.

Investment banking revenue decreased $1,020,000, or 66%, to $528,000 from
$1,548,000 in fiscal year 2005 compared with fiscal year 2004. The decrease in
investment banking revenues is attributable to National having completed fewer
corporate finance transactions in fiscal year 2005 than in fiscal year 2004.
Interest and dividend income decreased $681,000, or 20%, to $2,739,000 from
$3,420,000 in fiscal year 2005 compared with fiscal year 2004. The decrease in
interest income is primarily attributable to an overall decrease in the interest
rate charged for debit balances in National's customer accounts from the same
period last year. Transfer fees increased $291,000, or 10%, to $3,097,000 in
fiscal year 2005 from $2,806,000 in fiscal year 2004. The increase is due to
higher transfer fees for trades generated from the retail brokerage business of
brokers recently associated with the Company.


                                      -22-
<PAGE>

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, increased $121,000, or 30%, to $522,000
from $401,000 during fiscal year 2005 compared to fiscal year 2004. The increase
is due to an increased level of assets under management.

<TABLE>
<CAPTION>
                                               Fiscal Year                       Increase (Decrease)
                                      ------------------------------       --------------------------------
                                          2005              2004              Amount             Percent
                                      ------------      ------------       ------------        ------------
<S>                                   <C>               <C>                <C>                          <C>
Commission expense related to:
   Commission revenue                 $ 28,504,000      $ 38,980,000       $(10,476,000)                (27%)
   Net dealer inventory gains            3,919,000         3,714,000            205,000                   6%
   Investment banking                      415,000         1,238,000           (823,000)                (66%)
                                      ------------      ------------       ------------
Commissions                             32,838,000        43,932,000        (11,094,000)                (25%)
Employee compensation                    5,010,000         5,449,000           (439,000)                 (8%)
Clearing fees                              432,000         2,391,000         (1,959,000)                (82%)
Communications                           1,670,000         2,589,000           (919,000)                (35%)
Occupancy and equipment costs            2,886,000         2,983,000            (97,000)                 (3%)
Professional fees                        1,520,000         2,559,000         (1,039,000)                (41%)
Litigation settlement                           --           400,000           (400,000)                n/a
Interest                                   448,000           397,000             51,000                  13%
Taxes, licenses and registration           344,000           560,000           (216,000)                (39%)
Other administrative expenses            1,765,000         1,765,000                 --                   0%
                                      ------------      ------------       ------------
                                      $ 46,913,000      $ 63,025,000       $(16,112,000)                (26%)
                                      ============      ============       ============
</TABLE>

In comparison with the 28% decrease in total revenues, total expenses decreased
26%, or $16,112,000, to $46,913,000 for fiscal year 2005 compared to $63,025,000
in fiscal year 2004. The decrease in total expenses is a result of lower
commission expenses directly associated with commission revenues, lower clearing
fees and lower professional fees.

Commission expense, which includes expenses related to commission revenue, net
dealer inventory gains and investment banking, decreased $11,094,000, or 25%, to
$32,838,000 in fiscal year 2005 from $43,932,000 in fiscal year 2004. Commission
expense related to commission revenue decreased $10,476,000, or 27%, to
$28,504,000 in fiscal year 2005 from $38,980,000 in fiscal year 2004; commission
expense related to net dealer inventory gains increased $205,000, or 6%, to
$3,919,000 in fiscal year 2005 from $3,714,000 in fiscal year 2004; and
commission expense related to investment banking decreased $823,000, or 66%, to
$415,000 in fiscal year 2005 from $1,238,000 in fiscal year 2004. Commission
expense as a percentage of commission revenues increased to 86% in fiscal year
2005 from 83% in fiscal year 2004. This increase is attributable to changes in
the production of particular brokers, not all of who are paid at the same
commission rate and an increase in the amortization of advances to registered
representatives. Commission expense as a percentage of net dealer inventory
gains increased to 69% in fiscal year 2005 from 50% in fiscal year 2004. This
increase is attributable to changes in the production of particular brokers and
traders, not all of who are paid at the same commission rate. Commission expense
as a percentage of investment banking was relatively unchanged between fiscal
year 2005 and fiscal year 2004. Commission expense includes the amortization of
advances to registered representatives of $1,206,000 and $763,000 for fiscal
years 2005 and 2004, 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 $439,000, or 8%, to $5,010,000 in fiscal
year 2005 from $5,449,000 in fiscal year 2004. The decrease is attributable to
personnel reductions and bonuses based on operating income that were paid to
senior management in fiscal year 2004. Overall, combined commission and employee
compensation expense, as a percentage of revenue increased to 83% from 78% in
fiscal years 2005 and 2004, respectively. The increase is attributable to an
overall higher payout percentage to National's retail brokers, and the
relatively fixed employee compensation component.


                                      -23-
<PAGE>

Clearing fees decreased $1,959,000, or 82%, to $432,000 in fiscal year 2005 from
$2,391,000 in fiscal year 2004. The reduction in clearing fees is attributable
to the lower trading volume in fiscal year 2005 compared to fiscal year 2004,
and lower clearing costs associated with the Company's new clearing agreement.
Clearing fees in fiscal year 2005 were reduced by the $1.0 million conversion
fee credit the Company received from its clearing firm, NFS, to offset the
transitional, incremental conversion costs incurred by the Company. Clearing
fees in fiscal year 2004 were reduced by the $800,000 conversion assistance
payment the Company received from its clearing firm, Fiserv, to offset
conversion costs incurred by the Company. In fiscal year 2004, clearing fees
were reduced based on ticket volume in the amount of $250,000, from forgiveness
of debt that was fully repaid in February 2004, from the Company's prior
clearing firm.

Communication expenses decreased $919,000, or 35%, to $1,670,000 from $2,589,000
in fiscal year 2005 compared to fiscal year 2004. The decrease is due to a
reduction in the number of quotation machines resulting from the current
cessation of the Company's market making activities, and cost savings realized
from a new telephone vendor. Occupancy costs decreased $97,000, or 3%, to
$2,886,000 from $2,983,000 in fiscal year 2005 compared to fiscal year 2004. The
decrease resulted from an overall reduction in leased office space. Professional
fees decreased $1,039,000, or 41%, to $1,520,000 from $2,559,000 in fiscal year
2005 compared to fiscal year 2004. The decrease in professional fees is due to a
decrease in legal fees relating to various lawsuits and arbitrations in fiscal
year 2005. In fiscal year 2005 the Company expensed approximately $320,000 of
professional fees relating to the proposed merger with First Montauk. In fiscal
year 2004 professional fees included legal fees, fines and restitution payments
related to the NASD investigation of mutual fund trading activities, and legal
fees regarding an arbitration panel award of damages against the Company of
approximately $400,000 related to an employment contract with a former employee
of the Company.

Interest expense increased $51,000, or 13%, to $448,000 from $397,000 in fiscal
year 2005 compared to fiscal year 2004. The increase is due to interest on the
notes issued by the Company in the second quarter of fiscal year 2004. Included
in interest expense is the amortization of $163,000 and $113,000 for fiscal
years 2005 and 2004, respectively, attributable to those notes, and other notes
that were modified in fiscal years 2005 and 2004. Taxes, licenses and
registration decreased $216,000, or 39%, to $344,000 from $560,000 in fiscal
year 2005 compared fiscal year 2004. The decrease resulted from a refund of
prior years state business taxes, a reduction in registration fees paid as an
incentive for new brokers and lower taxes attributable to our reduced level of
revenues. Other administrative expenses was $1,765,000 in both fiscal year 2005
and fiscal year 2004.

The Company reported a net loss before income taxes of $1,183,000 in fiscal year
2005 compared to net income before income taxes of $566,000 in fiscal year 2004.

The net loss attributable to common stockholders in fiscal year 2005 was
$1,473,000, or $.29 per common share, as compared to diluted earnings
attributable to common stockholders of $300,000, or $.07 per common share in
fiscal year 2004. The net loss attributable to common stockholders for fiscal
year 2005 and the net income attributable to common stockholders for fiscal year
2004 reflects $290,000 and $266,000 of cumulative Preferred Stock dividends on
the Company's Preferred Stock for fiscal years 2005 and 2004, respectively.

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


                                      -24-
<PAGE>

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.

<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.


                                      -25-
<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,


                                      -26-
<PAGE>

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 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 $2,074,000 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.

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.

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, 2005,
National's net capital exceeded the requirement by $974,000.

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


                                      -27-
<PAGE>

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,
the length of time each receivable has been outstanding, and the specific
individual brokers from whom the receivables are due. The allowance for doubtful
accounts increased by $150,000 in fiscal year 2005, 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 506 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 December 2005, the Company extended the expiration date of the
warrants issued in this private placement, including the placement agent
warrants, to December 23, 2006 from December 23, 2005.

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 approximately $51,000 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.


                                      -28-
<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.

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 506 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,


                                      -29-
<PAGE>

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
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.

In June 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.

In March 2005, NFS acquired the clearing business of Fiserv. In April 2005,
National entered into a clearing agreement with NFS that became effective in
June 2005. As part of this transaction, NFS provided National with a $1.0
million conversion fee credit to reimburse the Company for the transitional,
incremental costs incurred by National relating to the conversion of its
clearing business to NFS. National was paid $250,000 in May 2005, and the
remaining $750,000 was paid in July 2005. The clearing agreement includes a
termination fee if National terminates the agreement without cause that is
initially $2.0 million and reduces to $125,000 over the eight-year term of the
agreement. Additionally, in June 2005 National entered into a clearing agreement
with Penson Financial Services, Inc. for the purpose of providing clearing
services that are not provided by NFS. The Company believes that the overall
effect of the new clearing relationships will be beneficial to the Company's
cost structure, liquidity and capital resources.

In January 2004, two unrelated individual noteholders holding $1.0 million of
the Company's debt extended the maturity date 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. In August 2005, the two noteholders extended
the maturity date on the $1.0 million of notes from July 31, 2005 to July 31,
2007. Additionally, each of the noteholders' warrants to purchase, in the
aggregate, 100,000 shares of Common Stock at a price of $1.75 per share expiring
on July 31, 2005 was repriced to $1.25 per share, and the expiration date of
such warrants was extended to July 31, 2007. The expiration date for the
noteholders' warrants to purchase, in the aggregate, an additional 100,000
shares of Common Stock at a price of $1.25 per share was also extended from July
31, 2005 to July 31, 2007.

In February 2004, National and the holder of a $1.0 million secured demand note
that was initially scheduled to mature on February 1, 2004, extended the term of
the secured demand note to March 1, 2005. In February 2005, National and the
holder extended the term of the secured demand note to March 1, 2006. In August
2005, the noteholder's warrant to purchase 75,000 shares of Common Stock at a
price of $1.75 per share, that was to expire on July 31, 2005, was repriced to
$1.25 per share, and the expiration date of such warrant was extended to July
31, 2007. The expiration date for the noteholder's warrant to purchase an
additional 75,000 shares of Common Stock at a price of $1.25 per share was also
extended from July 31, 2005 to July 31, 2007.

As of September 30, 2005, advances to registered representatives decreased
$83,000 to $1,653,000 from $1,736,000 as of September 30, 2004. This decrease is
attributable to the amortization of advances in fiscal year 2005 in excess of
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 fiscal year 2005 and 2004, the Company received proceeds of approximately
$20,000 and $321,000, respectively, from the exercise of outstanding employee
stock options and warrants.


                                      -30-
<PAGE>

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 business similar to National. In February 2005,
the Company and First Montauk Financial Corp. entered into a definitive merger
agreement that was amended and restated in June 2005. In October 2005, the
Company and First Montauk mutually agreed to terminate their proposed merger.
The Company expensed approximately $320,000 in "Professional fees" relating to
the proposed merger with First Montauk in fiscal year 2005.

The Company has historically satisfied its capital needs with cash generated
from operations or from financing activities. The Company believes that despite
the currently weaker market conditions, the Company will have sufficient funds
to maintain its current level of business activities during fiscal year 2006. If
market conditions should weaken further, 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, 2005:

<TABLE>
<CAPTION>
                                                  Notes            Secured
                Fiscal Year Ending               Payable         Demand Note        Leases           Total
           ----------------------------        -----------       -----------     -----------      -----------

           <S>                                 <C>               <C>             <C>              <C>
                       2006                    $        -        $ 1,000,000     $ 1,667,000      $ 2,667,000
                       2007                      2,025,000                 -       1,602,000        3,627,000
                       2008                              -                 -       1,556,000        1,556,000
                       2009                              -                 -         584,000          584,000
                       2010                              -                 -         562,000          562,000
                    Thereafter                           -                 -       1,022,000        1,022,000
           Less: Deferred debt discount           (206,000)                -               -         (206,000)
                                               -----------       -----------     -----------      -----------
                                               $ 1,819,000       $ 1,000,000     $ 6,993,000      $ 9,812,000
                                               ===========       ===========     ===========      ===========
</TABLE>

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 October 2004, the FASB ratified the consensus reached in EITF Issue No. 04-8,
"The Effect of Contingently Convertible Instruments on Diluted Earnings per
Share." The EITF reached a consensus that contingently convertible instruments,
such as contingently convertible debt, contingently convertible preferred stock,
and other such securities should be included in diluted earnings per share (if
dilutive) regardless of whether the market price trigger has been met. The
consensus became effective for reporting periods ending after December 15, 2004.
Management does not believe this pronouncement will have a material impact on
the Company's consolidated financial statements.

In December 2004, the Financial Accounting Standards Board ("FASB") issued its
final standard on accounting for share-based payments ("SBP"), FASB Statement
No. 123R (revised 2004), "Share-Based Payment." This statement requires
companies to expense the value of employee stock options and similar awards.
Under FAS 123R, SBP awards result in a cost that will be measured at fair value
on the awards' grant date, based on the estimated number of awards that are
expected to vest. Compensation cost for awards that vest would not be reversed
if the awards expire without being exercised. The statement's effective date for
a company is the first interim reporting period beginning after September 30,
2005, and it applies to all outstanding and unvested SBP awards at a company's
adoption. Management believes the adoption of this pronouncement will have a
material impact on the Company's consolidated financial statements, whereby


                                      -31-
<PAGE>

the Company upon adoption expects to record a charge for the granting of
employee stock options.

In May 2005, the FASB issued FASB 154, "Accounting Changes and Error
Corrections." This statement replaces APB Opinion No. 20, Accounting Changes,
and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial
Statements, and changes the requirements for the accounting for and reporting of
a change in accounting principle. The statement applies to all voluntary changes
in accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed. This statement is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005.

In June 2005, the EITF reached consensus on Issue No. 05-6, Determining the
Amortization Period for Leasehold Improvements (EITF 05-6). EITF 05-6 provides
guidance on determining the amortization period for leasehold improvements
acquired in a business combination or acquired subsequent to lease inception.
The guidance in EITF 05-6 will be applied prospectively and is effective for
periods beginning after June 29, 2005. EITF 05-6 is not expected to have a
material impact on the Company's consolidated financial position or results of
operations.

In September 2005, the FASB ratified the Emerging Issues Task Force's ("EITF")
Issue No. 05-7. "Accounting for Modifications to Conversion Options Embedded in
Debt Instruments and Related Issues", which addresses whether a modification to
a conversion option that changes its fair value affects the recognition of
interest expense for the associated debt instrument after the modification, and
whether a borrower should recognize a beneficial conversion feature, not a debt
extinguishment, if a debt modification increases the intrinsic value of the debt
(for example, the modification reduces the conversion price of the debt).

In September 2005, the FASB ratified the following consensus reached in EITF
Issue 05-8 ("Income Tax Consequences of Issuing Convertible Debt with a
Beneficial Conversion Feature"): a) The issuance of convertible debt with a
beneficial conversion feature results in a basis difference in applying FASB
Statement of Financial Accounting Standards SFAS No. 109, Accounting for Income
Taxes. Recognition of such a feature effectively creates a debt instrument and a
separate equity instrument for book purposes, whereas the convertible debt is
treated entirely as a debt instrument for income tax purposes; b) The resulting
basis difference should be deemed a temporary difference because it will result
in a taxable amount when the recorded amount of the liability is recovered or
settled; and c) Recognition of deferred taxes for the temporary difference
should be reported as an adjustment to additional paid-in capital. This
consensus is effective in the first interim or annual reporting period
commencing after December 15, 2005, with early application permitted. The effect
of applying the consensus should be accounted for retroactively to all debt
instruments containing a beneficial conversion feature that are subject to EITF
Issue 00-27, "Application of Issue No. 98-5 to Certain Convertible Debt
Instruments" (and thus is applicable to debt instruments converted or
extinguished in prior periods but which are still presented in the financial
statements). Management does not believe this pronouncement will have a material
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


                                      -32-
<PAGE>

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.

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, 2005:

                                Securities held            Securities sold, but
                                 for resale                 not yet purchased
                                 ----------                 -----------------
Corporate stocks                  $150,000                     $ 25,000
Corporate bonds                         --                       19,000
Government obligations              16,000                           --
                                  --------                     --------
                                  $166,000                     $ 44,000
                                  ========                     ========

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, 2005.

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.


                                      -33-
<PAGE>

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 2005 that has not been reported on a current report on
Form 8-K.


                                      -34-
<PAGE>

                                    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
2006 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 2006
Proxy Statement and is incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

The information required by this Item will be included in the Company's 2006
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 2006
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 2006
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, 2005
                           and September 30, 2004
                         Statements of Operations for the Years ended September
                           30, 2005, September 30, 2004 and September 30, 2003
                         Statement of Changes in Stockholders' Equity (Deficit)
                           for the Years ended September 30, 2005, September 30,
                           2004 and September 30, 2003
                         Statements of Cash Flows for the Years ended September
                           30, 2005, September 30, 2004 and September 30, 2003
                         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.


                                      -35-
<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)

Date: December 9, 2005                 By: /s/Mark Goldwasser
                                           -------------------------------------
                                           Mark Goldwasser
                                           Chairman, President and Chief
                                           Executive Officer

Date: December 9, 2005                 By: /s/Robert H. Daskal
                                           -------------------------------------
                                           Robert H. Daskal
                                           Acting Chief Financial Officer

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.

Date: December 9, 2005                 By: /s/Mark Goldwasser
                                           -------------------------------------
                                           Mark Goldwasser,
                                           Chairman, President and Chief
                                           Executive Officer

Date: December 9, 2005                 By:  /s/Gary A. Rosenberg
                                           -------------------------------------
                                           Gary A. Rosenberg, Director

Date: December 9, 2005                 By: /s/Robert J. Rosan
                                           -------------------------------------
                                           Robert J. Rosan, Director

Date: December 9, 2005                 By: /s/Peter Rettman
                                           -------------------------------------
                                           Peter Rettman, Director

Date: December 9, 2005                 By: /s/Norman J. Kurlan
                                           -------------------------------------
                                           Norman J. Kurlan, Director


                                      -36-
<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.


                                      -37-
<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.

10.43* Severance Agreement dated February 4, 2005 between Michael A. Bresner and
       National Securities Corporation filed as Exhibit 10.43 to Form 8-K in
       February 2005 and hereby incorporated by reference.


                                      -38-
<PAGE>

10.44 Agreement and Plan of Merger dated February 10, 2005, by and among Olympic
      Cascade Financial Corporation, FMFC Acquisition Corporation and First
      Montauk Financial Corp. filed as Exhibit 10.44 to Form 8-K in February
      2005 and hereby incorporated by reference.

10.45 Warrant issued by the Company to Triage Partners LLC dated April 1, 2005
      filed as Exhibit 10.45 to Form 8-K in April 2005 and hereby incorporated
      by reference.

10.46 Amended and Restated Agreement and Plan of Merger dated June 27, 2005, by
      and among Olympic Cascade Financial Corporation, OLY Acquisition
      Corporation and First Montauk Financial Corp. filed as Exhibit 10.46 to
      Form 8-K in June 2005 and hereby incorporated by reference.

10.47 Letter Agreement dated as of October 24, 2005 terminating the Amended and
      Restated Agreement and Plan of Merger, dated June 27, 2005, by and among
      Olympic Cascade Financial Corporation, OLY Acquisition Corporation and
      First Montauk Financial Corp. filed as Exhibit 10.47 to Form 8-K in
      October 2005 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.

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.

23.5  Consent of Marcum & Kliegman LLP

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


                                      -39-
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
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,
2005 and 2004, and the related consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended September 30, 2005. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits include consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Olympic
Cascade Financial Corporation as of September 30, 2005 and 2004, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 30, 2005, in conformity with accounting
principles generally accepted in the United States of America.

/s/ Marcum & Kliegman LLP

New York, New York
November 23, 2005

                                       F-1
<PAGE>

              OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                            September 30,      September 30,
                                                                                                 2005               2004
                                                                                            ------------       ------------
<S>                                                                                         <C>                <C>
CASH                                                                                        $    398,000       $    351,000
DEPOSITS WITH CLEARING ORGANIZATIONS                                                             300,000            995,000
RECEIVABLES FROM BROKER-DEALERS AND CLEARING ORGANIZATIONS                                     3,329,000          3,821,000
OTHER RECEIVABLES, net of allowance for uncollectible accounts of $368,000
           and $850,000 at September 30, 2005 and 2004, respectively                             485,000            889,000
ADVANCES TO REGISTERED REPRESENTATIVES                                                         1,653,000          1,736,000
SECURITIES HELD FOR RESALE, at market                                                            166,000            149,000
SECURED DEMAND NOTE                                                                            1,000,000          1,000,000
FIXED ASSETS, net                                                                                250,000            301,000
OTHER ASSETS                                                                                     379,000            480,000
                                                                                            ------------       ------------

TOTAL ASSETS                                                                                $  7,960,000       $  9,722,000
                                                                                            ============       ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

PAYABLE TO BROKER-DEALERS AND CLEARING ORGANIZATIONS                                        $    122,000       $    115,000
SECURITIES SOLD, BUT NOT YET PURCHASED, at market                                                 44,000             33,000
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES                                       4,045,000          4,790,000
NOTES PAYABLE, net of debt discounts of of $206,000 and
           $245,000 at September 30, 2005 and 2004, respectively                               1,819,000          1,855,000
                                                                                            ------------       ------------
TOTAL LIABILITIES                                                                              6,030,000          6,793,000
                                                                                            ------------       ------------

SUBORDINATED BORROWINGS                                                                        1,000,000          1,000,000
                                                                                            ------------       ------------

COMMITMENTS AND CONTINGENCIES (NOTES 13 and 14)                                                       --                 --

STOCKHOLDERS' EQUITY
         Preferred stock, $.01 par value, 200,000 shares authorized; 50,000 shares
            designated as Series A                                                                    --                 --
         Series A 9% cumulative convertible preferred stock, $.01 par value, 50,000
            shares authorized; 33,320 shares issued and outstanding (liquidation
            preference: $3,332,000) at September 30, 2005, and 31,177 shares issued
            and outstanding (liquidation preference: $3,117,700) at September 30, 2004                --                 --
         Common stock, $.02 par value, 30,000,000 shares authorized;
            5,045,878 and 4,984,332 shares issued and outstanding,
            at September 30, 2005 and 2004, respectively                                         101,000            100,000
         Additional paid-in capital                                                           15,295,000         14,790,000
         Accumulated deficit                                                                 (14,466,000)       (12,961,000)
                                                                                            ------------       ------------
TOTAL STOCKHOLDERS' EQUITY                                                                       930,000          1,929,000
                                                                                            ------------       ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                  $  7,960,000       $  9,722,000
                                                                                            ============       ============
</TABLE>

                See notes to consolidated financical statements.


                                      F-2-
<PAGE>

          OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                     Years Ended
                                                                 ---------------------------------------------------
                                                                 September 30,      September 30,      September 30,
                                                                      2005               2004               2003
                                                                 ------------       ------------       ------------
<S>                                                              <C>                <C>                <C>
REVENUES
      Commissions                                                $ 33,134,000       $ 46,881,000       $ 34,218,000
      Net dealer inventory gains                                    5,710,000          7,404,000         11,564,000
      Investment banking                                              528,000          1,548,000            425,000
      Interest and dividends                                        2,739,000          3,420,000          1,416,000
      Transfer fees and clearing services                           3,097,000          2,806,000          1,850,000
      Gains on extinguishments of debt                                     --          1,131,000                 --
      Other                                                           522,000            401,000            685,000
                                                                 ------------       ------------       ------------

                                                                   45,730,000         63,591,000         50,158,000
                                                                 ------------       ------------       ------------

EXPENSES
      Commissions                                                  32,838,000         43,932,000         34,583,000
      Employee compensation and related expenses                    5,010,000          5,449,000          4,021,000
      Clearing fees                                                   432,000          2,391,000          2,714,000
      Communications                                                1,670,000          2,589,000          2,693,000
      Occupancy and equipment costs                                 2,886,000          2,983,000          2,891,000
      Professional fees                                             1,520,000          2,559,000          1,526,000
      Litigation settlement                                                --            400,000                 --
      Interest                                                        448,000            397,000            193,000
      Taxes, licenses, registration                                   344,000            560,000            407,000
      Other administrative expenses                                 1,765,000          1,765,000          1,973,000
                                                                 ------------       ------------       ------------

                                                                   46,913,000         63,025,000         51,001,000
                                                                 ------------       ------------       ------------

Net income (loss)                                                  (1,183,000)           566,000           (843,000)

Preferred stock dividends                                            (290,000)          (266,000)          (250,000)
                                                                 ------------       ------------       ------------

Net income (loss) attributable to common stockholders            $ (1,473,000)      $    300,000       $ (1,093,000)
                                                                 ============       ============       ============

INCOME (LOSS) PER COMMON SHARE

Basic:
      Net income (loss) attributable to common stockholders      $      (0.29)      $       0.08       $      (0.34)
                                                                 ============       ============       ============

Diluted:
      Net income (loss) attributable to common stockholders      $      (0.29)      $       0.07       $      (0.34)
                                                                 ============       ============       ============

Weighted average number of shares outstanding:
      Basic                                                         5,024,643          3,580,446          3,175,315
                                                                 ============       ============       ============
      Diluted                                                       5,024,643          4,106,742          3,175,315
                                                                 ============       ============       ============
</TABLE>

                See notes to consolidated financical statements.


                                      F-3-
<PAGE>

              OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARY

       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

               YEARS ENDED SEPTEMBER 30, 2005, SEPTEMBER 30, 2004
                             AND SEPTEMBER 30, 2003

<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 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

     Issuance of preferred stock
       dividends                            2,143           -           -            -      322,000        (322,000)           -
     Exercise of warrants                       -           -      21,546            -       19,000               -       19,000
     Issuance of restricted common
       stock:
          Settlement of arbitration             -           -      40,000        1,000       39,000               -       40,000
     Warrants issued in connection
       with debt                                -           -           -            -      125,000               -      125,000
     Net loss                                   -           -           -            -            -      (1,183,000)  (1,183,000)
                                       ----------  ----------  ----------   ----------  -----------    ------------   ----------

BALANCE, September 30, 2005                33,320  $        -   5,045,878    $ 101,000  $15,295,000    $(14,466,000)  $  930,000
                                       ==========  ==========  ==========   ==========  ===========    ============   ==========
</TABLE>

                See notes to consolidated financical statements.


                                      F-4-
<PAGE>


              OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                             Years ended
                                                                    -------------------------------------------------------------
                                                                    September 30, 2005    September 30, 2004   September 30, 2003
                                                                    ------------------    ------------------   ------------------
<S>                                                                    <C>                   <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                                   $(1,183,000)          $   566,000           $  (843,000)
   Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities
         Depreciation and amortization                                     145,000               165,000               217,000
         Gains on extinguishments of debt                                       --            (1,131,000)                   --
         Amortization of note discount                                     163,000               122,000                33,000
         Provision for doubtful accounts                                   150,000               200,000               441,000
         Forgiveness of loan                                                    --              (251,000)             (453,000)
         Write-down of limited partnership investment                           --                    --                29,000
         Issuance of common stock in settlement of arbitration              40,000               100,000                    --
   Changes in assets and liabilities
         Restricted cash                                                        --                    --               309,000
         Deposits with clearing organizations                              695,000                46,000               448,000
         Receivables from broker-dealers, clearing organizations
           and others                                                      829,000            (1,569,000)           (2,295,000)
         Securities held for resale, at market                             (17,000)              225,000               232,000
         Other assets                                                      101,000                65,000                53,000
         Accounts payable, accrued expenses and other liabilities         (737,000)              127,000             1,892,000
         Securities sold, but not yet purchased, at market                  11,000               (83,000)               11,000
                                                                       -----------           -----------           -----------
   Net cash provided by (used in) operating activities                     197,000            (1,418,000)               74,000
                                                                       -----------           -----------           -----------

CASH FLOWS FROM INVESTING ACTIVITIES

         Purchase of fixed assets                                          (94,000)             (219,000)              (94,000)
                                                                       -----------           -----------           -----------

   Net cash used in investing activities                                   (94,000)             (219,000)              (94,000)
                                                                       -----------           -----------           -----------

CASH FLOWS FROM FINANCING ACTIVITIES
         Net proceeds from issuance of notes payable and warrants               --             1,036,000                    --
         Payment of notes payable                                          (75,000)             (750,000)                   --
         Decrease in cash overdraft                                             --                    --              (408,000)
         Net proceeds from issuance of common stock and warrants                --               930,000               554,000
         Exercise of stock options and warrants                             19,000               321,000                    --
                                                                       -----------           -----------           -----------
   Net cash provided by (used in) financing activities                     (56,000)            1,537,000               146,000
                                                                       -----------           -----------           -----------

NET INCREASE (DECREASE) IN CASH                                             47,000              (100,000)              126,000

CASH BALANCE
         Beginning of the year                                             351,000               451,000               325,000
                                                                       -----------           -----------           -----------

         End of the year                                               $   398,000           $   351,000           $   451,000
                                                                       ===========           ===========           ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
         Cash paid during the year for:
         Interest                                                      $   450,000           $   363,000           $   193,000
                                                                       ===========           ===========           ===========

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
            FINANCING ACTIVITIES
         Exchange of accounts payable for common stock                 $        --           $        --           $    51,000
                                                                       ===========           ===========           ===========
         Conversion of accounts payable to loan payable                $        --           $        --           $   375,000
                                                                       ===========           ===========           ===========
         Warrants issued in connection with debt                       $   125,000           $   341,000           $        --
                                                                       ===========           ===========           ===========
         Preferred stock dividends                                     $   322,000           $   503,000           $        --
                                                                       ===========           ===========           ===========

</TABLE>

                See notes to consolidated financical statements.


                                      F-5-
<PAGE>

                      OLYMPIC CASCADE FINANCIAL CORPORATION
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

          SEPTEMBER 30, 2005, SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003

1.    ORGANIZATION

      Olympic Cascade Financial Corporation ("Olympic" or the "Company"), a
      Delaware corporation organized in 1996, is a financial services
      organization, operating through its wholly owned subsidiary, National
      Securities Corporation ("National") a Washington corporation organized in
      1947. National conducts a national securities brokerage business through
      its main offices in Seattle, Washington and New York, New York. 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 clearing organizations on a fully
      disclosed basis.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

            a.    Principles of Consolidation - The consolidated financial
                  statements include the accounts of Olympic and National, 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 its clearing firms, National Financial
                  Services LLC ("NFS") and Penson Financial Services, Inc.
                  ("Penson"). The interest is billed on the average daily
                  balance of the margin account.

                  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.


                                      F-6-
<PAGE>

            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
                  three to five 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. Expenditures for maintenance and repairs, which do not
                  extend the economic useful life of the related assets, are
                  charged to operations as incurred. 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. The Company has an investment in a
                  limited partnership for which the carrying value is $107,000
                  at September 30, 2005.

            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, 2005,
                  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-7-
<PAGE>

<TABLE>
<CAPTION>
                                                                                            Fiscal Years Ended
                                                                         -----------------------------------------------------------
                                                                         September 30,          September 30,          September 30,
                                                                              2005                   2004                   2003
                                                                          -----------            -----------            -----------
<S>                                                                       <C>                    <C>                    <C>
Numerator:
   Net income (loss)                                                      $(1,183,000)           $   566,000            $  (843,000)
   Preferred stock dividends                                                 (290,000)              (266,000)              (250,000)
                                                                          -----------            -----------            -----------
Numerator for basic and diluted earnings per share--net
   income (loss) attributable to common stockholders                      $(1,473,000)           $   300,000            $(1,093,000)
                                                                          ===========            ===========            ===========

Denominator:
   Denominator for basic earnings per share--weighted
      average shares                                                        5,024,643              3,580,446              3,175,315
                                                                          -----------            -----------            -----------
   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                          5,024,643              4,106,742              3,175,315
                                                                          ===========            ===========            ===========

Net income (loss) available to common stockholders
   Basic:                                                                 $     (0.29)           $      0.08            $     (0.34)
                                                                          ===========            ===========            ===========

   Diluted:                                                               $     (0.29)           $      0.07            $     (0.34)
                                                                          ===========            ===========            ===========
</TABLE>

                  For the fiscal years ended September 30, 2005, 2004 and 2003,
                  5,357,278, 3,228,615 and 3,943,095 shares, respectively,
                  attributable to outstanding Series A Preferred Stock, stock
                  options and warrants were excluded from the calculation of
                  diluted net income per share because if included 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-8-
<PAGE>

<TABLE>
<CAPTION>
                                                                                                Fiscal Years Ended
                                                                                -----------------------------------------------
                                                                                  September 30,   September 30,   September 30,
                                                                                       2005            2004            2003
                                                                                -----------------------------------------------
<S>                                                                               <C>                <C>          <C>
Net income (loss) attributable to common stockholders - as reported               $ (1,473,000)      $ 300,000    $ (1,093,000)
Stock-based employee compensation cost determined under
   fair value method, net of tax effects                                              (869,000)       (286,000)        (36,000)
                                                                                -----------------------------------------------
Net income (loss) attributable to common stockholders - pro forma                 $ (2,342,000)       $ 14,000    $ (1,129,000)
                                                                                ===============================================

Earnings (loss) per share

Basic earnings (loss) loss per share:
Net income (loss) attributable to common stockholders - as reported                    $ (0.29)         $ 0.08         $ (0.34)
Per share stock-based employee compensation cost
   determined under fair value method, net of tax effects                                (0.17)          (0.08)          (0.01)
                                                                                -----------------------------------------------
Net income (loss) attributable to common stockholders - pro forma                      $ (0.46)            $ -         $ (0.35)
                                                                                ===============================================

Diluted earnings (loss) loss per share:
Net income (loss) attributable to common stockholders - as reported                    $ (0.29)         $ 0.07         $ (0.34)
Per share stock-based employee compensation cost
   determined under fair value method, net of tax effects                                (0.17)          (0.07)          (0.01)
                                                                                -----------------------------------------------
Net income (loss) attributable to common stockholders - pro forma                      $ (0.46)            $ -         $ (0.35)
                                                                                ===============================================
</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, 2005, 2004 and 2003. 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:

<TABLE>
<CAPTION>
                                                                                                Fiscal Years Ended
                                                                          ---------------------------------------------------------
                                                                          September 30,            September 30,       September 30,
                                                                               2005                     2004               2003
                                                                          ---------------------------------------------------------
<S>                                                                       <C>                      <C>                  <C>
                   Assumptions:                                                 3.15%                    2.48%                4.01%
                   Risk-free interest rate
                                                                                 5.0                      3.0                  5.0
                   Expected life, in years
                                                                                 135%                     123%                 311%
                   Expected volatility

                   Results:                                               $     1.10               $     1.47           $     0.52
                   Fair value of options granted
</TABLE>

                                      F-9
<PAGE>

            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, 2005 the uninsured
                  cash bank balance was $551,000. The Company believes it is not
                  exposed to any significant credit risks for cash.

            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.


                                     F-10-
<PAGE>

            o.    Recent Accounting Pronouncements - In October 2004, the FASB
                  ratified the consensus reached in EITF Issue No. 04-8, "The
                  Effect of Contingently Convertible Instruments on Diluted
                  Earnings per Share." The EITF reached a consensus that
                  contingently convertible instruments, such as contingently
                  convertible debt, contingently convertible preferred stock,
                  and other such securities should be included in diluted
                  earnings per share (if dilutive) regardless of whether the
                  market price trigger has been met. The consensus became
                  effective for reporting periods ending after December 15,
                  2004. The adoption of this pronouncement will not have a
                  material impact on the Company's consolidated financial
                  statements.

                  In December 2004, the Financial Accounting Standards Board
                  ("FASB") issued its final standard on accounting for
                  share-based payments ("SBP"), FASB Statement No. 123R (revised
                  2004), "Share-Based Payment." This statement requires
                  companies to expense the value of employee stock options and
                  similar awards. Under FAS 123R, SBP awards result in a cost
                  that will be measured at fair value on the awards' grant date,
                  based on the estimated number of awards that are expected to
                  vest. Compensation cost for awards that vest would not be
                  reversed if the awards expire without being exercised. The
                  statement's effective date for a company is the first interim
                  reporting period beginning after September 30, 2005, and it
                  applies to all outstanding and unvested SBP awards at a
                  company's adoption. Management believes the adoption of this
                  pronouncement will have a material impact on the Company's
                  consolidated financial statements, whereby the Company upon
                  adoption expects to record a charge for the granting of future
                  employee stock options.

                  In May 2005, the FASB issued FASB 154, "Accounting Changes and
                  Error Corrections." This statement replaces APB Opinion No.
                  20, Accounting Changes, and FASB Statement No. 3, Reporting
                  Accounting Changes in Interim Financial Statements, and
                  changes the requirements for the accounting for and reporting
                  of a change in accounting principle. The statement applies to
                  all voluntary changes in accounting principle. It also applies
                  to changes required by an accounting pronouncement in the
                  unusual instance that the pronouncement does not include
                  specific transition provisions. When a pronouncement includes
                  specific transition provisions, those provisions should be
                  followed. This statement is effective for accounting changes
                  and corrections of errors made in fiscal years beginning after
                  December 15, 2005. Management does not believe this
                  pronouncement will have a material impact on the Company's
                  consolidated financial statements.

                  In June 2005, the EITF reached consensus on Issue No. 05-6,
                  Determining the Amortization Period for Leasehold Improvements
                  (EITF 05-6). EITF 05-6 provides guidance on determining the
                  amortization period for leasehold improvements acquired in a
                  business combination or acquired subsequent to lease
                  inception. The guidance in EITF 05-6 will be applied
                  prospectively and is effective for periods beginning after
                  June 29, 2005. EITF 05-6 is not expected to have a material
                  impact on the Company's consolidated financial position or
                  results of operations.

                  In September 2005, the FASB ratified the Emerging Issues Task
                  Force's ("EITF") Issue No. 05-7. "Accounting for Modifications
                  to Conversion Options Embedded in Debt Instruments and Related
                  Issues", which addresses whether a modification


                                     F-11-
<PAGE>

                  to a conversion option that changes its fair value affects the
                  recognition of interest expense for the associated debt
                  instrument after the modification, and whether a borrower
                  should recognize a beneficial conversion feature, not a debt
                  extinguishment, if a debt modification increases the intrinsic
                  value of the debt. Management does not believe this
                  pronouncement will have a material impact on the Company's
                  consolidated financial statements.

                  In September 2005, the FASB ratified the following consensus
                  reached in EITF Issue 05-8 ("Income Tax Consequences of
                  Issuing Convertible Debt with a Beneficial Conversion
                  Feature"): a) The issuance of convertible debt with a
                  beneficial conversion feature results in a basis difference in
                  applying FASB Statement of Financial Accounting Standards SFAS
                  No. 109, Accounting for Income Taxes. Recognition of such a
                  feature effectively creates a debt instrument and a separate
                  equity instrument for book purposes, whereas the convertible
                  debt is treated entirely as a debt instrument for income tax
                  purposes; b) The resulting basis difference should be deemed a
                  temporary difference because it will result in a taxable
                  amount when the recorded amount of the liability is recovered
                  or settled; and c) Recognition of deferred taxes for the
                  temporary difference should be reported as an adjustment to
                  additional paid-in capital. This consensus is effective in the
                  first interim or annual reporting period commencing after
                  December 15, 2005, with early application permitted. The
                  effect of applying the consensus should be accounted for
                  retroactively to all debt instruments containing a beneficial
                  conversion feature that are subject to EITF Issue 00-27,
                  "Application of Issue No. 98-5 to Certain Convertible Debt
                  Instruments" (and thus is applicable to debt instruments
                  converted or extinguished in prior periods but which are still
                  presented in the financial statements). Management does not
                  believe this pronouncement will have a material impact on the
                  Company's consolidated financial statements.

            p.    Management's Liquidity Plans - The prevailing market
                  conditions during the past several years 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 second quarter of fiscal year 2005, National and the
                  holder of the $1.0 million secured demand note that matured on
                  March 1, 2005, extended the maturity date of the note to March
                  1, 2006. Additionally, two noteholders extended the maturity
                  date on $1.0 million of notes from July 31, 2005 to July 31,
                  2007.

                  In the first quarter of fiscal year 2004, the Company
                  consummated two private offering of its securities to a
                  limited number of accredited investors wherein the Company
                  issued an aggregate of $1,025,000 of three-year, 10% senior
                  subordinated promissory notes to nine unaffiliated parties.
                  The noteholders received three-year warrants to purchase an
                  aggregate of 213,750 shares of the Company's common stock at
                  exercise prices of $1.40 and $1.50 per share.

                  In the fourth quarter of fiscal year 2004, the Company
                  received net proceeds of approximately $930,000 from a private
                  placement of its securities to a limited number of accredited
                  investors. 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.


                                     F-12-
<PAGE>

                  The Company has historically satisfied its capital needs with
                  cash generated from operations or from financing activities.
                  The Company believes that despite the currently weaker market
                  conditions, the Company will have sufficient funds to maintain
                  its current level of business activities during fiscal year
                  2006. If market conditions should weaken further, 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 Corporation ("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.

                  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, $250,000 and $453,000
                  was forgiven in fiscal years 2004 and 2003, 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


                                     F-13-
<PAGE>

                  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, resulting in a
                  $375,000 gain 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.

                  In June 2004, National entered into an agreement with Fiserv
                  Securities, Inc. ("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.

                  In March 2005, NFS acquired the clearing business of Fiserv.
                  In April 2005, National entered into a clearing agreement with
                  NFS that became effective in June 2005. As part of this
                  transaction, NFS provided National with a $1.0 million
                  conversion fee credit to reimburse the Company for the
                  transitional, incremental costs incurred by National relating
                  to the conversion of its clearing business to NFS. National
                  was paid $250,000 in May 2005, and the remaining $750,000 was


                                     F-14-
<PAGE>

                  paid in July 2005. The clearing agreement includes a
                  termination fee if National terminates the agreement without
                  cause. Additionally, in June 2005, National entered into a
                  clearing agreement with Penson for the purpose of providing
                  clearing services that are not provided by NFS. The Company
                  believes that the overall effect of the new clearing
                  relationships 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
                        current Chairman, President and Chief Executive Officer
                        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. The Chief Executive 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. 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. In August 2005, the two noteholders extended
                        the maturity date on the $1.0 million of notes from July
                        31, 2005 to July 31, 2007. Additionally, each of the
                        noteholders' warrants to purchase, in the aggregate,
                        100,000 shares of Common Stock at a price of $1.75 per
                        share expiring on July 31, 2005 was repriced to $1.25
                        per share, and the expiration date of such warrants was
                        extended to July 31, 2007. The expiration date for the
                        noteholders' warrants to purchase, in the aggregate, an
                        additional 100,000 shares of Common Stock at a price of
                        $1.25 per share was also extended from July 31, 2005 to
                        July 31, 2007.


                                     F-15-
<PAGE>

                        The Company is accreting the total allocated fair value
                        of $158,000 from the 2004 extensions over the extended
                        18-month term of these notes. The Company is accreting
                        the total allocated fair value of $130,000 from the 2005
                        extensions over the twenty-four-month term of these
                        promissory notes. Such accretion has been included in
                        "Interest" in the accompanying consolidated financial
                        statements.

                  (iv)  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
                        506 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
                        December 2005, the Company extended the expiration date
                        of the warrants issued in this private placement,
                        including the placement agent warrants, to December 23,
                        2006 from December 23, 2005. 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.

                  (v)   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.

                        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.


                                     F-16-
<PAGE>

                  (vi)  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 were completed in fiscal
                        year 2004. The Registration Statement became effective
                        on August 11, 2004.

                  (vii) 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
                        506 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.

                  (viii) In the fourth quarter of fiscal year 2004, the Company
                        issued 100,000 shares of common stock as part of the
                        settlement of an arbitration, as payment of
                        approximately $100,000. In the second quarter of fiscal
                        year 2005, the Company issued 40,000 shares of common
                        stock as part of the settlement of two arbitrations as
                        payment of approximately $40,000. Such payments have
                        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.    BROKER-DEALERS AND CLEARING ORGANIZATIONS RECEIVABLES AND PAYABLES

      At September 30, 2005 and 2004 the receivables of $3,329,000 and
      $3,821,000, respectively, from brokers and dealers represent net amounts
      due for fees and commissions. At September 30, 2005 and 2004, the amounts
      payable to broker dealers and clearing organizations of $122,000 and
      $115,000, respectively, represent amounts payable for inventory purchases
      on behalf of the Company and its customers.

5.    OTHER RECEIVABLES

      An analysis of other receivables, and the allowance for uncollectible
      accounts on such receivables for the fiscal years ended September 30,
      2003, 2004 and 2005 is as follows:


                                     F-17-
<PAGE>

<TABLE>
<CAPTION>
                                                                    Other                                                   Net
                                                                Receivables                  Allowance                  Receivables
                                                                -----------                 -----------                 -----------
<S>                                                             <C>                         <C>                         <C>
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
Additions                                                           110,000                          --                     110,000
Collections                                                        (364,000)                         --                    (364,000)
Provision                                                                --                    (150,000)                   (150,000)
Write-offs                                                         (632,000)                    632,000                          --
                                                                -----------                 -----------                 -----------
Balance, September 30, 2005                                     $   853,000                 $  (368,000)                $   485,000
                                                                ===========                 ===========                 ===========
</TABLE>

6.    ADVANCES TO REGISTERED REPRESENTATIVES

      An analysis of advances to registered representatives for the fiscal years
      ended September 30, 2004 and 2005 is as follows:

              Balance, September 30, 2003                             $ 644,000
              Advances                                                1,855,000
              Amortization of advances                                 (763,000)
                                                                    -----------
              Balance, September 30, 2004                             1,736,000
              Advances                                                1,123,000
              Amortization of advances                               (1,206,000)
                                                                    -----------
              Balance, September 30, 2005                           $ 1,653,000
                                                                    ===========

      The unamortized advances outstanding at September 30, 2005, 2004 and 2003
      attributable to registered representatives who ended their affiliation
      with National prior to the fulfillment of their obligation was $44,000,
      $40,000 and $35,000, respectively.

7.    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, 2005 and 2004, respectively:


                                     F-18-
<PAGE>

<TABLE>
<CAPTION>
                                                     September 30, 2005                            September 30, 2004
                                                     ------------------                            ------------------
                                                                      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                                $150,000               $ 25,000               $ 36,000               $  1,000
Corporate bonds                                       --                 19,000                  3,000                     --
Government obligations                            16,000                     --                110,000                 32,000
                                                --------               --------               --------               --------
                                                $166,000               $ 44,000               $149,000               $ 33,000
                                                ========               ========               ========               ========
</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.

8.    FIXED ASSETS

      Fixed assets as of September 30, 2005 and 2004, respectively, consist of
the following:

<TABLE>
<CAPTION>
                                                     September 30,    September 30,           Estimated Useful
                                                         2005              2004                     Lives
                                                     -------------    -------------           ----------------
<S>                                                   <C>               <C>                        <C>
Office machines                                       $ 138,000         $ 150,000                  5 years
Furniture and fixtures                                  157,000           170,000                  5 years
Telephone system                                         34,000            35,000                  5 years
Electronic equipment                                    399,000           322,000                  3 years
                                                                                            Lesser of terms of
Leasehold improvements                                  246,000           233,000          leases or useful lives
                                                      ---------         ---------
                                                        974,000           910,000
Less accumulated depreciation and amortization         (724,000)         (609,000)
                                                      ---------         ---------
Fixed assets - net                                    $ 250,000         $ 301,000
                                                      =========         =========
</TABLE>

      During the 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,
      2005, 2004 and 2003 was $145,000, $165,000 and $217,000, respectively.


                                     F-19-
<PAGE>

9.    OTHER ASSETS

      Other assets as of September 30, 2005 and 2004, respectively, consist of
the following:

                                       September 30, 2005     September 30, 2004
                                       ------------------     ------------------

Investment in limited partnership           $107,000             $107,000
Pre-paid expenses                            234,000              321,000
Deposits                                      38,000               52,000
                                            --------             --------
Total                                       $379,000             $480,000
                                            ========             ========

10.   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 was 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 have extended the maturity
      date on the remaining $1,000,000 to July 31, 2007. The Company amortized
      the total allocated fair value of $158,000 over the previous 18-month term
      of these notes, and is amortizing the total allocated fair value of
      $130,000 over the current 24-month term of these notes. Such amortization
      has been included in "Interest" in the accompanying consolidated financial
      statements.

      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:

            Balance, September 30, 2003                       $ 1,756,000
            Principal payments                                   (750,000)
            Amount amortized and forgiven                      (1,006,000)
                                                              -----------
            Balance, September 30, 2004                       $        --
                                                              ===========

      As discussed in Note 3b(v) 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.


                                     F-20-
<PAGE>

      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.

      The following table summarizes notes payable at September 30, 2005 and
      2004, respectively:

                                        September 30, 2005    September 30, 2004
                                        ------------------    ------------------
        Notes payable to noteholders        $ 1,000,000          $ 1,000,000
        Loan from former officer                     --               50,000
        2004 private placements               1,025,000            1,050,000
                                            -----------          -----------
                                              2,025,000            2,100,000
        Less: Deferred debt discount           (206,000)            (245,000)
                                            -----------          -----------
                                            $ 1,819,000          $ 1,855,000
                                            ===========          ===========

      The following is a schedule by years of debt maturity as of September 30,
2005:

            Fiscal year ending
            2006                                $        --
            2007                                  2,025,000
                                                -----------
                                                  2,025,000
            Less: Deferred debt discount           (206,000)
                                                -----------
                                                $ 1,819,000
                                                ===========

11.   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 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, has been
      extended to March 1, 2006. Certain of the securities totaling $412,000
      have been pledged as collateral for a security deposit in the amount of
      $249,000 for an office lease, and two letters of credit in the amounts of
      $125,000 and $38,000, executed by the Company on behalf of National. No
      amounts have been drawn on these letters of credit.


                                     F-21-
<PAGE>

12.   INCOME TAXES

      The income tax (provision) benefit consists of:

<TABLE>
<CAPTION>
                                                                       Fiscal Years Ended
                                                    -------------------------------------------------------
                                                      September 30,      September 30,       September 30,
                                                         2005                 2004               2003
      <S>                                           <C>                <C>                <C>
      Current federal income tax benefit            $              -   $               -  $               -
      Current state income tax provision                           -                   -                  -
                                                    ----------------   -----------------  -----------------
                                                    $              -   $               -  $               -
                                                    ================   =================  =================
      </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,       September 30,         September 30,
                                                                           2005                2004                   2003
                                                                        ---------           ---------             ---------
<S>                                                                     <C>                 <C>                   <C>
            Statutory federal rate                                      $ 402,000           $(192,000)            $ 287,000
            State income taxes net of federal income tax benefit           35,000             (19,000)               27,000
            Losses for which no benefit is provided                      (437,000)                 --              (314,000)
            Utilization of net operating loss carryforwards                    --             211,000                    --
                                                                        ---------           ---------             ---------
                                                                        $      --           $      --             $      --
                                                                        =========           =========             =========
</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,      September 30,
                                                              2005                2004
                                                          -----------         -----------
<S>                                                       <C>                 <C>
            Net operating loss carryforwards              $ 3,413,000         $ 3,593,000
            Reserves for uncollectible receivables            128,000             332,000
            Other temporary differences                        44,000             207,000
                                                          -----------         -----------
            Total deferred tax asset                        3,585,000           4,132,000
            Valuation allowance                            (3,585,000)         (4,132,000)
                                                          -----------         -----------
            Deferred tax asset                            $        --         $        --
                                                          ===========         ===========
</TABLE>

      At September 30, 2005, the Company had available net operating loss
      carryovers of approximately $10.1 million that may be applied against
      future taxable income and expires at various dates through 2024, 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


                                     F-22-
<PAGE>

      of the tax benefits cannot be determined. The valuation allowance for
      deferred tax asset increased by $547,000 during the fiscal year ended
      September 30, 2005 and decreased by $246,000 during the fiscal year ended
      September 30, 2004.

13.   COMMITMENTS

      Leases - As of September 30, 2005, 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
       ------------------

                     2006             $ 1,667,000
                     2007               1,602,000
                     2008               1,556,000
                     2009                 584,000
                     2010                 562,000
               Thereafter               1,022,000
                             ---------------------
                                      $ 6,993,000
                             =====================

      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, 2005, September 30, 2004 and September 30, 2003 was $1,976,000,
      $2,006,000 and $2,029,000, respectively.

      Guarantees - The Company has secondarily guaranteed a lease of one of its
      branch offices, in the amount of $235,000 at September 30, 2005.

14.   CONTINGENCIES

      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. Plaintiffs were seeking
      approximately $14.0 million, but no specific amount of damages was 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 were the individual claims asserted
      by the two class representatives totaling $60,000. Plaintiffs thereafter
      filed an appeal of the order denying class certification. The action in
      the lower court, including a pending motion for summary judgment, has been
      stayed. In May 2005, the California Court of Appeal affirmed the order
      denying class certification. The matter was subsequently settled with
      proceeds to be paid by National's insurer.

      The NASD was engaged in an industry-wide investigation of mutual fund
      trading activities. National is one of the numerous broker-dealers
      contacted by the NASD with respect to this


                                     F-23-
<PAGE>

      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 included the $650,000 in "Professional fees" in fiscal year 2004.
      The unpaid balance of $187,000 and $562,000 at September 30, 2005 and
      September 30, 2004, respectively, 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 the
      Company approximates at $1.2 million (exclusive of unspecified punitive
      damages related to certain claims and inclusive of expected insurance
      coverage). The Company has filed a counterclaim for approximately $220,000
      in one such proceeding. These matters arise in 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, 2005 and 2004, is $206,000 and $169,000
      (including legal fees), 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 other NASD related expenses of
      $790,000, $1,424,000 and $945,000 for the fiscal years ended September 30,
      2005, 2004 and 2003, respectively.

15.   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.

      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. In March 2005, the Company's Board of Directors declared
      an in-kind dividend in the aggregate of 2,143 shares of Series A
      Convertible preferred stock, in payment of approximately $322,000 of
      dividends accrued through March 31, 2005. Such shares were issued on April
      30, 2005. At September 30, 2005, the amount of accumulated dividends on
      the Company's 33,320 issued and outstanding shares of Series A Convertible
      preferred stock was $150,000.

      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


                                     F-24-
<PAGE>

      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, 2005:

     Stock Options Under Plan
     ------------------------
<TABLE>
<CAPTION>
                                                                              Weighted
                                                                            Average Price
                                        Authorized         Outstanding        Per Share
                                        ----------         -----------        ---------
<S>                                      <C>                  <C>             <C>
     Balance, September 30, 2002         1,991,500            845,368         $   5.08
     Granted                                    --             30,000
     Exercised                                  --                 --
     Forfeitures                                --           (471,218)
                                         ---------          ---------

     Balance, September 30, 2003         1,991,500            404,150         $   5.08
     Granted                                    --            694,000
     Exercised                             (26,003)           (26,003)
     Forfeitures                                --            (46,997)
                                         ---------          ---------

     Balance, September 30, 2004         1,965,497          1,025,150         $   3.47
     Granted                                    --            672,000
     Exercised                                  --                 --
     Forfeitures                                --           (903,483)
                                         ---------          ---------

     Balance, September 30, 2005         1,965,497            793,667         $   1.35
                                         =========          =========
<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-$0.90            60,000           2.24         $0.67                56,667        $0.66
     $1.25              305,000           4.38         $1.25               305,000        $1.25
    $1.375              367,000           4.38         $1.375              367,000        $1.375
  $2.00-$3.80            61,667           2.31         $2.34                55,000        $2.38
                     -----------                                          ---------
                        793,667                                            783,667
                     ===========                                          =========
</TABLE>


                                     F-25-
<PAGE>

In February 2005, the Company issued to employees 150,000 options to purchase
common stock. The options vested immediately at the date of the grant, have a
5-year life and are exercisable at prices ranging from $1.25 to $1.375. The
weighted average fair value of these options is approximately $1.30 per share.
Also in February 2005, the Company modified the terms of 522,000 existing
options by restating the exercise price to a range from $1.25 to $1.375 and
fully accelerating the vesting period for these options.

The following tables summarize information about warrants outstanding at
September 30, 2005.

 Warrants

<TABLE>
<CAPTION>
                                                                                                Weighted Average
                                                        Shares        Exercise Price              Exercisable
                                                      ---------       --------------            ----------------
<S>                                                   <C>               <C>                         <C>
            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
                                                                                                    ==========
            Granted                                      50,000         $   1.25
            Exercised                                   (21,546)        $   0.93
            Expired                                     (11,250)        $   3.61
                                                                                                    ----------

            Outstanding at September 30, 2005         2,342,280         $   1.31                     2,342,280
                                                      =========                                     ==========
</TABLE>


                                     F-26-
<PAGE>


                      Warrants Outstanding and Exercisable

<TABLE>
<CAPTION>
                                                           Weighted            Weighted
                                                           Average              Average
                                      Number               Remaining           Exercise
             Exercise Prices        Outstanding         Contractual Life        Prices
             ---------------        -----------         ----------------       --------
<S>                                  <C>                     <C>                 <C>
                  $0.65                 80,073               0.23                $0.65
                  $0.80                 62,500               1.94                $0.80
                  $1.25              1,353,957               0.73                $1.25
                  $1.40                 43,750               1.27                $1.40
                  $1.50                797,000               1.78                $1.50
                  $5.00                  5,000               1.16                $5.00
                                    -----------
                                     2,342,280
                                    ===========
</TABLE>

      In April 2005, in connection with the resignation of the former chairmen
      of the Company, the Company issued to his designee, a three-year warrant
      to purchase 50,000 shares of the Company's common stock at $1.25 per
      share.

16.   NET CAPITAL REQUIREMENTS

      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, 2005, National's net capital exceeded the
      requirement by $974,000.

      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.

17.   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, 2005, 2004
      and 2003, the Company made no contributions to the Plan.

18.   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., a publicly traded company whose wholly owned subsidiary
      is also a registered broker-dealer with a business similar to National. In
      February 2005, the Company and First Montauk Financial Corp. entered into
      a definitive merger agreement that was amended and restated in June 2005.
      In October 2005, the Company and First Montauk mutually agreed to
      terminate their proposed merger. The Company expensed approximately
      $320,000 in "Professional fees" relating to the proposed


                                     F-27-
<PAGE>

      merger with First Montauk in fiscal year 2005.

      In October 2005, National completed a private placement of approximately
      $30.0 million in common stock for Cardium Therapeutics, Inc. As a fee for
      acting as the placement agent, National received commissions of
      approximately $3.0 million.

19.   UNAUDITED QUARTERLY DATA

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

<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)
                                                              ========         ========         ========         ========

<CAPTION>
                                                              December           March            June           September
                                                              31, 2004         31, 2005         30, 2005         30, 2005
                                                              --------         --------         --------         --------
<S>                                                           <C>              <C>              <C>              <C>
Revenues                                                      $ 13,108         $ 12,206         $  9,996         $ 10,420
                                                              ========         ========         ========         ========

Net income (loss)                                             $   (184)        $   (139)        $    111         $   (971)
Preferred stock dividends                                          (71)             (69)             (75)             (75)
                                                              --------         --------         --------         --------

Net income (loss) attributable  to common stockholders        $   (255)        $   (208)        $     36         $ (1,046)
                                                              ========         ========         ========         ========

Income (loss) per common share - Basic                        $  (0.05)        $  (0.04)        $   0.01         $  (0.21)
                                                              ========         ========         ========         ========

Income (loss) per common share - Diluted                      $  (0.05)        $  (0.04)        $   0.01         $  (0.21)
                                                              ========         ========         ========         ========
</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. In the fourth quarter of
      fiscal year 2005, the Company expensed approximately $320,000 in
      "Professional fees" relating to the proposed merger with First Montauk.


                                     F-28-
<PAGE>

20.   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

                                               September 30,      September 30,
                                                    2005               2004
                                                ----------         ----------
Cash                                            $    2,000         $  157,000
Investment in subsidiary                         2,884,000          3,696,000
Other assets                                       153,000            168,000
                                                ----------         ----------
                                                $3,039,000         $4,021,000
                                                ==========         ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable, accrued expenses
  and other liabilities                         $  290,000         $  237,000
Notes payable                                    1,819,000          1,855,000
                                                ----------         ----------
                                                 2,109,000          2,092,000
Stockholders' equity                               930,000          1,929,000
                                                ----------         ----------
                                                $3,039,000         $4,021,000
                                                ==========         ==========

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                Years ended
                                                                       -------------------------------------------------------------
                                                                       September 30,           September 30,           September 30,
                                                                            2005                    2004                    2003
                                                                        -----------             -----------             -----------
<S>                                                                     <C>                     <C>                     <C>
Operating expenses                                                      $(1,247,000)            $(1,215,000)            $  (651,000)
Other income (expense)
       Gains on extinguishments of debt                                          --               1,131,000                      --
       Gain (loss) on investment in subsidiary                               64,000                 650,000                (192,000)
                                                                        -----------             -----------             -----------

Net income (loss) before income tax                                     $(1,183,000)            $   566,000             $  (843,000)
                                                                        ===========             ===========             ===========
</TABLE>


                                     F-29-
<PAGE>

NOTE 20- FINANCIAL INFORMATION - OLYMPIC (CONTINUED)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                Years ended
                                                                       ------------------------------------------------------------
                                                                       September 30, 2005   September 30, 2004   September 30, 2003
                                                                       ------------------   ------------------   ------------------
<S>                                                                       <C>                  <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
         Net income (loss)                                                $(1,183,000)         $   566,000           $  (843,000)
         Adjustments to reconcile net income (loss) to net
            cash provided by (used in) operating activities
             (Gain) loss on investment in subsidiaries                       (157,000)            (650,000)              191,000
             Gains on extinguishments of debt                                      --           (1,131,000)                   --
             Amortization of note discount                                    163,000              122,000                33,000
             Forgiveness of loan                                                   --             (251,000)             (453,000)
             Write-down of limited partnership investment                          --                   --                29,000
         Issuance of common stock in settlement of arbitration                 40,000              100,000                    --
             Changes in assets and liabilities                              1,021,000             (366,000)              210,000
                                                                          -----------          -----------           -----------
         Net cash used in operating activities                               (116,000)          (1,610,000)             (833,000)
                                                                          -----------          -----------           -----------

CASH FLOWS FROM INVESTING ACTIVITIES
         (Capital contributions to) advances from subsidiary - net             17,000              207,000               301,000
                                                                          -----------          -----------           -----------
         Net cash provided by (used in) investing activities                   17,000              207,000               301,000
                                                                          -----------          -----------           -----------

CASH FLOWS FROM FINANCING ACTIVITIES
         Net proceeds from issuance of notes payable and warrants                  --            1,036,000                    --
         Payments of notes payable                                            (75,000)            (750,000)                   --
         Net proceeds from issuance of common stock and warrants                   --              930,000               554,000
         Exercise of stock options                                                 --               26,000                    --
         Exercise of warrants                                                  19,000              295,000                    --
                                                                          -----------          -----------           -----------
         Net cash provided by financing activities                            (56,000)           1,537,000               554,000
                                                                          -----------          -----------           -----------

NET (DECREASE) INCREASE IN CASH                                              (155,000)             134,000                22,000

CASH BALANCE
         Beginning of year                                                    157,000               23,000                 1,000
                                                                          -----------          -----------           -----------
         End of year                                                      $     2,000          $   157,000           $    23,000
                                                                          ===========          ===========           ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
         Cash paid during the year for:
         Interest                                                         $   389,000          $   272,000           $   128,000
                                                                          ===========          ===========           ===========

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
            FINANCING ACTIVITIES
         Exchange of accounts payable for common stock                    $        --          $        --           $    51,000
                                                                          ===========          ===========           ===========
         Conversion of accounts payable to loan payable                   $        --          $        --           $   375,000
                                                                          ===========          ===========           ===========
         Deferred financing costs                                         $   125,000          $   341,000           $        --
                                                                          ===========          ===========           ===========
         Preferred stock dividends                                        $   322,000          $   503,000           $        --
                                                                          ===========          ===========           ===========

</TABLE>


                                     F-30-