UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


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

                    For the Quarter Ended December 31, 2005
                                          -----------------

                        Commission File Number 001-12629
                                               ---------

                      OLYMPIC CASCADE FINANCIAL CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


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


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

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

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

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

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

The number of shares outstanding of registrant's common stock, par value $0.02
per share, at February 6, 2006 was 5,064,878.

                                       1
<PAGE>

              OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARY

            CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                      December 31,   September 30,
                                                                                         2005            2005
                                                                                      (unaudited)   (see note below)
                                                                                      ------------    ------------
<S>                                                                                   <C>             <C>
CASH                                                                                  $    589,000    $    398,000
DEPOSITS WITH CLEARING ORGANIZATIONS                                                       300,000         300,000
RECEIVABLES FROM BROKER-DEALERS AND CLEARING ORGANIZATIONS                               3,308,000       3,329,000
OTHER RECEIVABLES, net of allowance for uncollectible accounts of $368,000
            at December 31, 2005 and September 30, 2005, respectively                      598,000         485,000
ADVANCES TO REGISTERED REPRESENTATIVES                                                   1,693,000       1,653,000
SECURITIES HELD FOR RESALE, at market                                                      405,000         166,000
FIXED ASSETS, net                                                                          256,000         250,000
SECURED DEMAND NOTE                                                                      1,000,000       1,000,000
OTHER ASSETS                                                                               284,000         379,000
                                                                                      ------------    ------------

TOTAL ASSETS                                                                          $  8,433,000    $  7,960,000
                                                                                      ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

PAYABLE TO BROKER-DEALERS AND CLEARING ORGANIZATIONS                                  $    321,000    $    122,000
SECURITIES SOLD, BUT NOT YET PURCHASED, at market                                           84,000          44,000
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES                                 3,977,000       4,045,000
NOTES PAYABLE, net of debt discounts of  $173,000 and $206,000 at
            December 31, 2005 and September 30, 2005, respectively                       1,852,000       1,819,000
                                                                                      ------------    ------------
TOTAL LIABILITIES                                                                        6,234,000       6,030,000
                                                                                      ------------    ------------

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

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
         Preferred stock, $.01 par value, 200,000 shares authorized; 50,000 shares
            designated as Series A                                                            --              --
         Series A 9% cumulative convertible preferred stock, $.01 par value, 50,000
            shares authorized; 33,320 shares issued and outstanding (liquidation
            preference: $3,332,000) at December 31, 2005 and September 30, 2005               --              --
         Common stock, $.02 par value, 30,000,000 shares authorized;
            5,064,878 and 5,045,878 shares issued and outstanding,
            at December 31, 2005 and September 30, 2005, respectively                      101,000         101,000
         Additional paid-in capital                                                     15,353,000      15,295,000
         Deferred compensation                                                             (46,000)           --
         Accumulated deficit                                                           (14,209,000)    (14,466,000)
                                                                                      ------------    ------------
TOTAL STOCKHOLDERS' EQUITY                                                               1,199,000         930,000
                                                                                      ------------    ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                            $  8,433,000    $  7,960,000
                                                                                      ============    ============
</TABLE>

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

                See notes to consolidated financial statements.

                                       2
<PAGE>

              OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARY

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                  Three Months Ended
                                                             December 31,     December 31,
                                                                 2005            2004
                                                             ------------    ------------
REVENUES:
<S>                                                          <C>             <C>
     Commissions                                             $  7,157,000    $ 10,295,000
     Net dealer inventory gains                                 1,861,000       1,196,000
     Investment banking                                         3,052,000         106,000
     Interest and dividends                                       686,000         503,000
     Transfer fees and clearing services                          762,000         865,000
     Other                                                        173,000         143,000
                                                             ------------    ------------
TOTAL REVENUES                                                 13,691,000      13,108,000
                                                             ------------    ------------
EXPENSES:
     Commissions                                                9,688,000       9,495,000
     Employee compensation and related expenses                 1,292,000       1,236,000
     Clearing fees                                                364,000         347,000
     Communications                                               487,000         465,000
     Occupancy and equipment costs                                676,000         716,000
     Professional fees                                            338,000         414,000
     Interest                                                     110,000         119,000
     Taxes, licenses, registration                                145,000         110,000
     Other administrative expenses                                332,000         390,000
                                                             ------------    ------------
TOTAL EXPENSES                                                 13,432,000      13,292,000
                                                             ------------    ------------
NET INCOME (LOSS)                                                 259,000        (184,000)
Preferred stock dividends                                         (76,000)        (71,000)
                                                             ------------    ------------
Net income (loss) attributable to common stockholders        $    183,000    $   (255,000)
                                                             ============    ============
NET INCOME (LOSS) PER COMMON SHARE
Basic:
     Net income (loss) attributable to common stockholders   $       0.04    $      (0.05)
                                                             ============    ============
Diluted:
     Net income (loss) attributable to common stockholders   $       0.04    $      (0.05)
                                                             ============    ============
Weighted average number of shares outstanding
     Basic                                                      5,047,737       4,993,368
                                                             ============    ============
     Diluted                                                    7,294,903       4,993,368
                                                             ============    ============
</TABLE>

                See notes to consolidated financial statements.

                                       3
<PAGE>

            OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARY

      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited)

<TABLE>
<CAPTION>
                                                                                  Three Months Ended
                                                                               December 31, December 31,
                                                                                  2005          2004
                                                                               ----------   -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                             <C>          <C>
   Net income (loss)                                                            $ 259,000    $(184,000)
   Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities
           Depreciation and amortization                                           32,000       34,000
           Amortization of note discount                                           33,000       45,000
           Compensatory element of common stock issuance                           12,000         --
   Changes in assets and liabilities
           Deposits with clearing organizations                                      --         33,000
           Receivables from broker-dealers, clearing organizations and others    (132,000)     297,000
           Securities held for resale, at market                                 (239,000)    (455,000)
           Other assets                                                            95,000      (61,000)
           Accounts payable, accrued expenses and other liabilities               129,000     (379,000)
           Securities sold, but not yet purchased, at market                       40,000      251,000
                                                                                ---------    ---------
   Net cash (used in) provided by operating activities                            229,000     (419,000)
                                                                                ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES
           Purchase of fixed assets                                               (38,000)     (25,000)
                                                                                ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES
           Payment of notes payable                                                  --        (50,000)
           Increase in cash overdraft                                                --        339,000
           Exercise of stock options and warrants                                    --          8,000
                                                                                ---------    ---------
   Net cash provided by (used in) financing activities                               --        297,000
                                                                                ---------    ---------

NET DECREASE IN CASH                                                              191,000     (147,000)

CASH BALANCE
           Beginning of the period                                                398,000      351,000
                                                                                ---------    ---------
           End of the period                                                    $ 589,000    $ 204,000
                                                                                =========    =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
           Cash paid during the period for:
           Interest                                                             $  77,000    $  77,000
                                                                                =========    =========
</TABLE>

                See notes to consolidated financial statements.

                                       4
<PAGE>

             OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying consolidated financial statements of Olympic Cascade Financial
Corporation ("Olympic" 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 December 31, 2005 and December 31, 2004 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. ACCOUNTING POLICY

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 months ended December
31, 2005, the Company granted 100,000 employee stock options with a fair value
of $46,000. No charge was recorded in the quarter ended December 31, 2005 as the
fair value associated with this grant was nominal.

For the three months ended December 31, 2004, 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.

                                       5

<PAGE>

<TABLE>
<CAPTION>
                                                                      Three months ended
                                                                      December 31, 2004
                                                                      ------------------
<S>                                                                   <C>
Net income (loss) attributable to common stockholders - as reported       $  (255,000)

    Stock-based employee compensation cost determined
      under fair value method, net of tax effects                             (78,000)
                                                                          -----------
    Net income (loss) attributable to common stockholders - pro forma     $  (333,000)
                                                                          ===========

Earnings (loss) per share Basic earnings (loss) per share:

    Net income (loss) attributable to common stockholders - as reported   $     (0.05)

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

Diluted earnings (loss) per share:

    Net income (loss) attributable to common stockholders - as reported   $     (0.05)

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

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:

                              2005      2004
                             ------    ------
Assumptions:
Risk-free interest rate       4.40%     2.50%

Expected life, in years        3.0       3.0

Expected volatility            124%      125%


NOTE 3. 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 December 31,
2005:
                                Securities held     Securities sold, but
                                   for resale        not yet purchased
                              --------------------  ---------------------
Corporate Stocks                  $       212,000       $         74,000
Corporate Bonds                           177,000                 10,000
Government Obligations                     16,000                      -
                              --------------------  ---------------------
                                  $       405,000       $         84,000
                              ====================  =====================

                                       6

<PAGE>

NOTE 4. CLEARING AGREEMENTS

In April 2005, National 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 terminates the agreement
without cause. Additionally, in June 2005, National 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 will be beneficial to
the Company's cost structure, liquidity and capital resources.

NOTE 5. CONTINGENCIES

The NASD was engaged in an industry-wide investigation of mutual fund trading
activities. National 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 during the time
period from October 2000 to February 2003 that it believed constituted mutual
fund timing and/or excessive trading activity. National engaged in discussions
and negotiations with the NASD to informally resolve these matters. Such
resolution resulted in a settlement, whereby National, without admitting or
denying any violations, agreed to make both restitution and pay a fine to the
NASD that in the aggregate approximated $600,000. Additionally, the Company is
obligated to pay the fines imposed by the NASD on two executive officers
totaling $50,000 pursuant to its indemnification obligations. The unpaid balance
of approximately $162,000 and $244,000 at December 31, 2005 and 2004,
respectively, has been included in "Accounts Payable, Accrued Expenses and Other
Liabilities" in the accompanying consolidated statements of financial condition.

The Company is also a defendant in various other arbitrations and administrative
proceedings, lawsuits and claims, seeking damages the Company approximates at
$1.2 million (exclusive of unspecified punitive damages related to certain
claims and inclusive of expected insurance coverage). The Company has filed a
counterclaim for approximately $220,000 in one such proceeding. These matters
arise in the normal course of business. The Company intends to vigorously defend
itself in these actions, and believes that the eventual outcome of these matters
will not have a material adverse effect on the Company. However, the ultimate
outcome of these matters cannot be determined at this time. The amounts related
to such matters that are reasonably estimable and which have been accrued at
December 31, 2005 and 2004, is $245,000 and $212,000 (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 $245,000 and $334,000 for the first quarter of
fiscal year 2006 and 2005, respectively.

NOTE 6. CUMULATIVE 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 $1.50 per share, are to receive
dividends on a quarterly basis at a rate of 9% per annum per share. Such
dividends are cumulative and accrue whether or not declared by the Company's
Board of Directors, but are payable only when, as and if declared by the
Company's Board of Directors. At December 31, 2005, the amount of accumulated
undeclared and unpaid dividends on the Company's 33,320 issued and outstanding
shares of preferred stock was approximately $226,000.

NOTE 7. 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.

                                       7

<PAGE>

<TABLE>
<CAPTION>
                                                                           Three Months Ended
                                                                       December 31,   December 31,
                                                                          2005           2004
                                                                       -----------    -----------
Numerator:
<S>                                                                    <C>            <C>
   Net income (loss)                                                   $   259,000    $  (184,000)
   Preferred stock dividends                                               (76,000)       (71,000)
                                                                       -----------    -----------
Numerator for basic earnings per share--net income (loss)
   attributable to common stockholders - as reported                       183,000       (255,000)
   Effect of dilutive securities:
      Preferred stock dividends                                             76,000           --
                                                                       -----------    -----------
Numerator for basic earnings per share--net income (loss)
   attributable to common stockholders - as adjusted                   $   259,000    $  (255,000)
                                                                       ===========    ===========

Denominator:

   Denominator for basic earnings per share--weighted average shares     5,047,737      4,993,368
                                                                       -----------    -----------
   Effective of dilutive securities:
      Stock options                                                         11,645           --
      Warrants                                                              14,190           --
      Assumed conversion of Series A
            Preferred Stock                                              2,221,331           --
                                                                       -----------    -----------
   Dilutive potential common shares                                      2,247,166           --
                                                                       -----------    -----------
Denominator for diluted earnings per share--adjusted
   weighted-average shares and assumed conversions                       7,294,903      4,993,368
                                                                       ===========    ===========
Net income (loss) available to common stockholders
   Basic:                                                              $      0.04    $     (0.05)
                                                                       ===========    ===========

   Diluted:                                                            $      0.04    $     (0.05)
                                                                       ===========    ===========
</TABLE>

The following table sets forth the components used in the computation of basic
and diluted income (loss) per common share: For the three-month period ended
December 31, 2005, 3,022,284 shares attributable to outstanding stock options
and warrants, and for the three-month period ended December 31, 2004, 5,413,245
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 8. EXTENSION OF NOTE

In February 2005, National and the holder of a $1.0 million secured demand note
that was scheduled to mature on March 1, 2005, extended the term of the secured
demand note to March 1, 2006. National and the holder have agreed that at
maturity, subject to NASD approval, the secured demand note will be extended to
March 1, 2007.

NOTE 9. TERMINATED MERGER

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. ("First Montauk"), a publicly traded company whose wholly owned subsidiary
is also a registered broker-dealer with a business similar to National. In
February 2005, the Company and First Montauk 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.

                                       8
<PAGE>

NOTE 10. SUBSEQUENT EVENTS

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 currently 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 is 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 will
record 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,
estimated to be approximately $50,000. The Company will capitalize one-half of
the fees to deferred financing costs that will be amortized to interest expense
over the life of convertible promissory notes and one-half of the fees will be
charged to paid-in capital.

In January 2006, the Company used $1.0 million of the proceeds from the New
Transaction 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.






                                       9

<PAGE>

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 9, 2005. Any forward-looking statements contained in or
incorporated into this Quarterly Report speak only as of the date of this
Quarterly Report. The Company undertakes no obligation to update publicly any
forward-looking statement, whether as a result of new information, future events
or otherwise.

RESULTS OF OPERATIONS

Three Months Ended December 31, 2005 Compared to Three Months Ended December 31,
2004

The Company's first quarter of fiscal year 2005 resulted in an increase in
revenues, and a lesser increase in expenses compared to the same period last
year. The increase in revenues is due to the Company's completion of investment
banking transactions in the current year's quarter that offset a weaker
securities market. As a result, the Company reported net income of $259,000
compared with a net loss of $184,000 for the first quarters of fiscal years 2006
and 2005, respectively. This represents an improvement of $443,000 from the
prior period.

<TABLE>
<CAPTION>
                                          Three Months Ended
                                               December 31,             Increase (Decrease)
                                       --------------------------   --------------------------
                                           2005          2004          Amount        Percent
                                       -----------    -----------   -----------    -----------
<S>                                    <C>            <C>           <C>                 <C>
Commissions                            $ 7,157,000    $10,295,000   $(3,138,000)      (30%)
                                       -----------    -----------   -----------
Proprietary trading                      1,841,000     1,155,000        686,000        59%
Mark-ups and mark-downs                     20,000         41,000       (21,000)      (51%)
                                       -----------    -----------   -----------
Net dealer inventory gains               1,861,000     1,196,000        665,000        56%
Investment banking                       3,052,000        106,000     2,946,000       2779%
Interest and dividends                     686,000        503,000       183,000        36%
Transfer fees and clearance services       762,000        865,000      (103,000)      (12%)
Other                                      173,000        143,000        30,000        21%
                                       -----------    -----------   -----------
                                       $13,691,000    $13,108,000   $   583,000         4%
                                       ===========    ===========   ===========
</TABLE>

Total revenues increased $583,000, or 4%, in the first quarter of fiscal year
2006 to $13,691,000 from $13,108,000 in the first quarter of fiscal year 2005.
This increase is due to the Company's completion of investment banking
transactions. During the first quarter of fiscal year 2006, total trading volume
decreased by approximately 23%, compared to the first quarter of 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. Commission revenue decreased $3,138,000, or 30%, to $7,157,000 from
$10,295,000 during the first 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 $665,000, or 56%, to $1,861,000 from $1,196,000 during the
first quarter of fiscal year 2006 compared with the same period in fiscal year
2005. The increase is due to increased trading activity in foreign securities.
During the first quarter of fiscal year 2006, revenues from proprietary trading
increased $686,000, or 59%, to $1,841,000 from $1,155,000 in the same period of
fiscal year 2005, and revenues from customer mark-ups and mark-downs decreased
$21,000, or 51%, to $20,000 from $41,000 in the first quarter of fiscal year
2005.

                                       10
<PAGE>

Investment banking revenue increased $2,946,000, or 2,779%, to $3,052,000 from
$106,000 in the first quarter of fiscal year 2006 compared with the first
quarter of fiscal year 2005. The increase in investment banking revenues is
attributable to the Company having completed investment banking transactions in
the first quarter of fiscal year 2006. Interest and dividend income increased
$183,000 or 36%, to $686,000 from $503,000 in the first quarter 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's customers' accounts from the same period last year. Transfer fees
decreased $103,000, or 12%, to $762,000 in the first quarter of fiscal year 2006
from $865,000 in the first quarter of fiscal year 2005. The decrease is due to
the lower trading volume experienced during the current year's quarter.

Other revenue, consisting of asset management fees and miscellaneous transaction
fees and trading fees, increased $30,000, or 21%, to $173,000 from $143,000
during the first quarter of fiscal year 2006 compared to the first quarter of
fiscal year 2005. The increase is due to an increase in the amount of assets
under management and the related asset management fees.

<TABLE>
<CAPTION>
                                         Three Months Ended
                                             December 31,              Increase (Decrease)
                                     --------------------------   ---------------------------
                                        2005           2004         Amount          Percent
                                     -----------    -----------   -----------     -----------
Commission expense related to:
<S>                                  <C>            <C>           <C>                <C>
        Commission revenue           $ 6,273,000    $ 8,655,000   $(2,382,000)       (28%)
        Net dealer inventory gains     1,340,000        754,000       586,000         78%
        Investment banking             2,075,000         86,000     1,989,000        2313%
                                     -----------    -----------   -----------
Commissions                            9,688,000     9,495,000         193,000         2%
Employee compensation                  1,292,000      1,236,000        56,000          5%
Clearing fees                            364,000        347,000        17,000          5%
Communications                           487,000        465,000        22,000          5%
Occupancy and equipment costs            676,000        716,000       (40,000)        (6%)
Professional fees                        338,000        414,000       (76,000)       (18%)
Interest                                 110,000        119,000        (9,000)        (8%)
Taxes, licenses and registration         145,000        110,000        35,000         32%
Other administrative expenses            332,000        390,000       (58,000)       (15%)
                                     -----------    -----------   -----------
                                     $13,432,000    $13,292,000   $   140,000          1%
                                     ===========    ===========   ===========
</TABLE>

In comparison with the 4% increase in total revenues, total expenses increased
1% or $140,000 to $13,432,000 for the first quarter of fiscal year 2006 compared
to $13,292,000 in the first quarter of fiscal year 2005. The increase in total
expenses is a result of commission expense associated with the Company's
completion of investment banking transactions. Commission expense, which
includes expenses related to commission revenue, net dealer inventory gains and
investment banking, increased $193,000, or 2%, to $9,688,000 in the first
quarter of fiscal year 2006 from $9,495,000 in the first quarter of fiscal year
2005. Commission expense related to commission revenue decreased $2,382,000, or
28%, to $6,273,000 in the first quarter of fiscal year 2006 from $8,655,000 in
the first quarter of fiscal year 2005; commission expense related to net dealer
inventory gains increased $586,000, or 78%, to $1,340,000 in the first quarter
of fiscal year 2006 from $754,000 in the first quarter of fiscal year 2005; and
commission expense related to investment banking increased $1,989,000, or
2,313%, to $2,075,000 in the first quarter of fiscal year 2006 from $86,000 in
the first quarter of fiscal year 2005. Commission expense as a percentage of
commission revenues increased to 88% in the first quarter of fiscal year 2006
from 84% in the first quarter of fiscal year

                                       11
<PAGE>

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 72% in the first
quarter of fiscal year 2006 from 63% in the first quarter of fiscal year 2005.
This increase is attributable to changes in the securities traded, and their
related commission payouts. Commission expense as a percentage of investment
banking decreased to 68% in the first quarter of fiscal year 2006 from 81% in
the first quarter of fiscal year 2005. This decrease is attributable to
different payout structures on particular investment banking transactions.
Commission expense includes the amortization of advances to registered
representatives of $312,000 and $233,000 for the first 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.

Employee compensation expense increased $56,000, or 5%, to $1,292,000 in the
first quarter of fiscal year 2006 from $1,236,000 in the first quarter of fiscal
year 2005. The increase is attributable to new hires 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 decreased to 80% from 82% in the first quarters of fiscal year 2006
and 2005, respectively. The decrease is attributable to lower commission payouts
on investment banking revenues.

Clearing fees increased $17,000, or 5%, to $364,000 in the first quarter of
fiscal year 2006 from $347,000 in the first quarter 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 $22,000 or 5%, to $487,000 from $465,000 in the
first quarter of fiscal year 2006 compared to the first quarter of fiscal year
2005. The increase is due to telecommunication incentives provided to certain
brokers who became affiliated with the Company in the first quarter of fiscal
year 2006. Occupancy costs decreased $40,000, or 6%, to $676,000 from $716,000.
The decrease in occupancy expense is due to an overall reduction in leased
office space. Professional fees decreased $76,000, or 18%, to $338,000 from
$414,000 in the first quarter of fiscal year 2006 compared to the first quarter
of fiscal year 2005. The decrease in professional fees is due to a reduction in
the legal fees incurred relating to various lawsuits and arbitrations.

Interest expense decreased $9,000, or 8%, to $110,000 from $119,000 in the first
quarter of fiscal year 2006 compared to the first quarter of fiscal year 2005.
The decrease is due to a reduction in the amount of amortized costs relating to
certain notes outstanding. Taxes, licenses and registration increased $35,000,
or 32%, to $145,000 from $110,000 in the first quarter of fiscal year 2006
compared to the first quarter of fiscal year 2005. The increase is due to
registration incentives provided to certain brokers who became affiliated with
the Company in the first quarter of fiscal year 2006. Other administrative
expenses decreased $58,000 or 15% to $332,000 from $390,000 in the first quarter
of fiscal year 2006 compared to the first quarter 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 $259,000 in the first quarter of fiscal year
2006 compared to a net loss of $184,000 in the first quarter of fiscal year
2005. Overall, the diluted earnings attributable to common stockholders in the
first quarter of fiscal year 2006 was $183,000, or $.04 per common share, as
compared to the net loss attributable to common stockholders of $255,000, or
$.05 per common share in the first quarter of fiscal year 2005. The net income
attributable to common stockholders for the first quarter of fiscal year 2006
and the net loss attributable to common stockholders for the first quarter of
fiscal year 2005 reflects $76,000 and $71,000, respectively, of cumulative but
unpaid preferred stock dividends on the Company's Preferred Stock.

                                       12

<PAGE>

Liquidity and Capital Resources

National, as a registered broker-dealer, is subject to the SEC's Uniform Net
Capital Rule 15c3-1 that requires the maintenance of minimum net capital.
National has elected to use the alternative standard method permitted by the
rule. This requires that National maintain minimum net capital equal to the
greater of $250,000 or a specified amount per security based on the bid price of
each security for which National is a market maker. At December 31, 2005,
National's net capital exceeded the requirement by $1,135,000.

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 entered into a clearing agreement with NFS that became
effective in June 2005. The clearing agreement includes a termination fee if
National terminates the agreement without cause. Additionally, in June 2005,
National entered into a clearing agreement with Penson for the purpose of
providing clearing services that are not provided by NFS. The Company believes
that the overall effect of these clearing relationships will be beneficial to
the Company's cost structure, liquidity and capital resources.

In February 2005, National and the holder of a $1.0 million secured demand note
that was scheduled to mature on March 1, 2005, extended the term of the secured
demand note to March 1, 2006. National and the holder have agreed that at
maturity, subject to NASD approval, the secured demand note will be extended to
March 1, 2007.

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 currently 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 is 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 will
record a debt discount of approximately $187,000 that will be charged to
interest expense over the life of the debt.

                                       13
<PAGE>

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, estimated to be approximately $50,000. The Company will
capitalize one-half of the fees to deferred financing costs that will be
amortized to interest expense over the life of convertible promissory notes and
one-half of the fees will be charged to paid-in capital.

In January 2006, the Company used $1.0 million of the proceeds from the New
Transaction 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 the quarter ended December 31, 2004, the Company received proceeds of
approximately $7,500 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., a publicly
traded company whose wholly owned subsidiary is also a registered broker-dealer
with a business similar to National. In February 2005, the Company and First
Montauk 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.

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.

                                       14
<PAGE>

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 December 31, 2005:

                          Long        Short       Net
                         --------   --------   --------
Corporate Stocks         $212,000   $ 74,000   $138,000
Corporate Bonds           177,000     10,000    167,000
Government Obligations     16,000       --       16,000
                         --------   --------   --------
                         $405,000   $ 84,000   $321,000
                         ========   ========   ========

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. Based on the evaluation of the
Company's disclosure controls and procedures (as defined in the Exchange Act
Rules 13a-15(e) and 15d-15(e)) required by the Exchange Act Rules 13a-15(b) or
15d-15(b), the Company's Chief Executive Officer and 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 December 31, 2005, 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 5 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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

                                       15
<PAGE>

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

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

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

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

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




























                                       16

<PAGE>

                                   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.


              OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARY



February 7, 2006                By: /s/ Mark Goldwasser
                                    --------------------------------------------
                                    Mark Goldwasser
                                    President and Chief Executive Officer




February 7, 2006                By: /s/ Robert H. Daskal
                                    --------------------------------------------
                                    Robert H. Daskal
                                    Acting Chief Financial Officer
























                                       17