UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-Q





QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934





For
                the Quarter Ended December 31, 2007
            Commission
                File Number 001-12629





**NATIONAL
      HOLDINGS CORPORATION**


(Exact
      name of registrant as specified in its charter)





Delaware
            
            36-4128138(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)




120
      Broadway, 27th Floor, New York, NY 10271


(Address
      including zip code of principal executive offices)




Registrant’s
      telephone number, including area code: (212)
      417-8000





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 o





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





Large
                Accelerated Filer o
            Accelerated
                Filer oNon-Accelerated
                Filer o
            Smaller
                Reporting Company x





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





As
      of
      February 12, 2008 there were 8,602,628 shares of the registrant's common stock
      outstanding.







**NATIONAL
        HOLDINGS CORPORATION AND SUBSIDIARIES**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION**
 
 December
                  31,
              
              September
                  30,2007
              
              2007(unaudited)
              
              (see note below)**ASSETS**CASH
              
              $
              1,485,000
              
              $
              4,957,000DEPOSITS
                  WITH CLEARING ORGANIZATIONS
              
              
              402,000
              
              
              402,000RECEIVABLES
                  FROM BROKER-DEALERS AND CLEARING ORGANIZATIONS
              
              
              5,067,000
              
              
              4,739,000OTHER
                  RECEIVABLES, net of allowance for uncollectible accounts of $467,000
                  at
                  December 31, 2007 and September 30, 2007, respectively
              
              
              733,000
              
              
              784,000ADVANCES
                  TO REGISTERED REPRESENTATIVES
              
              
              3,915,000
              
              
              4,010,000SECURITIES
                  OWNEDMarketable,
                  at market value
              
              
              1,100,000
              
              
              1,191,000FIXED
                  ASSETS, net
              
              
              311,000
              
              
              304,000SECURED
                  DEMAND NOTE
              
              
              500,000
              
              
              500,000OTHER
                  ASSETS
              
              
              660,000
              
              
              396,000TOTAL
                  ASSETS
              
              $
              14,173,000
              
              $
              17,283,000**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**PAYABLE
                  TO BROKER-DEALERS AND CLEARING ORGANIZATIONS
              
              $
              769,000
              
              $
              1,115,000SECURITIES
                  SOLD, BUT NOT YET PURCHASED, at market
              
              
              332,000
              
              
              77,000ACCOUNTS
                  PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES
              
              
              5,928,000
              
              
              7,907,000NOTES
                  PAYABLE, net of debt discounts of $113,000 and $138,000 at December
                  31,
                  2007 and September 30, 2007, respectively
              
              
              887,000
              
              
              862,000TOTAL
                  LIABILITIES
              
              
              7,916,000
              
              
              9,961,000SUBORDINATED
                  BORROWINGS
              
              
              500,000
              
              
              500,000COMMITMENTS
                  AND CONTINGENCIESSTOCKHOLDERS'
                  EQUITYPreferred
                  stock, $.01 par value, 200,000 shares authorized; 50,000 shares
                  designated
                  as Series A and 20,000 shares designated as Series BSeries
                  A 9% cumulative convertible preferred stock, $.01 par value, 50,000
                  shares
                  authorized; 37,550 shares issued and outstanding (liquidation preference:
                  $3,755,000) at December 31, 2007 and September 30, 2007
              
              
              -
              
              
              -Series
                  B 9% cumulative convertible preferred stock, $.01 par value, 20,000
                  shares
                  authorized; 0 shares issued and outstanding (liquidation preference:
                  $0)
                  at December 31, 2007 and September 30, 2007
              
              
              -
              
              
              -Common
                  stock, $.02 par value, 30,000,000 shares authorized; 8,602,628
                  shares
                  issued and outstanding, at December 31, 2007 and September 30,
                  2007,
                  respectively
              
              
              172,000
              
              
              172,000Additional
                  paid-in capital
              
              
              20,021,000
              
              
              19,919,000Accumulated
                  deficit
              
              
              (14,436,000
              )
              
              (13,269,000
              )TOTAL
                  STOCKHOLDERS' EQUITY
              
              
              5,757,000
              
              
              6,822,000TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              14,173,000
              
              $
              17,283,000
  Note:
        The
        balance sheet at September 30, 2007 has been derived from the audited
        consolidated financial statements at that date.


See
        notes
        to condensed consolidated financial statements.


2




**NATIONAL
      HOLDINGS CORPORATION AND SUBSIDIARIES**





**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(Unaudited)**





Three
                Months EndedDecember
                31,
            
            December
                31,2007
            
            2006REVENUES:Commissions
            
            $
            13,292,000
            
            $
            8,422,000Net
                dealer inventory gains
            
            
            4,194,000
            
            
            3,298,000Investment
                banking
            
            
            -
            
            
            556,000Total
                commission and fee revenues
            
            
            17,486,000
            
            
            12,276,000Interest
                and dividends
            
            
            930,000
            
            
            566,000Transfer
                fees and clearing services
            
            
            1,311,000
            
            
            1,010,000Other
            
            
            638,000
            
            
            434,000TOTAL
                REVENUES
            
            
            20,365,000
            
            
            14,286,000EXPENSES:Commissions
                and fees
            
            
            16,203,000
            
            
            9,784,000Employee
                compensation and related expenses
            
            
            2,240,000
            
            
            1,514,000Clearing
                fees
            
            
            613,000
            
            
            375,000Communications
            
            
            356,000
            
            
            402,000Occupancy
                and equipment costs
            
            
            864,000
            
            
            735,000Professional
                fees
            
            
            588,000
            
            
            958,000Interest
            
            
            73,000
            
            
            104,000Taxes,
                licenses, registration
            
            
            130,000
            
            
            179,000Other
                administrative expenses
            
            
            465,000
            
            
            320,000TOTAL
                EXPENSES
            
            
            21,532,000
            
            
            14,371,000NET
                LOSS
            
            
            (1,167,000
            )
            
            (85,000
            )Preferred
                stock dividends
            
            
            (85,000
            )
            
            (105,000
            )Net
                loss attributable to common stockholders
            
            $
            (1,252,000
            )
            $
            (190,000
            )NET
                LOSS PER COMMON SHAREBasic:Net
                loss attributable to common stockholders
            
            $
            (0.15
            )
            $
            (0.04
            )Diluted:Net
                loss attributable to common stockholders
            
            $
            (0.15
            )
            $
            (0.04
            )Weighted
                average number of shares outstandingBasic
            
            
            8,602,628
            
            
            5,251,915Diluted
            
            
            8,602,628
            
            
            5,251,915




See
        notes
        to condensed consolidated financial statements.


3





**NATIONAL
      HOLDINGS CORPORATION AND SUBSIDIARIES**





**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**





Three
                Months EndedDecember 31, 2007
            
            December 31, 2006CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                loss
            
            $
            (1,167,000
            )
            $
            (85,000
            )Adjustments
                to reconcile net loss to net cash provided by (used in) operating
                activitiesDepreciation
                and amortization
            
            
            56,000
            
            
            37,000Amortization
                of deferred financing costs
            
            
            3,000
            
            
            1,000Amortization
                of note discount
            
            
            25,000
            
            
            29,000Compensatory
                element of common stock options issuance
            
            
            102,000
            
            
            7,000Changes
                in assets and liabilitiesDeposits
                with clearing organizations
            
            
            -
            
            
            (1,000
            )Receivables
                from broker-dealers, clearing organizations and others
            
            
            (182,000
            )
            
            (2,220,000
            )Securities
                owned: marketable, at market value
            
            
            91,000
            
            
            (1,462,000
            )Securities
                owned: non-marketable, at fair value
            
            
            -
            
            
            370,000Other
                assets
            
            
            (102,000
            )
            
            (138,000
            )Payables
            
            
            (2,328,000
            )
            
            2,046,000Securities
                sold, but not yet purchased, at market
            
            
            255,000
            
            
            113,000Net
                cash used in operating activities
            
            
            (3,247,000
            )
            
            (1,303,000
            )CASH
                FLOWS FROM INVESTING ACTIVITIESPurchase
                of fixed assets
            
            
            (63,000
            )
            
            (2,000
            )CASH
                FLOWS FROM FINANCING ACTIVITIESDividends
                paid
            
            
            -
            
            
            (25,000
            )Deferred
                offering costs
            
            
            (162,000
            )
            
            -Exercise
                of warrants
            
            
            -
            
            
            132,000Net
                cash (used in) provided by financing activities
            
            
            (162,000
            )
            
            107,000NET
                DECREASE IN CASH
            
            
            (3,472,000
            )
            
            (1,198,000
            )CASH
                BALANCEBeginning
                of the period
            
            
            4,957,000
            
            
            1,441,000End
                of the period
            
            $
            1,485,000
            
            $
            243,000SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATIONCash
                paid during the period for:Interest
            
            $
            45,000
            
            $
            74,000Income
                taxes
            
            $
            23,000
            
            $
            -Series
                B preferred stock dividends
            
            $
            -
            
            $
            25,000


4






**NATIONAL
      HOLDINGS CORPORATION AND SUBSIDIARIES**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**


**(UNAUDITED)**





**NOTE
      1. BASIS OF PRESENTATION**





The
      accompanying condensed consolidated financial statements of National Holdings
      Corporation (“National Holdings” or the “Company”) have been prepared in
      accordance with generally accepted accounting principles for interim financial
      statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation
      S-X. Accordingly, they do not include all of the information and disclosures
      required for annual financial statements. In the opinion of management, all
      adjustments (consisting of normal recurring accruals) considered necessary
      for a
      fair presentation have been included. The condensed consolidated financial
      statements as of December 31, 2007 and for the periods ended December 31, 2007
      and December 31, 2006 are unaudited. The results of operations for the interim
      periods are not necessarily indicative of the results of operations for the
      fiscal year. These condensed consolidated financial statements should be read
      in
      conjunction with the consolidated financial statements and related footnotes
      included thereto in the Company’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2007.





**NOTE
      2.**  **CONSOLIDATION**





The
      condensed consolidated financial statements include the accounts of National
      Holdings and its wholly owned subsidiaries. National Securities Corporation
      (“National Securities”) is a
      Washington corporation organized in 1947 . National
      Securities 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 Securities is an introducing broker and
      clears all transactions through clearing organizations on a fully disclosed
      basis. National Insurance Corporation (“National
      Insurance”) , a
      Washington corporation, provides
      fixed insurance products to its clients, including life insurance, disability
      insurance, long term care insurance and fixed annuities. National Insurance
      commenced business operations during the second quarter of fiscal year 2007
      that
      have been diminimus. National Securities Futures Corporation (“National
      Futures”), National Holdings Mortgage Corporation (“National Mortgage”), and
      National Group Benefits Corporation (“National Group Benefits”), each a
      Washington corporation, have not commenced active business operations. All
      significant inter-company accounts and transactions have been eliminated in
      consolidation.





**NOTE
      3. RECENT ACCOUNTING PRONOUNCEMENTS**





Effective
      October 1, 2008, the Company adopted the provisions of FASB Interpretation
      No.
      48, "Accounting for Uncertainty in Income Taxes – an interpretation of FASB
      Statement No. 109" ("FIN 48"). FIN 48 prescribes a recognition threshold and
      a
      measurement attribute for the financial statement recognition and measurement
      of
      tax positions taken or expected to be taken in a tax return. For those benefits
      to be recognized, a tax position must be more-likely-than-not to be sustained
      upon examination by taxing authorities. Differences between tax positions taken
      or expected to be taken in a tax return and the benefit recognized and measured
      pursuant to the interpretation are referred to as "unrecognized benefits".
      A
      liability is recognized (or amount of net operating loss carry forward or amount
      of tax refundable is reduced) for an unrecognized tax benefit because it
      represents an enterprise's potential future obligation to the taxing authority
      for a tax position that was not recognized as a result of applying the
      provisions of FIN 48.




5




In
        accordance with FIN 48, interest costs related to unrecognized tax benefits
        are
        required to be calculated (if applicable) and would be classified as "Interest”
expense in the consolidated statements of operations. Penalties would be
        recognized as a component of "Other administrative expenses".




In
      many
      cases the company's uncertain tax positions are related to tax years that remain
      subject to examination by relevant tax authorities. The Company files income
      tax
      returns in the United States (federal) and in various state and local
      jurisdictions. In most instances, the Company is no longer subject to federal,
      state and local income tax examinations by tax authorities for years prior
      to
      the fiscal year ended September 30, 2004.





The
      adoption of the provisions of FIN 48 did not have a material impact on the
      Company's financial position and results of operations. As of December 31,
      2007,
      no liability for unrecognized tax benefits was required to be
      recorded.





The
      Company recognized a deferred tax asset of approximately $4.5 million as of
      December 31, 2007, primarily relating to net operating loss carryovers of
      approximately $10.5 million, available to offset future taxable income through
      2025.





The
      ultimate realization of deferred tax assets is dependent upon the generation
      of
      future taxable income during the periods in which those temporary differences
      become deductible. The Company considers projected future taxable income and
      tax
      planning strategies in making this assessment. At present, the Company does
      not
      have a sufficient history of income to conclude that it is more likely than
      not
      that the Company will be able to realize all of its tax benefits in the near
      future and therefore a valuation allowance was established in the full value
      of
      the deferred tax asset. A valuation allowance will be maintained until
      sufficient positive evidence exists to support the reversal of any portion
      or
      all of the valuation allowance net of appropriate reserves.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations” (“SFAS 141(R)”). SFAS 141(R) replaces SFAS No. 141, “Business
      Combinations”, and is effective for the Company for business combinations
      for which the acquisition date is on or after the beginning of the first annual
      reporting period beginning on or after December 15, 2008. SFAS 141(R)
      requires the new acquiring entity to recognize all assets acquired and
      liabilities assumed in the transactions; establishes an acquisition-date fair
      value for acquired assets and liabilities; and fully discloses to investors
      the
      financial effect the acquisition will have.  The Company is evaluating
      the impact of this pronouncement on the Company’s condensed consolidated
      financial position, results of operations and cash flows.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements” (“SFAS 160”). SFAS 160 requires all entities
      to report minority interests in subsidiaries as equity in the consolidated
      financial statements, and requires that transactions between entities and
      noncontrolling interests be treated as equity.  SFAS 160 is effective
      for fiscal years, and interim periods within those fiscal years, beginning
      on or
      after December 15, 2008, and earlier adoption is prohibited. The Company is
      evaluating the impact of this pronouncement on the Company’s condensed
      consolidated financial position, results of operations and cash
      flows.





**NOTE
      4.**  **STOCK
      BASED COMPENSATION**





Effective
      October 1, 2005, the Company adopted FASB Statement of Financial Accounting
      Standard (“SFAS”) No. 123R “Share Based Payment.”  This statement is a
      revision of SFAS Statement No. 123 and supersedes APB Opinion No. 25,
      and its related implementation guidance. SFAS 123R addresses all forms of share
      based payment (“SBP”) awards including shares issued under employee stock
      purchase plans, stock options, restricted stock and stock appreciation rights.
      Under SFAS 123R, SBP awards will result in a charge to operations that will
      be
      measured at fair value on the awards grant date, based on the estimated number
      of awards expected to vest over the service period.  During the three
      months ended December 31, 2006, the Company granted 150,000 stock options
      with a fair value of $96,400. No charge was recorded in the quarter ended
      December 31, 2006 as the expense incurred during the period associated with
      this
      grant was nominal. During the three months ended December 31, 2007, the
      Company did not grant any stock options. A charge of approximately $102,000
      and
      $7,000 was recorded in the three months ended December 31, 2007 and 2006,
      respectively, relating to the amortization of the fair value associated with
      stock option grants and restricted stock grants.




6




The
      Black-Scholes option valuation model is used to estimate the fair value of
      the
      options granted. 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
      management'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:






2006Assumptions:Risk-free
                  interest rate
              
              
              4.40
              %Expected
                  life, in years
              
              
              3.0Expected
                  volatility
              
              
              122
              %




A
      summary
      of the stock option activity as of December 31, 2007, and changes during the
      three month period then ended is presented below:





Shares
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              Average
              Remaining
              Contractual
              Term
            
            Aggregate
              Intrinsic
              ValueOutstanding
                at September 30, 2007
            
            
            2,007,000
            
            $
            1.62
            
            
            3.64
            
            $
            2,359,000Granted
            
            
            -
            
            
            -
            
            
            -
            
            
            -Expired
            
            
            -
            
            
            -
            
            
            -
            
            
            -Outstanding
                at December 31, 2007
            
            
            2,007,000
            
            $
            1.62
            
            
            3.39
            
            $
            1,857,000Exerciseable
                at December 31, 2007
            
            
            1,207,000
            
            $
            1.37
            
            
            2.73
            
            $
            1,430,000





As
      of
      December 31, 2007, there was $958,000 of total unrecognized deferred
      compensation costs related to share-based compensation arrangements. The Company
      expects that future forfeitures will be diminimus.




7




A
      summary
      of the status of the Company’s nonvested shares as of December
      31 ,
      2007,
      and changes during the three month period then ended is presented
      below:




Nonvested
                Shares
            
            Shares
            
            Weighted
              Average
              Grant
                Date
              Fair
                ValueNonvested
                at September 30, 2007
            
            
            900,000
            
            $
            0.95Granted
            
            
            -Vested
            
            
            (100,000
            )
            $
            0.74Expired
            
            
            -Nonvested
                at December 31, 2007
            
            
            800,000
            
            $
            0.97




**NOTE
      5. SECURITIES OWNED AND SECURITIES SOLD, BUT NOT YET
      PURCHASED**





The
      following table shows the quoted market values of securities owned by the
      Company, and securities sold but not yet purchased by the Company, as of
      December 31, 2007:


Securities
                Owned
              
              Securities sold, but
                not yet purchasedCorporate
                  stocks
              
              $
              1,046,000
              
              $
              27,000Corporate
                  bonds
              
              
              19,000
              
              
              -Government
                  obligations
              
              
              35,000
              
              
              305,000$
              1,100,000
              
              $
              332,000





**NOTE
      6.**  **CONTINGENCIES**





In
      September 2006, the former
      chairman and chief executive officer of the Company, Steven A. Rothstein,
      commenced an arbitration against the current chairman and chief executive
      officer of the Company, Mark Goldwasser, in the matter *Rothstein
      et al. vs. Goldwasser* ,
      FINRA
      No. 06-04000.  Rothstein is alleging fraud and inequitable conduct relating
      to his attempts to sell his investment in the Company in calendar year
      2001, and is seeking approximately $5,750,000 in damages.  The
      Company is indemnifying Mr. Goldwasser in this action.  The Company
      and Mr. Goldwasser believe this action is without merit, and intend to
      vigorously defend this action. As of December 31, 2007, the outcome of this
      arbitration is not determinable and accordingly the Company has not established
      a provision for this matter.





The
      Company is a defendant in various other arbitrations and administrative
      proceedings, lawsuits and claims seeking
      in the aggregate damages of approximately $350,000. The Company believes
      such claims are substantially without merit, and estimates that its liability,
      primarily for attorney representation, will be less than $100,000 (exclusive
      of
      unspecified punitive damages related to certain claims and inclusive of expected
      insurance coverage). 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 December 31, 2007 and 2006, is $124,000 and $762,000 (primarily
      legal fees), respectively, and have
      been included in “Accounts Payable, Accrued Expenses and Other Liabilities” in
      the accompanying consolidated statements of financial condition .
      Approximately $575,000 of the accrued legal fees at December 31, 2006 related
      to
      the settlement of certain arbitrations. The
      Company has included in “Professional fees” litigation and FINRA related
      expenses of $315,000 and $789,000 for the first quarter of fiscal year 2008
      and
      2007, respectively.




8




**NOTE
      7. DIVIDENDS ON CONVERTIBLE PREFERRED STOCK**





The
      holders of the Company’s Series A convertible preferred stock, that are
      convertible into the Company’s common stock at $1.25 per share, are entitled to
      receive dividends on a quarterly basis at a rate of 9% per annum, per share.
      Such dividends are cumulative and accumulate whether or not declared by the
      Company’s Board of Directors, but are payable only when and if declared by the
      Company’s Board of Directors. In the quarter ended December 31, 2007, the
      Company accumulated $85,000 of dividends on its Series A preferred stock, and
      at
      December 31, 2007, the total amount of accumulated dividends on the Company’s
      37,550 issued and outstanding shares of Series A preferred stock was
      approximately $255,000.





**NOTE
      8. 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 would occur if securities or other contracts to issue
      common shares were exercised or converted.





For
      the
      three-month period ended December 31, 2007, 5,761,000 common share equivalents
      were excluded from the calculation of diluted net loss per share because their
      inclusion would have been anti-dilutive. For the three-month period ended
      December 31, 2006, 7,829,644 common share equivalents were excluded from the
      calculation of diluted net loss per share because their inclusion would have
      been anti-dilutive.





The
      following table sets forth the common share equivalents that were excluded
      from
      the calculation:


Three Months EndedDecember 31, 2007
              
              December 31, 2006Stock
                  options
              
              
              2,007,000
              
              
              1,082,000Warrants
              
              
              750,000
              
              
              1,589,031Assumed
                  conversion of:Series
                  A Preferred Stock
              
              
              3,004,000
              
              
              2,825,280Series
                  B Preferred Stock
              
              
              -
              
              
              1,333,333Notes
              
              
              -
              
              
              1,000,000Dilutive
                  potential common shares
              
              
              5,761,000
              
              
              7,829,644




9




**NOTE
      9. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER
      LIABILITIES**





Accounts
      payable, accrued expenses and other liabilities as of December 31, 2007 and
      September 30, 2007, respectively, consist of the following:





December 31,
              2007
            
            September 30,
              2007Commissions
                payable
            
            $
            3,246,000
            
            $
            5,128,000Deferred
                clearing fee credits
            
            
            773,000
            
            
            828,000Telecommunications
                vendors payable
            
            
            301,000
            
            
            366,000Legal
                payable
            
            
            153,000
            
            
            84,000Deferred
                rent payable
            
            
            271,000
            
            
            133,000Other
                vendors
            
            
            1,184,000
            
            
            1,368,000Total
            
            $
            5,928,000
            
            $
            7,907,000




**NOTE
      10. NET CAPITAL REQUIREMENTS**





National
      Securities, 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 Securities has elected to use the alternative standard method permitted
      by the rule. This requires that National Securities 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 Securities is a market maker. At
      December 31, 2007, National Securities’ net capital exceeded the requirement by
      $1,183,000.





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 that a subsidiary may dividend
      or
      advance to the Company.





**NOTE
      11. LIQUIDITY**





The
      Company has historically satisfied its capital needs with cash generated from
      operations or from financing activities. The Company believes that it will
      have
      sufficient funds to maintain its current level of business activities during
      fiscal year 2008. If market conditions should weaken, the Company would need
      to
      consider curtailing certain of its business activities, reducing its fixed
      overhead costs and/or seek additional sources of financing.





**NOTE
      12. MERGER AGREEMENT**





In
      November 2007, the Company entered into a definitive merger agreement with
      vFinance, Inc., a
      publicly traded company with two wholly owned subsidiaries which are also
      registered broker-dealers with a similar business to National Securities. The
      merger agreement is subject to numerous conditions, including: execution of
      definitive transaction documents, compliance with state and federal securities
      laws and regulations, the completion of an equity financing with gross proceeds
      of at least $3.0 million, and corporate, shareholder and regulatory approvals.
      However, n o
      assurance can be given that the Company will consummate the merger with vFinance,
      Inc.





The
      Company has capitalized approximately $162,000 of costs associated with this
      merger that have been included in “Other Assets” in the condensed consolidated
      statements of financial condition as of December 31, 2007. Upon the completion
      of the merger these costs will be included as part of the purchase price, and
      if
      the merger is not consummated the Company will record a charge to operations.




10




**ITEM
      2. 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 Quarterly 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 the
      Company’s Annual Report on Form 10-K, filed with the Securities and Exchange
      Commission on December 10, 2007. Any forward-looking statements contained in
      or
      incorporated into this Quarterly Report speak only as of the date of this
      Quarterly Report. The Company undertakes no obligation to update publicly any
      forward-looking statement, whether as a result of new information, future events
      or otherwise.*





**RESULTS
      OF OPERATIONS**





Three
      Months Ended December 31, 2007 Compared to Three Months Ended December 31,
      2006





The
      Company’s first quarter of fiscal year 2008 resulted in an increase in revenues,
      but a greater increase in expenses compared
      to the same period last year. As
      a
      result, the Company reported a net loss of $1,144,000 compared with a net loss
      of $85,000 for the first quarters of fiscal years 2008 and 2007, respectively.




Three Months Ended
                December 31,
              
              Increase (Decrease)2007
              
              2006
              
              Amount
              
              PercentCommissions
              
              $
              13,292,000
              
              $
              8,422,000
              
              $
              4,870,000
              
              
              58
              %Proprietary
                  trading
              
              
              4,099,000
              
              
              2,800,000
              
              
              1,299,000
              
              
              46
              %Market
                  making
              
              
              92,000
              
              
              447,000
              
              
              (355,000
              )
              
              (79)
              %Mark-ups
                  and mark-downs
              
              
              3,000
              
              
              51,000
              
              
              (48,000
              )
              
              (94
              )%Net
                  dealer inventory gains
              
              
              4,194,000
              
              
              3,298,000
              
              
              896,000
              
              
              27
              %Investment
                  banking
              
              
              -
              
              
              556,000
              
              
              (556,000
              )
              
              (100)
              %Interest
                  and dividends
              
              
              930,000
              
              
              566,000
              
              
              364,000
              
              
              64
              %Transfer
                  fees and clearance services
              
              
              1,311,000
              
              
              1,010,000
              
              
              301,000
              
              
              30
              %Other
              
              
              638,000
              
              
              434,000
              
              
              204,000
              
              
              47
              %$
              20,365,000
              
              $
              14,286,000
              
              $
              6,079,000
              
              
              43
              %




Total
      revenues increased $6,079,000, or 43%, in the first quarter of fiscal year
      2008
      to $20,365,000 from $14,286,000 in the first quarter of fiscal year 2007. During
      the first quarter of fiscal year 2008, total trading volume increased by
      approximately 54%, compared to the first quarter of fiscal year 2007. The
      increase in revenues and trading volume is due to an increase in the number
      of
      registered representatives associated with the Company, offset in part by a
      decline in market making activities. Commission revenue increased $4,870,000,
      or
      58%, to $13,292,000 from $8,422,000 during the first quarter of fiscal year
      2008
      compared with the same period in fiscal year 2007, which is attributable to
      the
      greater number of registered representatives. Net dealer inventory gains, which
      includes profits on proprietary trading, market making activities and customer
      mark-ups and mark-downs, increased $896,000, or 27%, to $4,194,000 from
      $3,298,000 during the first quarter of fiscal year 2008 compared with the same
      period in fiscal year 2007. The increase is due to increased trading activity
      in
      foreign securities partially offset set by a decline in market making
      activities. During the first quarter of fiscal year 2008, revenues from
      proprietary trading increased $1,299,000, or 46%, to $4,099,000 from $2,800,000
      in the first quarter of fiscal year 2007, revenues from market making activities
      decreased $355,000, or 79%, to $92,000 from $447,000 in the first quarter of
      fiscal year 2007, and revenues from customer mark-ups and mark-downs decreased
      $48,000, or 94%, to $3,000 from $51,000 in the first quarter of fiscal year
      2007. ****




11




The
      Company did not complete any investment banking transactions in the first
      quarter of fiscal year 2008, compared with $556,000 of investment banking
      revenues in the first quarter of fiscal year 2007. Interest and dividend income
      increased $364,000 or 64%, to $930,000 from $566,000
      in the first quarter of fiscal year 2008 compared with the same period last
      year. The increase in interest income is attributable to an adjustment of the
      interest sharing agreement with one of the Company’s clearing firms. Transfer
      fees increased $301,000, or 30%, to $1,311,000 in the first quarter of fiscal
      year 2008 from $1,010,000 in the first quarter of fiscal year 2007. The increase is due to
      the
      higher trading volume experienced during the current year’s
      quarter.





Other
      revenue, consisting of asset management fees, miscellaneous transaction fees
      and
      trading fees and other investment income, increased $204,000, or 47%, to
      $638,000 from $434,000 during the first quarter of fiscal year 2008 compared
      to
      the first quarter of fiscal year 2007. The increase is due to an increase in
      fee
      based assets under management.





In
      comparison with the 43% increase in total revenues, total expenses increased
      50%
      or $7,151,000 to $21,522,000 for the first quarter of fiscal year 2008 compared
      to $14,371,000 in the first quarter of fiscal year 2007. The increase in total
      expenses is a result of higher commissions and compensation expenses, partially
      off set by legal fees and costs incurred to settle certain arbitrations in
      the
      first quarter of fiscal year 2007.


Three Months Ended
                December 31,
              
              Increase (Decrease)2007
              
              2006
              
              Amount
              
              PercentCommission
                  expense related to:Commission
                  revenue
              
              $
              12,760,000
              
              $
              7,333,000
              
              $
              5,427,000
              
              
              74
              %Net
                  dealer inventory gains
              
              
              3,443,000
              
              
              2,441,000
              
              
              1,002,000
              
              
              41
              %Investment
                  banking
              
              
              -
              
              
              10,000
              
              
              (10,000
              )
              
              (100
              )%Commissions
              
              
              16,203,000
              
              
              9,784,000
              
              
              6,419,000
              
              
              66
              %Employee
                  compensation
              
              
              2,240,000
              
              
              1,514,000
              
              
              726,000
              
              
              48
              %Clearing
                  fees
              
              
              613,000
              
              
              375,000
              
              
              238,000
              
              
              63
              %Communications
              
              
              356,000
              
              
              402,000
              
              
              (46,000
              )
              
              (11
              )%Occupancy
                  and equipment costs
              
              
              854,000
              
              
              735,000
              
              
              119,000
              
              
              16
              %Professional
                  fees
              
              
              588,000
              
              
              958,000
              
              
              (370,000
              )
              
              (39
              )%Interest
              
              
              73,000
              
              
              104,000
              
              
              (31,000
              )
              
              (30
              )%Taxes,
                  licenses and registration
              
              
              130,000
              
              
              179,000
              
              
              (49,000
              )
              
              (27
              )%Other
                  administrative expenses
              
              
              465,000
              
              
              320,000
              
              
              145,000
              
              
              45
              %$
              21,522,000
              
              $
              14,371,000
              
              $
              7,151,000
              
              
              50
              %




Commission
      expense, which includes expenses related to commission revenue, net dealer
      inventory gains and investment banking, increased $6,419,000, or 66%, to
      $16,203,000 in the first quarter of fiscal year 2008 from $9,784,000 in the
      first quarter of fiscal year 2007. Commission expense related to commission
      revenue increased $5,427,000, or 74%, to $12,760,000 in the first quarter of
      fiscal year 2008 from $7,333,000 in the first quarter of fiscal year 2007;
      and
      commission expense related to net dealer inventory gains increased $1,002,000,
      or 41%, to $3,443,000 in the first quarter of fiscal year 2008 from $2,441,000
      in the first quarter of fiscal year 2007. Commission expense as a percentage
      of
      commission revenues increased to 96% in the first quarter of fiscal year 2008
      from 87% in the first quarter of fiscal year 2007. This increase is attributable
      to higher payouts for registered representatives recently affiliated with the
      Company and an increase in the amortization of advances to registered
      representatives. Commission expense as a percentage of net dealer inventory
      gains increased to 82% in the first quarter of fiscal year 2008 from 74% in
      the
      first quarter of fiscal year 2007. This increase is attributable to changes
      in
      the securities traded, and their related commission payouts. Commission expense
      includes the amortization of advances to registered representatives of $491,000
      and $230,000 for the first quarter of fiscal years 2008 and 2007, 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 Securities.




12




Employee
      compensation expense increased $726, 000, or 48%, to $2,240,000 in the first
      quarter of fiscal year 2008 from $1,514,000 in the first quarter of fiscal
      year
      2007. The increase is attributable to new employees hired during fiscal year
      2007 and the first quarter of fiscal year 2008, and salary increases for certain
      employees. Overall, combined commission and employee compensation expense,
      as a
      percentage of revenue, increased to 91% from 79% in the first quarters of fiscal
      year 2008 and 2007, respectively.





Clearing
      fees increased $238,000, or 63%, to $613,000 in the first quarter of fiscal
      year
      2008 from $375,000 in the first quarter of fiscal year 2007. The increase in
      clearing fees is attributable to the increase in commission revenue in the
      first
      quarter of fiscal year 2008 as compared to the first quarter of fiscal year
      2007. The greater increase in clearing fees as compared to the increase in commission
      revenue is attributable to lower average commission revenue per ticket in the
      first quarter of fiscal year 2008.





Communication
      expenses decreased $46,000 or 11%, to $356,000 from $402,000 in the first
      quarter of fiscal year 2008 compared to the first quarter of fiscal year 2007.
      The decrease is due to the Company’s ability to acquire certain of these
      services at a lower price. Occupancy costs increased $119,000, or 16%, to
      $854,000 from $735,000 in the first quarter of fiscal year 2008 compared to
      the
      first quarter of fiscal year 2007. The increase in occupancy expense is
      primarily due to annual rent increases contained in the Company’s office leases.
      Professional fees decreased $370,000, or 39%, to $588,000 from $958,000 in
      the
      first quarter of fiscal year 2008 compared to the first quarter of fiscal year
      2007. The decrease in professional fees is primarily a result of legal fees
      and
      costs incurred to settle certain arbitrations in the first quarter of fiscal
      year 2007.




Interest
      expense decreased $31,000, or 30%, to $73,000 from $104,000 in the first quarter
      of fiscal year 2008 compared to the first quarter of fiscal year 2007. The
      decrease is due to the retirement of certain debt in fiscal year 2007. Taxes,
      licenses and registration decreased $49,000, or 27%, to $130,000 from $179,000
      in the first quarter of fiscal year 2008 compared to the first quarter of fiscal
      year 2007. The decrease in taxes, licenses and registration is due to lower
      registration fees paid on behalf of brokers in the first quarter of fiscal
      year
      2008 compared to the first quarter of fiscal year 2007. Other administrative
      expenses increased $145,000 or 45% to $465,000 from $320,000 in the first
      quarter of fiscal year 2008 compared to the first quarter of fiscal year 2007.
      The increase is primarily attributable due to an increase in marketing and
      other
      promotional expenses.





The
      Company reported a net loss of $1,167,000 in the first quarter of fiscal year
      2008 compared to a net loss of $85,000 in the first quarter of fiscal year
      2007.
      The net loss attributable to common stockholders in the first quarter of fiscal
      year 2008 was $1,252,000, or $.15 per common share, as compared to a net loss
      attributable to common stockholders in the first quarter of fiscal year 2007
      of
      $190,000, or $.04 per common share. The net loss attributable to common
      stockholders for the first quarter of fiscal year 2008 and 2007 reflects $85,000
      and $105,000, respectively, of cumulative preferred stock dividends on the
      Company’s preferred stock.




13




**Liquidity
        and Capital Resources**
 
 National
        Securities, 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 Securities has elected to use the alternative standard method permitted
        by the rule. This requires that National Securities 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 Securities is a market maker. At
        December 31, 2007, National Securities’ net capital exceeded the requirement by
        $1,183,000.




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 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
      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.





In
      April
      2005, National Securities entered into a clearing agreement with NFS that became
      effective in June 2005. In the first quarter of fiscal year 2007, NFS paid
      National Securities a $750,000 general business credit that is being amortized
      over an eight year period ending November 2014, corresponding with the
      expiration date of the clearing agreement. In the second quarter of fiscal
      year
      2007, NFS provided National Securities a $250,000 clearing fee waiver that
      is
      being amortized over a two year period ending December 2008, corresponding
      with
      the time period that certain performance standards were to be achieved. The
      clearing agreement includes a termination fee if National Securities terminates
      the agreement without cause. In June 2005, National Securities entered into
      a
      clearing agreement with Penson for the purpose of providing clearing services
      that are not provided by NFS. Additionally, in June 2007, National Securities
      entered into a clearing agreement with Legent for the purpose of providing
      clearing services that are not provided by NFS and to maintain a pre-existing
      clearing relationship for brokers newly associated with National Securities.
      The
      Company believes that the overall effect of its clearing relationships has
      been
      beneficial to the Company’s cost structure, liquidity and capital
      resources. ****





The
      Company has historically satisfied its capital needs with cash generated from
      operations or from financing activities. The Company believes that it will
      have
      sufficient funds to maintain its current level of business activities during
      fiscal year 2008. If market conditions should weaken, the Company would need
      to
      consider curtailing certain of its business activities, reducing its fixed
      overhead costs and/or seek additional sources of financing.





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





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




14




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 quoted market values of marketable securities owned
      ("long") by the Company, securities sold but not yet purchased ("short") the
      Company, and net positions as of December 31, 2007:




Long
              
              Short
              
              NetCorporate
                  stocks
              
              $
              1,046,000
              
              $
              27,000
              
              $
              1,019,000Corporate
                  bonds
              
              
              19,000
              
              
              -
              
              
              19,000Government
                  obligations
              
              
              35,000
              
              
              305,000
              
              
              (270,000
              )$
              1,100,000
              
              $
              332,000
              
              $
              768,000




**ITEM
      4. 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
      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 quarterly report on
      Form
      10-Q was being prepared.





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




15




**PART
      II – OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





During
      the quarter ended December 31, 2007, there were no significant developments
      in
      the Company’s legal proceedings. For a detailed discussion of the Company’s
      legal proceedings, please refer to Note 6 herein, and the Company’s Annual
      Report on Form 10-K for the fiscal year ended September 30, 2007.




**ITEM
      1A. RISK FACTORS**





There
      are
      no material changes from the risk factors previously disclosed in the Company’s
      Form 10-K for the year ended September 30, 2007.





**ITEM
      2.** **UNREGISTERED
      SALES OF EQUITY** **** **SECURITIES
      AND USE OF PROCEEDS**





None.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





None.





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





None.





**ITEM
      5. OTHER INFORMATION**





None.





**ITEM
      6.** **EXHIBITS**





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


31.2
            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
            Chief
                Financial Officer’s Certificate pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.




16




**SIGNATURES**





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




**NATIONAL
      HOLDINGS CORPORATION AND SUBSIDIARIES**





February
                13, 2008
            By:
            /s/
                Mark GoldwasserMark
                GoldwasserPresident
                and Chief Executive OfficerFebruary
                13, 2008
            By:
            /s/
                Robert H. DaskalRobert
                H. DaskalChief
                Financial Officer




17