**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q/A**








QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934





For
                the Quarter EndedMarch
                31, 2006
            Commission
                File Number001-12629





**NATIONAL
      HOLDINGS CORPORATION**


(Exact
      name of registrant as specified in its charter)








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








875
                North Michigan Avenue, Suite 1560, Chicago, Illinois
            
            60611(Address
                of principal executive offices)
            
            (Zip
                code)





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





Olympic
      Cascade Financial Corporation


(Former
      name, if changed since last report)





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 checkmark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act).  Yes o No
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





The
      number of shares outstanding of registrant’s common stock, par value $0.02 per
      share, at October 23, 2006 was 5,223,968.









**EXPLANATORY
      NOTE**





This
      Quarterly Report on Form 10-Q/A (the “Report”) is being filed by National
      Holdings Corporation (the “Company”) to amend the Company's Quarterly Report on
      Form 10-Q for the period ended March 31, 2006 that was initially filed with
      the
      Securities and Exchange Commission (the “SEC”) on May 10, 2006. This Report
      reflects the restatement of the Company's Series B Preferred Stock outside
      of
      permanent equity on its balance sheet as of March 31, 2006.


-2-




**NATIONAL
                  HOLDINGS CORPORATION AND SUBSIDIARY****CONDENSED
                  CONSOLIDATED STATEMENTS OF FINANCIAL
                  CONDITION**
  **ASSETS**March
                  31,2006(unaudited)
              
              September
                  30,(See:
                  Note
                  2.
              
              2005Restatement)
              
              (see
                  note
                  below)CASH
              
              $
              2,236,000
              
              $
              398,000DEPOSITS
                  WITH CLEARING ORGANIZATIONS
              
              
              300,000
              
              
              300,000RECEIVABLES
                  FROM BROKER-DEALERS AND CLEARING
                  ORGANIZATIONS
              
              
              4,716,000
              
              
              3,329,000OTHER
                  RECEIVABLES, net of allowance for uncollectible accounts of
                  $368,000at
                  March 31, 2006 and September 30, 2005,
                  respectively
              
              
              350,000
              
              
              485,000ADVANCES
                  TO REGISTERED REPRESENTATIVES
              
              
              1,599,000
              
              
              1,653,000SECURITIES
                  HELD FOR RESALE, at market
              
              
              466,000
              
              
              166,000FIXED
                  ASSETS, net
              
              
              299,000
              
              
              250,000SECURED
                  DEMAND NOTE
              
              
              1,000,000
              
              
              1,000,000OTHER
                  ASSETS
              
              
              501,000
              
              
              379,000TOTAL
                  ASSETS
              
              $
              11,467,000
              
              $
              7,960,000**LIABILITIES
                  AND STOCKHOLDERS'
                  EQUITY**PAYABLE
                  TO
                  BROKER-DEALERS AND CLEARING ORGANIZATIONS
              
              $
              393,000
              
              $
              122,000SECURITIES
                  SOLD, BUT NOT YET PURCHASED, at market
              
              
              73,000
              
              
              44,000ACCOUNTS
                  PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES
              
              
              5,474,000
              
              
              4,045,000CONVERTIBLE
                  NOTES PAYABLE, net of debt discounts of $178,000 and $0at
                  March 31,
                  2006 and September 30, 2005, respectively
              
              
              822,000
              
              
              —NOTES
                  PAYABLE, net of debt discounts of $85,000 and $206,000at
                  March 31,
                  2006 and September 30, 2005, respectively
              
              
              765,000
              
              
              1,819,000TOTAL
                  LIABILITIES
              
              
              7,527,000
              
              
              6,030,000SUBORDINATED
                  BORROWINGS
              
              
              1,000,000
              
              
              1,000,000COMMITMENTS
                  AND CONTINGENCIESREDEEMABLE
                  STOCKSeries
                  B 10%
                  cumulative convertible preferred stock, $.01 par value,
                  20,000shares
                  authorized; 10,000 shares issued and outstanding
                  (liquidationpreference:
                  $1,000,000) at March 31, 2006 and 0 shares issued andoutstanding
                  at September 30, 2005
              
              
              1,000,000
              
              
              —STOCKHOLDERS'
                  EQUITYPreferred
                  stock, $.01 par value, 200,000 shares authorized; 50,000
                  sharesdesignated
                  as Series A and 20,000 shares designated as Series
                  B
              
              
              —
              
              
              —Series
                  A 9%
                  cumulative convertible preferred stock, $.01 par value,
                  50,000shares
                  authorized; 35,316 shares issued and outstanding
                  (liquidationpreference:
                  $3,531,600) at March 31, 2006 and 33,320 shares issued
                  andoutstanding
                  (liquidation preference: $3,332,000) at September 30,
                  2005
              
              
              —
              
              
              —Common
                  stock,
                  $.02 par value, 30,000,000 shares authorized;5,223,968
                  and 5,045,878 shares issued and
                  outstanding,at
                  March 31, 2006 and September 30, 2005,
                  respectively
              
              
              104,000
              
              
              101,000Additional
                  paid-in capital
              
              
              16,025,000
              
              
              15,295,000Deferred
                  compensation
              
              
              (83,000
              )
              
              —Accumulated
                  deficit
              
              
              (14,106,000
              )
              
              (14,466,000
              )TOTAL
                  STOCKHOLDERS' EQUITY
              
              
              1,940,000
              
              
              930,000TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              11,467,000
              
              $
              7,960,000


Note:
        The balance sheet at September 30, 2005 has been derived from the
        audited consolidated financial statements at that date.
  See
        notes
        to condensed consolidated financial statements.


-3-




**NATIONAL
                  HOLDINGS CORPORATION****CONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS****(Unaudited)**
  Three
                  Months Ended
              
              Six
                  Months EndedMarch
                  31,
              
              March
                  31,
              
              March
                  31,
              
              March
                  31,2006
              
              2005
              
              2006
              
              2005REVENUES:Commissions
              
              $
              10,714,000
              
              $
              8,850,000
              
              $
              17,871,000
              
              $
              19,146,000Net
                  dealer inventory gains
              
              
              2,191,000
              
              
              1,395,000
              
              
              4,052,000
              
              
              2,592,000Investment
                  banking
              
              
              4,042,000
              
              
              132,000
              
              
              7,093,000
              
              
              238,000Interest
                  and dividends
              
              
              696,000
              
              
              859,000
              
              
              1,382,000
              
              
              1,362,000Transfer
                  fees and clearing services
              
              
              969,000
              
              
              711,000
              
              
              1,730,000
              
              
              1,576,000Other
              
              
              175,000
              
              
              259,000
              
              
              347,000
              
              
              401,000TOTAL
                  REVENUES
              
              
              18,787,000
              
              
              12,206,000
              
              
              32,475,000
              
              
              25,315,000EXPENSES:Commissions
              
              
              14,043,000
              
              
              8,623,000
              
              
              23,731,000
              
              
              18,119,000Employee
                  compensation and related expenses
              
              
              1,592,000
              
              
              1,316,000
              
              
              2,884,000
              
              
              2,552,000Clearing
                  fees
              
              
              436,000
              
              
              323,000
              
              
              800,000
              
              
              670,000Communications
              
              
              546,000
              
              
              370,000
              
              
              1,033,000
              
              
              835,000Occupancy
                  and equipment costs
              
              
              633,000
              
              
              757,000
              
              
              1,308,000
              
              
              1,473,000Professional
                  fees
              
              
              246,000
              
              
              305,000
              
              
              584,000
              
              
              719,000Interest
              
              
              176,000
              
              
              109,000
              
              
              285,000
              
              
              228,000Taxes,
                  licenses, registration
              
              
              169,000
              
              
              48,000
              
              
              314,000
              
              
              159,000Other
                  administrative expenses
              
              
              522,000
              
              
              494,000
              
              
              854,000
              
              
              883,000TOTAL
                  EXPENSES
              
              
              18,363,000
              
              
              12,345,000
              
              
              31,793,000
              
              
              25,638,000NET
                  INCOME (LOSS)
              
              
              424,000
              
              
              (139,000
              )
              
              682,000
              
              
              (323,000
              )Preferred
                  stock dividends
              
              
              (95,000
              )
              
              (69,000
              )
              
              (171,000
              )
              
              (140,000
              )Net
                  income (loss) attributable to common stockholders
              
              $
              329,000
              
              $
              (208,000
              )
              $
              511,000
              
              $
              (463,000
              )NET
                  INCOME (LOSS) PER COMMON SHAREBasic:Net
                  income (loss) attributable to common stockholders
              
              $
              0.06
              
              $
              (0.04
              )
              $
              0.10
              
              $
              (0.09
              )Diluted:Net
                  income (loss) attributable to common stockholders
              
              $
              0.04
              
              $
              (0.04
              )
              $
              0.07
              
              $
              (0.09
              )Weighted
                  average number of shares outstandingBasic
              
              
              5,089,625
              
              
              5,013,434
              
              
              5,068,451
              
              
              5,003,291Diluted
              
              
              10,383,571
              
              
              5,013,434
              
              
              10,283,235
              
              
              5,003,291


See
        notes
        to condensed consolidated financial statements.
 -4-


**NATIONAL
                  HOLDINGS CORPORATION AND SUBSIDIARY****CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS****(Unaudited)**
  Six
                  Months EndedMarch
                  31, 2006
              
              March
                  31, 2005CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  income (loss)
              
              $
              682,000
              
              $
              (323,000
              )Adjustments
                  to reconcile net income (loss) to netcash
                  provided by (used in) operating activitiesDepreciation
                  and amortization
              
              
              68,000
              
              
              85,000Amortization
                  of deferred financing costs
              
              
              1,000
              
              
              —Amortization
                  of note discount
              
              
              130,000
              
              
              91,000Compensatory
                  element of common stock issuance
              
              
              12,000
              
              
              —Compensatory
                  element of common stock option issuances
              
              
              5,000
              
              
              —Issuance
                  of common stock in settlement of arbitrations and claims
              
              
              —
              
              
              40,000Changes
                  in assets and liabilitiesDeposits
                  with clearing organizations
              
              
              —
              
              
              495,000Receivables
                  from broker-dealers, clearing organizations and others
              
              
              (1,198,000
              )
              
              1,717,000Securities
                  held for resale, at market
              
              
              (300,000
              )
              
              (917,000
              )Other
                  assets
              
              
              (96,000
              )
              
              (80,000
              )Payables
              
              
              1,678,000
              
              
              (1,640,000
              )Securities
                  sold, but not yet purchased, at market
              
              
              29,000
              
              
              707,000Net
                  cash provided by operating activities
              
              
              1,011,000
              
              
              175,000CASH
                  FLOWS FROM INVESTING ACTIVITIESPurchase
                  of fixed assets
              
              
              (117,000
              )
              
              (40,000
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESNet
                  proceeds from issuance of common stock
              
              
              175,000
              
              
              —Net
                  proceeds from issuance of preferred stock
              
              
              972,000
              
              
              —Net
                  proceeds from issuance of convertible notes payable
              
              
              1,000,000
              
              
              —Cash
                  payment of deferred financing costs
              
              
              (28,000
              )
              
              —Payment
                  of notes payable
              
              
              (1,175,000
              )
              
              (75,000
              )Exercise
                  of stock options and warrants
              
              
              —
              
              
              20,000Net
                  cash (used in) provided by financing activities
              
              
              944,000
              
              
              (55,000
              )NET
                  INCREASE IN CASH
              
              
              1,838,000
              
              
              80,000CASH
                  BALANCEBeginning
                  of the period
              
              
              398,000
              
              
              351,000End
                  of the period
              
              $
              2,236,000
              
              $
              431,000SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATIONCash
                  paid during the period for:Interest
              
              $
              165,000
              
              $
              147,000SUPPLEMENTAL
                  DISCLOSURES OF NONCASH INVESTING ANDFINANCING
                  ACTIVITIESWarrants
                  issued in connection with debt
              
              $
              187,000
              
              $
              —Preferred
                  stock dividends
              
              $
              300,000
              
              $
              322,000
 See
        notes
        to condensed consolidated financial statements.
 -5-
  **NATIONAL
        HOLDINGS CORPORATION AND SUBSIDIARIES**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2006**


**(UNAUDITED)**





**NOTE
      1. BASIS OF PRESENTATION**





The
      accompanying consolidated financial statements of National Holdings Corporation
      f/k/a Olympic Cascade Financial 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
      consolidated financial statements as of and for the periods ended March 31,
      2006
      and March 31, 2005 are unaudited. The results of operations for the interim
      periods are not necessarily indicative of the results of operations for the
      fiscal year. These 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, 2005.





**NOTE
      2.**  **RESTATEMENT**





In
      the
      Company’s Form 10-Q for the quarter ended March 31, 2006, the Company’s Series B
      Preferred Stock that was issued in a private placement in January 2006 was
      originally classified on the Company’s balance sheet as part of Stockholders’
Equity. This amended Report is being filed to classify the Company’s Series B
      Preferred Stock as Redeemable Preferred Stock on the Company’s balance sheet for
      the quarter ended March 31, 2006. This treatment is consistent with the
      treatment in the Company’s Form 10-Q for the quarter ended June 30, 2006, and is
      necessitated by certain redemption rights held by the New Investors at that
      time. Subsequent to June 30, 2006, the New Investors waived the provision which
      allowed for the contingent redemption, and the Series B Preferred Stock will
      be
      classified as part of Stockholders’ Equity in future filings.





**NOTE
      3.**  **ACCOUNTING
      POLICY**





In
      February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      155, which is an amendment of SFAS No. 133 and 140. This Statement (a) permits
      fair value re-measurement for any hybrid financial instrument that contains
      an
      embedded derivative that otherwise would require bifurcation, (b) clarifies
      which interest-only strip and principal-only strip are not subject to the
      requirements of SFAS 133, (c) establishes a requirement to evaluate interests
      in
      securitized financial assets to identify interests that are freestanding
      derivatives or that are hybrid financial instruments that contain an embedded
      derivative requiring bifurcation, (d) clarifies that concentrations of credit
      risk in the form of subordination are not embedded derivatives, and (e) amends
      SFAS 140 to eliminate the prohibition on a qualifying special-purpose entity
      from holding a derivative financial instrument that pertains to a beneficial
      interest other than  -6-


another
      derivative financial instrument. This Statement is effective for financial
      statements for fiscal years beginning after September 15, 2006. Earlier adoption
      of this Statement is permitted as of the beginning of an entity’s fiscal year,
      provided the entity has not yet issued any financial statements for that fiscal
      year. Management believes this Statement will not have an impact on the
      financial statements of the Company once adopted.





In
      March
      2006, the FASB issued SFAS No. 156, which amends FASB Statement No. 140. This
      Statement establishes, among other things, the accounting for all separately
      recognized servicing assets and servicing liabilities. This Statement amends
      SFAS 140 to require that all separately recognized servicing assets and
      servicing liabilities be initially measured at fair value, if practicable.
      This
      Statement permits, but does not require, the subsequent measurement of
      separately recognized servicing assets and servicing liabilities at fair value.
      An entity that uses derivative instruments to mitigate the risks inherent in
      servicing assets and servicing liabilities is required to account for those
      derivative instruments at fair value. Under this Statement, an entity can elect
      subsequent fair value measurement to account for its separately recognized
      servicing assets and servicing liabilities. By electing that option, an entity
      may simplify its accounting because this Statement permits income statement
      recognition of the potential offsetting changes in fair value of those servicing
      assets and servicing liabilities and derivative instruments in the same
      accounting period. This Statement is effective for financial statements for
      fiscal years beginning after September 15, 2006. Earlier adoption of this
      Statement is permitted as of the beginning of an entity’s fiscal year, provided
      the entity has not yet issued any financial statements for that fiscal year.
      Management believes this Statement will not have an impact on the financial
      statements of the Company once adopted.





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





Stock
      Based Compensation - Prior to October 1, 2005, the Company accounted for
      employee stock transactions in accordance with Accounting Principle Board,
      APB
      Opinion No. 25, “Accounting for Stock Issued to Employees.” The Company had
      adopted the pro forma disclosure requirements of Statement of Financial
      Accounting Standards No. 123, “Accounting For 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 and
      six months ended March 31, 2006, the Company granted 70,000 and 170,000
      stock options, respectively, with a fair value of approximately $55,000 and
      $88,000, respectively. A charge of approximately $4,000 was recorded in the
      three and six months ended March 31, 2006, relating to the amortization of
      the fair value associated with these grants.





For
      the
      three and six months ended March 31, 2005, the Company applied APB Opinion
      No. 25, “Accounting for Stock Issued to Employees.”  As required under
      SFAS No. 148, “Accounting for Stock-based Compensation - Transition and
      Disclosure,” the following table presents pro forma net income and basic and
      diluted earnings per share as if the fair value-based method had been applied
      to
      all awards during that period.  -7-




Three
                months ended
            
            Six
                months endedMarch
                31, 2005
            
            March
                31, 2005Net
                income (loss) attributable to common stockholders - as
                reported
            
            $
            (208,000
            )
            $
            (463,000
            )Stock-based
                employee compensation cost determinedunder
                fair value method, net of tax effects
            
            
            (791,000
            )
            
            (869,000
            )Net
                income (loss) attributable to common stockholders - pro
                forma
            
            $
            (999,000
            )
            $
            (1,332,000
            )Earnings
                (loss) per shareBasic
                earnings (loss) per share:Net
                income (loss) attributable to common stockholders - as
                reported
            
            $
            (0.04
            )
            $
            (0.09
            )Per
                share stock-based employee compensation costdetermined
                under fair value method, net of tax effects
            
            
            (0.16
            )
            
            (0.17
            )Net
                income (loss) attributable to common stockholders - pro
                forma
            
            $
            (0.20
            )
            $
            (0.26
            )Diluted
                earnings (loss) per share:Net
                income (loss) attributable to common stockholders - as
                reported
            
            $
            (0.04
            )
            $
            (0.09
            )Per
                share stock-based employee compensation costdetermined
                under fair value method, net of tax effects
            
            
            (0.16
            )
            
            (0.17
            )Net
                income (loss) attributable to common stockholders - pro
                forma
            
            $
            (0.20
            )
            $
            (0.26
            )


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:





2006
            
            2005Assumptions:Risk-free
                interest rate
            
            
            4.40
            %
            
            3.15
            %Expected
                life, in years
            
            
            3.0
            
            
            5.0Expected
                volatility
            
            
            88
            %
            
            135
            %





**NOTE
      5. SECURITIES HELD FOR RESALE AND SECURITIES SOLD, BUT NOT YET
      PURCHASED**





The
      following table shows the quoted market values of the Company's securities
      held
      for resale and securities sold, but not yet purchased as of March 31,
      2006:




Securities
                  held
              
              Securities
                  sold, butfor
                  resale
              
              not
                  yet purchasedCorporate
                  Stocks
              
              $
              427,000
              
              $
              73,000Corporate
                  Bonds
              
              
              4,000
              
              
              —Government
                  Obligations
              
              
              35,000
              
              
              —$
              466,000
              
              $
              73,000





-8-





**NOTE
      6. CLEARING AGREEMENTS**





In
      April
      2005, National Securities Corporation (“National Securities”) entered into a
      clearing agreement with National Financial Services LLC (“NFS”) that became
      effective in June 2005. The clearing agreement includes a termination fee if
      National Securities terminates the agreement without cause. Additionally, in
      June 2005, National Securities entered into a clearing agreement with Penson
      Financial Services, Inc. (“Penson”) for the purpose of providing clearing
      services that are not provided by NFS. The Company believes that the overall
      effect of these clearing relationships is beneficial to the Company’s cost
      structure, liquidity and capital resources.





**NOTE
      7.**  **CONTINGENCIES**





The
      NASD
      was engaged in an industry-wide investigation of mutual fund trading activities.
      National Securities is one of the numerous broker-dealers that were contacted
      by
      the NASD with respect to this investigation. The NASD identified certain
      customer mutual fund transactions ordered through National Securities during
      the
      time period from October 2000 to February 2003 that it believed constituted
      mutual fund timing and/or excessive trading activity. National Securities
      engaged in discussions and negotiations with the NASD to informally resolve
      these matters. Such resolution resulted in a settlement, whereby National
      Securities, without admitting or denying any violations, agreed to make both
      restitution and pay a fine to the NASD that in the aggregate approximated
      $600,000. Additionally, the Company was obligated to pay the fines imposed
      by
      the NASD on two executive officers totaling $50,000 pursuant to its
      indemnification obligations. The unpaid balance of approximately $126,000 and
      $219,000 at
      March
      31, 2006 and 2005, 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 $700,000 (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 March 31, 2006 and 2005, is $228,000 and $225,000 (including
      related 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 NASD related expenses
      of $155,000 and $212,000 for the second quarter of fiscal year 2006 and 2005,
      respectively, and $400,000 and $546,000 for the first six months of fiscal
      year
      2006 and 2005, respectively.





**NOTE
      8. 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 to receive
      dividends on a quarterly basis at a rate of 9%  -9-


per
      annum
      per share. Such dividends are cumulative and are payable only when declared
      by
      the Company’s Board of Directors. In March 2006, the Company’s Board of
      Directors declared an in-kind dividend in the aggregate of 1,996 shares of
      Series A Preferred Stock, in payment of approximately $300,000 of dividends
      accrued through March 31, 2006. Such shares were issued on April 30, 2006.
      At
      March 31, 2006, the accumulated dividend on the Company’s 35,316 issued and
      outstanding shares of Series A Preferred Stock was $0.





The
      holders of the Company’s Series B Convertible Preferred Stock, that are
      convertible into the Company’s common stock at $.75 per share, are to receive
      dividends on a quarterly basis at a rate of 10% per annum per share. Such
      dividends are cumulative and are payable only when declared by the Company’s
      Board of Directors. In March 2006, the Company’s Board of Directors declared a
      cash dividend of $21,000 payable to the holders of the Series B Preferred Stock
      that was paid in April 2006.





Both
      the
      holders of the Company’s Series A and Series B Convertible Preferred Stock have
      voting rights equal to the number of common shares into which such preferred
      shares could be converted at a particular record date.





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





The
      following table sets forth the components used in the computation of basic
      and
      diluted income (loss) per common share:




Three
                Months Ended
            
            Six
                Months EndedMarch
                31, 2006
            
            March
                31, 2005
            
            March
                31, 2006
            
            March
                31, 2005Numerator:Net
                income (loss)
            
            $
            424,000
            
            $
            (139,000
            )
            $
            682,000
            
            $
            (323,000
            )Preferred
                stock dividends
            
            
            (95,000
            )
            
            (69,000
            )
            
            (171,000
            )
            
            (140,000
            )Numerator
                for basic earnings per share--
                net income (loss) attributable tocommon
                stockholders - as reported
            
            
            329,000
            
            
            (208,000
            )
            
            511,000
            
            
            (463,000
            )Effect
                of dilutive securitiesInterest
                on convertible notes
            
            
            24,000
            
            
            —
            
            
            24,000
            
            
            —Preferred
                stock dividends
            
            
            95,000
            
            
            —
            
            
            171,000
            
            
            —Numerator
                for basic earnings per share--
                net income (loss) attributable tocommon
                stockholders - as adjusted
            
            $
            448,000
            
            $
            (208,000
            )
            $
            706,000
            
            $
            (463,000
            )Denominator:Denominator
                for basic earnings pershare--weighted
                average shares
            
            
            5,089,625
            
            
            5,013,434
            
            
            5,068,451
            
            
            5,003,291Effect
                of dilutive securities:Stock
                options
            
            
            37,372
            
            
            —
            
            
            17,905
            
            
            —Warrants
            
            
            97,961
            
            
            —
            
            
            38,266
            
            
            —Assumed
                conversion of Series APreferred
                Stock
            
            
            2,825,280
            
            
            —
            
            
            2,825,280
            
            
            —Assumed
                conversion of Series BPreferred
                Stock
            
            
            1,333,333
            
            
            —
            
            
            1,333,333
            
            
            —Assumed
                conversion of Note
            
            
            1,000,000
            
            
            —
            
            
            1,000,000
            
            
            —Dilutive
                potential common shares
            
            
            5,293,946
            
            
            —
            
            
            5,214,784
            
            
            —Denominator
                for diluted earnings pershare--adjusted
                weighted-averageshares
                and assumed conversions
            
            
            10,383,571
            
            
            5,013,434
            
            
            10,283,235
            
            
            5,003,291Net
                income (loss) available tocommon
                stockholdersBasic:
            
            $
            0.06
            
            $
            (0.04
            )
            $
            0.10
            
            $
            (0.09
            )Diluted:
            
            $
            0.04
            
            $
            (0.04
            )
            $
            0.07
            
            $
            (0.09
            )





-10-




For
      the
      three and six-month periods ended March 31, 2006, 2,904,784 and 3,304,784
      shares, respectively, attributable to outstanding stock options and warrants,
      and for both the three and six-month periods ended March 31, 2005, 5,525,611
      shares attributable to outstanding Series A Preferred Stock, stock options
      and
      warrants, were excluded from the calculation of diluted net income (loss) per
      share because if included the effect would be antildilutive.





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





Accounts
      payable, accrued expenses and other liabilities as of March 31, 2006 and
      September 30, 2005, respectively, consist of the following:


March
                  31, 2006
              
              September
                  30, 2005Commissions
                  payable
              
              $
              3,788,000
              
              $
              2,204,000Legal
                  payable
              
              
              354,000
              
              
              555,000Other
              
              
              1,332,000
              
              
              1,286,000Total
              
              $
              5,474,000
              
              $
              4,045,000


-11-




**NOTE
      11. NOTES PAYABLE**





In
      January 2006, t he
      Company used $1.0 million of the proceeds from a private placement (See Note
      11)
      to pay in full $1.0 million of promissory notes held by two unrelated note
      holders that had a maturity date of July 31, 2007.





In
      February 2006, National Securities and the holder of a $1.0 million secured
      demand note that was scheduled to mature on March 1, 2006, extended the term
      of
      the secured demand note to March 1, 2007.




**NOTE
      12. PRIVATE PLACEMENTS**





In
      January 2006, the Company completed a
      financing transaction under which certain new investors (collectively, the
“New
      Investors”) made a $2.0 million investment in the Company (the “New
      Transaction”) by purchasing an aggregate of the following: (i) $1 .0
      million of the
      Company’s newly created Series B Preferred Stock, which has a 10% dividend rate
      and is convertible into Common Stock at a price of $.75 per share, and (ii) 11 %
      convertible promissory notes in the principal amount of $1 .0
      million , which
      are
      convertible into Common Stock at a price of $1.00 per share with warrants
      to purchase an aggregate of 300,000 shares of Common Stock at an exercise price
      of $1.00 per share.





The
      convertible promissory notes mature in January 2011, and have a stated interest
      rate of 11% per annum. The Company granted 300,000 warrants to acquire shares
      of
      common stock to the note holders, and the fair value of the warrants was
      calculated using the Black-Scholes Option Valuation Model. The Company recorded
      a debt discount of approximately $187,000 that will be charged to interest
      expense over the life of the debt.





The
      investment by the New Investors included $1.7 million by St. Cloud Capital
      Partners, L.P. (“St. Cloud”), and an aggregate of $300,000 by two unrelated
      investors. Marshall S. Geller, the Senior Managing Member of
      SCGP,
      LLC, the General Partner of St. Cloud, became a
      member of the Board of Directors of the Company
      simultaneous with the closing of the New Transaction. The
      Company incurred legal fees and other costs related to this capital transaction,
      in the amount of $56,000. The Company capitalized one-half of the fees to
      deferred financing costs that will be amortized to interest expense over the
      life of the convertible promissory notes and one-half of the fees were charged
      to paid-in capital.





The
      preferred stock and warrants were accounted for in accordance with EITF 98-5
      and
      EITF 00-27. The preferred stock is considered permanent equity. The warrants
      and
      conversion option are components of equity and were not determined to be a
      derivative liability in accordance with SFAS No. 133 (par 11). The convertible
      promissory notes and warrants were
      accounted for in accordance with EITF 98-5 and EITF 00-27.





In
      March
      2006, the Company issued 159,090 shares of the Company’s common stock to an
      unaffiliated party for $175,000. The proceeds from the private placement were
      used to retire $175,000 of the Company’s promissory notes that were due to
      mature in January 2007.  -12-


**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 28, 2004. 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 March 31, 2006 Compared to Three Months Ended March 31,
      2005





The
      Company’s second quarter of fiscal year 2006 resulted in an increase in
      revenues, and a comparatively lesser increase in expenses compared
      to the same period last year. The increase in revenues is due to the stronger
      securities markets experienced by the Company, and the completion of investment
      banking transactions in the current year’s quarter. As
      a
      result, the Company reported net income of $424,000 compared with a net loss
      of
      $139,000 for the second quarters of fiscal years 2006 and 2005, respectively.
      This represents an improvement of $563,000 from the prior period.




Three
                  Months EndedMarch
                  31,
              
              Increase
                  (Decrease)2006
              
              2005
              
              Amount
              
              PercentCommissions
              
              $
              10,714,000
              
              $
              8,850,000
              
              $
              1,864,000
              
              
              21
              %Proprietary
                  trading
              
              
              2,062,000
              
              
              1,372,000
              
              
              690,000
              
              
              50
              %Market
                  making
              
              
              76,000
              
              
              —
              
              
              76,000
              
              
              n/aMark-ups
                  and mark-downs
              
              
              53,000
              
              
              23,000
              
              
              30,000
              
              
              130
              %Net
                  dealer inventory gains
              
              
              2,191,000
              
              
              1,395,000
              
              
              796,000
              
              
              57
              %Investment
                  banking
              
              
              4,042,000
              
              
              132,000
              
              
              3,910,000
              
              
              2962
              %Interest
                  and dividends
              
              
              696,000
              
              
              859,000
              
              
              (163,000
              )
              
              (19
              %)Transfer
                  fees and clearance services
              
              
              969,000
              
              
              711,000
              
              
              258,000
              
              
              36
              %Other
              
              
              175,000
              
              
              259,000
              
              
              (84,000
              )
              
              (32
              %)$
              18,787,000
              
              $
              12,206,000
              
              $
              6,581,000
              
              
              54
              %


Total
      revenues increased $6,581,000, or 54%, in the second quarter of fiscal year
      2006
      to $18,787,000 from $12,206,000 in the second quarter of fiscal year 2005.
      This
      increase is mainly due to the improved securities markets, and the completion
      of
      investment banking transactions. During the second quarter of fiscal year 2006,
      total trading volume increased 4%, compared to the second quarter of fiscal
      year
      2005. The lesser increase in trading volume compared to revenues reflects an
      increase in the average revenue per trade, partially offset by the Company’s
      re-entry into market making activities. Trading volume in this period related
      to
      retail brokerage increased 1%. Commission revenue increased $1,864,000, or
      21%,
      to $10,714,000 from $8,850,000 during the second quarter of fiscal year 2006
      compared with the same period in fiscal year 2005. Net dealer inventory gains,
      which includes profits on proprietary trading, market making activities and
      customer mark-ups and mark-downs, increased $796,000, or 57%, to $2,191,000
      from
      $1,395,000 during the second quarter of fiscal year 2006 compared with the
      same
      period in fiscal year 2005.  -13-


The
      increase is primarily due to an increase in proprietary trading in the bond
      market, and reflects the Company’s re-entry into market making activities.
      During the second quarter of fiscal year 2006, revenues from proprietary trading
      increased $690,000, or 50%, to $2,062,000 from $1,372,000 in the same period
      of
      fiscal year 2005, revenues from market making activities increased to $76,000
      from $0 in the second quarter of fiscal year 2005, and revenues from customer
      mark-ups and mark-downs increased $30,000, or 130%, to $53,000 from $23,000
      in
      the second quarter of fiscal year 2005. ****





Investment
      banking revenue increased $3,910,000, or 2,962%, to $4,042,000 from $132,000
      in
      the second quarter of fiscal year 2006 compared with the second quarter of
      fiscal year 2005. The increase in investment banking revenues is attributable
      to
      the Company having completed investment banking transactions in the second
      quarter of fiscal year 2006. Interest and dividend income decreased $163,000,
      or
      19%, to $696,000 from $859,000 in the second quarter of fiscal year 2006
      compared with the same period last year. The decrease in interest income is
      attributable to a decrease in the amount of debit balances in National
      Securities’ customers accounts from the same period last year. Transfer fees
      increased $258,000, or 36%, to $969,000 in the second quarter of fiscal year
      2006 from $711,000 in the second quarter of fiscal year 2005. The increase
      reflects higher transfer fees for trades generated from the retail brokerage
      business of brokers recently associated with the Company.





Other
      revenue, consisting of asset management fees, and miscellaneous transaction
      fees
      and trading fees, decreased $84,000, or 32%, to $175,000 from $259,000 during
      the second quarter of fiscal year 2006 compared to the second quarter of fiscal
      year 2005. The decrease is due to nonrecurring income realized in fiscal year
      2005.


Three
                  Months EndedMarch
                  31,
              
              Increase
                  (Decrease)2006
              
              2005
              
              Amount
              
              PercentCommission
                  expense related to:Commission
                  revenue
              
              $
              9,449,000
              
              $
              7,638,000
              
              $
              1,811,000
              
              
              24
              %Net
                  dealer inventory gains
              
              
              1,644,000
              
              
              879,000
              
              
              765,000
              
              
              87
              %Investment
                  banking
              
              
              2,950,000
              
              
              106,000
              
              
              2,844,000
              
              
              2683
              %Commissions
              
              
              14,043,000
              
              
              8,623,000
              
              
              5,420,000
              
              
              63
              %Employee
                  compensation
              
              
              1,592,000
              
              
              1,316,000
              
              
              276,000
              
              
              21
              %Clearing
                  fees
              
              
              436,000
              
              
              323,000
              
              
              113,000
              
              
              35
              %Communications
              
              
              546,000
              
              
              370,000
              
              
              176,000
              
              
              48
              %Occupancy
                  and equipment costs
              
              
              633,000
              
              
              757,000
              
              
              (124,000
              )
              
              (16
              %)Professional
                  fees
              
              
              246,000
              
              
              305,000
              
              
              (59,000
              )
              
              (19
              %)Interest
              
              
              176,000
              
              
              109,000
              
              
              67,000
              
              
              61
              %Taxes,
                  licenses and registration
              
              
              169,000
              
              
              48,000
              
              
              121,000
              
              
              252
              %Other
                  administrative expenses
              
              
              522,000
              
              
              494,000
              
              
              28,000
              
              
              6
              %$
              18,363,000
              
              $
              12,345,000
              
              $
              6,018,000
              
              
              49
              %


In
      comparison with the 54% increase in total revenues, total expenses increased
      49%, or $6,018,000, to $18,363,000 for the second quarter of fiscal year 2006
      compared to $12,345,000 in the second quarter of fiscal year 2005. The increase
      in total expenses is primarily the result of higher commission expenses directly
      associated with commission revenues.





Commission
      expense, which includes expenses related to commission revenue, net dealer
      inventory gains and investment banking, increased $5,420,000, or 63%, to
      $14,043,000 in the second quarter of fiscal year 2006 from $8,623,000 in the
      second quarter of fiscal year 2005. Commission expense related to commission
      revenue increased $1,811,000, or 24%, to $9,449,000 in the second quarter of
      fiscal year 2006 from $7,638,000 in the second quarter of fiscal year 2005;
      commission expense related to net dealer inventory gains increased $765,000,
      or
      87%, to $1,644,000 in the second quarter of fiscal year 2006 from $879,000
      in  -14-


the
      second quarter of fiscal year 2005; and commission expense related to investment
      banking increased $2,844,000, or 2,683%, to $2,950,000 in the second quarter
      of
      fiscal year 2006 from $106,000 in the second quarter of fiscal year 2005.
      Commission expense as a percentage of commission revenues increased to 88%
      in
      the second quarter of fiscal year 2006 from 86% in the second quarter of fiscal
      year 2005. 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
      75% in the second quarter of fiscal year 2006 from 63% in the second quarter
      of
      fiscal year 2005. 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 revenues
      decreased to 73% in the second quarter of fiscal year 2006 from 80% in the
      second quarter of fiscal year 2005. This decrease is attributable to the type
      and size of the particular investment banking transactions completed in the
      current year’s quarter. Commission expense includes the amortization of advances
      to registered representatives of $305,000 and $267,000 for the second quarter
      of
      fiscal years 2006 and 2005, 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.





Employee
      compensation expense increased $276,000, or 21%, to $1,592,000 in the second
      quarter of fiscal year 2006 from $1,316,000 in the second quarter of fiscal
      year
      2005. The increase is attributable to new hires and a bonus accrual based on
      current year’s profits. Overall, combined commission and employee compensation
      expense, as a percentage of revenue increased to 83% from 81% in the second
      quarter of fiscal years 2006 and 2005, respectively. The increase is
      attributable to an overall higher payout percentage to National Securities’
retail brokers.





Clearing
      fees increased $113,000, or 35%, to $436,000 in the second quarter of fiscal
      year 2006 from $323,000 in
      the
      second quarter of fiscal year 2005. The increase in clearing fees is
      attributable to the increased commission revenues in the second quarter of
      fiscal year 2006 compared to the second quarter of fiscal year 2005, and a
      different pricing structure for certain products with different clearing
      firms.





Communication
      expenses increased $176,000, or 48%, to $546,000 from $370,000 in the second
      quarter of fiscal year 2006 compared to the second quarter of fiscal year 2005.
      The increase is primarily due to telecommunication incentives provided to
      certain brokers who recently became affiliated with the Company, and additional
      quotation machines for the Company’s market making activities. Occupancy costs
      decreased $124,000, or 16%, to $633,000 from $757,000 in the second quarter
      of
      fiscal year 2006 compared to the second quarter of fiscal year 2005. The
      decrease in occupancy expense is due to an overall reduction in leased office
      space. Professional fees decreased $59,000, or 19%, to $246,000 from $305,000
      in
      the second quarter of fiscal year 2006 compared to the second quarter of fiscal
      year 2005. The decrease in professional fees is due to a decrease in legal
      fees
      relating to various lawsuits and arbitrations.





Interest
      expense increased $67,000, or 61%, to $176,000 from $109,000 in the second
      quarter of fiscal year 2006 compared to the second quarter of fiscal year 2005.
      The increase is primarily attributable to the acceleration of amortization
      on
      notes that were paid prior to maturity and amortization related to new notes
      issued by the Company in the second quarter of fiscal year 2006. Included in
      interest expense is the amortization of $98,000 and $41,000 for the second
      quarter of fiscal years 2006 and 2005, respectively. Taxes, licenses and
      registration increased $121,000, or 252%, to $169,000 from $48,000 in the second
      quarter of fiscal year 2006 compared to the second quarter of fiscal year 2005.
      The increase is due to registration incentives provided to certain brokers
      who
      became affiliated with the Company in fiscal year 2006, and the receipt of
      a
      refund of prior years state business taxes in fiscal year 2005. Other
      administrative expenses increased $28,000, or 6%, to $522,000 from $494,000
      in
      the second quarter of fiscal year 2006 compared to the second quarter of fiscal
      year 2005.  -15-


The
      Company reported net income of $424,000 in the second quarter of fiscal year
      2006 compared to a net loss of $139,000 in
      the
      second quarter of fiscal year 2005 .
      Overall, the diluted earnings attributable to common stockholders in the second
      quarter of fiscal year 2006 was $329,000, or $.03 per common share, as compared
      to the net loss attributable to common stockholders of $208,000, or $.04 per
      common share in the second quarter of fiscal year 2005. The net income
      attributable to common stockholders for the second quarter of fiscal year 2006
      and the net loss attributable to common stockholders for the second quarter
      of
      fiscal year 2005 reflects $95,000 and $69,000 of cumulative Preferred Stock
      dividends on the Company’s Preferred Stock for the second quarter of fiscal
      years 2006 and 2005, respectively.





Six
      Months Ended March 31, 2006 Compared to Six Months Ended March 31,
      2005





The
      Company’s first six months of fiscal year 2006 resulted in an increase in
      revenues, and a comparatively lesser increase in expenses compared
      to the same period last year. The increase in revenues is primarily due the
      completion of investment banking transactions in the
      first
      six months of fiscal year 2006 . As
      a
      result, the Company reported net income of $682,000 compared with a net loss
      of
      $323,000 for the first six months of fiscal years 2006 and 2005, respectively.
      This represents an improvement of $1,005,000 from the prior period.




Six
                  Months EndedMarch
                  31,
              
              Increase
                  (Decrease)2006
              
              2005
              
              Amount
              
              PercentCommissions
              
              $
              17,871,000
              
              $
              19,146,000
              
              $
              (1,275,000
              )
              
              (7
              %)Proprietary
                  trading
              
              
              3,895,000
              
              
              2,528,000
              
              
              1,367,000
              
              
              54
              %Market
                  making
              
              
              84,000
              
              
              —
              
              
              84,000
              
              
              n/aMark-ups
                  and mark-downs
              
              
              73,000
              
              
              64,000
              
              
              9,000
              
              
              14
              %Net
                  dealer inventory gains
              
              
              4,052,000
              
              
              2,592,000
              
              
              1,460,000
              
              
              56
              %Investment
                  banking
              
              
              7,093,000
              
              
              238,000
              
              
              6,855,000
              
              
              2880
              %Interest
                  and dividends
              
              
              1,382,000
              
              
              1,362,000
              
              
              20,000
              
              
              1
              %Transfer
                  fees and clearance services
              
              
              1,730,000
              
              
              1,576,000
              
              
              154,000
              
              
              10
              %Other
              
              
              347,000
              
              
              401,000
              
              
              (54,000
              )
              
              (13
              %)$
              32,475,000
              
              $
              25,315,000
              
              $
              7,160,000
              
              
              28
              %





Total
      revenues increased $7,160,000, or 28%, in the first six months of fiscal year
      2006 to $32,475,000 from $25,315,000 in the first six months of fiscal year
      2005. This increase is mainly due to the completion of investment banking
      transactions. During the first six months of fiscal year 2006, total trading
      volume decreased 10%, compared to the first six months of fiscal year 2005.
      This
      decrease reflects an increase in the average revenue per trade, partially offset
      by the Company’s re-entry into market making activities. Trading volume in this
      period related to retail brokerage decreased 11%. Commission revenue decreased
      $1,275,000, or 7%, to $17,871,000 from $19,146,000 during the first six months
      of fiscal year 2006 compared with the same period in fiscal year 2005. This
      decrease is attributable to the lower level of retail brokerage business
      experienced by the market as a whole in the first quarter of fiscal year 2006.
      Net dealer inventory gains, which includes profits on proprietary trading,
      market making activities and customer mark-ups and mark-downs, increased
      $1,460,000, or 56%, to $4,052,000 from $2,592,000 during the first six months
      of
      fiscal year 2006 compared with the same period in fiscal year 2005. The increase
      is primarily due to an increase in proprietary trading in the bond market,
      and
      reflects the Company’s re-entry into market making activities. During the first
      six months of fiscal year 2006, revenues from proprietary trading increased
      $1,367,000, or 54%, to $3,895,000 from $2,528,000 in the same period of fiscal
      year 2005, revenues from market making activities increased to $84,000 from
      $0
      in the first six months of fiscal year 2006, and revenues from customer mark-ups
      and mark-downs increased $9,000, or 14%, to $73,000 from $64,000 in the first
      six months of fiscal year 2005. ****





Investment
      banking revenue increased $6,855,000, or 2,880%, to $7,093,000 from $238,000
      in
      the first six months of fiscal year 2006 compared with the first six months
      of
      fiscal year 2005. The increase in


-16-




investment
      banking revenues is attributable to the Company having completed investment
      banking transactions in the first six months of fiscal year 2005. Interest
      and
      dividend income increased $20,000, or 1%, to $1,382,000 from $1,362,000 in
      the
      first six months of fiscal year 2006 compared with the same period last year.
      The increase in interest income is attributable to an increase in the interest
      rate charged for debit balances in National Securities’ customers accounts
      substantially offset by a decrease in the amount of debit balances in those
      customers accounts from the same period last year. Transfer fees increased
      $154,000, or 10%, to $1,730,000 in the first six months of fiscal year 2006
      from
      $1,576,000 in the first six months of fiscal year 2005. The increase is due
      to
      higher transfer fees for trades generated from the retail brokerage business
      of
      brokers recently associated with the Company.





Other
      revenue, consisting of asset management fees and miscellaneous transaction
      fees
      and trading fees, decreased $54,000, or 13%, to $347,000 from $401,000 during
      the first six months of fiscal year 2006 compared to the first six months of
      fiscal year 2005. The decrease is due to nonrecurring income realized in fiscal
      year 2005.




Six
                  Months EndedMarch
                  31,
              
              Increase
                  (Decrease)2006
              
              2005
              
              Amount
              
              PercentCommission
                  expense related to:Commission
                  revenue
              
              $
              15,722,000
              
              $
              16,294,000
              
              $
              (572,000
              )
              
              (4
              %)Net
                  dealer inventory gains
              
              
              2,984,000
              
              
              1,633,000
              
              
              1,351,000
              
              
              83
              %Investment
                  banking
              
              
              5,025,000
              
              
              192,000
              
              
              4,833,000
              
              
              2517
              %Commissions
              
              
              23,731,000
              
              
              18,119,000
              
              
              5,612,000
              
              
              31
              %Employee
                  compensation
              
              
              2,884,000
              
              
              2,552,000
              
              
              332,000
              
              
              13
              %Clearing
                  fees
              
              
              800,000
              
              
              670,000
              
              
              130,000
              
              
              19
              %Communications
              
              
              1,033,000
              
              
              835,000
              
              
              198,000
              
              
              24
              %Occupancy
                  and equipment costs
              
              
              1,308,000
              
              
              1,473,000
              
              
              (165,000
              )
              
              (11
              %)Professional
                  fees
              
              
              584,000
              
              
              719,000
              
              
              (135,000
              )
              
              (19
              %)Interest
              
              
              285,000
              
              
              228,000
              
              
              57,000
              
              
              25
              %Taxes,
                  licenses and registration
              
              
              314,000
              
              
              159,000
              
              
              155,000
              
              
              97
              %Other
                  administrative expenses
              
              
              854,000
              
              
              883,000
              
              
              (29,000
              )
              
              (3
              %)$
              31,793,000
              
              $
              25,638,000
              
              $
              6,155,000
              
              
              24
              %




In
      comparison with the 28% increase in total revenues, total expenses increased
      24%, or $6,155,000, to $31,793,000 for the first six months of fiscal year
      2006
      compared to $25,638,000 in the first six months of fiscal year 2005. The
      increase in total expenses is primarily the result of higher commission expenses
      directly associated with commission revenues, particularly investment banking
      revenues.




Commission
      expense, which includes expenses related to commission revenue, net dealer
      inventory gains and investment banking, increased $5,612000, or 31%, to
      $23,731,000 in the first six months of fiscal year 2006 from $18,119,000 in
      the
      first six months of fiscal year 2005. Commission expense related to commission
      revenue decreased $572,000, or 4%, to $15,722,000 in the first six months of
      fiscal year 2006 from $16,294,000 in the first six months of fiscal year 2005;
      commission expense related to net dealer inventory gains increased $1,351,000,
      or 83%, to $2,984,000 in the first six months of fiscal year 2006 from
      $1,633,000 in the first six months of fiscal year 2005; and commission expense
      related to investment banking increased $368,000, or 2,517%, to $5,025,000
      in
      the first six months of fiscal year 2006 from $192,000 in the first six months
      of fiscal year 2005. Commission expense as a percentage of commission revenues
      increased to 88% in the first six months of fiscal year 2006 from 85% in the
      first six months of fiscal year 2005. 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 74% in the first six months of fiscal year 2006 from 63%
      in
      the first six months of fiscal year 2005. This increase is attributable to
      changes in the production of particular brokers and traders, not all of who
      are
      paid at the same


-17-




commission
      rate. Commission expense as a percentage of investment banking revenues
      decreased to 73% in the second quarter of fiscal year 2006 from 80% in the
      second quarter of fiscal year 2005. This decrease is attributable to the type
      and size of the particular investment banking transactions completed in the
      current year’s quarter. Commission expense includes the amortization of advances
      to registered representatives of $617,000 and $500,000 for the first six months
      of fiscal years 2006 and 2005, 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.





Employee
      compensation expense increased $332,000, or 13%, to $2,884,000 in the first
      six
      months of fiscal year 2006 from $2,552,000 in the first six months of fiscal
      year 2005. The increase is attributable to new hires, a bonus accrual based
      on
      current year’s profits and year-end bonuses that were paid to certain staff
      employees in the first quarter of fiscal year 2006. Overall, combined commission
      and employee compensation expense, as a percentage of revenue remained constant
      at 82% in the first six months of fiscal years 2006 and 2005.





Clearing
      fees increased $130,000, or 19%, to $800,000 in the first six months of fiscal
      year 2006 from $670,000 in the first six months of fiscal year 2005. The
      increase in clearing fees is attributable to a different pricing structure
      for
      certain products with different clearing firms.





Communication
      expenses increased $198,000, or 24%, to $1,033,000 from $835,000 in the first
      six months of fiscal year 2006 compared to the first six months of fiscal year
      2005. The increase is primarily due to telecommunication incentives provided
      to
      certain brokers who recently became affiliated with the Company, and additional
      quotation machines for the Company’s market making activities. Occupancy costs
      decreased $165,000, or 11%, to $1,308,000 from $1,473,000 in the first six
      months of fiscal year 2006 compared to the first six months of fiscal year
      2005.
      The decrease in occupancy expense is due to an overall reduction in leased
      office space. Professional fees decreased $135,000, or 19%, to $584,000 from
      $719,000 in the first six months of fiscal year 2006 compared to the first
      six
      months of fiscal year 2005. The decrease in professional fees is due to a
      decrease in legal fees relating to various lawsuits and
      arbitrations.





Interest
      expense increased $57,000, or 25%, to $285,000 from $228,000 in the first six
      months of fiscal year 2006 compared to the first six months of fiscal year
      2005.
      The increase is primarily attributable to the acceleration of amortization
      on
      notes that were paid prior to maturity and amortization related to new notes
      issued by the Company in the second quarter of fiscal year 2006. Included in
      interest expense is the amortization of $131,000 and $91,000 for the first
      six
      months of fiscal year 2006 and 2005, respectively. Taxes, licenses and
      registration increased $155,000, or 97%, to $314,000 from $159,000 in the first
      six months of fiscal year 2006 compared to the first six months of fiscal year
      2005. The increase is due to registration incentives provided to certain brokers
      who became affiliated with the Company in fiscal year 2006, and the receipt
      of a
      refund of prior years state business taxes in fiscal year 2005. Other
      administrative expenses decreased $29,000, or 3%, to $854,000 from $883,000
      in
      the first six months of fiscal year 2006 compared to the first six months of
      fiscal year 2005. The decrease in other expenses is due to costs incurred in
      the
      first quarter of fiscal year 2005 relating to the Company’s change of clearing
      firms.





The
      Company reported net income of $682,000 in the first six months of fiscal year
      2006 compared to a net loss of $323,000 in
      the
      first six months of fiscal year 2005 .
      Overall, the diluted earnings attributable to common stockholders in the first
      six months of fiscal year 2006 was $511,000, or $.05 per common share, as
      compared to the net loss attributable to common stockholders of $463,000, or
      $.09 per common share in the first six months of fiscal year 2005. The net
      income attributable to common stockholders for the first six months of fiscal
      year 2006 and the net loss attributable to common stockholders for the first
      six
      months of fiscal year 2005 reflects $171,000 and $140,000 of cumulative
      Preferred Stock dividends on the Company’s Preferred Stock for the
      first six months of fiscal years 2006 and 2005, respectively .


-18-




**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
      March
      31, 2006, National Securities’ net capital exceeded the requirement by
      $2,253,000.





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. The clearing agreement includes a termination fee if
      National Securities terminates the agreement without cause. Additionally, 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. The
      Company believes that the overall effect of these clearing relationships will
      be
      beneficial to the Company’s cost structure, liquidity and capital
      resources.





In
      January 2006, the Company completed a
      financing transaction under which certain new investors made a $2.0 million
      investment in the Company by purchasing an aggregate of the following: (i) $1 .0
      million of the
      Company’s newly created Series B Preferred Stock, which has a 10% dividend rate
      and is convertible into Common Stock at a price of $.75 per share, and (ii) 11 %
      convertible promissory notes in the principal amount of $1 .0
      million , which
      are
      convertible into Common Stock at a price of $1.00 per share with warrants
      to purchase an aggregate of 300,000 shares of Common Stock at an exercise price
      of $1.00 per share.





The
      convertible promissory notes mature in January 2011, and have a stated interest
      rate of 11% per annum. The Company granted 300,000 warrants to acquire shares
      of
      common stock to the note holders, and the fair value of the warrants was
      calculated using the Black-Scholes Option Valuation Model. The Company recorded
      a debt discount of approximately $187,000 that will be charged to interest
      expense over the life of the debt.





The
      investment by the New Investors included $1.7 million by St. Cloud, and an
      aggregate of $300,000 by two unrelated investors. Marshall S. Geller, the Senior
      Managing Member of
      SCGP,
      LLC, the General Partner of St. Cloud, became a
      member of the Board of Directors of the Company
      simultaneous with the closing of the New Transaction. The
      Company incurred legal fees and other costs related to this capital transaction,
      in the amount of $56,000. The Company capitalized one-half of the fees to
      deferred financing costs that will be amortized to interest expense over the
      life of the convertible promissory notes and one-half of the fees were charged
      to paid-in capital.





In
      January 2006, t he
      Company used $1.0 million of the proceeds from the above private placement
      to
      pay in full $1.0 million of promissory notes held by two unrelated note holders
      that had a maturity date of July 31, 2007.


-19-




In
      February 2006, National Securities and the holder of a $1.0 million secured
      demand note that was scheduled to mature on March 1, 2006, extended the term
      of
      the secured demand note to March 1, 2007.




In
      March
      2006, the Company issued 159,090 shares of the Company’s common stock to an
      unaffiliated party for $175,000. The proceeds from the private placement were
      used to retire $175,000 of the Company’s promissory notes that were due to
      mature in January 2007.





In
      May
      2006, the Company filed a Registration Statement on Form S-1 under the
      Securities Act of 1933 for the resale of certain shares of Common Stock and
      shares of Common Stock issuable upon the conversion of preferred stock, and
      exercise of certain warrants previously issued in connection with private
      placement transactions, and shares of Common Stock issuable upon the conversion
      of preferred stock and notes, and warrants that were issued in the private
      placement that was completed in the current fiscal year. The Registration
      Statement is currently being reviewed by the SEC.





In
      the
      quarter and six months ended March 31, 2005 the Company received proceeds of
      approximately $12,500 and $20,000, respectively, from the exercise of
      outstanding warrants.





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 Securities. In
      February 2005, the Company and First Montauk 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 the fourth quarter of fiscal year
      2005.





The
      Company believes that it will have sufficient funds to maintain its current
      level of business activities during fiscal year 2006. 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.





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.


-20-




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 the Company's securities
      held
      for resale ("long"), securities sold, but not yet purchased ("short") and net
      positions as of March 31, 2006:




Long
              
              Short
              
              NetCorporate
                  Stocks
              
              $
              427,000
              
              $
              73,000
              
              $
              354,000Corporate
                  Bonds
              
              
              4,000
              
              
              —
              
              
              4,000Government
                  Obligations
              
              
              35,000
              
              
              —
              
              
              35,000$
              466,000
              
              $
              73,000
              
              $
              393,000




**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 Securities Exchange Act of 1934 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 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.




**PART
      II - OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





During
      the quarter ended March 31, 2006, 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 7 herein, and the Company’s Annual Report on
      Form 10-K for the fiscal year ended September 30, 2005.





**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, 2005.





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





In
      January 2006, the Company completed a
      financing transaction under which certain new investors made a $2.0 million
      investment in the Company by purchasing an aggregate of the following: (i) $1 .0
      million of the
      Company’s newly created Series B Preferred Stock, which has a 10% dividend rate
      and is convertible into Common Stock at a price of $.75 per share, and (ii) 11 %
      convertible promissory notes in the principal amount of $1 .0
      million , which
      are
      convertible into Common Stock at a price of $1.00 per share with warrants
      to purchase an aggregate of 300,000 shares of Common Stock at an exercise price
      of $1.00 per share.


-21-




The
      convertible promissory notes mature in January 2011, and have a stated interest
      rate of 11% per annum. The Company granted 300,000 warrants to acquire shares
      of
      common stock to the note holders, and the fair value of the warrants was
      calculated using the Black-Scholes Option Valuation Model. The Company recorded
      a debt discount of approximately $187,000 that will be charged to interest
      expense over the life of the debt.





The
      investment by the New Investors included $1.7 million by St. Cloud, and an
      aggregate of $300,000 by two unrelated investors. Marshall S. Geller, the Senior
      Managing Member of
      SCGP,
      LLC, the General Partner of St. Cloud, became a
      member of the Board of Directors of the Company
      simultaneous with the closing of the New Transaction. The
      Company incurred legal fees and other costs related to this capital transaction,
      in the amount of $56,000. The Company capitalized one-half of the fees to
      deferred financing costs that will be amortized to interest expense over the
      life of the convertible promissory notes and one-half of the fees were charged
      to paid-in capital.





In
      January 2006, t he
      Company used $1.0 million of the proceeds from the above private placement
      to
      pay in full $1.0 million of promissory notes held by two unrelated note holders
      that had a maturity date of July 31, 2007.





In
      March
      2006, the Company issued 159,090 shares of the Company’s common stock to an
      unaffiliated party for $175,000. The proceeds from the private placement were
      used to retire $175,000 of the Company’s promissory notes that were due to
      mature in January 2007.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





None.





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





The
      Company held its annual meeting of shareholders on March 15, 2006. Proxies
      were
      solicited by the Company pursuant to Regulation 14A under the Exchange Act
      of
      1934, as amended. At the annual meeting, the Company’s shareholders approved the
      following proposals:





1. The
      number of shares voted “for” and “withhold authority” in connection with the
      election of Marshall S. Geller as a Class I Director to the Board of Directors
      of the Company was as follows:




WithholdFor
              
              AuthorityIn
                  Person
              
              
              444,362
              
              
              —By
                  Proxy
              
              
              5,935,358
              
              
              652,582Total
              
              
              6,379,720
              
              
              652,582


The
      number of shares voted “for” and “withhold authority” in connection with the
      election of Robert J. Rosan as a Class II Director to the Board of Directors
      of
      the Company was as follows:





-22-




WithholdFor
              
              AuthorityIn
                  Person
              
              
              444,362
              
              
              —By
                  Proxy
              
              
              6,561,511
              
              
              26,429Total
              
              
              7,005,873
              
              
              26,429




The
      number of shares voted “for” and “withhold authority” in connection with the
      election of Norman J. Kurlan as a Class II Director to the Board of Directors
      of
      the Company was as follows:


WithholdFor
              
              AuthorityIn
                  Person
              
              
              444,362
              
              
              —By
                  Proxy
              
              
              5,933,312
              
              
              654,628Total
              
              
              6,377,674
              
              
              654,628


The
      terms
      of Mark Goldwasser, Gary A. Rosenberg and Peter Rettman, Class III Directors,
      continued after the annual meeting.





2. The
      number of shares voted “for”, “against” and “abstain” in connection with the
      amendment to the Company’s Certificate of Incorporation to change the name of
      the Company from Olympic Cascade Financial Corporation to National Holdings
      Corporation was as follows:


For
              
              Against
              
              AbstainIn
                  Person
              
              
              444,362
              
              
              —
              
              
              —By
                  Proxy
              
              
              6,585,326
              
              
              514
              
              
              100Total
              
              
              7,029,688
              
              
              514
              
              
              100





3. The
      number of shares voted “for”, “against” and “abstain” in connection with the
      amendment to the Company’s Certificate of Designation to decrease the conversion
      price of the Company’s Series A Preferred Stock to $1.25 per share from $1.50
      per share was as follows:


For
              
              Against
              
              AbstainIn
                  Person
              
              
              444,362
              
              
              —
              
              
              —By
                  Proxy
              
              
              4,593,539
              
              
              68,736
              
              
              766Total
              
              
              5,037,901
              
              
              68,736
              
              
              766





4. The
      number of shares voted “for”, “against” and “abstain” in connection with the
      approval of the Company's 2006 Stock Option Plan was as follows:





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For
              
              Against
              
              AbstainIn
                  Person
              
              
              444,362
              
              
              —
              
              
              —By
                  Proxy
              
              
              3,966,575
              
              
              695,766
              
              
              700Total
              
              
              4,410,937
              
              
              695,766
              
              
              700
  5. The
      number of shares voted “for”, “against” and “abstain” in connection with the
      ratification of Marcum & Kliegman LLP as the Company’s independent public
      accountants for the fiscal year ending September 30, 2006 was as
      follows:




For
            
            Against
            
            AbstainIn
                Person
            
            
            444,362
            
            
            —
            
            
            —By
                Proxy
            
            
            6,575,235
            
            
            12,305
            
            
            400Total
            
            
            7,019,597
            
            
            12,305
            
            
            400




**ITEM
      5. OTHER INFORMATION**





None.





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





3.6
            Certificate
                of Amendment to the Certificate of Incorporation, filed with the
                Secretary
                of State of the State of Delaware on March 15,
                2006.


3.7
            Certificate
                of Amendment to the Certificate of Designation of Series A Preferred
                Stock, filed with the Secretary of State of the State of Delaware
                on March
                15, 2006.


10.50*
            Employment
                Agreement dated as of March 15, 2006 between the Company and Mark
                Goldwasser.


10.51
            Securities
                Purchase Agreement dated as of March 17,
                2006.


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.





*
            Compensatory
                agreement





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**SIGNATURES**





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




**NATIONAL
      HOLDINGS CORPORATION AND SUBSIDIARY**


October
      25, 2006




By: /s/
      Mark
      Goldwasser


Mark
      Goldwasser


President
      and Chief Executive Officer


October
      25, 2006




By: /s/
      Robert H. Daskal


Robert
      H.
      Daskal


Chief
      Financial Officer


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