NATIONAL
HOLDINGS CORPORATION
120 Broadway, 27th Floor, New York, NY 10271,
Phone 212-417-8210, Fax 212-417-8010
June 29, 2006
VIA EDGAR TRANSMISSION
- ----------------------
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Mail Stop 4561
Washington, D.C. 20549
Attention: Amit Pande, Assistant Chief Accountant
Re: Olympic Cascade Financial Corporation
Form 10-K for the Fiscal Year Ended September 30, 2005
Form 10-Q for the Fiscal Quarter Ended December 31, 2005
File No. 001-12629
Ladies and Gentlemen:
On behalf of National Holdings Corporation f/k/a Olympic Cascade Financial
Corporation (the "Company"), set forth below are the Company's responses to the
Commission's comments given by letter dated June 19, 2006 from Amit Pande,
Assistant Chief Accountant (the "Comment Letter"). The responses are numbered to
correspond to the comments set forth in the Comment Letter, which for
convenience, we have incorporated into the response letter.
Form 10-K for the Fiscal Year Ended September 30, 2005:
Consolidated Statements of Operations - page F-3
1. We note your response to comment 3 of our letter dated May 18, 2006 that
substantially all of your expenses represent cost of services. We believe
that you fall within the scope of Article 5 of Regulation S-X. Rule 5-03
of Regulation S-X requires you to present cost of services and selling,
general and administrative expenses separately. Please tell us whether you
have the information available to separately present cost of services on
the face of your income statement. If you do not have this information
available and believe that providing this information would involve undue
cost and burden, please provide us with support for your determination,
including your estimate of changes that would need to be made and the time
and resources involved.
Securities and Exchange Commission
June 29, 2006
Page 2
Response:
The Company does not have the information available to separately present
cost of services on the face of its income statement. It does not currently
maintain its records in a fashion that would permit it to readily obtain this
information. We believe that if it were required that the Company comply with
this request, it would involve undue cost and burden.
The Company believes its detailed presentation is the most meaningful to a
reader, particularly for a Company whose principal operations are that of a
broker-dealer. The format of our financial statements is virtually identical to
many other public company broker-dealers and investment service companies.
2. In future filings please disclose how you manage and analyze your
financial results including how you determine the prices for your
services, determine the proper cost structure, and manage the overall
profitability of your business. Please provide us with your proposed
future disclosure.
Response:
The Company generally acts as an agent in executing customer orders to buy
or sell listed and over-the-counter securities in which it does not make a
market, and charges commissions based on the services the Company provides to
its customers. In executing customer orders to buy or sell a security in which
the Company makes a market, the Company may sell to, or purchase from, customers
at a price that is substantially equal to the current inter-dealer market price
plus or minus a mark-up or mark-down. The Company may also act as agent and
execute a customer's purchase or sale order with another broker-dealer
market-maker at the best inter-dealer market price available and charge a
commission. The Company believes its mark-ups, mark-downs and commissions are
competitive based on the services it provides to its customers. In each instance
the commission charges, mark-ups or mark-downs, are in compliance with
guidelines established by the NASD. In order to increase revenues generated from
these activities, the Company continuously seeks to hire additional registered
representatives, and works with its current registered representatives to
increase their productivity.
The Company's registered representatives act as independent contractors,
not as salaried employees. As such, payments to these persons are based on
commissions generated, and represent a variable cost rather than a fixed cost of
operating our business. Commission expense represents a significant majority of
the Company's total expenses. The Company works to control its fixed costs in
order to achieve profitability based upon its expectation of market conditions
and the related level of revenues. Additionally, the Company requires most of
its registered representatives to absorb their own overhead and expenses,
thereby reducing the Company's share of the fixed costs.
Securities and Exchange Commission
June 29, 2006
Page 3
Note 3.b - Significant Agreements and Transactions-Capital Transactions, page
F-15
3. We note your response to comment 4 of our letter dated May 18, 2006.
Please clarify how you determined that extending the maturity of the notes
and warrants did not represent a modification of the debt instrument and
EITF 96-19 is not applicable, especially considering your response to
comment 6 of our letter dated March 20, 2006 that you did not determine
the modification to not be substantial. Also provide us the specific
guidance that indicates the modification is outside the scope of EITF
96-19 and supports your current accounting treatment.
Response:
Upon expiration of the original notes (January 2004 and July 2005) and
after fully amortizing the original debt discount (associated with the original
fair value of the warrants), the Company mutually agreed with the lenders to
issue new notes and to issue new warrants. As such, there was no modification of
the debt agreements prior to their expiration, but rather new notes and new
warrants were issued to the lenders. We apologize for any confusion created by
our earlier response.
4. In the event you are unable to support your position that these amendments
did not represent a modification, please respond to comment 4 of our
letter dated May 18, 2006.
Response:
Please see response to comment 3 above.
Form 10-Q for the Fiscal Quarter Ended December 31, 2005
Note 10 - Subsequent Events, page 9
5. In your response to comment 5 of our letter dated May 18, 2006, you state
that you consider the Series B Convertible Preferred Stock to be
"conventional" in accordance with EITF 05-2. Please tell us how you
determined the Series B Convertible Preferred Stock to have a mandatory
redemption date and to be more akin to debt than equity, qualifying it for
the exception included in paragraph 4 of EITF 00-19. Refer to Issue 3 of
EITF 05-02.
Response:
The Series B Convertible Preferred Stock is considered conventional. The
Convertible Preferred Stock contains a provision that provides that the
Convertible Preferred Stock may be redeemed only in a complete liquidation of
all equity securities. According to EITF D-98, Classification and Measurement of
Redeemable Securities, ordinary liquidation events which involve the redemption
and liquidation of all equity securities should not result in a security being
classified outside permanent equity. Since the redemption of the Convertible
Preferred Stock is only required upon final liquidation of the Company, then
that potential event need not be considered when determining the classification
of the security. The Company also considered the guidelines of EITF 00-19
paragraphs 12 to 32, and EITF 05-02, in concluding that the Convertible
Preferred Stock constitutes permanent equity.
Securities and Exchange Commission
June 29, 2006
Page 4
6. In the Series B Convertible Preferred agreement and the 11% Convertible
Promissory Note agreement filed as Exhibits 3.5 and 4.2, respectively, in
your Form 8-K filed January 18, 2006, we note that you hold an additional
embedded conversion option - a Company Mandated Conversion option
contingent upon specified closing prices of your common stock and the
registration of the underlying shares of common stock and the registration
of the underlying shares of common stock under the Securities Act. Please
tell us how you accounted for and valued this embedded conversion option
considering the guidance in paragraphs 11(a) and 12 of SFAS 133 and EITF
00-19.
Response:
The Series B Convertible Preferred Stock is convertible into 1,333,333
shares of Common Stock of the Company at any time by the holders of the
securities. The Convertible Promissory Notes are convertible into 1,000,000
shares of Common Stock of the Company at any time by the holders of the
securities. The Company may require the security holders to convert the
Convertible Preferred Stock into 1,333,333 shares of Common Stock of the Company
and the Notes into 1,000,000 shares of Common Stock of the Company, if a higher
targeted stock price of the Company's Common Stock is attained subsequent to the
issuance of the Series B Preferred Stock and Notes. The conversion ratio and
other terms of these securities are fixed and do not provide for any change in
the number of shares to be issued upon such conversion. This is not a conversion
right of the holders of the securities for which a value is required to be
ascribed.
Securities and Exchange Commission
June 29, 2006
Page 5
Please call the undersigned at (212) 417-8210 with any comments or
questions regarding the Company's response and please send a copy of any written
comments to the following party:
Mitchell Littman, Esq.
Littman Krooks LLP
655 Third Avenue
New York, NY 10017
Phone: (212) 490-2020
Fax: (212) 490-2990
Very truly yours,
/s/ Mark Goldwasser
-------------------
Mark Goldwasser
President and Chief Executive Officer
cc: National Holdings Corporation
-----------------------------
Robert H. Daskal
Littman Krooks LLP
------------------
Mitchell Littman, Esq.
Marcum & Kliegman LLP
---------------------
Mitchell Watt
Securities and Exchange Commission
----------------------------------
Matthew Komar, Staff Accountant