<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 27, 1997 Commission File Number 001-12629
OLYMPIC CASCADE FINANCIAL CORPORATION
(Exact name of registrant as specified)
Delaware 36-4128138
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (206) 622-7200
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
----- -----
The number of shares outstanding of registrant's Common stock, par value $0.02
per share, at May 12, 1997 was 1,203,930.
1
<PAGE> 2
OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 27, September 27,
1997 1996
(unaudited) (audited)
----------- -------------
<S> <C> <C>
CASH, subject to immediate withdrawal $ 39,000 $ 2,727,000
CASH, CASH EQUIVALENTS AND SECURITIES 36,205,000 33,005,000
DEPOSITS 1,197,000 777,000
RECEIVABLES
Brokers and dealers 5,718,000 879,000
Customers 19,134,000 16,172,000
Other 899,000 443,000
FEDERAL INCOME TAX RECEIVABLE 337,000 --
SECURITIES HELD FOR RESALE, at market 3,019,000 3,367,000
FIXED ASSETS, net 1,167,000 534,000
GOODWILL, net 1,261,000 --
OTHER ASSETS 118,000 51,000
----------- -----------
$69,094,000 $57,955,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LINE OF CREDIT $ 3,200,000 $ --
NOTE PAYABLE SHAREHOLDERS 800,000 --
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES 2,207,000 2,398,000
PAYABLES
Brokers and dealers 1,052,000 87,000
Customers 53,947,000 48,388,000
FEDERAL INCOME TAX PAYABLE -- 429,000
SECURITIES SOLD, BUT NOT YET PURCHASED, at market 407,000 1,337,000
----------- -----------
61,613,000 52,639,000
----------- -----------
CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares authorized,
1,203,913 and 845,248 shares issued and outstanding, respectively 24,000 17,000
Additional paid-in capital 3,816,000 1,825,000
Retained earnings 3,641,000 3,474,000
----------- -----------
7,481,000 5,316,000
----------- -----------
$69,094,000 $57,955,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months Ended For the Six Months Ended
------------------------------ ------------------------------
March 27, March 29, March 27, March 29,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 4,076,000 $ 3,606,000 $ 7,964,000 $ 6,511,000
Net dealer inventory gains 719,000 736,000 466,000 1,461,000
Interest and dividends 929,000 689,000 1,829,000 1,330,000
Transfer fees 147,000 142,000 305,000 259,000
Underwritings 2,026,000 2,536,000 6,806,000 2,790,000
Advisory fees 10,000 -- 23,000 --
Other 85,000 319,000 130,000 388,000
------------ ------------ ------------ ------------
TOTAL REVENUES 7,992,000 8,028,000 17,523,000 12,739,000
------------ ------------ ------------ ------------
EXPENSES:
Commissions 4,382,000 4,747,000 10,178,000 7,312,000
Employee compensation and benefits 1,247,000 916,000 2,303,000 1,536,000
Clearance fees paid to non-brokers 198,000 220,000 329,000 411,000
Communications 258,000 180,000 434,000 353,000
Occupancy and equipment costs 591,000 510,000 1,007,000 932,000
Interest 522,000 425,000 1,059,000 829,000
Professional fees 136,000 124,000 249,000 225,000
Taxes, licenses and registration 258,000 116,000 509,000 200,000
Other 513,000 148,000 685,000 396,000
------------ ------------ ------------ ------------
TOTAL EXPENSES 8,105,000 7,386,000 16,753,000 12,194,000
------------ ------------ ------------ ------------
Income (loss) from operations before income taxes (113,000) 642,000 770,000 545,000
(Provision) benefit for income taxes 38,000 (175,000) (262,000) (142,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (75,000) $ 467,000 $ 508,000 $ 403,000
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE $ (0.07) $ 0.58 $ 0.42 $ 0.50
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,018,810 808,460 1,195,698 805,776
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
OLYMPIC CASCADE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For The Six Months Ended
------------------------------
March 27, 1997 March 29, 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 508,000 $ 403,000
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 113,000 98,000
Amortization 4,000 155,000
Changes in assets and liabilities
Cash, cash equivalents and securities (3,340,000) (1,613,000)
Deposits (420,000) (241,000)
Receivables (8,257,000) (1,010,000)
Federal income taxes receivable/payable (766,000) 54,000
Securities held for resale 488,000 (496,000)
Goodwill and other assets (1,331,000) (247,000)
Payables 6,524,000 2,036,000
Securities sold, but not yet purchased (930,000) 489,000
Accounts payable, accrued expenses, and other liabilities (193,000) 461,000
----------- -----------
(7,600,000) 89,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (746,000) (142,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on line of credit 3,200,000 --
Borrowings from shareholders 800,000 --
Issuance of common stock through exercise of stock options 283,000 25,000
Issuance of common stock in business combination 1,375,000 --
----------- -----------
5,658,000 25,000
----------- -----------
DECREASE IN CASH (2,688,000) (28,000)
CASH BALANCE
Beginning of the period 2,727,000 204,000
----------- -----------
End of the period $ 39,000 $ 176,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 1,059,000 $ 829,000
=========== ===========
Income tax $ 1,028,000 $ 121,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Deferred cost and issuable common stock $ -- $ 105,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 27, 1997 AND MARCH 29, 1996
NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accompanying consolidated financial
statements include the accounts of Olympic Cascade Financial Corporation
("Olympic"), a Delaware holding company, and its wholly-owned subsidiaries,
National Securities Corporation ("National") and L.H. Friend, Weinress, Frankson
& Presson, Inc ("Friend") (collectively "the Company"). National operates as a
registered securities broker-dealer and provides financial services and products
including retail and institutional brokerage services, asset management and
corporate finance activities to the general public. Similarly, Friend is a
registered securities broker-dealer specializing in investment banking,
institutional brokerage, research and trading activities for small to middle
market companies.
CORPORATE RESTRUCTURING - In November 1996, National shareholders
approved a restructuring whereby, National shareholders exchanged their shares
on a one-for-one basis for shares of Olympic resulting in National becoming a
wholly-owned subsidiary of Olympic. This restructuring became effective in
February 1997.
In March 1997 the Company purchased the outstanding stock of Friend
(Note 4).
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Olympic and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
ACCOUNTING METHOD - Customer securities transactions and the related
commission income and commission expense are recorded on a settlement date
basis. The financial condition and results of operations using the settlement
date basis are not materially different from that of the trade date basis.
The Company believes the consolidated financial statements presented
herein include all adjustments necessary in order to make the financial
statements not misleading.
5
<PAGE> 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SECURITIES HELD FOR RESALE - Securities held for resale are marked to
market at month-end and the unrealized appreciation or depreciation are included
in the Consolidated Statements of Operations.
DEPRECIATION - Fixed assets are stated at cost and are depreciated over
their estimated useful lives of 3 to 5 years. Depreciation is computed using
straight-line and accelerated methods.
AMORTIZATION - Goodwill is amortized using the straight-line method
over 25 years.
EARNINGS PER SHARE - Primary earnings per common share is based upon
the net income for the period divided by the weighted average number of common
shares and common stock equivalents outstanding during the period. If during the
period there is a net loss, primary earnings per common share is based upon the
net loss for the period divided by the weighted average number of shares
outstanding. For the second quarter of fiscal year 1997 and 1996, the number of
shares used in primary earnings per share calculation, was 1,018,810 and
808,460, respectively. For the first six months of the fiscal year 1997 and
1996, number of shares used in the primary earnings per share calculation was
1,195,698 and 805,776, respectively.
FISCAL YEAR - The Company reports on a fifty-two or fifty three week
year, ending on the last Friday in September.
CASH AND CASH EQUIVALENTS - For the purposes of the Consolidated
Statements of Cash Flows, the Company considers only cash subject to immediate
withdrawal. Cash, cash equivalents and securities as discussed in Note 2 are not
considered a change in cash for this purpose.
RECLASSIFICATION - Certain balances for the quarter ended March 29,
1996 on the accompanying Consolidated Statements of Operations have been
reclassified to conform to the March 27, 1997 presentation. These
reclassifications have no impact on the results of operations.
6
<PAGE> 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2 - CASH, CASH EQUIVALENTS AND SECURITIES
National is required to have cash, cash equivalents and securities
segregated in special reserve bank accounts for the exclusive benefit of
customers under Rule 15c3-3 of the Securities and Exchange Act of 1934 and
consist of:
<TABLE>
<CAPTION>
March 27, September 27,
1997 1996
----------- -----------
<S> <C> <C>
Restricted cash deposits $ 4,000 $ --
U.S. Treasury and GNMA securities 31,176,000 31,426,000
Reverse repurchase agreement 5,025,000 1,579,000
----------- -----------
$36,205,000 $33,005,000
=========== ===========
</TABLE>
The United States Treasury and GNMA securities mature at various dates
through July 2010 and are stated at current market values. The reverse
repurchase agreements are carried at cost which approximates market value.
National purchases these obligations at fixed, variable and adjustable interest
rates in order to reduce its exposure to interest rate changes.
Friend as a fully disclosed broker-dealer is not required to have cash,
cash equivalents and securities segregated in special reserve bank accounts for
the exclusive benefit of customers under Rule 15c3-3 of the Securities and
Exchange Act of 1934.
NOTE 3 - NET CAPITAL REQUIREMENTS
National, as a registered broker-dealer is subject to the Securities
and Exchange Commission's ("SEC") Uniform Net Capital Rule 15c3-1, which
requires the maintenance of minimum net capital. The Company 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 2% of
aggregate debit items. At March 27, 1997 and September 27, 1996, National's net
capital exceeded the requirement by $2,173,000 and $3,274,000, respectively.
Friend, as a registered broker-dealer is also subject to the SEC's Net
Capital Rule 15c3-1, which requires that Friend maintain minimum net capital
equal to the greater of $100,000 or 6 2/3% of aggregate indebtedness. At March
27, 1997, Friend's net capital exceeded the requirement by $773,000.
Advances, dividend payments and other equity withdrawals from National
or Friend are restricted by the regulations of the SEC, and other regulatory
agencies. These regulatory restrictions may limit the amounts that these
subsidiaries may dividend or advance to the Company.
7
<PAGE> 8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4 - ACQUISITIONS
In March 1997, the Company acquired all of the outstanding stock of
Friend, a Southern California based broker-dealer specializing in investment
banking, institutional brokerage, research and trading activities for small to
middle market companies. Friend was acquired in exchange for 250,000 restricted
shares of Olympic. As part of this transaction, the former shareholders of
Friend, who were entitled under the acquisition agreement to withdraw certain
assets prior to closing, provided an $800,000 loan to the Company pursuant to a
promissory note. The note accrued interest at an annual rate of 12%. On April
28, 1997 the Company repaid the note in full. The Company recorded this
transaction under the purchase method of accounting and has recorded goodwill of
$1,261,000, net of amortization, for the purchase price in excess of the net
fair value of the assets acquired.
NOTE 5 - LINE OF CREDIT
During the quarter ended March 1997, National had a revolving credit
facility with a bank and could borrow up to $1,000,000, unsecured and
$15,000,000, secured. Borrowings bear interest at the bank's prime rate with
interest payable monthly. At March 27, 1997 National had outstanding borrowings
on this line of credit of $3,200,000. At September 27, 1996 there were no
outstanding borrowings. Subsequent to the quarter ended March 27, 1997, the
revolving credit facility with the bank was restructured to permit borrowings up
to $3,000,000 unsecured. Additionally, National may borrow up to 70% of the
market value of eligible securities pledged through an unrelated broker-dealer.
NOTE 6 - STOCKHOLDERS' EQUITY
During fiscal year 1997, the Company issued a 5% stock dividend. The
dividend was paid on February 10, 1997 to shareholders of record on January 27,
1997. All references in the accompanying financial statements to earnings per
share, the number of common shares subject to options, and price per share
amounts have been restated.
During fiscal year 1997, the Company adopted a new stock option plan.
In accordance with the plan, the Company authorized options to purchase for a
period of five years up to 250,000 shares of common stock with exercise prices
equal to at least its fair market value at the time such options are granted.
The Company has issued 140,000 options to acquire shares to directors and key
employees under this plan.
NOTE 7 - CONTINGENCIES
National is a defendant in various arbitration and administrative
proceedings, lawsuits and claims which arise in the normal course of business.
Management believes
8
<PAGE> 9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
it has substantial defenses to each of the actions and also
believes the final resolution of these matters will not have a material adverse
impact on National's financial condition or its results of operations.
9
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Quarter Ended March 27, 1997 Compared to Quarter Ended March 29, 1996
Except for historical information contained herein, the matters discussed in
this report contain certain forward-looking information that involve risks and
uncertainties that could cause results to differ materially, including changing
market conditions and other risks detailed in this report, the Company's Annual
Report or Form 10-KSB and other documents filed by the Company with the
Securities and Exchange Commission from time to time.
During its second quarter 1997, the Company began implementation of the largest
growth program in its 50 year history. In the course of restructuring, acquiring
a subsidiary broker-dealer and forming a branch office, the Company incurred
non-recurring, non-operating expenses.
The Company's second quarter 1997 resulted in a net loss of ($75,000) or ($.07)
per share as compared with net income of $467,000 or $0.58 per share for the
same period during 1996. Revenues decreased less than 1% during second quarter
1997 to $7,992,000 from $8,028,000 in 1996, however, expenses increased nearly
10% in 1997 from 1996. This increase in expenses is due to additional costs
relating to the increased level of operations and new corporate structure, and
certain non-recurring, non-operating expenses incurred during the quarter
relating to the formation of Olympic Cascade Financial Corporation ("Olympic")
as a Delaware holding company, the acquisition of another broker-dealer and the
growth in brokerage operations.
In November 1996, the shareholders of National Securities Corporation
("National") approved a restructuring whereby, National shareholders exchanged
their shares on a one-for-one basis for shares of Olympic resulting in National
becoming a wholly-owned subsidiary of Olympic. This restructuring became
effective in February 1997. In March 1997, the Company completed the acquisition
of L.H. Friend, Weinress, Frankson & Presson, Inc ("Friend"), a Southern
California based broker-dealer specializing in investment banking, institutional
brokerage, research and trading activities for small to middle market companies.
As part these transactions, the Company incurred professional fees and other
indirect costs that are non-recurring, non-operating expenses.
Additionally in March 1997, National opened a branch office that added
approximately 40 registered representatives. National incurred expenses related
to opening this branch without the benefit of revenues.
Due to these events the Company had increased expenses of approximately $250,000
during the quarter, with little to no related revenues. These expenditures were
a
10
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
necessary element of management's long-term goal of establishing a significant
market presence in retail and institutional trading and providing financing
options for small and middle sized companies.
During the quarter ended March 1997 commission revenue increased $470,000 or 13%
to $4,076,000 from $3,606,000 in the quarter ended March 1996. This increase was
the result of the strong securities markets, causing increased retail production
generated by current registered representatives as well as the addition of
approximately 40 registered representatives from the quarter ended March 1996 to
the quarter ended March 1997. This increase in registered representatives is
exclusive of the additional registered representatives from the new branch
office. This increase in commission revenue was offset by the decrease in
underwriting revenue for the quarter ended March 1997 as compared with March
1996. Underwriting revenue decreased $510,000 or 20% to $2,026,000 in 1997 from
$2,536,000 in 1996. This decrease in underwriting revenue was due to the size of
underwritings which National managed during each of the quarters. National
managed three underwritings in each quarter, however, during the quarter ended
March 1997 the amount of proceeds raised from these underwritings was
approximately $17 million as compared with approximately $32 million in proceeds
in the quarter ended March 1996.
Finally, other revenue was approximately $234,000 less for the quarter March
1997 as compared with March 1996. The reason for this decrease was due to the
Company receiving keyman life insurance proceeds of $126,000 in March 1996.
The remaining revenues by category were comparable between the two quarters.
Overall expenses increased primarily because of the items mentioned above. As
part of these increases employee compensation increased approximately $331,000
to $1,247,000 in March 1997 from $916,000 in March 1996. This increase was due
mainly to the acquisition of Friend and their related salaries of approximately
$215,000. Interest expense increased $97,000, or 23% to $522,000 from $425,000,
primarily because of increased customer deposits, on which the Company pays
interest. However, this expense was more than offset by the increased interest
and dividend income of $240,000, or 35% to $929,000 from $689,000. Overall, the
Company recorded its largest net interest income, (interest income less interest
expense), of $407,000, up $44,000 from the previous high amount of $363,000 in
first quarter 1997.
Six Months Ended March 27, 1997 Compared to Six Months
Ended March 29, 1996
Earnings for the first six months of fiscal 1997 totaled $508,000 or $0.42 per
share versus $403,000 or $0.50 per share for the first six months of fiscal
1996. Total revenues increased 38% to $17,523,000 in fiscal 1997 from
$12,739,000 in fiscal 1996. Concurrent with this increase in revenues was a 37%
increase in expenses to $16,753,000
11
<PAGE> 12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
in fiscal 1997 from $12,194,000 in fiscal 1996. The majority of the increase in
expenses is directly related to increase in revenues. However, the Company
incurred additional non-operating expenses during the six months ended 1997
which are discussed in the quarterly comparisons above.
The most significant components of the increase in total revenues is the
increase in underwriting revenue and the increase in commissions. Underwriting
revenue increased $4,016,000 or 144% to $6,806,000 in 1997 from $2,790,000 in
1996. This increase was the result of National managing five underwritings which
totaled more than $104 million in proceeds raised during the first six months of
1997 as compared with National managing four underwritings totaling
approximately $39 million raised during the first six months of 1996.
Additionally, commission revenue increased $1,453,000 or 22% to $7,964,000 in
1997 from $6,511,000 in 1996 due to increased production of approximately 40
additional registered representatives, however, the increase in commissions was
offset by approximately $995,000 decrease in trading profits. The decrease in
trading profits were the result of trading losses from National in the first
quarter fiscal 1997. Generally, National recovers these trading losses from the
traders.
Correspondingly, commission expense, the most significant expense component,
increased by $2,866,000 or 39% to $10,178,000 in 1997 from $7,312,000 in 1996.
The increase in commission expense is a direct result of the increase in
revenues. Commission expense as a percentage of commission related revenues
(commissions, inventory gains, underwriting and advisory fees), was
approximately 67% in 1997 compared with approximately 68% in 1996.
Taxes, license and registration expenses increased $309,000 to $509,000 in 1997
from $200,000 in 1996. This increase was due to increased taxes that are based
on total revenues and increased registration related to the additional
registered representatives, including the new branch, as discussed in the
quarterly results.
The Company's financial success is greatly influenced by the strength of the
securities markets. While management is optimistic that the financial markets
will remain healthy, a downturn in these markets could have an adverse effect on
future profitability. Management believes a market downturn may provide the
opportunity to acquire additional sources of production at a reasonable cost.
Management is hopeful that the investments the Company made during the last six
months will allow the Company to continue to grow and improve future earnings.
Liquidity and Capital Resources
As with most financial firms, a substantial portion of the Company's assets are
liquid, consisting mainly of cash or assets readily convertible into cash. These
assets are financed primarily by the Company's interest bearing and non-interest
bearing customer credit balances, other payables and equity capital.
Occasionally, the Company utilizes
12
<PAGE> 13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
short-term bank financing to supplement its ability to meet day-to-day operating
cash requirements. Such financing has been used to maximize cash flow and is
regularly repaid. Additionally, National has an unsecured operating line of
credit with Seafirst Bank up to $3,000,000 and may borrow up to 70% of the
market value of eligible securities pledged through an unrelated broker-dealer.
These borrowings are short-term and have not extended beyond a few days. The
Company has no long-term cash borrowings.
National, as a registered broker-dealer is subject to the Securities and
Exchange Commission's ("SEC") Uniform Net Capital Rule 15c3-1, which requires
the maintenance of minimum net capital. The Company has elected to use the
alternative standard method permitted by the rule. This requires that the
Company maintain minimum net capital equal to the greater of $250,000 or 2% of
aggregate debit items. At March 27, 1997 and September 27, 1996, National's net
capital exceeded the requirement by $2,173,000 and $3,274,000, respectively.
Friend, as a registered broker-dealer is also subject to the SEC's Net Capital
Rule 15c3-1, which requires that Friend maintain minimum net capital equal to
the greater of $100,000 or 6 2/3% of aggregate indebtedness. At March 27, 1997,
Friend's net capital exceeded the requirement by $773,000.
Advances, dividend payments and other equity withdrawals from National or Friend
are restricted by the regulations of the SEC, and other regulatory agencies.
These regulatory restrictions may limit the amounts that these subsidiaries may
dividend or advance to the Company.
The objective of liquidity management is to ensure the Company has ready access
to sufficient funds to meet commitments, fund deposit withdrawals and
efficiently provide for the credit needs of customers. Cash flow from operations
and earnings contribute significantly to liquidity.
National requires its Investment Executives to be responsible for substantially
all of the overhead expenses associated with their sales efforts, including
their office furniture, sales assistants, telephone service and supplies.
The Company believes its internally generated liquidity, together with access to
external capital and debt resources, will be sufficient to satisfy existing
operations. However, if the Company continues to expand its operations and
acquire other businesses the Company will require additional capital.
Inflation
The Company believes that the effect of inflation on its assets, consisting of
cash, securities, office equipment, leasehold improvements and computers has not
been significant.
13
<PAGE> 14
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Whereas inflation has not had a materially adverse impact on the costs or the
operations of the Company, inflation does have an effect on the Company's
business. Increases in inflation are generally accompanied by increases in
precious metal prices. As a result, there is investor interest in precious
metal-related securities, which is a significant revenue source for the Company.
At the same time, however, increases in inflation rates may be accompanied by
increases in interest rates, both of which may adversely affect short-term stock
prices and performance and, thereby, adversely affect the Company's performance.
Additionally, as inflation increases the effect on Corporate Finance activities
may change dramatically. If the interest rates rise then the demand for
underwritings may decrease, however, other Corporate Financing activities may
become abundant, such as financial advisory services. It is, therefore,
difficult to predict the net impact of inflation on the Company.
14
<PAGE> 15
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 SUBSIDIARIES
May 12, 1997 By /s/ Steven A. Rothstein
Date ------------------------------------
Steven A. Rothstein, Chairman, President
and Chief Executive Officer
May 12, 1997 By /s/ Robert H. Daskal
Date ------------------------------------
Robert H. Daskal, Senior Vice
President, Chief Financial Officer
and Treasurer
15
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-26-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-27-1997
<CASH> 39
<RECEIVABLES> 22,583
<SECURITIES-RESALE> 3,019
<SECURITIES-BORROWED> 3,168
<INSTRUMENTS-OWNED> 36,205
<PP&E> 1,167
<TOTAL-ASSETS> 69,094
<SHORT-TERM> 4,000
<PAYABLES> 57,206
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 407
<LONG-TERM> 0
0
0
<COMMON> 24
<OTHER-SE> 7,457
<TOTAL-LIABILITY-AND-EQUITY> 69,094
<TRADING-REVENUE> 719
<INTEREST-DIVIDENDS> 929
<COMMISSIONS> 4,076
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