SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)
         |X|      ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934    [FEE REQUIRED]

For the fiscal year ended December 31, 2002
                          -----------------
                                       OR
         |_|      TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ---------------------------------- to
                           Commission File No. 0-6729

                                      FIRST MONTAUK FINANCIAL CORP.
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             (Exact name of registrant as specified in its charter)

           New Jersey                                               22-1737915
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(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                              Identification No.)

328 Newman Springs Road, Red Bank, NJ                                  07701
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 (Address of principal executive offices)                            (Zip Code)

Registrant's telephone number, including area code               (732) 842-4700
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Securities registered pursuant to Section 12(b) of the Act:

                                                      Name of each exchange on
        Title of each class                               which registered
-------------------------------------      -------------------------------------
                None
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Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, no par value
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                                (Title of class)

                            [Cover Page 1 of 2 Pages]

<PAGE>



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act 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 check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined by rule 12b-2 of the Act)  Yes        No X

        The aggregate market value of the voting and non-voting common stock
held by non-affiliates, computed by reference to the average bid and asked price
of such common equity as of June 30, 2002, which average price was $0.485, was
$3,509,481.

The number of shares of Common Stock outstanding, as of April 11, 2003 was
8,527,164.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                 Not Applicable



                            [Cover Page 2 of 2 Pages]


<PAGE>


                                     PART I

Item 1.   Business
Introduction

         First Montauk Financial Corp. ("FMFC" or the "Company") is a New
Jersey-based financial services holding company whose principal subsidiary,
First Montauk Securities Corp. ("FMSC"), has operated as a full service retail
and institutional securities brokerage firm since 1987. FMSC provides a broad
range of securities brokerage and investment services to a diverse retail and
institutional clientele, as well as corporate finance and investment banking
services to corporations and businesses. In 1997, FMSC established Century
Discount Investments, a discount brokerage division. FMFC also sells insurance
products through its subsidiary Montauk Insurance Services, Inc. ("MISI").

         FMSC has approximately 500 registered representatives and services over
60,000 retail and institutional customer accounts. With the exception of two
Company-leased branch offices, all of FMSC's 150 other branch office and
satellite locations in 32 states are owned and operated by affiliates,
independent owners who maintain all appropriate licenses and are responsible for
all office overhead and expenses. FMSC also employs registered representatives
directly at its corporate office and the Company-leased branch offices.

         FMSC is registered as a broker-dealer with the Securities and Exchange
Commission ("SEC"), the National Association of Securities Dealers Regulation,
Inc. ("NASDR"), the Municipal Securities Rule Making Board ("MSRB"), and the
Securities Investor Protection Corporation ("SIPC") and is licensed to conduct
its brokerage activities in all 50 states, the District of Columbia, and the
Commonwealth of Puerto Rico. All securities transactions are cleared through
Fiserv Securities, Inc. of Philadelphia, PA. and various floor brokerage and
specialist firms provide execution services. These arrangements provide FMSC
with back office support, transaction processing services on all principal,
national and international securities exchanges, and access to many other
financial services and products which allows FMSC to offer products and services
comparable to large brokerage firms.

         FMSC's revenues consist primarily of commissions and fee income from
individual and institutional securities transactions, market making activities
and investment banking services, such as private and public securities
offerings. The following table represents the percentage of revenues generated
by each of these activities during the last fiscal year:

Equities:
  Listed & Over-The-Counter Stocks                            52%
Debt Instruments:
   Municipal, Government and Corporate Bonds                   5%
Unit Investment Trusts                                         2%
Mutual Funds                                                  15%
Options: Equity & Index                                        7%
Insurance and Annuities                                       13%
Miscellaneous (1)                                              6%
                                                             ----
Total                                                        100%
------------------------------------------------------------------
(1) Miscellaneous includes corporate finance activities, investment banking fees
and interest and other income.

         The following table reflects FMSC's various sources of revenues and the
percentage of total revenues for fiscal 2002. Revenues from agency transactions
in securities for individual customers of FMSC are shown as commissions.
Revenues from transactions in securities for individual customers where FMSC
acted in a principal capacity are reflected in principal transactions. Also
reflected in principal transactions are trading profits from market making and
proprietary trading activities.
<PAGE>

                                              Year Ended December 31, 2002

                                             Amount                  Percent
Agency commissions from
   Equity Securities,
   Options and Mutual Funds,
   Variable insurance and management fees  $36,514,000                 76%

   Principal Transactions in
   Equity Securities, Municipal,
   Government and Corporate Bonds          $ 7,369,500                 15%

   Interest and other Income               $ 3,718,000                  8%

   Investment Banking(1)                   $   366,000                  1%
                                            ----------                ----

         Total Revenues                    $47,967,000                100%


         (1) Investment banking revenues consist of commissions, selling
concessions, consulting fees and other income from underwriting and syndicate
activities and placement agent fees.

The Affiliate Program

         FMSC's primary method of operation is through its affiliate program,
which allows registered representatives to operate as independent contractors. A
registered representative who becomes an affiliate of FMSC establishes his/her
own office and is solely responsible for the payment of all expenses associated
with the operation of the branch office, including rent, utilities, furniture,
equipment, stock quotation machines, and general office supplies. In return, the
affiliate representative retains a significantly higher percentage of the
commissions generated by his/her sales than a registered representative in a
traditional brokerage arrangement. The affiliate program is designed to attract
experienced brokers with existing clientele who desire to operate their own
offices, as well as other professionals in all facets of the financial services
industry.

         Affiliates must possess a sufficient level of commission brokerage
business and experience to enable the individual to independently support
his/her own office. Financial professionals such as insurance agents, real
estate brokers, financial planners, and accountants, who already provide
financial services to their clients, can affiliate with FMSC and obtain the
required licenses to become registered representatives. Affiliation enables
these professionals to offer securities products and services to their clients
through FMSC, and insurance products through MISI, and earn commissions and fees
for these transactions and services.

         FMSC provides full support services to each of the affiliates,
including access to stock and options execution and over-the-counter stock
trading; products such as insurance, mutual funds, unit trusts and investment
advisory programs; and research, compliance, supervision, accounting and related
services.

         Each affiliate is required to obtain and maintain in good standing each
license required by the SEC and NASDR to conduct the type of securities business
in which the affiliate will engage, and to register in the various states in
which he/she intends to service customers. FMSC is ultimately responsible for
supervising each affiliate and associated registered representative. FMSC can
incur substantial liability from improper actions of any of the affiliate
representatives. The Company maintains a professional liability errors and
omissions insurance policy which provides coverage for certain actions taken
and/or omissions made by the Company's registered representatives, employees and
other agents in connection with the purchase and sale of securities and the
administration of individual retirement plans.

Montauk Insurance Services

         In 1991, FMFC formed Montauk Insurance Services, Inc ("MISI") for the
purpose of offering and selling variable annuity, variable life as well as
traditional life and health insurance products. Currently, MISI is licensed to
sell life insurance and annuities in 49 states. MISI derives revenue from the
sale of insurance-related products and services to the customers of FMSC's
registered representatives, who are also licensed to sell certain insurance
products. In fiscal year 2002, the Company earned gross commissions of $5.1
Million from the sale of insurance and annuity products.
<PAGE>


Asset Management and Portfolio Advisory Services

         FMSC is a SEC Registered Investment Adviser, providing investment
advisory services to clients through independent, third-party sponsored advisory
programs offered to individual and institutional clients. FMSC is registered or
eligible to conduct business as an investment adviser in 33 states.

         Managed account programs generally require the client to pay a single
fee for portfolio advisory services, brokerage execution and custody and
periodic account performance evaluation, rather than a fee plus commissions.
Revenues from asset-managed accounts and portfolio advisory services are
generated from accounts that charge a fee based on a percentage of assets under
management.

Investment Banking

         FMSC participates in private and public offerings of equity securities
and provides general investment banking consulting services to various public
and private corporations. Historically, FMSC has not derived a significant
amount of its revenues from investment banking. The Company continues to review
underwriting candidates and anticipates that it will engage in additional public
and private offerings in the future as business and market conditions warrant.

Montauk Capital Markets Group

         In March 2002, FMSC formed a new institutional brokerage division,
Montauk Capital Markets Group, which offers institutional clients specialized
trading and brokerage services and equity research. This new division is headed
by an institutional trader and research analyst with over 20 years of experience
who holds an MBA from Harvard Business School. The division is supported by a
staff of 3 additional research analysts and traders with substantial
institutional experience. In order to accommodate this new division, the Company
entered into a new sub-lease arrangement for office space in Mid-town Manhattan.
(See Item 2. "Properties")

Clearing Arrangement

         In May 2000, FMSC entered into a 10-year clearing agreement with Fiserv
Securities, Inc. under which Fiserv will act as FMSC's primary clearing broker.
In connection with the clearing agreement, FMSC and Fiserv also entered into a
financial agreement under which Fiserv provided a cash advance of $4,000,000 to
FMSC on the date that FMSC transferred to Fiserv. The funds, net of federal and
state income taxes, were used primarily to enable FMSC to pay for the cost of
conversion to Fiserv and expand FMSC's business. For financial reporting
purposes, the Company will earn the advance in accordance with an amortization
schedule established by the parties; however, FMSC will incur an income tax
liability at its effective tax rate on the entire advance in the year in which
it is received. FMSC is required to repay any unearned portion of the $4,000,000
in the event it fails to achieve certain minimum performance criteria, or
terminates the agreement under certain circumstances prior to the expiration
date, as well as penalties for early termination. Fiserv has also agreed to
provide certain additional advances to FMSC in the second, third and fourth
years of the agreement under similar conditions, provided FMSC achieves certain
performance criteria, and subject to certain other conditions. These advances
have, and will continue to be amortized to income as earned during the term of
the clearing agreement.

         In February 2001 FMSC and FMFC amended and restated the financial
agreement with Fiserv. Under the restated terms, FMFC, rather than FMSC, is and
will continue to be the recipient of any additional cash advances payable under
the financial agreement. In November 2001 and November 2002 FMFC received two
scheduled cash advances of $1,250,000 each from Fiserv. FMFC has further assumed
FMSC's obligation with respect to the initial payment received in November 2000,
and will be solely responsible for any performance and early termination
penalties. In consideration of FMSC's release from its obligations under the
financial agreement and to secure Fiserv's interest, FMFC has granted to Fiserv
a first priority lien in all of the outstanding shares of FMSC stock that it
owns.

Debenture Offering

         In October 2002, FMFC commenced a private offering of up to $3,000,000
of 6% convertible debentures to accredited investors. The debentures are
initially convertible into shares of the FMFC's common stock at the conversion
price of $0.50 per share. Interest on the debentures accrues at the rate of 6%
per annum and is payable in cash on a semi-annual basis on April 1st and October
1st of each year until maturity or conversion. Each debenture is due and payable
five (5) years from issuance, unless previously converted into shares of Common
Stock. The offering expired on March 1, 2003. In the offering, FMFC sold an
aggregate amount of $1,240,000 of debentures. The proceeds of the financing will
be used to satisfy the general working capital needs of the Company. The
offering was made to certain "accredited investors" only.
<PAGE>


         Each debenture is convertible at an initial conversion price of $0.50
per share, subject to adjustment for stock dividends, combinations, splits,
recapitalizations, and like events. Each holder shall have the right to convert
its debentures, at the option of such holder, at any time, into shares of FMFC
common stock at the then applicable conversion price. In addition, FMFC at its
option, may demand the holders convert some or all of the debentures into shares
of common stock in the event that the closing bid price of its common stock is
200% of the conversion price for the twenty consecutive trading days prior to
the date of the notice of conversion.

         Further, FMFC, at its option, may prepay some or all of the debentures
in the event that the closing bid price of its common stock is 200% of the
conversion price for the twenty consecutive trading days prior to the date of
the notice of prepayment. The prepayment amount shall be 130% of the principal
amount of the debentures from the date of issuance until the first anniversary
of the date of issuance, together with accrued and unpaid interest. Thereafter,
the prepayment amount shall be equal to 120% of the principal amount of the
debentures, together with accrued and unpaid interest through the date of
prepayment.

         FMSC served as FMFC's placement agent for the sale of the debentures.
FMFC paid commissions of ten percent (10%) of the principal amount sold, and
issued Warrants to purchase 124,000 shares of Common Stock, exercisable at $0.50
per share, which expire five (5) years from the date of issuance, to registered
representatives of FMSC who participated in the sale of the debentures.

         The debentures have not been registered for offer or sale under the
Securities Act; such securities have been issued on the basis of the statutory
exemption provided by Section 4(2) of the Securities Act, as amended, and/or
Rule 506 of Regulation D, promulgated thereunder relating to transactions by an
issuer not involving any public offering; and the transaction has not been
reviewed by, passed on or submitted to any Federal or state agency or
self-regulatory organization where an exemption is being relied upon. The
securities may not be sold, assigned or transferred unless (i) the sale,
assignment or transfer of such securities is registered under the Securities
Act, or (ii) the securities are sold, assigned or transferred in accordance with
all the requirements and limitations of Rule 144 under the Securities Act.
Holders of debentures shall have the right to include the shares of common stock
issuable upon conversion of the debentures in a registration statement filed by
FMFC other than a registration statement on Form S-4 or S-8, or a successor
form.

Competition

         FMSC encounters intense competition in all aspects of its business and
competes directly with many other securities firms for clients, as well as
registered representatives. A significant number of such competitors offer their
customers a broader range of financial services and have substantially greater
resources. Retail firms such as Merrill Lynch Pierce Fenner & Smith
Incorporated, Salomon Smith Barney, Inc. and Morgan Stanley/Dean Witter dominate
the industry; however, the Company also competes with numerous regional and
local firms. FMSC also competes for experienced brokers with other firms
offering an independent affiliate program such as National Securities Corp.,
Raymond James Financial Services, Inc. and Linsco/Private Ledger Corp.

         In addition, a number of firms offer discount brokerage services to
individual retail customers and generally effect transactions at substantially
lower commission rates on an "execution only" basis, without offering other
services such as investment recommendations and research. Moreover, there is
substantial commission discounting by full-service broker-dealers competing for
institutional and individual brokerage business. In 1997 the Company entered the
discount brokerage arena through its Century Discount Investments division.
Additionally, the emergence of online trading has further intensified the
competition for brokerage customers. The continued expansion of discount
brokerage firms and online trading could adversely affect the Company's retail
business.

         Other financial institutions, notably commercial and savings banks
offer customers some of the same services and products presently provided by
securities firms. In addition, certain large corporations have entered the
securities industry by acquiring securities firms. While it is not possible to
predict the type and extent of competitive services that banks and other
institutions ultimately may offer to customers, FMSC may be adversely affected
to the extent those services are offered on a large-scale basis.

         FMSC competes through its advertising and recruiting programs for
registered representatives interested in joining its affiliate program. FMSC
often offers incentives to qualified registered representatives to join the
Company. These incentives can include cash loans, both forgivable based on
duration of association and/or production levels, as well as non-forgivable,
incentive stock options and a higher payout. Through its clearing relationship,
FMSC has implemented on-line information systems to service its affiliates and
to attract new brokers. The systems will enable brokers at any office to
instantly access customer accounts, determine cash positions, send and receive
electronic mail, and receive research reports and compliance memoranda via the
firm's intranet component of its newly redesigned website.
<PAGE>

Government Regulation

         The securities industry in the United States is subject to extensive
regulation under various federal and state laws and regulations. The SEC is the
federal agency charged with the administration of most of the federal securities
laws. Much of the regulation of the securities industry, however, has been
assigned to various self-regulatory organizations ("SROs"), principally the
NASDR, and in the case of New York Stock Exchange, Inc. ("NYSE") member firms,
the NYSE. The SROs, among other things, promulgate regulations and provide
oversight in areas of (i) sales practices, (ii) trade practices among
broker-dealers, (iii) capital requirements, (iv) record keeping and (v) conduct
of employees and affiliates of member organizations. In addition to promulgating
regulations and providing oversight, the Commission and the SROs have the
authority to conduct administrative proceedings which can result in the censure,
fine, suspension or expulsion of a broker-dealer, its officers or employees.
Furthermore, new legislation, changes in the rules and regulations promulgated
by the Commission and SROs, or changes in the interpretation or enforcement of
existing laws and rules often directly affect the operation and profitability of
broker-dealers. The stated purpose of much of the regulation of broker-dealers
is the protection of customers and the securities markets rather than the
protection of creditors and shareholders of broker-dealers.

Employees

         The Company currently has approximately 500 registered representatives
of which 411 are associated with affiliate offices. In addition, the Company
employs 100 support personnel in the areas of operations, compliance,
accounting, and administration. FMFC believes its relationship with its
employees is satisfactory.

Fidelity Bond

         As required by the NASDR and certain other authorities, FMSC carries a
fidelity bond covering loss or theft of securities, as well as embezzlement and
forgery. The bond provides total coverage of $5,000,000 (with a $10,000
deductible provision per incident). In addition, the accounts of its customers
are protected by the Securities Investor Protection Corporation ("SIPC") for up
to $500,000 for each customer, subject to a limitation of $100,000 for claims
for cash balances, with an additional $99,000,000 of protection provided by a
private insurance company for the benefit of each customer. SIPC is funded
through assessments on registered broker-dealers. SIPC charges a flat annual fee
of $150.

Securities Broker/Dealer Professional Liability Insurance

         FMSC carries a securities Broker/Dealer professional liability
insurance policy (the "Policy") underwritten by National Union First Insurance
Company of Pittsburgh, PA, a subsidiary of American International Companies. The
Policy provides coverage for any negligent act, error or omission by an insured
individual acting on behalf of the insured Broker/Dealer in providing securities
transactions, investment management services, the giving of financial investment
advise and the purchase and/or sale of securities. The Policy excludes from
coverage certain types of business activity, including but not limited to,
claims involving the sale of penny stocks and limited partnerships, accounts
handled on a discretionary basis and deliberately fraudulent and/or criminal
acts. The Policy term is from January 31, 2003 to January 31, 2004, with a $1
Million limit of liability for each covered event and a $3 Million aggregate
liability limit. The Company is responsible for a $100,000 deductible payment
per claim, of which $10,000 is offset to the registered representative involved
in the claim. Our agent has advised us that the market for this type of
insurance coverage is contracting. We therefore have no assurance that the
Policy will be renewed when it expires next year, or that acceptable replacement
coverage can be obtained at an affordable price. It is therefore possible that
after the termination of this Policy period, that the Company may not have this
type of insurance protection which may adversely impact the financial condition
of the Company in the event of material claims in the future which may not be
covered by existing policies.

Executive and Organization Liability Insurance Policy

         FMFC carries an executive and organization liability insurance policy
(also known as Directors and Officers liability insurance), which covers the
Company's executive officers, directors and counsel against any claims for
monetary damages arising from the covered individuals actual or alleged breach
of duty, neglect, error, misstatement, misleading statement or omission when
acting in the capacity of his/her position as an executive officer, director
and/or counsel on behalf of the Company. Policy exclusions include, but are not
limited to, claims made against covered individuals attributable to the
committing of any deliberate criminal or fraudulent acts, illegal or improper
payments, and others. The policy, underwritten by Greenwich Insurance Company of
Stamford, Connecticut, provides for coverage in the amount of $5 Million with a
deductible of $250,000 for all claims, during the policy period which runs from
March 30, 2003 to March 30, 2004.
<PAGE>

                                  Risk Factors

The Company's business is inherently risky and it has suffered losses

         For the years ended December 31, 2002, 2001 and 2000, the Company
reported revenues of $47,967,000, $51,220,000 and $59,330,000, respectively. It
suffered net losses of $2,960,000, $5,208,000 and $689,000 for the fiscal years
ended December 31, 2002, 2001 and 2000, respectively. The Company may incur
further losses in the future, and such losses would necessarily affect the
nature, scope and level of the Company's future operations. The results of
operations to date are not necessarily indicative of the results of future
operations. The securities business, by its very nature, is subject to various
risks and contingencies, many of which are beyond the ability of the Company's
management to control. These contingencies include economic conditions generally
and in particular those affecting securities markets, interest rates,
discretionary income available for investment; losses which may be incurred from
underwriting and trading activities; customer inability to meet commitments,
such as margin obligations; customer fraud; and employee misconduct and errors.
Further, the nature and extent of underwriting, trading and market making
activities, and hence the volume and scope of the Company's business is directly
affected by its available net capital.

Fluctuations in securities volume and prices increase the potential for
future losses

         The Company and the securities industry in general, are directly
affected by national and international economic and political conditions, broad
trends in business and finance, the level and volatility of interest rates,
changes in and uncertainty regarding tax laws and substantial fluctuations in
the volume and price levels of securities transactions. The Company and the
securities industry in general, are subject to other risks, including risks of
loss from the underwriting of securities, counter party (a party to which we
have credit or performance exposure) failures to meet commitments, customer
fraud, employee errors or misconduct and litigation. In addition, price
fluctuations may cause losses on securities positions. As the Company expands
its investment banking activities and more frequently serves as manager or
co-manager of public offerings of securities, it can expect to make increased
commitments of capital to market-making activities in securities of those
issuers. The expected additional concentration of capital in the securities of
those issuers held in inventory will increase the risk of loss from reductions
in the market price. Low trading volume or declining prices generally results in
reduced revenues. Under these conditions, profitability is adversely affected
since many costs, other than commission compensation and bonuses, are fixed.
Heavy trading volume has caused serious operating problems, including delays in
clearing and processing, for many securities firms in the past and may do so in
the future.

Principal and brokerage transactions and lending activities expose the Company
to losses

         The Company's trading, market making and underwriting activities
involve the purchase, sale or short sale of securities as a principal and,
accordingly, involve the risk of changes in the market prices of those
securities and the risk of a decrease in the liquidity of markets which would
limit the Company's ability to resell securities purchased or to
repurchase securities sold in principal transactions. FMSC's brokerage
activities and principal transactions are subject to credit risks. For example,
a customer may not respond to a margin call, and since the securities being held
as collateral have diminished in value, there is a risk that the Company may not
recover the funds loaned to the customer.

Competition in the brokerage industry may adversely impact our retail business.

         The Company encounters intense competition in all aspects of its
business and compete directly with many other securities firms, a significant
number of which offer their customers a broader range of financial services,
have substantially greater resources and may have greater operating
efficiencies. In addition, a number of firms offer discount brokerage services
to individual retail customers and generally effect transactions at lower
commission rates on an "execution only" basis without offering other services
such as investment recommendations and research. The further expansion of
discount brokerage firms could adversely affect the Company's retail business.
Moreover, there is substantial commission discounting by full-service
broker-dealers competing for institutional and individual brokerage business.
The possible increase of this discounting could adversely affect the Company.
Other financial institutions, notably commercial banks and savings and loan
associations, offer customers some of the services and products presently
provided by securities firms. In addition, certain large corporations have
entered the securities industry by acquiring securities firms. While it is not
possible to predict the type and extent of competitive services which banks and
other institutions ultimately may offer to customers, the Company may be
adversely affected to the extent those services are offered on a large scale.
<PAGE>


The Company is subject to various risks in the securities industry.

       As a securities broker-dealer, the Company's subsidiary is subject to
uncertainties that are common in the securities industry. These uncertainties
include:

        -  the volatility of capital markets;
        -  governmental regulation;
        -  litigation;
        -  intense competition;
        -  substantial fluctuations in the volume and price level of
            securities; and
        -  dependence on third parties.

         As a result, revenues and earnings may vary significantly from period
to period. In periods of low volume, profitability is impaired because certain
expenses remain relatively fixed. The Company is smaller and have less capital
than many competitors in the securities industry. In the event of a market
downturn, the Company's business could be adversely affected in many ways,
including those described herein. The Company's revenues are likely to decline
in such circumstances and, if it is unable to reduce expenses accordingly, the
Company's financial condition and results of operations would be adversely
affected.

The Company may incur liability due to securities-related litigation.

        Many aspects of the Company's business involve substantial risks of
liability, including exposure to liability under applicable federal and state
securities laws in connection with the activity of the Company's associated
persons, as well the underwriting and distribution of securities. In recent
years, there has been an increasing incidence of litigation involving the
securities industry in general, which seeks both rescissionary and punitive
damages. During the year ended December 31, 2002, the Company incurred
$1,259,500 in litigation costs, reserves and expenses related to various legal
claims and settlements. Management believes that, based on historical experience
and the reserves that the Company has established, the resolution of the claims
presently pending will not have a material adverse effect on our financial
condition. However, although the Company typically reserves an amount it
believes will be sufficient to cover any damages assessed, it may be assessed
damages that exceed its reserves. If the Company misjudges the amount of damages
that may be assessed against it from pending or threatened claims, or if the
Company is unable to adequately estimate the amount of damages that may be
assessed against is from claims that arise in the future and reserve
accordingly, the Company's financial condition may be materially adversely
affected.

         The securities industry in general and the Company's business in
particular is subject to extensive regulation by the SEC, state securities
regulators and other governmental regulatory authorities. The broker-dealer is
also regulated by industry self-regulatory organizations, including the NASDR
and the Municipal Securities Rulemaking Board. FMSC is a registered
broker-dealer with the SEC and a member firm of the NASDR. Broker-dealers are
subject to regulations which cover all aspects of the securities business,
including:

        -  sales methods and supervision;
        -  trading practices among broker-dealers;
        -  use and safekeeping of customers' funds and
           securities;
        -  capital structure of securities firms;
        -  record keeping; and
        -  the conduct of directors, officers, agents and
           employees.

            Much of the regulation of broker-dealers has been delegated to
self-regulatory organizations, principally the NASD Regulation, Inc., the
regulatory arm of the NASD, which is FMSC's primary regulator. NASD Regulation
adopts rules, subject to approval by the SEC, that govern its members and
conducts periodic examinations of member firms' operations.

         Compliance with these regulations involves a number of risks,
particularly where the regulations may be subject to varying interpretation. If
we are found to have violated an applicable regulation, an administrative or
judicial action may be initiated against us that may result in penalties which
could have a material adverse effect on our operating results and financial
condition, including but not limited to:

        -  censure;
        -  fine;
        -  civil damage awards, including treble damages in the case of insider
           trading violations;
        -  the issuance of cease-and-desist orders; or
        -  the deregistration or suspension of our broker-dealer activities
           and/or our employees.

<PAGE>


The Company depends upon registered representatives.

         Most aspects of the Company's business are dependent on highly skilled
and experienced individuals. The Company has devoted considerable efforts to
recruiting and compensating those individuals and provides incentives to
encourage them to remain employed by or associated with the Company. Individuals
associated with the Company may in the future leave our company at any time to
pursue other opportunities.

The Company depends upon its founders.

         For the foreseeable future, the Company will be substantially dependent
upon the personal efforts and abilities of its President, Mr. Herbert Kurinsky
and our Executive Vice-President, Mr. William Kurinsky to coordinate, implement
and manage its business plans and programs. The loss or unavailability of the
services of either of them would likely have a material adverse affect on the
business, operations and prospects of the Company. The Company has obtained, for
its benefit, a life insurance policy on the life of Mr. Herbert Kurinsky in the
amount of $500,000.

FMSC must comply with Net Capital Requirements.

         The business of the Company's broker-dealer, like that of other
securities firms, is capital intensive. The SEC and the NASD have stringent
provisions with respect to net capital requirements applicable to the operation
of securities firms. A significant operating loss or any charge against net
capital could adversely affect the Company's ability to significantly expand or,
depending upon the magnitude of the loss or charge, to maintain its present
level of business.

The Company is exposed to risks due to its investment banking activities.

         Participation in an underwriting syndicate or a selling group involves
both economic and regulatory risks. An underwriter may incur losses if it is
unable to resell the securities it is committed to purchase, or if it is forced
to liquidate its commitment at less than the purchase price. In addition, under
federal securities laws, other laws and court decisions with respect to
underwriters' liabilities and limitations on the indemnification of underwriters
by issuers, an underwriter is subject to substantial potential liability for
misstatements or omissions of material facts in prospectuses and other
communications with respect to such offerings. Acting as a managing underwriter
increases these risks. Underwriting commitments constitute a charge against net
capital and the Company's ability to make underwriting commitments may be
limited by the requirement that it must at all times be in compliance with the
Net Capital Rule.

        The Company relies on one clearing firm and the termination of the
clearing agreement with this firm could disrupt FMSC's business.

            FMSC uses one clearing broker, Fiserv Securities, Inc., to process
its securities transactions, maintain customer accounts, control, receive,
custody and deliver securities, on a fee basis. We depend on the operational
capacity and ability of the clearing broker for the orderly processing of
transactions. If the clearing agreement is terminated for any reason, or if the
clearing firm fails to provide its functions for the Company in the normal
course of business, the Company would be forced to find an alternative clearing
firm. There is no assurance that the Company would be able to find an
alternative clearing firm on acceptable terms to it or at all.

The Company does not pay dividends on its common stock.

        The Company does not pay dividends on the issued and outstanding shares
of its common stock. However, it pay 6% quarterly dividends on the outstanding
shares of our Series A Preferred Stock and pay interest at the rate of 6% on the
outstanding debentures issued in the recently completed private placement.
Applicable laws, rules and regulations under the New Jersey Business Corporation
Act, the Securities Act of 1933, as amended, as well as regulations of the
NASDR may affect the Company's ability to declare and pay dividends.


The conversion of outstanding convertible securities may result in dilution to
the Company's common shareholders.

         Dilution of the per share value of the Company's common shares could
result from the conversion of most or all of the currently outstanding
debentures and shares of Series A Preferred Stock. The Company issued an
aggregate of $1,240,000 of debentures in a private offering completed March 1,
2003. The debentures are convertible into shares of the Company's common stock
at an initial conversion rate of $0.50. In 1999, the Company issued an aggregate
of 349,511 shares of Series A Preferred Stock in connection with an exchange
offer. Currently, 330,250 Series A Preferred Shares remain outstanding and
convertible into 660,500 shares of common stock at the rate of $2.50 per share.
However, if the last sale price of the common stock is $3.50 or more a share
for 20 consecutive trading days, as listed on the Over-the-Counter Bulletin
Board, the Series A Shares will automatically be converted into shares of
common stock.
<PAGE>


         Dilution could create significant downward pressure on the trading
price of the Company's common stock if the conversion of the debentures and/or
Series A Shares and resale of the common shares received upon conversion
encouraged short sales by the holders of debentures, Series A Preferred Stock or
other shareholders. Even the mere perception of eventual sales of common shares
issued on the conversion of the debentures and Series A Preferred Stock could
lead to a decline in the trading price of our common stock. The Company may
issue a maximum of 2,480,000 shares of common stock upon conversion of the
debentures and 660,500 shares of common stock upon conversion of the Series A
Preferred Stock.

The Company has sold restricted shares which may depress the common stock price.

         As of April 11, 2003, of the 8,527,164 issued and outstanding shares of
our common stock, approximately 2,396,741 shares may be deemed restricted shares
and, in the future, may be sold in compliance with Rule 144 under the securities
Act of 1933, as amended. Rule 144 provides that a person holding restricted
securities for a period of one year may sell in brokerage transactions an amount
equal to 1% of our outstanding common stock every three months. A person who is
a non-affiliate of the Company and who has held restricted securities for over
two years is not subject to the aforesaid volume limitations as long as the
other conditions of the Rule are met. Possible or actual sales of our common
stock by certain of the Company's present shareholders under Rule 144 may, in
the future, have a depressive effect on the price of the common stock in any
market which may develop for such shares. Such sales at that time may have a
depressive effect on the price of the common stock in the open market.

The Company has issued outstanding options and warrants which may depress the
stock price.

         As of April 11, 2003, there were outstanding and immediately
exercisable warrants to purchase 124,000 shares of common stock at an exercise
price of $0.50 per share, and warrants to purchase 3,072,446 shares of common
stock at an exercise price of $7.00 per share. As of April 11, 2003, we also had
outstanding options to purchase 4,072,498 shares of Common Stock, at exercise
prices ranging from $0.22 to $2.75 per share. The exercise of these warrants and
options, and the sale of the underlying Common Stock, or even the potential of
such exercise or sale, may have a depressive effect on the market price of our
securities.

         To the extent that outstanding stock options and warrants are
exercised, dilution to the Company's shareholders will occur. Moreover, the
terms upon which we will be able to obtain additional equity capital may be
adversely affected, since the holders of the outstanding options and warrants
can be expected to exercise them at a time when we would, in all likelihood, be
able to obtain any needed capital on terms more favorable to us than the
exercise terms provided by the outstanding options and warrants.

There is a limited public market for the Company's securities

         The Company's common stock and warrants are traded in the
over-the-counter market and reported by the National Daily Quotation Service
published by the National Quotation Bureau, Inc and the Electronic Bulletin
board maintained by the NASDR. Although the Company may apply for inclusion of
its common stock in the Nasdaq Smallcap Market and/or on the American Stock
Exchange, it does not currently satisfy the minimum listing requirements.
Accordingly, there can be no assurance that the Company will be successful in
obtaining listing on Nasdaq or on the Amex, or if obtained, that it will be able
to maintain the Nasdaq or Amex listing.

The Broker-Dealer subsidiary faces limitations on trading and market-making
activities in the Company's securities

         Due to regulatory positions and requirements of both the SEC and the
NASDR relating to the circumstances and extent to which a registered
broker-dealer and NASDR member may engage in market-making transactions in the
securities of its parent company, FMSC does not engage in trading or
market-making activities relating to the Company's common stock or warrants
where FMSC would speculate in, purchase or sell the Company's securities for its
own account. The purpose and effect of such limitation restricts FMSC from being
a factor in the determination of the market or price of the Company's
securities. FMSC does, however, execute transactions for its customers on an
"agency basis" where it does not acquire the Company's securities for its own
proprietary account. It will, however, earn usual and customary brokerage
commissions in connection with the execution of such brokerage transactions. If,
under current or future regulations of both the SEC and NASDR, FMSC is permitted
to participate as a market-maker, it may do so on the basis of showing a bid and
offer for the Company's securities at specified prices representing customer
interest.
<PAGE>


The Company has limited the liability of its directors.

         The Company has amended its certificate of incorporation to include
provisions eliminating the personal liability of its directors, except for
breach of a director's duty of loyalty to the company or to its shareholders,
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, and in respect of any transaction in which a
director receives an improper personal benefit. These provisions pertain only to
breaches of duty by directors as such, and not in any other corporate capacity,
e.g., as an officer. As a result of the inclusion of such provisions, neither
the company nor its shareholders may be able to recover monetary damages against
directors for actions taken by them which are ultimately found to have
constituted negligence or gross negligence, or which are ultimately found to
have been in violation of their fiduciary duties, although it may be possible to
obtain injunctive or other equitable relief with respect to such actions. If
equitable remedies are found not to be available to shareholders in any
particular case, shareholders may not have an effective remedy against the
challenged conduct.

         The Company believes that, based upon recent developments in the market
for directors' and officers' liability insurance, such provisions are necessary
to attract and retain qualified individuals to serve as directors. In addition,
such provisions will allow directors to perform their duties in good faith
without concern for the application of monetary liability on a retroactive basis
in the event that a court determines their conduct to have been negligent or
grossly negligent. On the other hand, such provisions significantly limit the
potential remedies available to the company or a shareholder, and it is possible
that the protection afforded by such provisions may reduce the level of
diligence or care demonstrated by such directors.

The Company's Certificate of Incorporation and By-Laws contain provisions which
may have an anti-takeover effect.

         The Company's amended and restated certificate of incorporation and
by-laws contain provisions which may discourage certain transactions which
involve an actual or threatened change in control of the company. These
provisions include a classified or staggered board of directors. As permitted by
the New Jersey Corporation Law, the certificate of incorporation provides that a
director or officer of our company will not be personally liable to the company
or its stockholders for monetary damages for breach of the fiduciary duty of
care as a director, except under certain circumstances including a breach of the
director's duty of loyalty to the company or our stockholders or any transaction
from which the director derived an improper personal benefit. The provisions
referred to above may make the company a less attractive acquisition candidate.
They may also discourage or impede offers to acquire the business not approved
by the board of directors, including offers for some or all of the shares of any
class or series of capital stock at substantial premiums above the then current
market value of such shares.


<PAGE>

Item 2.   Properties
Offices and Facilities

The Corporate Headquarters

         The Company maintains its corporate headquarters and executive offices
at Parkway 109 Office Center, 328 Newman Springs Road, Red Bank, New Jersey. In
March 1997, the Company entered into a seven-year lease (the "Master Lease"),
commencing February 1, 1998 for 22,762 square feet of gross rentable space. In
March 1998, the Company signed a First Amendment to the Master Lease
incorporating all of the other rented space in the Red Bank facility into the
March 1997 Master Lease. The Company pays as additional rent, a proportional
share of any increases in real estate taxes above the amount paid during the
2001 calendar year, insurance premiums relating to the premises, and all utility
charges relating to the use of the premises. The First Amendment to the Lease
covers an aggregate of 32,442 gross rentable square feet at a monthly rental
payment of $63,685, which includes all of the additional rent items, through
January 2005. The Master Lease and First Amendment also contain a six-year
option to renew providing for a base rental payment of approximately $65,000 per
month.

Company Leased Branch Offices

         Commencing in June 1996 the Company leased 3,150 square feet of office
space in Paramus, New Jersey. Initially this office housed the Company's
insurance subsidiary, and later its discount brokerage division. In February
2000, the Company extended the lease term for an additional three years at a
monthly base rent of $6,890. In September 2001 Century Discount was relocated to
the Company's corporate offices in Red Bank, New Jersey, and the Paramus office
was sub-let to one of the Company's affiliates at the monthly rent of $4,500 for
the balance of the lease term which will expire on June 30, 2003. The Company
pays the balance of the monthly rent for this office.

         In June 2001 the Company entered into a sub-lease agreement for 4,269
square feet of office space on Wall Street in New York City that is utilized by
registered representatives. The sub-lease term runs until January 31, 2005 with
a monthly rent payment of $16,009.

         In January 2002 the Company entered into a sub-lease agreement for
4,520 square feet of office space in Midtown Manhattan which is utilized by
institutional and retail sales representatives, as well as a new institutional
research group. The sub-lease term runs until September 29, 2006 and provides
for a monthly rent payment of $18,830 until January 31, 2004 and thereafter
increases to $19,963 for the balance of the sub-lease term.

Item 3.   Legal Proceedings

         Many aspects of the Company's business involve substantial risks of
liability. In recent years, there has been an increasing incidence of litigation
and arbitration involving the securities industry.

        The Company is a respondent in numerous arbitrations arising from
customer purchases of high yield corporate bonds which either have defaulted or
declined in market value. The claims allege, among other charges, unsuitable
recommendations and/or improper use of margin, and seek aggregate compensatory
damages in excess of $13 million. Some of the claims seek punitive damages and
the recovery of various costs. The Company is vigorously defending these actions
and believes that there are meritorious defenses in each case. There is no
remaining insurance coverage available for the payment of settlements and/or
judgments that may result from these particular claims. The Company cannot
predict what the eventual loss or range of loss related to these matters will
be.

         FMSC is also a respondent or co-respondent in various other legal
proceedings which are related to its securities business. FMSC is contesting
these claims and believes there are meritorious defenses in each case. The
availability of insurance coverage in any particular case is determined on a
case by case basis by the insurance carrier, and is limited to the coverage
limits within the policy for any individual claim and in the aggregate. An
adverse determination in any individual claim or series of claims for which
coverage may not be available, or in an amount exceeding the limits of coverage,
may have a materially adverse affect on the Company's financial condition.
<PAGE>

        As of December 31, 2002, the Company has accrued a liability of
$1,154,000 for litigation costs that are probable and can be reasonably
estimated based on a review of existing claims, arbitrations and unpaid
settlements. Management cannot give assurance that this accrual will be adequate
to cover actual costs that may be subsequently incurred. It is not possible to
predict the outcome of other matters pending against FMSC. All such cases are,
and will continue to be, vigorously defended. However, litigation is subject to
many uncertainties, and some of these actions and proceedings may result in
adverse judgments. After considering all relevant facts, available insurance
coverage and consultation with litigation counsel, it is possible that the
Company's consolidated financial condition, results of operations, or cash flows
could be materially affected by unfavorable outcomes or settlements of certain
pending litigation.

         The Company has also filed a claim against one of its competitors for
raiding, unfair competition and use of proprietary and confidential information.
The Company has obtained temporary injunctive relief from the Supreme Court of
New York, as well as a consent injunctive order from an NASD arbitration panel.
A hearing will be held later this year to determine the damages portion of the
Company's claims.

         In view of the inherent difficulty of predicting the outcome of
litigation, management is unable to derive a meaningful estimate of the amount
or range of possible loss that may arise out of pending legal proceedings in any
particular quarterly or annual period, or in the aggregate. However, it is
possible that the ultimate outcome of these matters could have a material
adverse impact on the Company's financial condition, results of operations, and
cash flows. Therefore, as of December 31, 2002, the Company has established a
loss provision in the accompanying financial statements for any liability that
may result from these contingencies.

Item 4.   Submission of Matters on a Vote of Security Holders

                           Not Applicable.


<PAGE>

                                     PART II

Item 5.   Market of and Dividends on the Company's Common Equity and
          Related Stockholder Matters

A.        Principal Market

         The Company's Common Stock is traded in the over-the-counter market.
Trading in the Company's Common Stock is reported on the NASDR Bulletin Board
system and in the pink sheets published by Pink Sheets LLC. The Company believes
that there is an established public trading market for the Company's Common
Stock based on the volume of trading in the Company's Common Stock and the
existence of market makers who regularly publish quotations for the Company's
Common Stock. The Company's Class A, Class B and Class C Warrants commenced
trading in the over-the-counter market upon their issuance in March 1998. The
Class A Warrants and Class B Warrants expired on February 17, 2003. The Class C
Warrants are exercisable until February 17, 2005.

B.      Market Information

     The Company's Common Stock commenced trading in the over-the-counter market
in 1987. On April 11, 2003, the Company's common stock had a high and low bid
price of $.22 and $.20, respectively.

         The following is the range of high and low bid prices for such
securities for the periods indicated below:

Common Stock

Fiscal Year 2003              High Bid                         Low Bid

     1st   Quarter            $.22                             $.20

Fiscal Year 2002              High Bid                         Low Bid

     1st   Quarter            $.55                             $.25
     2nd Quarter              $.53                             $.21
     3rd  Quarter             $.51                             $.21
     4th  Quarter             $.23                             $.18

Fiscal Year 2001              High Bid                         Low Bid

     1st Quarter              $ .85                           $ .60
     2nd Quarter                .64                             .45
     3rd Quarter                .60                             .45
     4th Quarter                .44                             .45


C.       Number of Record Holders

         The approximate number of record holders of the Company's common stock
as of April 11, 2003 was 466. Such number of record holders was determined from
the Company's stockholder records, and does not include beneficial owners of the
Company's common stock whose shares are held in the names of various security
holders, dealers and clearing agencies. The Company believes there are in excess
of 3,500 beneficial holders of the Company's common stock.

D.       Dividend Policy

        The Company has not paid any dividends upon our Common Stock since our
inception, and does not expect to pay any dividends upon our Common Stock in the
foreseeable future and plan to retain earnings, if any, to finance the
development and expansion of our business. We pay quarterly dividends on
outstanding shares of our Series A Preferred Stock at the rate of 6% per annum
subject to the limitations under the New Jersey Business Corporation Act. There
can be no assurance the Company will continue to pay dividends in the future.
There are currently outstanding 349,511 shares of Series A Preferred Stock.

<PAGE>



E.       Sales of Unregistered Securities

         In February 2003, the Company completed a private offering of 6%
convertible debentures. The Company offered an aggregate of $3,000,000 of the
debentures to accredited investors on a best efforts basis. The debentures are
initially convertible into shares of the FMFC's common stock at the conversion
price of $0.50 per share. Interest on the debentures accrues at the rate of 6%
per annum and is payable in cash on a semi-annual basis on April 1st and October
1st of each year until maturity or conversion. Each debenture is due and payable
five (5) years from issuance, unless previously converted into shares of Common
Stock. The offering expired on March 1, 2003. In the offering, FMFC sold an
aggregate amount of $1,240,000 of debentures. The proceeds of the financing will
be used to satisfy the general working capital needs of the Company. The
offering was made to certain "accredited investors" only.

         Each debenture is convertible at an initial conversion price of $0.50
per share, subject to adjustment for stock dividends, combinations, splits,
recapitalizations, and like events. Each holder shall have the right to convert
its debentures, at the option of such holder, at any time, into shares of FMFC
common stock at the then applicable conversion price. In addition, FMFC may, at
its option, demand that the holders convert some or all of the debentures into
shares of common stock in the event that the closing bid price of its common
stock is 200% of the conversion price for the twenty consecutive trading days
prior to the date of the notice of conversion.

         Further, FMFC may, at its option, prepay some or all of the debentures
in the event that the closing bid price of its common stock is 200% of the
conversion price for the twenty consecutive trading days prior to the date of
the notice of prepayment. The prepayment amount shall be 130% of the principal
amount of the debentures from the date of issuance until the first anniversary
of the date of issuance, together with accrued and unpaid interest. Thereafter,
the prepayment amount shall be equal to 120% of the principal amount of the
debentures, together with accrued and unpaid interest through the date of
prepayment.

         FMSC served as FMFC's placement agent for the sale of the debentures.
FMFC paid commissions of ten percent (10%) of the principal amount sold, and
issued warrants to purchase 124,000 shares of Common Stock, exercisable at $0.50
per share, which expire five (5) years from the date of issuance, to registered
representatives of FMSC who participated in the sale of the debentures.

         The debentures have not been registered for offer or sale under the
Securities Act; such securities have been issued on the basis of the statutory
exemption provided by Section 4(2) of the Securities Act, as amended, and/or
Rule 506 of Regulation D, promulgated thereunder relating to transactions by an
issuer not involving any public offering; and the transaction has not been
reviewed by, passed on or submitted to any Federal or state agency or
self-regulatory organization where an exemption is being relied upon. The
securities may not be sold, assigned or transferred unless (i) the sale,
assignment or transfer of such securities is registered under the Securities
Act, or (ii) the securities are sold, assigned or transferred in accordance with
all the requirements and limitations of Rule 144 under the Securities Act.
Holders of debentures shall have the right to include the shares of common stock
issuable upon conversion of the debentures in a registration statement filed by
FMFC other than a registration statement on Form S-4 or S-8, or a successor
form.

<PAGE>


Item 6.  Selected Financial Data
<TABLE>
<S>                               <C>             <C>                <C>              <C>              <C>
                                                           Year ended December 31,
                                  2002            2001               2000             1999             1998
                                  ----            ----               ----             ----             ----

Operating results:

Revenues:

Commissions                  $36,513,802       $37,807,870       $46,529,771       $40,516,625      $30,741,404
Principal transactions         7,369,500         8,021,887         7,131,079        14,000,680        8,795,599
Investment banking               365,842         1,483,210         2,416,711           439,065          767,312
Insurance recovery                 --               --                 --               --              650,000
Interest and other income      3,717,600         3,907,448         3,252,325         2,628,246        1,572,063
                             -----------        ----------        ----------        ----------       ----------
Total revenues               $47,966,744       $51,220,415       $59,329,886       $57,584,616      $41,876,378
                              ----------        ----------        ----------        ----------       ----------
Expenses:
Commissions, employee
 compensation and
 benefits                     39,572,851        42,356,207        46,800,661        42,137,968       31,766,060
Clearing and floor
 brokerage                     2,666,376         3,247,219         4,003,345         4,109,961        3,674,859
Communications and
 occupancy                     3,006,017         3,249,389         2,731,681         2,697,433        2,557,313
Legal matters and
 related costs                 1,259,502         2,415,374         1,181,115         1,395,008        2,377,336
Write-down of Note
 Receivable - Global
 Financial Corp.                  --                --               239,183           100,000        1,775,000
Loss on Global lease
 Settlements                      --                --                --               600,416            3,524
Other operating expenses       4,029,515         5,076,806         4,862,158         3,545,308        2,958,450
Interest                          98,918           174,632           160,230           166,104          131,215
                              ----------         ---------         ---------         ---------        ---------

Total expenses                50,633,179        56,519,627        59,978,373        54,752,198       45,243,757
                              ----------        ----------        ----------        ----------       ----------
Income (loss) before
 income taxes                 (2,666,435)       (5,299,212)         (648,487)        2,832,418       (3,367,379)
Provision for income taxes
 (income tax benefit)            294,000           (90,989)            6,721           549,140         (604,532)
                               ---------         ---------        ----------        -----------      ----------
Income (loss) before
  extraordinary loss         $(2,960,435)      $(5,208,223)     $   (655,208)      $ 2,283,278     $ (2,762,847)

Extraordinary loss -
 extinguishment of debt,
 net of tax                       --                --                34,200            --              --
                              -----------       -----------       ----------         ----------      -----------
Net income (loss)            $(2,960,435)      $(5,208,223)     $   (689,408)      $ 2,283,278     $ (2,762,847)
                              ===========       ===========       ===========        ==========      ===========
Net income (loss)
 available to
 common stockholders        $ (3,059,722)      $(5,306,976)     $ (  792,136)     $  2,215,528     $ (2,762,847)
                              ===========       ===========       ===========        =========       ===========
Per share of
 Common Stock:
    Basic                   $       (.36)      $      (.61)     $       (.08)     $        .22     $       (.28)
    Diluted                 $       (.36)      $      (.61)     $       (.08)     $        .21     $       (.28)

Weighted average
 common shares
 outstanding -
  Basic                        8,551,932         8,704,355         9,450,055         9,878,129        9,725,116
                              ==========        ==========        ==========        ==========       ===========

Weighted average
 common and common
 equivalent shares
 outstanding -
  Diluted                      8,551,932         8,704,355         9,450,055        11,262,708        9,725,116
                              ==========        ==========        ==========        ==========       ==========
Financial condition:
Total assets                 $11,425,506       $14,227,562       $16,913,063       $17,059,184      $11,543,734
Total liabilities            $12,203,196       $11,934,884       $ 9,203,672       $ 7,429,046      $ 5,320,107

 Common Stock issued
 with guaranteed
  selling price              $    --           $     6,500       $     6,500       $    36,500      $    36,500

Stockholders'
 equity (deficit)            $  (777,690)      $ 2,286,181       $ 7,702,891       $ 9,593,638      $ 6,187,127

</TABLE>


<PAGE>

Item 7.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations

Overview

         First Montauk Financial Corp. ("FMFC" or the "Company") is a New
Jersey-based financial services holding company whose principal subsidiary,
First Montauk Securities Corp. ("FMSC"), has operated as a full service retail
and institutional securities brokerage firm since 1987. FMSC provides a broad
range of securities brokerage and investment services to a diverse retail and
institutional clientele, as well as corporate finance and investment banking
services to corporations and businesses. In 1997, FMSC established Century
Discount Investments, a discount brokerage division. FMFC also sells insurance
products through its subsidiary Montauk Insurance Services, Inc.

         FMSC has approximately 500 registered representatives and services over
60,000 retail and institutional customer accounts. With the exception of two
Company-leased branch offices, all of FMSC's 150 other branch office and
satellite locations in 33 states are owned and operated by affiliates,
independent owners who maintain all appropriate licenses and are responsible for
all office overhead and expenses. FMSC also employs registered representatives
directly at its corporate office and the Company-leased branch offices.

         FMSC is registered as a broker-dealer with the Securities and Exchange
Commission, the National Association of Securities Dealers Regulation, Inc., the
Municipal Securities Rule Making Board, and the Securities Investor Protection
Corporation and is licensed to conduct its brokerage activities in all 50
states, the District of Columbia, and the Commonwealth of Puerto Rico. All
securities transactions are cleared through Fiserv Securities, Inc. of
Philadelphia, PA. and various floor brokerage and specialist firms provide
execution services. These arrangements provide FMSC with back office support,
transaction processing services on all principal, national and international
securities exchanges, and access to many other financial services and products
which allows FMSC to offer products and services comparable to large brokerage
firms.

         FMSC's revenues consist primarily of commissions and fee income from
individual and institutional securities transactions, market making activities
and investment banking services, such as private and public securities
offerings. The following table represents the percentage of revenues generated
by each of these activities during the last fiscal year:

Equities:
  Listed & Over-The-Counter Stocks                            52%
Debt Instruments:
   Municipal, Government and Corporate Bonds                   5%
Unit Investment Trusts                                         2%
Mutual Funds                                                  15%
Options: Equity & Index                                        7%
Insurance and Annuities                                       13%
Miscellaneous (1)                                              6%
                                                              -----
Total (1)                                                    100%
----------------------------
(1) Miscellaneous includes corporate finance activities, investment banking fees
and interest and other income.

         The Company engages in a highly competitive business. Therefore, the
Company's earnings, like those of others in the industry, reflect the activity
in the markets and can fluctuate accordingly.
<PAGE>


Results of Operations-Three Years Ended December 31, 2002

        The results of operations for fiscal 2002 showed a decrease in revenues
over fiscal 2001. The continued decline in investor confidence in the U.S.
securities markets and general economic uncertainty has continued to negatively
impact revenues and overall operating results. Total revenues for fiscal 2002
decreased $3,253,000, or 6.4% to $47,967,000, as compared to fiscal 2001.
However, the net loss for fiscal 2002 was approximately 43% lower than the net
loss for fiscal 2001.


<TABLE>
<S>                                  <C>                  <C>             <C>                 <C>            <C>

                                                                Year Ended December 31,
                                   ---------------------------------------------------------------------------------
                                                 2002                              2001                      2000
                                   ---------------------------------------------------------------------------------
                                   ----------        ----------------------------       ----------------------------
 Revenues:                           (000's)                 % Change    (000's)                 % Change   (000's)
                                   ----------        ----------------------------       ----------------------------

 Commissions
                                      36,514               (3)            37,808              (19)           46,530

 Principal Transactions
                                       7,370               (8)             8,022                12            7,131

Investment Banking
                                         366              (75)             1,483              (39)            2,417

 Interest/Other
                                       3,717               (5)             3,907                20            3,252
                                   ----------                         -----------                         ----------
 Total Revenues
                                      47,967               (6)            51,220              (14)           59,330
                                   ==========                         ===========                         ==========
</TABLE>

         The primary source of the Company's revenue is commissions generated
from agency transactions, mutual funds and insurance products. Total revenues
from commissions decreased $1,294,000, or 3%, from fiscal 2001 to fiscal 2002.
While the total annual change showed only a modest decline, the Company's
business mix was substantially different between the two fiscal years, with
increases in agency and mutual fund commissions offsetting a decline in
insurance sales, as explained below.

         Revenues from agency transactions increased $814,000, or 4%, from
$21,918,000 in the fiscal 2001, to $22,732,000 in fiscal 2002. As a percentage
of total revenues, agency revenues, which consist primarily of equity
transactions, increased from 43% in the fiscal 2001, to 47% in fiscal 2002. Also
included in this category are commissions earned from the sale of registered
offerings of collateralized medical receivable notes, which the Company began
selling during the second half of fiscal 2001. Sales of these products increased
from $921,000 in fiscal 2001, to $1,835,000 in fiscal 2002. The primary seller
of this product was a group of affiliates who terminated from the Company in
late fiscal 2002. Consequently, the Company anticipates significantly reduced
revenues from this product in the future.

         Mutual fund revenues increased $650,000, from $5,106,000 in fiscal
2001, to $5,756,000 in fiscal 2002, an increase of 13%. The increase in mutual
fund commissions is primarily related to an increase in sales of three products;
the 529 College Savings Plan created through new legislation in October 1999,
the principal protection plans, which guarantee a return of principal if
invested for five years, and bond funds which have seen large increases due to
the tenuous state of the equity markets.

         Revenues from insurance commissions decreased $3,059,000, from
$8,160,000 in fiscal 2001, to $5,101,000 in the fiscal 2002. Fiscal 2001
included commissions from the sale of certain variable annuities by one of the
Company's brokers. The large commissions generated from the sale of these
annuities were a one-time occurrence that was not repeated during fiscal 2002.
Insurance sales have since returned to prior levels.

         Fees generated from managed accounts increased $380,000, from $962,000
in fiscal 2001, to $1,342,000 in fiscal 2002. The 39% increase is partially
attributable to the rollout of a fee based platform which allows customers to
pay fees based on a percentage of asset value, rather than commissions paid on a
transactional basis. Many of the Company's representatives have added managed
account programs to their business mix. The Company has increased its services
and infrastructure to representatives whose clients favor this arrangement.
<PAGE>


         Revenues from principal transactions, which consist of gains and losses
in the firm's proprietary accounts, riskless principal transactions with
customers and limited market-making activities, decreased $652,000, from
$8,022,000 in fiscal fiscal 2001, to $7,370,000 in fiscal 2002. Realized
and unrealized gains in proprietary equity accounts decreased $532,000, from
$4,570,000 in fiscal 2001, to $4,047,000 in fiscal 2002. In fiscal 2002, the
Company implemented new polices and procedures governing firm trading
operations, which resulted in fewer inventory accounts, shorter holding periods
of securities positions, and improvements in risk management. Overall, revenues
from principal transactions in the fixed income sector were down from fiscal
2001 levels by approximately $130,000. Revenues from corporate bonds and unit
investment bond trusts declined in fiscal 2002 due to the reduced confidence in
the corporate debt market as this market experienced a large number of defaults
in fiscal 2002. On the other hand, revenues from municipal and government agency
bonds increased as investors sought more secure, income-producing investments.

         Comparing fiscal 2001 to fiscal 2000, the decline in commission revenue
resulted from a decrease in general securities and mutual fund transactions of
$11,063,000, or 29%, offset in part by an increase of $3,253,000, or 55%, in
management fee income and in insurance products as discussed above.

         Gains from proprietary trading and market-making activities increased
12%, or $891,000, from fiscal 2000 to the fiscal 2001. Lower revenues from
principal sales of corporate bonds offset unrealized gains in the Company's
proprietary accounts. During fiscal 2001, the Company substantially reduced its
market-making activities and eliminated many proprietary accounts, thereby
reducing personnel costs and market data services. The Company also reduced
securities inventory positions by almost $2.8 million during fiscal 2000, thus
significantly reducing regulatory net capital charges and exposure to market
volatility.

         Investment banking revenues for fiscal 2002 decreased $1,117,000, to
$366,000, down from $1,483,000 in fiscal 2001. Revenues for fiscal 2000 were
$2,417,000. For fiscal 2000, investment-banking revenues included commissions
and fees from an initial public offering completed in the first quarter of
fiscal 2000. The decline in revenues in fiscal 2002 and fiscal 2001 reflect a
lower number of new offerings coming to the market in which the Company
participated as a selling group or syndicate member.

         Interest and other income decreased $189,000, to $3,718,000 in fiscal
2002, from $3,907,000 in fiscal 2001. In fiscal 2000 interest and other income
was $3,252,000. Other income for fiscal 2002 includes a recovery of $230,000
related to payments previously made to a vendor for the development of
applications software. This gain was offset by a decrease in interest income,
resulting from a reduction in customer margin debit balances, combined with
historically low interest rates. Also reflected in this category is the
recognition of deferred income derived from cash advances received from the
Company's clearing firm, Fiserv Securities, Inc., in accordance with the terms
of the financial agreement. For financial reporting purposes, cash advances that
are received under this agreement are deferred and


<PAGE>



amortized on a straight-line basis over the remaining contract term. Other
Income included amortization of approximately $577,000, $400,000 and $67,000 in
fiscal 2002, fiscal 2001 and fiscal 2000, respectively.
<TABLE>
<S>                                  <C>                 <C>              <C>               <C>             <C>

                                                                Year Ended December 31,
                                   ---------------------------------------------------------------------------------
                                                  2002                          2001                          2000
                                   ---------------------------------------------------------------------------------
                                   ----------        ----------------------------       ----------------------------
                                     (000's)             % Change        (000's)          % Change           (000's)
                                   ----------        ----------------------------       ----------------------------
 Expenses:

 Commissions, employee
       Compensation and benefits
                                      39,572               (7)            42,356               (9)           46,801

 Clearing and floor brokerage
                                       2,666              (18)             3,247              (19)            4,003

 Communications and occupancy
                                       3,006               (7)             3,249                19            2,732

 Legal matters and related costs
                                       1,260              (48)             2,416               105            1,181

 Write-down of Note receivable-
       Global Financial Corp.            ---                                 ---
                                                           ---                               (100)              239

 Other operating expenses
                                       4,030              (21)             5,077                 4            4,862

 Interest
                                          99              (43)               175                 9              160
                                   ----------                         -----------                         ----------
 Total expenses
                                      50,663              (10)            56,520               (6)           59,978
                                   ==========                         ===========                         ==========
</TABLE>


         Total expenses decreased by $5,887,000, or 10%, to $50,633,000 in
fiscal 2002, from $56,520,000 in fiscal 2001. Commission expense has a direct
relationship to commission revenue and consequently represented the largest
decrease in expenses. Commissions as a percentage of total revenues remained
relatively constant at 68% in fiscal 2002 and 67% in fiscal 2001, although the
absolute dollar decrease in fiscal 2002 was $1,656,000, or 5%. Commission
expense in fiscal 2001 decreased $5,232,000 from fiscal 2000 levels due to the
decrease in commission revenue. For fiscal 2002, the Company paid salaries and
benefits of $7,140,000 (15% of revenues) for management, operations and clerical
personnel, as compared to $8,267,000 in fiscal 2001 (16% of revenues) and
$7,512,000 (13% of revenues) in fiscal 2000. During the second half of fiscal
2000, additional management and support staff was hired for various departments,
including sales, recruiting, compliance and managed money. In fiscal 2001,
certain cost cutting measures were implemented in response to the decrease in
revenues and trading activity. These measures included a reduction in executive
officers' salaries and personnel layoffs in the trading and operations areas.
Additional layoffs were made in fiscal 2002 to further reduce expenses. The
Company employed approximately 97 salaried employees as of December 31, 2002,
106 salaried employees as of December 31, 2001, and 120 salaried employees as of
December 31, 2000. Due to the impact on the broker-dealer operations of
continuing weakness in the financial markets, the Company intends to further
reduce personnel during the second quarter of fiscal 2003.
<PAGE>

         Clearing costs, which are determined by the volume and type of
transactions, decreased $581,000, to $2,666,000 in fiscal 2002, from $3,247,000
in fiscal 2001, which was a decrease of $756,000 from the fiscal 2000 expense of
$4,003,000. As a percent of revenues, clearing costs were approximately 5.6% for
fiscal 2002 as compared with 6.3% and 6.8% in fiscal years 2001 and fiscal 2000,
respectively. However, the percentage of clearing costs to gross revenues can
fluctuate on an interim basis depending upon the product mix. Certain
transactions, such as options and bonds, have a higher execution and clearing
cost than others.

         Communications and occupancy costs decreased 7%, or $243,000, to
$3,006,000 in fiscal 2002 from $3,249,000 in fiscal 2001, which was an increase
of $517,000 from the fiscal 2000 expense of $2,732,000. As a percentage of
revenue, communications and occupancy remained constant at 6%. Rent expense
increased $88,000 due to two factors. In fiscal 2001, two new company-operated
branch offices were opened in New York City and Boca Raton, Florida. A second
New York City branch office commenced operations in fiscal 2002. The Company
expects a reduction in rent and related facility expenses in 2003 due to the
elimination of three company operated branch offices in the first quarter of the
year.

         The Company offset increases in rents by reductions in software
consulting costs of $155,000 and market data services of $184,000 in fiscal
2002. Additional customization of the Company's existing commission system by an
outside consultant was terminated in fiscal 2002 in preparation for a new system
being implemented in the second quarter of fiscal 2003. The Company also lowered
its market data service costs in fiscal 2002 by eliminating several services,
particularly those relating to market making activities that the Company has
nearly eliminated, and by renegotiating several vendor contracts.

         Legal fees and litigation settlement costs decreased by $1,155,000, or
48%, to $1,260,000 in fiscal 2002, from $2,415,000 in fiscal 2001. During fiscal
2001, the Company experienced a significant increase in customer arbitration
claims, due in part to the general decline of equity securities and fixed income
prices that began in fiscal 2000. The Company also settled a number of cases
where appropriate in fiscal 2001, and accrued $945,000 for litigation costs that
it considered probable and could be reasonably estimated. Although legal fees
and settlement costs decreased in fiscal 2002, the volume of litigation
increased during the year, as discussed below.

         FMSC is currently a respondent in numerous arbitrations arising from
customer purchases of high yield corporate bonds, which either have defaulted or
declined in market value. The claims allege, among other charges, unsuitable
recommendations and/or improper use of margin, and seek aggregate compensatory
damages in excess of $12 million. In addition, some of the claims seek punitive
damages and the recovery of various costs. The Company is vigorously defending
these actions and believes that there are meritorious defenses in each case.
There is no remaining insurance coverage available for the payment of
settlements and/or judgments that may result from these particular claims.

         FMSC is also a respondent or co-respondent in various other legal
proceedings related to our securities business. FMSC is contesting these claims
and believes there are meritorious defenses in each case. The availability of
insurance coverage in any particular case is determined on a case by case basis
by our insurance carrier, and is limited to the coverage limits within the
policy for any individual claim and in the aggregate.

           As of December 31, 2002, the Company has accrued a liability of
$1,154,000 for litigation costs that are probable and can be reasonably
estimated based on a review of existing claims, arbitrations and unpaid
settlements. Management cannot give assurance that this accrual will be adequate
to cover actual costs that may be subsequently incurred. It is not possible to
predict the outcome of other matters pending against FMSC. All such cases are,
and will continue to be, vigorously defended. However, litigation is subject to
many uncertainties, and some of these actions and proceedings may result in
adverse judgments. After considering all relevant facts, available insurance
coverage and consultation with litigation counsel, it is possible that the
Company's consolidated financial condition, results of operations, or cash flows
could be materially affected by unfavorable outcomes or settlements of certain
pending litigation.

            FMSC has also filed a claim against one of its competitors for
raiding, unfair competition and use of proprietary and confidential information.
The Company has obtained temporary injunctive relief from the Supreme Court of
New York, as well as a consent injunctive order from an NASD arbitration panel.
A hearing will be held later this year to determine the damages portion of the
Company's claims. Management is unable to determine at this time what damages,
if any, might be awarded.
<PAGE>

         Other operating costs decreased $1,047,000, to $4,030,000, in fiscal
2002 from $5,077,000 in fiscal 2001. During fiscal 2002, the Company wrote off
less in customer and broker bad debts and incurred no clearing firm conversion
expenses, which were $176,000 in fiscal 2001. From fiscal 2000 to fiscal 2001,
other operating expenses increased $215,000, from $4,862,000 to $5,077,000, due
to higher customer and broker bad debts as well as the recording of a $500,000
reserve for payments previously made to a vendor for the development of
applications software.

         Professional liability insurance premiums have substantially increased
in fiscal 2003 due to a hardening in the market for broker-dealer professional
liability and directors and officers insurance coverages. Many insurance
carriers have eliminated these types of coverages, while others have
substantially increased premiums and deductible limits. The Company's registered
representatives have historically paid the cost of errors and omission
insurance. However, to stay competitive in the marketplace for registered
representatives, the Company will absorb a portion of these premiums for fiscal
2003. The amount of this cost will be determined by the number of registered
representatives associated with the Company throughout the year.

         The Company's effective tax rates of 11% in fiscal 2002, (2%) in fiscal
2001, and 1% in fiscal 2000 were higher than expected because of an increase of
$1,330,000, $1,877,000, and $239,000, respectively, in the deferred tax
valuation allowance. Management continues to be uncertain as to the Company's
ability to realize most of its deferred tax benefits. During fiscal 2002, the
Company filed for and received federal and state tax refunds of approximately
$1,069,000. The Company is currently seeking the recovery of $212,000 of
additional federal income taxes through a loss carryback refund claim. The claim
is subject to IRS review.

        For fiscal 2002, the Company reported a net loss applicable to common
stockholders of $3,060,000, or $.36 per basic and diluted share, as compared to
a net loss applicable to common stockholders reported in fiscal 2001 of
$5,307,000, or $.61 per basic and diluted share. For fiscal 2000, the Company
reported a net loss available to common stockholders of $792,000, or $.08 per
basic and diluted share. The reduction in net loss from fiscal 2001 to fiscal
2002 was primarily a result of decreased legal fees and litigation costs and a
reduction of other expenses detailed above.

         Liquidity and Capital Resources

         The Company maintains a highly liquid balance sheet with approximately
65% of assets consisting of cash and cash equivalents, securities owned, and
receivables from its clearing firm and other broker-dealers. The balances in
these accounts can and do fluctuate significantly from day to day, depending on
general economic and market conditions, volume of activity, and investment
opportunities. These accounts are monitored on a daily basis in order to ensure
compliance with regulatory net capital requirements and to preserve liquidity.

         Net cash provided by operating activities during fiscal 2002 was
$653,000, primarily as a result of the net loss for fiscal 2002 of $2,960,000,
adjusted by non-cash charges including depreciation and amortization, of
$563,000, a decrease in securities positions of $992,000, a reduction in
employee and broker receivable balances of $1,036,000, the collection of
approximately $1,069,000 in income tax refunds, and a reduction in payables and
other operating liabilities of $793,000.

         The Company received cash advances under the financing agreement with
Fiserv of $4,000,000 in fiscal 2000 and $1,250,000 in both fiscal 2002 and
fiscal 2001. Under this agreement, the Company is eligible to receive its fourth
and final advance of $1,250,000 in fiscal 2003, subject to meeting certain
performance criteria. Advances are subject to income taxes in the year of
receipt.

         Investing activities required cash of $235,000 in fiscal 2002.
Additions to capital expenditures consumed $266,000, while decreases in other
assets provided $32,000.

         Financing activities provided cash of $441,000 in fiscal 2002. The
Company received gross proceeds of $1,030,000 in fiscal 2002 from a private
offering of 6% convertible debentures. The Company sold an additional $210,000
principal amount of these debentures in fiscal 2003. This increase in cash was
partially offset by notes and capital lease repayments of $432,000 and dividend
payments to preferred shareholders of $99,000. In addition, a total of $25,000
was used to repurchase 100,000 of the Company's outstanding shares pursuant to a
stock repurchase program.
<PAGE>

Consolidated Contractual Obligations and Lease Commitments

              The tables below summarize information about the consolidated
contractual obligations as of December 31, 2002 and the effects these
obligations are expected to have on the Company's consolidated liquidity and
cash flows in future years. These tables do not include any projected payment
amounts related to the Company's potential exposure to arbitrations and other
legal matters.

         Future minimum operating lease payments as of December 31, 2002
are as follows:

                                                  Operating
                                                    Leases

             2003                                 $1,181,595
             2004                                  1,103,126
             2005                                    296,302
             2006                                    169,500
                                                   ---------
             Total minimum lease payments         $2,750,523
                                                   =========


                Future minimum lease payments as of December 31, 2002 are as
follows:

                                                   Capital
                                                   Leases

             2003                                 $248,916
             2004                                  114,396
             2005                                   15,711
             2006                                     --
                                                  --------
             Total minimum lease payments          379,023
             Less:  Amount representing interest   (35,341)
                                                   -------
                                                  $343,682

         At December 31, 2002, FMSC had net capital of $1,085,853 which
was $777,574 in excess of its required net capital of $308,279, and the ratio of
aggregate indebtedness to net capital was 4.26 to 1.

         In 1999, the Company issued additional convertible notes in the
original aggregate amount of $690,526 to several private investors in connection
with a Global lease settlement. The notes were payable in thirty-six monthly
non-interest bearing installments of $16,404, plus balloon payment of $112,000,
which include interest of $12,000 calculated on the basis of 8% of the balloon
amount beginning in month nineteen of the note term. A loan discount was
recorded on the notes in the amount of $64,609, which was being amortized over
the note term using the interest method. These notes were convertible into
345,263 shares of the common stock based on a conversion price of $2.00 per
share. The balloon payment originally due in September 2002, was
refinanced by agreement with the noteholders, which provided for six monthly
installments of $16,404 and a final payment in March 2003 of $15,889, including
interest at the rate of 8% per annum. The loans have been fully repaid.

         As of December 31, 2001, the Company had an aggregate of $50,000
of subordinated notes outstanding with interest at 8% per annum. The final
$50,000 payment was due and paid in January fiscal 2002.

         In 1999, the Company completed a private offering of Series A
Convertible Preferred Stock in connection with the settlement with holders of
leases of Global Financial Corp. Under the terms of the offering, each Global
lease investor who participated in the offering received one share of Preferred
Stock in exchange for every $5 of lease investment value that the investor was
entitled to receive from Global after certain adjustments. Each leaseholder was
required to assign their interest in all lease payments to which they were
entitled. Each share of the Preferred Stock is convertible into two shares of
Common Stock and pays a quarterly dividend of 6%. Pursuant to the offering, the
Company issued an aggregate of 349,511 shares of Series A Preferred Stock. The
offering was exempt from registration pursuant to Sections 4(2) and 4(6) of the
Securities Act of 1933, as amended, and Regulation D, promulgated thereunder.
<PAGE>

         In October 2002, the Company commenced a private offering of up
to $3,000,000 of 6% convertible debentures to accredited investors. Each
debenture is convertible at an initial conversion price of $0.50 per share,
subject to adjustment for stock dividends, combinations, splits,
recapitalizations, and like events. Interest on the debentures accrues at the
rate of 6% per annum and is payable in cash on a semi-annual basis on April 1st
and October 1st of each year until maturity or conversion. Each debenture is due
and payable five (5) years from issuance, unless previously converted into
shares of Common Stock. The offering expired on March 1, 2003. In the offering,
the Company sold an aggregate amount of $1,240,000 of debentures, $1,030,000 in
fiscal 2002 and $210,000 in fiscal 2003. The proceeds of the financing will be
used to satisfy general working capital needs. The debentures have not been
registered for offer or sale under the Securities Act; such securities are being
issued on the basis of the statutory exemption provided by Section 4(2) of the
Securities Act, as amended, and/or Rule 506 of Regulation D, promulgated
thereunder relating to transactions by an issuer not involving any public
offering. For more information, see a discussion of the debentures under the
captions "Item 1.Business -- Debenture Offering" and "Item 5.  Sale of
Unregistered Securities."

Critical accounting policies

         The Company prepares its financial statements in accordance with
accounting principles generally accepted in the United States of America.
Preparing financial statements in accordance with generally accepted accounting
principles requires the Company to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. The
following paragraphs include a discussion of some of the significant accounting
policies and methods applied to the preparation of the Company's consolidated
financial statements. Review Note 2 to the financial statements for further
discussion of significant accounting policies.

Use of Estimates

        In presenting the consolidated financial statements, management makes
estimates regarding the valuation of certain securities owned, the carrying
value of investments, the realization of deferred tax assets, the outcome of
litigation, and other matters that affect the reported amounts and disclosure of
contingencies in the financial statements. Estimates, by their nature, are based
on judgment and available information. Therefore, actual results could differ
from those estimates and could have a material impact on the consolidated
financial statements and it is possible that such changes could occur in the
near term.

Revenue recognition

         Securities transactions, commission income and related expenses are
recorded on a trade date basis. Underwriting fees are recorded at the time the
underwriting is completed and the income is reasonable determinable. Sales
concessions from participation in syndicated offerings are recorded on
settlement date. Securities owned and securities sold but not yet repurchased
are stated at quoted market value with unrealized gains and losses included in
earnings. Investment account securities not readily marketable are carried at
estimated fair value as determined by management with unrealized gains and
losses included in earnings. Advances received under the Company's financial
agreement with its clearing firm are deferred and amortized over the remaining
term of the agreement on a straight-line basis.

Long-lived Assets

         The Company evaluates impairment losses on long-lived assets used in
operations, primarily fixed assets, when events and circumstances indicate that
the carrying value of the assets, might not be recoverable in accordance with
FASB Statement No. 144 "Accounting for the Impairment or Disposal of Long-lived
Assets". For purposes of evaluating the recoverability of long-lived assets, the
undiscounted cash flows estimated to be generated by those assets would be
compared to the carrying amounts of those assets. If and when the carrying
values of the assets exceed their fair values, the related assets will be
written down to fair value.
<PAGE>

Clearing Agreement

         FMSC introduces all of its customer transactions, which are not
reflected in the financial statements, to its clearing broker, which maintains
the customers' accounts and clears such transactions. Additionally, the clearing
broker provides the clearing and depository operations for FMSC's proprietary
securities transactions. These activities may expose the Company to off-balance
sheet risk in the event that customers do not fulfill their obligations with the
clearing broker, as FMSC has agreed to indemnify the clearing broker for any
resulting losses. The Company will record a loss from a client transaction when
information becomes available to management that allows it to estimate its
impact on the Company's financial statements.

Income taxes

         Due to significant operating losses from 2000-2002 and continuing
business uncertainty, the Company has established a valuation allowance against
most of its deferred tax benefits. As management determines that it is more
likely than not that its tax benefits are realizable, the allowance will be
adjusted accordingly.

Recent pronouncements of the Financial Accounting Standards Board

         In July 2002, the FASB issued FASB Statement No. 146, Accounting
for the Costs Associated with Exit or Disposal Activities. This statement
requires companies to recognize costs associated with exit or disposal
activities only when liabilities for those costs are incurred rather than at the
date of a commitment to an exit or disposal plan. FASB No. 146 also requires
companies to initially measure liabilities for exit and disposal activities at
their fair values. FASB No. 146 replaces Emerging Issues Task Force (EITF)
Issues No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring) and EITF No. 88-10, Costs Associated with Lease Modification or
Termination. The provisions of FASB No. 146 are effective for exit or disposal
activities that are initiated after December 31, fiscal 2002. The Company
anticipates the adoption of this statement will not have a material effect on
its consolidated financial position or results of operations.

         In December 2002, the FASB issued Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based Compensation --
Transition and Disclosure" ("FAS 148"), which (i) amends FAS Statements No. 123,
"Accounting for Stock-Based Compensation," to provided alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation (ii) amends the disclosure
provisions of FAS 123 to require prominent disclosure about the effects on
reported net income of an entity's accounting policy decisions with respect to
stock-based employee compensation and (iii) amends APB Opinion No. 28, "Interim
Financial Reporting," to require disclosure about those effects in interim
financial information. Items (ii) and (iii) of the new requirements in FAS 148
are effective for financial statements for fiscal years ending after
December 31, 2002. The Company has adopted the increased disclosure requirements
of FAS 148 for the fiscal year ended December 31, 2002. The Company will
continue to use the intrinsic value method of accounting for stock-based
employee compensation.

Impact of Inflation

         The Company believes that the impact of inflation has an effect upon
the amount of capital generally available for investment purposes and also may
affect the attitude or willingness of investors to buy and sell securities. The
nature of the business of the broker-dealer subsidiary and the securities
industry in general is directly affected by national and international economic
and political conditions, broad trends in business and finance and volatility of
interest rates, changes in and uncertainty regarding tax laws, and substantial
fluctuation in the volume and price levels of securities transactions and the
securities markets. To the extent inflation results in higher interest rates, or
has other adverse effects on the securities markets and the value of securities
held in inventory, it may adversely affect our financial position and results of
operations.
<PAGE>

Market Risk

         Certain of the Company's business activities expose it to market risk.
This market risk represents the potential for loss that may result from a change
in value of a financial instrument as a result of fluctuations in interest
rates, equity prices or changes in credit rating of issuers of debt securities.
This risk relates to financial instruments held by the Company as investment and
for trading.

         Securities inventories are exposed to risk of loss in the event of
unfavorable price movements. Securities positions are marked to market on a
daily basis. Market-making activities are client-driven, with the objective of
meeting clients' needs while earning a positive spread. At December 31, 2002
and December 31, 2001, equity securities positions owned and sold, not yet
purchased were approximately $181,000 and $1,130,000, and $-0- and $245,000,
respectively. In the Company's view, the potential exposure to market
risk, trading volatility and the liquidity of securities held in the firm's
inventory accounts could potentially have a material effect on its financial
position.

         Client activities involve the execution, settlement, and financial of
various transactions on behalf of its clients. Client activities are transacted
on either a cash or margin basis. Client activities may expose us to off-balance
sheet credit risk. The Company may have to purchase or sell financial
instruments at the prevailing market price in the event of the failure of a
client to settle a trade on its original terms or in the event that cash and
securities in the client margin accounts are not sufficient to fully cover the
client losses. The Company seeks to control the risks associated with client
activities by requiring clients to maintain collateral in compliance with
various regulations and Company policies.

Factors Affecting "Forward Looking Statements"

         From time to time, the Company may publish "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended, or make oral
statements that constitute forward-looking statements. These forward-looking
statements may relate to such matters as anticipated financial performance,
future revenues or earnings, business prospects, projected ventures, new
products, anticipated market performance, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. These risks and uncertainties, many of which are
beyond the Company's control, include, but are not limited to: (i) transaction
volume in the securities markets, (ii) the volatility of the securities markets,
(iii) fluctuations in interest rates, (iv) changes in regulatory requirements
which could affect the cost of doing business, (v) fluctuations in currency
rates, (vi) general economic and political conditions, both domestic and
international, (vii) changes in the rate of inflation and related impact on
securities markets, (viii) competition from existing financial institutions and
other new participants in competition from existing financial institutions and
other new participants in the securities markets, (ix) legal developments
affecting the litigation experience of the securities industry, and (x) changes
in federal and state tax laws which could affect the popularity of products sold
by us. The Company does not undertake any obligation to publicly update or
revise any forward-looking statements.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Our activities often involve the purchase, sale or short sale of
securities as principal. Such activities subject our capital to significant
risks from markets that may be characterized by relative illiquidity or may be
particularly susceptible to rapid fluctuation in price or liquidity. Such market
conditions could limit our ability to resell securities purchased or to purchase
securities sold short. These activities subject our capital to significant
risks, including market, credit and liquidity risks. Market risk relates to the
risk of fluctuating values based on market prices without action on our part.
Our primary credit risk is settlement risk, which relates to whether a
counterparty will fulfill its contractual obligations, such as delivery of
securities or payment of funds. Liquidity risk relates to our inability to
liquidate assets or redirect the deployment of assets contained in illiquid
investments. Additional information pertaining to the foregoing risks is
included under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Market Risk."



<PAGE>


Item 8.    Financial Statements

         See Financial Statements attached hereto at pages F-1 to F-23.

Item 9.    Disagreements on Accounting and Financial Disclosure

         Not Applicable.


<PAGE>



                                    PART III

Item 10. Directors and Executive Officers

     The Directors and Executive Officers of the Company and its subsidiaries
are as follows:
<TABLE>
         <S>                        <C>                       <C>

         Name                       Age                       Position

Herbert Kurinsky                    71               Director, President and Chief Executive
                                                     Officer of FMFC and of FMSC and Registered
                                                     Options Principal of FMSC

William J. Kurinsky                 42               Director, Vice President, Chief
                                                     Operating and Chief Financial Officer
                                                     and Secretary of FMFC and of FMSC and
                                                     Financial/Operations Principal of FMSC

Robert I. Rabinowitz, Esq.          45               General Counsel, FMFC, Chief
                                                     Administrative Officer, Vice President
                                                     and General Securities Principal of FMSC

Norma Doxey                         64               Director, Vice President of Operations, FMSC

Ward R. Jones, Jr.                  71               Director

Barry D. Shapiro, CPA               61               Director

</TABLE>



         The Company's Certificate of Incorporation provides for the
classification of the Board of Directors into three classes of Directors, each
class as nearly equal in number as possible but not less than one Director, each
director to serve for a three-year term, staggered by class. The Certificate of
Incorporation further provides that a Director or the entire Board of Directors
may be removed only for cause and only by the affirmative vote of the holders of
at least 70% of the combined voting power of the Company's voting stock, with
vacancies on the Board being filled only by a majority vote of the remaining
Directors then in office. "Cause" is defined as the willful failure of a
director to perform in any substantial respect such Director's duties to the
Corporation (other than any such failure resulting from incapacity due to
physical or mental illness), willful malfeasance by a Director in the
performance of his duties to the Corporation which is materially and
demonstrably injurious to the Corporation, the commission by a Director of an
act of fraud in the performance of his duties, the conviction of a Director for
a felony punishable by confinement for a period in excess of one year, or the
ineligibility of a Director for continuation in office under any applicable
rules, regulations or orders of any federal or state regulatory authority.

         David Portman, a former Class III Director, resigned his position
effective December 31, 2002. The Board of Directors has not yet filled the
vacancy created by Mr. Portman's resignation.

        All  officers  serve  at  the  discretion  of the  Board  of  Directors.
Family relationships  exist among the following  officers and  directors:
Mr.  Herbert Kurinsky is the uncle of Mr.  William J. Kurinsky.  Mr. Robert I.
Rabinowitz is the brother-in-law of Mr. William J. Kurinsky.
<PAGE>


        Herbert Kurinsky became a Director and the President of the Company on
November 16, 1987. Mr. Kurinsky is a co-founder of First Montauk Securities
Corp. and has been its President, one of its Directors and its Registered
Options Principal since September of 1986. From March 1984 to August 1986, Mr.
Kurinsky was the President of Homestead Securities, Inc., a New Jersey
broker/dealer. From April 1983 to March 1984, Mr. Kurinsky was a branch office
manager for Phillips, Appel & Waldon, a securities broker/dealer. From February
1982 to March 1983, Mr. Kurinsky was a branch office manager for Fittin,
Cunningham and Lauzon, a securities broker/dealer. From November 1977 to
February 1982, he was a branch office manager for Advest Inc., a securities
broker/dealer. Mr. Kurinsky received a B.S. degree in economics from the
University of Miami, Florida in 1954.

        William J. Kurinsky became Vice President, a Director and Financial and
Operations Principal of the Company on November 16, 1987. He is a co-founder of
First Montauk Securities and has been one of its Vice Presidents, a Director and
its Financial/Operations Principal since September of 1986. Prior to that date,
Mr. Kurinsky was Treasurer, Chief Financial Officer and Vice President of
Operations of Homestead Securities, Inc., a securities broker/dealer. Mr.
Kurinsky received a B.S. from Rutgers University in 1984. He is the nephew of
Herbert Kurinsky.

        Robert I. Rabinowitz, Esq. is General Counsel of the Company since 1987.
He concurrently served as General Counsel of First Montauk Securities from 1986
until 1998 when a new general counsel was named. Thereafter, he became the Chief
Administrative Officer of FMSC as well as a General Securities Principal. From
January 1986 until November 1986, he was an associate attorney for Brodsky,
Greenblatt & Renahan, a private practice law firm in Rockville, Maryland. Mr.
Rabinowitz is an attorney at law licensed to practice in New Jersey, Maryland
and the District of Columbia, and is a member of the Board of Arbitrators for
the National Association of Securities Dealers, Department of Arbitration. Mr.
Rabinowitz's wife is a niece of Mr. Herbert Kurinsky and a sister of Mr. William
Kurinsky.

        Norma L. Doxey has been a Director of the Company since December 6,
1988.  Ms. Doxey has been a Vice President of Operations and a Registered
Representative with First Montauk Securities Corp. since September 1986. From
September 1986, she was operations manager and a Registered Representative with
Homestead Securities, Inc. From July 1984 through August 1985 she held the same
position with Marvest Securities.

        Ward R. Jones, Jr. has been a director of the Company since June 1991.
From 1955 through 1990, Mr. Jones was employed by Shearson Lehman Brothers as a
registered representative, eventually achieving the position of Vice President.
Mr. Jones is currently a registered representative of First Montauk Securities
Corp., but does not engage in any securities business.

        Barry D. Shapiro, CPA has been a director of the Company since
December 6, 2000. From October 2000 to the present, Mr. Shapiro is a shareholder
of the accounting firm, Withum, Smith + Brown in its Red Bank office.
Mr. Shapiro was a partner of Shapiro & Weisman CPAs P.A. from 1976 thru 1996
when he became a partner of Rudolf, Cinnamon & Calafato, P.A. until joining
Withum Smith + Brown. Mr. Shapiro was previously employed with the Internal
Revenue Service from 1965 thru 1971, where he was responsible for audit, review
and conference functions.  Mr. Shapiro is a member of the New Jersey Society of
Certified Public Accountants, where he currently participates on the IRS Co-Op
and State Tax Committees. Mr. Shapiro is a past Trustee, Treasurer and Vice
President of the NJSCPA. He has been involved and is in many civic and community
activities, as well as charitable organizations, including the Monmouth County
New Jersey Chapter of the American Cancer Society and the Ronald McDonald House
of Long Branch, New Jersey. Mr. Shapiro received a B.S. in accounting from Rider
University in 1965.

Significant Employees

        Paul A. Lieberman, Esq., 54, is general counsel for First Montauk
Securities Corp. since January 1998, and special counsel from June 1997. From
1990 to 1997, he was Senior Vice President and Associate General Counsel at
Tucker, Anthony, Inc. a securities broker/dealer. Prior to that, Mr. Lieberman
served as Vice President and Senior Attorney for Citicorp/Citibank as well as
the New York Stock Exchange and the Securities and Exchange Commission. Mr.
Lieberman is an attorney at law.
<PAGE>


        Mark D. Lowe, 44, has been President of Montauk Insurance Services, Inc.
since October 1998. From 1982 to 1998 Mr. Lowe was a Senior Consultant with
Congilose & Associates, a financial services firm specializing in insurance and
estate planning. Mr. Lowe became a Certified Financial Planner (CFP) in July
1991. Mr. Lowe attended Ocean County College in Toms River, NJ. Mr. Lowe is the
Treasurer of the Estate and Financial Planning Council of Central New Jersey.

        Mindy A. Horowitz, CPA, 45, has been Vice President of Finance for First
Montauk Securities Corp. since September 1995. Prior to that, Ms. Horowitz was a
tax partner with and held other positions at the accounting firm of Broza, Block
& Rubino from 1981 through 1995 when she joined First Montauk Securities Corp.
Ms. Horowitz is a Certified Public Accountant.

Certain Reports

         No person who, during the fiscal year ended December 31, 2002, was a
Director, officer or beneficial owner of more than ten percent of the Company's
Common Stock (which is the only class of securities of the Company registered
under Section 12 of the Securities Exchange Act of 1934 (the "Act") (a
"Reporting Person") failed to file on a timely basis, reports required by
Section 16 of the Act during the most recent fiscal year or prior years. The
foregoing is based solely upon a review by the Company of Forms 3 and 4 during
the most recent fiscal year as furnished to the Company under Rule 16a-3(d)
under the Act, and Forms 5 and amendments thereto furnished to the Company with
respect to its most recent fiscal year, and any representation received by the
Company from any reporting person that no Form 5 is required.

Compensation of Directors

         The Company pays directors, who are not employees of the Company, a
retainer of $250 per meeting of the Board of Directors attended and for each
meeting of a committee of the Board of Directors not held in conjunction with a
Board of Directors meeting. Directors employed by the Company are not entitled
to any additional compensation as such. During fiscal year 2002, the Board of
Directors met on four (4) occasions and all directors were present, either in
person or by telephonic conference call.

Committees of the Board of Directors

         The Board of Directors has two committees: Audit and Compensation.

         For the fiscal year ended December 31, 2002, the members of the
committees, and a description of the duties of the Committees were as follows:

Audit Committee. FMFCs audit committee acts to:(i) review with management the
finances, financial condition and interim financial statements of the Company;
(ii) review with the Company's independent auditors the year-end financial
statements; and (iii) review implementation with the independent auditors and
management any action recommended by the independent auditors and the retention
and termination of the Company's independent auditors. During the fiscal year
ended December 31, 2002, the audit committee met on one occasion. The audit
committee adopted a written charter governing its actions effective June 23,
2000. During the fiscal year, the members of the audit committee were Ward R.
Jones, Barry Shapiro and David Portman. All three of these members of FMFC's
audit committee were "independent" within the definition of that term as
provided by Rule 4200(a)(14) of the listing standards of the National
Association of Securities Dealers. As of December 31, 2002, Mr. Portman resigned
from the Board of Directors. The Board has not yet replaced Mr. Portman on the
audit committee. Members of the Audit Committee do not receive additional
compensation for such service.

Compensation Committee. The compensation committee functions include
administration of the Company's 2002 Incentive Stock Option Plan, 2002
Non-Executive Director Stock Option Plan and 1996 Senior Management Option Plan
and the negotiation and review of all employment agreements of executive
officers of the Company. The compensation committees' members are Ward R. Jones
and Barry Shapiro. During the fiscal year ended December 31, 2002, the committee
met on 2 occasions.

Compensation Committee Interlocks and Insider Participation

        There are no compensation committee interlocks between the members of
the Company's compensation committee and any other entity. None of the members
of the Board's compensation committee are executive officers of the Company. Mr.
Jones is a registered representative of the Company's broker-dealer subsidiary,
First Montauk Securities Corp., but does not engage in any securities business.

<PAGE>

Item 11. Executive Compensation

Summary of Cash and Certain Other Compensation

         The following table provides certain information concerning all Plan
and Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-K) compensation
awarded to, earned by, paid or accrued by the Company during the years ended
December 31, 2002, 2001 and 2000 to each of the named executive officers of the
Company.

                                               SUMMARY COMPENSATION TABLE
<TABLE>
<S>                           <C>       <C>            <C>         <C>                   <C>
                                                                              Long Term
                          Annual Compensation Long Term                     Compensation
                          -----------------------------                     ------------


                                                                              Securities
                                                                              Underlying
Name & Principal                                                  Other   Annual        Options/ SARs
  Position                    Year       Salary         Bonus     Compensation             Granted
----------------              ----       ------         -----     --------------        -------------

Herbert Kurinsky              2002      $181,218       $  -        $ 2,500 (4)                0
Chairman, Chief               2001      $233,140       $  -        $ 2,000 (4)           200,000 (1)
Executive Officer (7)         2000      $256,217       $ 29,306    $ 2,000 (4)           125,000 (1)

William J. Kurinsky           2002      $181,218       $  -        $   -                      0
Vice President,               2001      $233,140       $  -        $ 1,000 (5)           200,000 (2)
 Chief Operating and          2000      $256,217       $  -        $ 2,000 (5)           125,000 (2)
 Financial Officer
 and Secretary (8)

Robert I. Rabinowitz          2002      $150,000       $  -        $ 2,500 (6)                0
General Counsel, FMFC,        2001      $146,154       $  -        $ 2,000 (6)            43,750 (3)
Chief Administrative          2000      $150,000       $ 24,234    $ 2,000 (6)            60,000 (3)
Officer, FMSC (9)

-----------------------------------

</TABLE>

1)       In 2002 the Compensation Committee of the Board of Directors (the
         "Committee) did not authorize any option grants the named officer. In
         2001, the Committee authorized an option grant to Mr. Herbert Kurinsky
         to purchase 200,000 shares of Common Stock at an exercise price of $.75
         per share for 5 years. In 2000, the Committee authorized an option
         grant to Mr. Herbert Kurinsky to purchase 125,000 shares of Common
         Stock at an exercise price of $2.00 per share. See "Aggregated
         Options/Sar Exercises in Last Fiscal Year and Fy-End Option/Sar
         Values."

2)       In 2002 the Compensation Committee of the Board of Directors (the
         "Committee) did not authorize any option grants the named officer. In
         2001, the Committee authorized an option grant to Mr. William J.
         Kurinsky to purchase 200,000 shares of Common Stock at an exercise
         price of $.83 per share for 5 years. In 2000 the Committee authorized
         an option grant to Mr. William J. Kurinsky to purchase 125,000 shares
         of Common Stock at an exercise price of $2.00 per share. See
         "Aggregated Options/Sar Exercises in Last Fiscal Year and Fy-End
         Option/Sar Values."

3)       In 2002 the Compensation Committee of the Board of Directors (the
         "Committee) did not authorize any option grants the named officer. In
         2001, the Committee authorized an option grant to Mr. Robert Rabinowitz
         to purchase 43,750 shares of Common Stock at an exercise price of $1.50
         per share for 5 years. In 2000 the Committee authorized an option grant
         to Mr. Robert Rabinowitz to purchase 60,000 shares of Common Stock at
         an exercise price of $2.00 per share. See "Aggregated Options/Sar
         Exercises in Last Fiscal Year and Fy-End Option/Sar Values."
<PAGE>



4)       Includes:  (i) for 2002,  automobile  allowance of $2,500; (ii) for
         2001, automobile allowance of $2,000 (iii) for 2000, auto allowance of
         $2,000.

5)       Includes:  (i) for 2002 no automobile  allowance was paid, (ii) for
         2001,  automobile allowance of $1,000; and (iii) for 2000, automobile
         allowance of $2,000.

6)       Includes  (i) for 2002,  automobile  allowance  of $2,500;  (ii) for
         2001,  automobile  allowance  of $2,000;  (iii) for 2000, automobile
         allowance of $2,000.

7)       Mr. Herbert Kurinsky is the beneficial owner of 56,518 shares of the
         Company's Common Stock as of December 31, 2002, which shares had a
         market value of $11,304 as of that date, without giving effect to the
         diminution in value attributable to the restriction on said shares.

8)       Mr. William Kurinsky is the beneficial owner of 1,405,823 shares of the
         Company's Common Stock as of December 31, 2002, which shares had a
         market value of $281,165 as of that date, without giving effect to the
         diminution in value attributable to the restriction on said shares.

9)       Mr. Robert I. Rabinowitz is the beneficial owner of 29,500 shares of
         the Company's Common Stock as of December 31, 2002, which shares had a
         market value of $5,900 as of that date, without giving effect to the
         diminution in value attributable to the restriction on said shares.


Compensation Committee Report on Executive Compensation

         This report is submitted by the compensation committee of the Board of
Directors of the Company. During the fiscal year ended December 31, 2002, the
compensation committee was responsible for reviewing the Company's stock plans
and reviewing and approving compensation matters concerning the executive
officers and key employees of the Company.

         Overview and Philosophy.  The Company uses its compensation program to
achieve the following objectives:


         -        To provide compensation that attracts, motivates and retains
                  the talented, high caliber officers and employees necessary to
                  achieve the Company's strategic objectives, as determined by
                  the compensation committee;

         -        To align the interest of officers with the success of the
                  Company;

         -        To align the interest of officers with stockholders by
                  including long-term equity incentives; and

         -        To increase the long-term profitability of the Company and,
                  accordingly, increase stockholder value.

         Compensation under the executive compensation program is comprised of
cash compensation in the form of base salary, bonus compensation and long-term
incentive awards, generally in the form of options to purchase common stock. In
addition, the compensation program includes various other benefits, including
medical and insurance plans and the employee stock option incentive plans and
company sponsored 401(k) plans, both of which plans are generally available to
all employees of the Company.

         The principal factors which the compensation committee considered with
respect to each officer's compensation package for fiscal year ended December,
2002 are summarized below. The compensation committee may, however, in its
discretion, apply different or additional factors in making decisions with
respect to executive compensation in future years.

         Base Salary. Compensation levels for each of the Company's officers,
including the Chief Executive Officer, are generally set within the range of
salaries that the compensation committee believes are paid to officers with
comparable qualifications, experience and responsibilities at similar companies.
In setting compensation levels, the compensation committee takes into account
such factors as (i) the Company's past performance and future expectations, (ii)
individual performance and experience and (iii) past salary levels. The
compensation committee does not assign relative weights or ranking to these
factors, but instead makes a determination based upon the consideration of all
of these factors as well as the progress made with respect to the Company's
long-term goals and strategies. Base salary, while reviewed annually, is only
adjusted as deemed necessary by the compensation committee in determining total
compensation for each officer. Additionally, certain executives, including
Herbert Kurinsky, the Chief Executive Officer and William Kurinsky, the Chief
Operating Officer have existing employment agreements with the Company which set
forth certain levels of base salary and bonus compensations. Shareholders are
directed to the discussion of these agreements under the heading "Employment
Agreements" appearing elsewhere in this Proxy Statement.
<PAGE>


         Equity Incentives. The compensation committee believes that stock
participation aligns officers' interests with those of the stockholders. In
addition, the compensation committee believes that equity ownership by officers
helps to balance the short term focus of annual incentive compensation with a
longer term view and may help to retain key executive officers. Long term
incentive compensation, generally granted in the form of stock options, allows
the officers to share in any appreciation in the value of the Company's common
stock.

         In making stock option grants, the compensation committee considers
general corporate performance, individual contributions to the Company's
financial, operational and strategic objectives, level of seniority and
experience, existing levels of stock ownership, previous grants of restricted
stock or options, vesting schedules of outstanding restricted stock or options
and the current stock price. With respect to the compensation determination for
the fiscal year ended December 31, 2002, the compensation committee believes
that the current stock ownership positions of the executive officers was
sufficient to achieve the benefits intended by equity ownership. Accordingly, no
additional options were granted options to the Company's executive officers
during the past fiscal year.

         Other Benefits. The Company also has various broad-based employee
benefit plans. Executive officers participate in these plans on the same terms
as eligible, non-executive employees, subject to any legal limits on the amounts
that may be contributed or paid to executive officers under these plans. The
Company offers a 401(k) savings plan, which allows employees to invest in a wide
array of funds on a pre-tax basis, as well as insurance and other benefit plans
for its employees, including executive officers.

         Chief Executive Officer and Chief Operating Officer Compensation.
During the last fiscal year, neither the Chief Executive Officer nor the Chief
Operating Officer received any cash bonuses or compensation outside of a $2,500
automobile expense allowance for the Chief Executive Officer. Each of the Chief
Executive Officer and Chief Operating Officer received a base salary of $181,218
during the fiscal year ended December 31, 2002. Each officer voluntarily agreed
to reduce his base salary in fiscal 2002 by $51,922 as compared to 2001, rather
than accept an increase of 10%, as provided in each of their employment
agreements. The terms of the subject officers' employment compensation are
determined primarily pursuant to their employment agreements, which were entered
into in August, 2002. Shareholders are directed to the discussion of these
agreements under the heading "Employment Agreements" appearing elsewhere in this
Annual Report on Form 10-K.

         New Employment Agreements. Additionally, in August 2002, the Committee
approved new employment agreements for each of Mr. Herbert Kurinsky and Mr.
William Kurinsky, our Chief Executive Officer Chief Operating Officer,
respectively. These new employment agreements were necessitated, in the view of
the Committee in order to include adequate provisions for these employees in the
event of a change of control. The Committee determined that these officers were
essential to the Company, and that their continued retention, especially in the
event of a threat of a change of control of the Company, necessitated that these
executives be eligible for added compensation under certain conditions. The
Committee believed that several factors out of the control of the Company and
management made a potential change of control possible. These factors included
the falling stock market generally, and the falling price of the Company's
stock. The new employment agreements also provide for additional financial and
employment security under other conditions, such as termination without cause.

         Tax Deductibility of Executive Compensation. Section 162(m) of the Code
limits the tax deduction to the Company to $1 million for compensation paid to
any of the executive officers unless certain requirements are met. The
compensation committee has considered these requirements and the regulations. It
is the compensation committee's present intention that, so long as it is
consistent with its overall compensation objectives, substantially all executive
compensation be deductible for United States federal income tax purposes. The
compensation committee believes that any compensation deductions attributable to
options granted under the employee stock option plan currently qualify for an
exception to the disallowance under Section 162(m). Future option grants to
executive officers under each of the Company's employee stock option plans will
be granted by the compensation committee.

                                       By the Compensation Committee of
                                       the Board of Directors of First Montauk
                                       Financial Corp.

                                       Ward R. Jones, Jr.
                                       Barry Shapiro
<PAGE>


                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

         There were no stock option grants to any executive officers granted
during the year ended December 31, 2002.
<TABLE>
     <S>                         <C>    <C>                <C>                            <C>

                                              AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                                                         AND FY-END OPTION/SAR VALUES
                                                                                 Value of
                             Shares                   Number of                  Unexercised
                             Acquired                 Unexercised                In-the-money
                             on        Value          Options as of              Options at
              Name           Exercise  Realized       December 31, 2002          December 31, 2002 (1)
              ----           --------  --------       -----------------          ---------------------

                                                    Exercisable/Unexercisable    Exercisable/Unexercisable
     Herbert Kurinsky            --     $0                 425,000/0                      $0/$0
     William J. Kurinsky         --     $0                 425,000/0                      $0/$0
     Robert I. Rabinowitz        --     $0                 203,750/0                      $0/$0

</TABLE>

 (1)     Based upon the closing  bid price of the  Company's  Common  Stock on
         December  31, 2002 ($.20 per share),  less the  exercise
         price for the aggregate number of shares subject to the options.


Employment Agreements

         In August 2002, the Company entered into new three-year employment
contracts with Herbert Kurinsky, as President and William J. Kurinsky, as
Executive Vice President. The contracts provide for base salaries of $256,218
for the first year of the agreement for each, increasing in each case at the
rate of 10% per year. Each will also be entitled to receive a portion of a bonus
pool consisting of 10% of the pre-tax profits of the Company, to be determined
by the executive management (e.g. Herbert Kurinsky and William J. Kurinsky). The
bonus pool would require a minimum of $500,000 pretax profit per year in order
to become effective. Each is also entitled to receive commissions at the same
rate as paid to other non-affiliate registered representatives of the Company.
They are also entitled to purchase from FMSC, up to 20% of all underwriters
and/or placement agent warrants or options that are granted to FMSC upon the
same price, terms and conditions afforded to FMSC as the underwriter or
placement agent. Each employee also receives health insurance benefits and life
insurance as generally made available to regular full-time employees of the
Company, and reimbursement for expenses incurred on behalf of the Company and
the use of an automobile, or in the alternative, an automobile allowance. The
contracts also provide for severance benefits equal to three times the previous
year's salary in the event either of the employees is terminated or their duties
significantly changed after a change in management of the Company as defined in
the agreement.

Incentive Stock Option Plan

         In June 2002, the Company adopted the 2002 Incentive Stock Option Plan
(the "2002 Plan") which provides for the grant of options to purchase up to
5,000,000 shares of the Company's Common Stock by employees of the Company and
consultants. Under the terms of the Plan, options granted thereunder may be
designated as options which qualify for incentive stock option treatment
("ISOs") under Section 422A of the Code, or options which do not so qualify
("Non-ISOs").

         The Plan is administered by the Board of Directors which has the
discretion to determine the eligible employees to whom, and the times and the
price at which, options will be granted; whether such options shall be ISOs or
Non-ISOs; the periods during which each option will be exercisable; and the
number of shares subject to each option. The Board has full authority to
interpret the Plan and to establish and amend rules and regulations relating
thereto.
<PAGE>


         Under the Plan, the exercise price of an option designated as an ISO
shall not be less than the fair market value of the Common Stock on the date the
option is granted. However, in the event an option designated as an ISO is
granted to a ten percent stockholder (as defined in the Amended Plan) such
exercise price shall be at least 110% of such fair market value. Exercise prices
of Non-ISO options may be less than such fair market value. The aggregate fair
market value of shares subject to options granted to a participant which are
designated as ISOs which become exercisable in any calendar year may not exceed
$100,000.

         The Board may, in its sole discretion, grant bonuses or authorize loans
to or guarantee loans obtained by an optionee to enable such optionee to pay any
taxes that may arise in connection with the exercise or cancellation of an
option. Unless sooner terminated, the Plan will expire in 2012.

        Since the adoption of the 2002 Plan, the Company has issued 476,000
options to registered representatives and employees of the Company. There
remains 1,447,998 options outstanding from the 1992 Plan for a total of
1,923,998 options outstanding.

Director Plan

      In June 2002, the Company adopted the Non-Executive Director Stock Option
Plan (the "Director Plan"). The Director Plan provides that each non-executive
director will automatically be granted an option to purchase 20,000 shares each
September 1, provided such person has served as a director for the 12 months
immediately prior to such September 1st. A Non-Executive Director who has not
served as a director for an entire year prior to September 1st of each year
shall receive a pro rata number of options determined as follows:

Date of Membership                               Options Granted
------------------                               ---------------
September 1 through November 30                      20,000
December 1 through February 28                       15,000
March 1 through May 30                               10,000
June 1 through August 31                              5,000

Options are granted under the Director Plan until 2002 to non-executive
directors who are not full time employees of the Company or any of its
subsidiaries.

         The exercise price for options granted under the Director Plan shall be
100% of the fair market value of the Common Stock on the date of grant. Until
otherwise provided in the Stock Option Plan the exercise price of options
granted under the Director Plan must be paid at the time of exercise, either in
cash, by delivery of shares of Common Stock of the Company or a combination of
both. The term of each option commenced on the date it is granted and unless
terminated sooner as provided in the Director Plan, expires five years from the
date of grant. The Director Plan is administered by a committee of the board of
directors composed of not fewer than two persons who are officers of the Company
(the "Committee"). The Committee has no discretion to determine which
non-executive director will receive options or the number of shares subject to
the option, the term of the option or the exercisability of the option. However,
the Committee will make all determinations of the interpretation of the Director
Plan. Options granted under the Director Plan are not qualified for incentive
stock option treatment. To date, a total of 60,000 options have been granted to
the Company's Non-Executive members of the Board of Directors under the 2002. An
additional 160,000 options remain outstanding from grants made pursuant to the
1992 Non-Executive Director Stock Option Plan, which terminated in June 2002,
and which was replaced by the 2002 Non-Executive Director Stock Option Plan.

Senior Management Plan

         In 1996, the Company adopted the 1996 Senior Management Incentive Plan
(the "Management Plan"). The Management Plan provides for the issuance of up to
2,000,000 shares of Common Stock either upon issuance of options issued under
the Plan or grants of restricted stock or incentive stock rights. The Board of
Directors or a committee of the board may grant awards under the Management Plan
to executive management employees, if one is appointed for this purpose. The
Management Plan provides for four types of awards: stock options, incentive
stock rights, stock appreciation rights ("SARs"), and restricted stock purchase
agreements. The stock options granted under the Management Plan can be either
ISOs or non-ISOs similar to the options granted under the Employee Stock Option
Plan, except that the exercise price of non-ISOs shall not be less than 85% of
the fair market value of the Common Stock on the date of grant. Incentive stock
rights consist of incentive stock units equivalent to one share of Common Stock
in consideration for services performed for the Company. If services of the
holder terminate prior to the incentive period, the rights become null and void
unless termination is caused by death or disability. Stock appreciation rights
allow a Grantee to receive an amount in cash equal to the difference between the
fair market value of the stock and the exercise price, payable in cash or shares
of Common Stock. The Board or committee may grant limited SARs, which become
exercisable upon a "change of control" of the Company. A change of control
includes the purchase by any person of 25% or more of the voting power of the
Company's outstanding securities, or a change in the majority of the Board of
Directors.
<PAGE>


         Awards granted under the Management Plan are also entitled to certain
acceleration provisions that cause awards granted under the Plan to immediately
vest in the event of a change of control or sale of the Company. Awards under
the Management Plan may be made until 2006.

         In June 2000 at the Company's Annual Meeting of Shareholders, a
resolution was passed amending the Senior Management Stock Option Plan to
increase the number of shares reserved for issuance from 2,000,000 to 4,000,000.
Options to purchase 1,452,500 shares of the Company's Common Stock are currently
outstanding under the Senior Management Plan.

Shareholder Return Performance Presentation

         Set forth herein is a line graph comparing the total returns (assuming
reinvestment of dividends) of the Company's common stock, the Standard and Poor
Industrial Average, and an industry composite consisting of a group of two peer
issuers selected in good faith by the Company. The Company's common stock is
listed for trading in the over the counter market and is traded under the symbol
"FMFK".


<TABLE>
<S>                                  <C>                            <C>               <C>              <C>             <C>
                                                     Comparison of 5 Year Cumulative Total Return
                                                          Assumes Initial Investment of $100

                                                   1997       1998          1999        2000            2001             2002

First Montauk Financial Corp.        Return %                -49.50       -10.61       -44.75         -38.03           -54.54
                                     Cum $       $100.00     $50.50       $45.14       $24.94         $15.46            $7.03

S & P 500                            Return %                 28.58        21.05        -9.10         -11.88           -22.10
                                     Cum $       $100.00    $128.58      $155.64      $141.47        $124.66           $97.11

Peer Group Only                      Return %                -39.06       186.80       -59.19          15.01           -49.14
                                     Cum $       $100.00     $60.94      $174.78       $71.32         $82.03           $41.72


Peer Group + FMFK                    Return %                -43.10       119.35       -57.28           6.67           -49.60
                                     Cum $       $100.00     $56.90      $124.81       $53.32         $56.87           $28.66


NOTE: Data complete through last fiscal year.
NOTE: Corporate Performance Graph with peer group uses peer group only performance (excludes only company).
NOTE: Peer group indices use beginning of period market capitalization weighting.
NOTE: S&P index returns are calculated by Zacks.
NOTE: Industry composite includes Paulson Capital Corp., Olympic Cascade
Financial Corp. and Kirlin Holding Corp. The industry composite has been
determined in good faith by management to represent entities that compete with
the Company in certain of its significant business segments.
</TABLE>

<PAGE>

Item 12.          Security Ownership of Certain
                  Beneficial Owners and Management

         The following table sets forth, as of April 11, 2003, the number and
percentage of outstanding shares of Common Stock beneficially owned by each
person known by the Company to own beneficially more than 5% of the Company's
outstanding shares of Common Stock and Common Stock Warrants, by each director
of the Company, and by all directors and officers of the Company as a group.

Directors, Officers                             Amount and Percentage
and 5% Shareholders (1)                       of Beneficial Ownership (1)
-----------------------                       ---------------------------

                                      Number of Shares                Percent
                                      ----------------                -------

Herbert Kurinsky                          511,518(2)                     5.7%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701

William J. Kurinsky                     1,830,823(3)                    20.5%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701

Robert I. Rabinowitz, Esq.                236,583(4)                     3.0%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701

Ward R. Jones                             110,000(5)                     1.3%
7 Leda Lane
Guilderland, NY 12084

Norma Doxey                                54,900(6)                      *
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701

Barry Shapiro, CPA                         20,000(7)                      *
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701


<PAGE>


Directors, Officers                             Amount and Percentage
and 5% Shareholders (1)                       of Beneficial Ownership (1)
-----------------------                       ---------------------------

                                      Number of Shares                Percent
                                      ----------------                -------

Kirlin Holdings Corp.                     852,500(8)                    10%
6901 Jericho Turnpike
Syosset, NY 11791

All Directors, Officers and
5% Shareholders as a group
(7 persons in number)                   9,770,247                       37.2%

* Indicates less than 1%

(1)      Unless  otherwise  indicated below,  each director,  officer and 5%
         shareholder has sole voting and sole investment power with respect to
         all shares that he beneficially owns.

(2)      Includes vested and presently exercisable options of Mr. Herbert
         Kurinsky to purchase 425,000 shares of Common Stock.

(3)      Includes vested and presently exercisable options of Mr. William J.
         Kurinsky to purchase 425,000 shares of Common Stock.

(4)      Includes vested and presently exercisable options of Mr. Robert
         Rabinowitz to purchase 228,750 shares of Common Stock; 25,000 of which
         are owned by Mr. Rabinowitz's wife. Mr. Rabinowitz's children own 2,000
         shares of Common Stock. Mr. Rabinowitz also owns 5,833 Class C
         Warrants.

(5)      Includes vested and presently exercisable options of Mr. Ward Jones to
         purchase 100,000 shares of Common Stock.

(6)      Includes  vested and presently  exercisable  options of Ms. Norma Doxey
         to purchase 36,500 shares of Common Stock,  and 6,000 non-vested stock
         options.

(7)      Includes vested and presently exercisable options of Mr. Barry Shapiro
         to purchase 20,000 shares of Common Stock.

(8)      As reported under Schedule 13G filing made by Kirlin Holding Corp.
         dated July 15, 2002.

NOTE: Class C Warrants are exercisable at $7.00 per share for a period of seven
(7) years from February 17, 1998.


<PAGE>

Equity Compensation Plan Information

         The following table provides information about the Company's common
stock that may be issued upon the exercise of options and rights under all of
the Company's existing equity compensation plans as of December 31, 2002,
including the 2002 Incentive Stock Option Plan, the 2002 Non-Executive Director
Stock Option Plan, the 1992 Incentive Stock Option Plan, as amended, the 1992
Non-Employee Director Stock Option Plan, as amended and the 1996 Senior
Management Stock Option Plan, as amended. Information concerning each of the
aforementioned plans is set forth below following the caption "Shareholder
Approved Option Plans." Each of the 1992 Incentive Stock Option Plan and 1992
Non-Executive Director Stock Option Plan have expired and no additional options
may be granted under such plans. Unexpired options granted pursuant to such
plans prior to their expiration, however, remain exercisable (when vested) until
the expiration of the individual option grant.
<TABLE>
        <S>                     <C>                        <C>                             <C>
                                                                                           Number of Securities
                                                                                         Remaining Available for
                                Number of Securities to                                Future Issuance Under Equity
                                be Issued upon Exercise                                Compensation Plans Excluding
                                 of Outstanding Options    Weighted Average Exercise     Securities Reflected in
        Plan Category                 and Rights            Price of Outstanding               Column (a)
                                         (a)                   Options (b)                        (c)

Equity Compensation Plans
Approved by Stockholders              4,072,498 (1)               1.53                          7,516,500 (2)(3)
------------------------------ --------------------------- --------------------------- ------------------------------
Equity Compensation Plans                 N/A                      N/A                              N/A
Not Approved by Stockholders
------------------------------ --------------------------- --------------------------- ------------------------------
Total                                 4,072,498                   1.53                          7,516,500
------------------------------ --------------------------- --------------------------- ------------------------------
</TABLE>


        1. Includes 476,000 options issued pursuant to the Company's 2002
Incentive Stock Option Plan, 1,923,998 options issued pursuant to the Company's
1992 Incentive Stock Option Plan, as amended, 60,000 options issued pursuant to
the Company's 2002 Director Stock Option Plan, 160,000 options issued pursuant
to the Company's 1992 Director Stock Option Plan, as amended, and 1,452,500
options issued pursuant to the Company's 1996 Senior Management Stock Option
Plan, as amended.

        2. Includes 4,524,000 options available for issuance under the Company's
2002 Incentive Stock Option Plan and an aggregate of 2,452,500 shares reserved
for issuance as options, incentive stock rights or pursuant to restricted stock
purchase agreements under to the Company's 1996 Senior Management Stock Option
Plan, as amended.

        3. Includes 540,000 options assumed available for issuance under the
Company's 2002 Directors Stock Option Plan. The Company expects to have three
outside directors, each of whom will receive 20,000 options over the ten years
of the plan.


Item 13.   Certain Relationships and Related Transactions

         For  information  concerning  the terms of the  employment  agreements
entered into  between the Company and Messrs.  Herbert Kurinsky and William J.
Kurinsky, see "Executive Compensation".
<PAGE>


Item 14.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

            Our management, under the supervision and with the participation of
our chief executive officer and chief financial officer, conducted an evaluation
of our "disclosure controls and procedures" (as defined in Securities Exchange
Act of 1934 (the "Exchange Act") Rules 13a-14(c)) within 90 days of the filing
date of this Annual Report on Form 10-K (the "Evaluation Date"). Based on their
evaluation, our chief executive officer and chief financial officer have
concluded that as of the Evaluation Date, our disclosure controls and procedures
are effective to ensure that all material information required to be filed in
this Annual Report on Form 10-K has been made known to them in a timely fashion.

Changes in Internal Controls

            There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the Evaluation Date set forth above.

<PAGE>


                                     PART IV

Item 15.          Exhibits, Financial Statements
                  and Reports on Form 8-K

(A) 1. Financial Statements

         See the Consolidated Financial Statements and Notes thereto, together
with the reports thereon of Schneider & Associates, LLP dated April 4, 2003
beginning on page F-1 of this report.

    2. Exhibits

         Incorporated by reference to the Exhibit Index at the end of this
report.

(B) Reports on Form 8-K

         During the last quarter of the period covered by this Report, the
following reports were filed on Form 8-K:

         Form 8-K dated March 27, 2003 reporting Item 5 and Item 9 disclosure
pertaining to the Company's private placement of debentures.





<PAGE>




                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                FIRST MONTAUK FINANCIAL CORP.


                                                By  /s/ Herbert Kurinsky
                                                  ------------------------------
Dated April 14, 2003                              Herbert Kurinsky, President

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.


/s/ Herbert Kurinsky                                            April 14, 2003
-------------------------------------------
Herbert Kurinsky
President, Chief Executive
Officer and Director


/s/ William J. Kurinsky                                         April 14, 2003
-------------------------------------------
William J. Kurinsky
Vice-President, Chief Operating
and Chief Financial Officer, and
Principal Accounting Officer,
Secretary and Director


/s/ Norma Doxey                                                 April 14, 2003
-------------------------------------------
Norma Doxey, Director


/s/ Ward R. Jones, Jr.                                          April 14, 2003
-------------------------------------------
Ward R. Jones, Jr., Director


/s/ Barry Shapiro                                               April 14, 2003
-------------------------------------------
Barry Shapiro, Director


<PAGE>


                                 CERTIFICATIONS

         I, Herbert Kurinsky, Chief Executive Officer of First Montauk Financial
 Corp. certify that:

1. I have reviewed this annual report on Form 10-K of First Montauk Financial
Corp.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d- 14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

(a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

<PAGE>



6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:    April 14, 2003


/s/ Herbert Kurinsky
-----------------------------
Herbert Kurinsky
Chief Executive Officer
First Montauk Financial Corp.







<PAGE>



                                 CERTIFICATIONS

         I, William J. Kurinsky, Chief Financial Officer of First Montauk
Financial Corp. certify that:

1. I have reviewed this annual report on Form 10-K of First Montauk Financial
Corp.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d- 14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

(a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and


<PAGE>



6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:    April 14, 2003


/s/ William J. Kurinsky
----------------------------------
William J. Kurinsky
Chief Financial Officer
First Montauk Financial Corp.

<PAGE>

<TABLE>
<S>                  <C>


                                 EXHIBITS INDEX

57


The exhibits  designated  with an asterisk (*) are filed herewith.  All other exhibits have been  previously  filed
with the Commission and, pursuant to 17 C.F.R.  Section 230.411,  are incorporated by reference to the document referenced
in brackets following the descriptions of such exhibits.

-------------------- ----------------------------------------------------------------------------------------
Exhibit No.                                                Description
-------------------- ----------------------------------------------------------------------------------------
-------------------- ----------------------------------------------------------------------------------------
3.1                  Amended and Restated  Certificate of  Incorporation  adopted at 1989 Special Meeting in
                     lieu of Annual  Meeting of  Shareholders  (Previously  filed with the  Commission as an
                     exhibit to the Company's Registration Statement on Form S-l, File No. 33-24696).

3.2                  Amended and Restated By-Laws  (Previously  filed with the Commission as an exhibit to n
                     the Company's Registration Statement on Form S-l, File No. 33-24696).

3.3 *                Certificate of Designations of Series A Preferred Stock.

4.1                  Form of Common  Stock.  (Previously  filed  with the  Commission  as an  exhibit to the
                     Company's Registration Statement on Form S-l, File No. 33-24696).

4.2                  Form of Debenture Sold in Private  Placement.  (Previously filed with the Commission as
                     Exhibit 4.1 to Report on Form 8-K dated March 27, 2003).


4.3                  Form of Placement  Agent Warrant  (Previously  filed with the Commission as Exhibit 4.2
                     to Report on Form 8-K dated March 27, 2003).

10.1                 Office  Lease  Agreement  between  First  Montauk  Securities  Corp.  and River  Office
                     Equities  dated March 5, 1997  (Previously  filed with the  Commission as an exhibit to
                     the Company's Form 10-KSB for the fiscal year ended December 31, 1997).

10.2                 First  Amendment to Office Lease  Agreement  dated March 5, 1997 between  First Montauk
                     Securities Corp. and River Office Equities dated March 3, 1998  (Previously  filed with
                     the  Commission  as Exhibit  28.8 to Form 10-K for the fiscal year ended  December  31,
                     1998).

10.3                 Employment  Agreement  between  First  Montauk  Securities  Corp.  and Mark Lowe  dated
                     October 15, 1998  (Previously  filed with the Commission as an exhibit to the Company's
                     Form 10-K for the fiscal year ended December 31, 1998).

10.4                 Employment  Agreement  between  First  Montauk  Securities  Corp.  and Seth Rosen dated
                     January 25, 1999  (Previously  filed with the Commission as an exhibit to the Company's
                     Form 10-K for the fiscal year ended December 31, 1998).

10.5                 Clearing Agreement dated May 8, 2000 between Fiserv Securities,  Inc. and First Montauk
                     Securities Corp.  (Previously  filed with the Commission as an exhibit to the Company's
                     Form 10-K for the fiscal year ended December 31, 2000).

10.6                 Financial  Agreement  dated May 8,  2000  between  Fiserv  Securities,  Inc.  and First
                     Montauk  Securities  Corp.  (Previously  filed with the Commission as an exhibit to the
                     Company's Form 10-K for the fiscal year ended December 31, 2000).

10.7                 Amended  and  Restated  Financial  Agreement  dated  February  1, 2001  between  Fiserv
                     Securities,  Inc.,  First Montauk  Financial Corp. and First Montauk  Securities  Corp.
                     (Previously  filed with the Commission as an exhibit to the Company's Form 10-K for the
                     fiscal year ended December 31, 2000).

10.8                 Security  Agreement  dated February 1, 2001 between Fiserv  Securities,  Inc. and First
                     Montauk  Financial  Corp.  (Previously  filed with the  Commission as an exhibit to the
                     Company's Form 10-K for the fiscal year ended December 31, 2000).

10.9                 Sublease  Agreement between Eloquent,  Inc. and First Montauk Financial Corp. dated May
                     31, 2001  (Previously  filed with the  Commission as an exhibit to the  Company's  Form
                     10-K for the fiscal year ended December 31, 2001).

10.10                Sublease  Agreement  between Aim net Solutions,  Inc. and First Montauk Financial Corp.
                     dated  January  15, 2002  (Previously  filed with the  Commission  as an exhibit to the
                     Company's Form 10-K for the fiscal year ended December 31, 2001).

10.11                Employment  Agreement dated August 21, 2002 between Herbert  Kurinsky and First Montauk
                     Financial  Corp.  (Previously  filed with the Commission as an exhibit to the Company's
                     Report on Form 10-Q for the Quarter ended September 20, 2002).

10.12                Employment  Agreement  dated  August 21, 2002  between  William J.  Kurinsky  and First
                     Montauk  Financial  Corp.  (Previously  filed with the  Commission as an exhibit to the
                     Company' Report on Form 10-Q for the Quarter ended September 20, 2002).

28.1                 1992 Incentive  Stock Option Plan  (Previously  filed with the Commission as an exhibit
                     to the Company's Registration Statement on Form S-l, File No. 33-24696).

28.2                 1992 Non-Executive  Director Stock Option Plan (Previously filed with the Commission as
                     an exhibit to the Company's Registration Statement on Form S-l, File No. 33-24696).

28.3                 Amended and Restated  1992  Incentive  Stock Option  Plan.  (Previously  filed with the
                     Commission as an exhibit to the Company's Proxy Statement dated May 30, 1996).

28.4                 Non-Executive  Director  Stock  Option  Plan -  Amended  and  Restated  June  28,  1996
                     (Previously  filed with the Commission as an exhibit to the Company's Proxy  Statement
                     dated May 30, 1996).

28.5                 1996  Senior  Management  Incentive  Stock  Option  Plan  (Previously  filed  with  the
                     Commission as an exhibit to the Company's Proxy Statement dated May 30, 1996).

28.6                 Second Amended and Restated 1992  Incentive  Stock Option Plan  (Previously  filed with
                     the Commission as an exhibit to the Company's Proxy Statement dated May 23, 2000).

28.7                 1996 Senior  Management  Incentive Plan Amended as of June 23, 2000  (Previously  filed
                     with the Commission as an exhibit to the Company's Proxy Statement dated May 23, 2000).

28.8                 2002 Incentive Stock Option Plan.  (Previously  filed with the Commission as an Exhibit
                     A to the Company's Proxy Statement dated May 20, 2002).

28.9                 2002  Non-Executive  Director Stock Option Plan.  (Previously filed with the Commission
                     as Exhibit B to the Company's Proxy Statement dated May 20, 2002).

99.1 *               Certification  of Herbert  Kurinsky  pursuant  to 18 U.S.C.  Section  1350,  as adopted
                     pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2 *               Certification  of William  Kurinsky  pursuant  to 18 U.S.C.  Section  1350,  as adopted
                     pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
-------------------- ----------------------------------------------------------------------------------------


</TABLE>
<PAGE>




                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
First Montauk Financial Corp.

     We have  audited the  accompanying  consolidated  statements  of  financial
condition of First Montauk  Financial Corp. and  Subsidiaries as of December 31,
2002 and 2001, and the related consolidated statements of operations, changes in
stockholders'  equity  (deficit),  and cash flows for each of the three years in
the period ended December 31, 2002. These consolidated  financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all  material  respects,  the  financial  position of First
Montauk  Financial Corp. and  Subsidiaries as of December 31, 2002 and 2001, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2002 in conformity with  accounting  principles
generally accepted in the United States of America.



                                          Schneider & Associates LLP

Jericho, New York
April 11, 2003


                                      F-1

<PAGE>



                                  FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<S>                                                                               <C>              <C>
                                                                                           December 31,
                                                                                     2002              2001

ASSETS
Cash and cash equivalents                                                         $ 2,638,819      $ 1,779,554
Due from clearing firm                                                              4,591,701        4,146,410
Securities owned:
   Marketable, at market value                                                        180,581        1,129,892
   Not readily marketable, at estimated fair value                                      3,363           69,210
Employee and broker receivables                                                     1,070,087        2,105,620
Loans receivable - officers                                                           178,936          202,964
Property and equipment - net                                                        1,396,892        1,631,801
Income tax refunds receivable                                                         212,300        1,069,442
Deferred income taxes - net                                                           460,000          930,000
Other assets                                                                          692,827        1,162,669
                                                                                   ----------       ----------
   Total assets                                                                   $11,425,506      $14,227,562
                                                                                   ==========       ==========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

LIABILITIES
Deferred income                                                                   $ 5,456,323      $ 4,783,333
Securities sold, not yet purchased, at market value                                        --          245,078
Notes payable                                                                          48,057          277,376
Commissions payable                                                                 2,681,128        3,647,170
Accounts payable                                                                      577,225          490,842
Accrued expenses                                                                    1,987,871        1,434,885
Income taxes payable                                                                       --            7,111
Capital leases payable                                                                343,682          542,210
6% convertible debentures                                                           1,030,000               --
Other liabilities                                                                      78,910          506,876
                                                                                   ----------       ----------
   Total liabilities                                                               12,203,196       11,934,881
                                                                                   ----------       ----------
Temporary equity - stock subject to redemption                                             --            6,500
Commitments and contingencies (See Notes)

STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, 4,375,000 shares authorized, $.10 par
   value, no shares issued and outstanding                                                 --               --
Series A Convertible Preferred Stock, 625,000 shares
   authorized, $.10 par value, 330,250 and 331,190 shares
   issued and outstanding, respectively; liquidation
   preference:  $1,651,250 and $1,655,950, respectively                                33,025           33,119
Common Stock, no par value, 30,000,000 shares
   authorized, 8,527,164 and 8,622,284 shares issued,
   8,527,164 and 8,622,284 shares outstanding, respectively                         3,416,220        3,434,642
Additional paid-in capital                                                          3,918,930        3,950,542
Accumulated deficit                                                                (8,135,777)      (5,076,055)
Less:  Deferred compensation                                                          (10,088)         (56,067)
                                                                                   ----------       ----------
   Total stockholders' equity (deficit)                                              (777,690)       2,286,181
                                                                                   ----------       ----------
   Total liabilities and stockholders' equity (deficit)                           $11,425,506      $14,227,562
                                                                                   ==========       ==========


                                    See notes to consolidated financial statements.
                                                        F-2
</TABLE>

<PAGE>



                                  FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S>                                                             <C>               <C>              <C>

                                                                          Years ended December 31,
                                                                 2002              2001             2000

Revenues:
Commissions                                                     $36,513,802       $37,807,870      $46,529,771
Principal transactions                                            7,369,500         8,021,887        7,131,079
Investment banking                                                  365,842         1,483,210        2,416,711
Interest and other income                                         3,717,600         3,907,448        3,252,325
                                                                 ----------        ----------       ----------
   Total revenues                                                47,966,744        51,220,415       59,329,886
                                                                 ----------        ----------       ----------
Expenses:
Commissions, employee compensation and benefits                  39,572,851        42,356,207       46,800,661
Clearing and floor brokerage                                      2,666,376         3,247,219        4,003,345
Communications and occupancy                                      3,006,017         3,249,389        2,731,681
Legal matters and related costs                                   1,259,502         2,415,374        1,181,115
Write down of Notes Receivable - Global Financial Corp.                  --                --          239,183
Other operating expenses                                          4,029,515         5,076,806        4,862,158
Interest                                                             98,918           174,632          160,230
                                                                 ----------        ----------       ----------
   Total expenses                                                50,633,179        56,519,627       59,978,373
                                                                 ----------        ----------       ----------
Loss before income taxes                                         (2,666,435)       (5,299,212)        (648,487)
Provision for income taxes (income tax benefit)                     294,000           (90,989)           6,721
                                                                 ----------        ----------       ----------
Loss before extraordinary loss                                   (2,960,435)       (5,208,223)        (655,208)
Extraordinary loss - extinguishment of debt, net of tax                  --                --          (34,200)
                                                                 ----------        ----------       ----------
   Net loss                                                     $(2,960,435)      $(5,208,223)     $  (689,408)
                                                                 ==========        ==========       ==========
   Net loss applicable to common stockholders                   $(3,059,722)      $(5,306,976)     $  (792,136)
                                                                 ==========        ==========       ==========

Per share of common stock:
   Basic and diluted:
   Before extraordinary loss                                    $     (.36)       $     (0.61)     $     (0.08)
   Extraordinary loss                                                    --                --              --
                                                                 ----------        ----------       ----------
   Net loss                                                     $     (.36)       $     (0.61)     $     (0.08)
                                                                 ==========        ==========       ==========

Weighted average common shares
   outstanding - basic and diluted                                8,551,932         8,704,355        9,450,055
                                                                 ==========        ==========       ==========





                                    See notes to consolidated financial statements.
                                                        F-3


</TABLE>
<PAGE>

<TABLE>


                                  FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                             FOR THE PERIOD FROM JANUARY 1, 2000 TO DECEMBER 31, 2002

<S>                                        <C>             <C>               <C>        <C>         <C>


                                                                           Series A Convertible     Additional
                                                 Common Stock                 Preferred Stock         Paid-in
                                            Shares           Amount          Shares    Amount         Capital

Balances at January 1, 2000                10,035,943      $ 5,185,818       349,511    $34,951     $4,080,730

Exercise of stock options                      57,000           55,920            --         --             --
Transfer from temporary equity                 15,000           18,000            --         --             --
Deferred compensation                              --               --            --         --        173,035
Amortization of deferred
   compensation                                    --               --            --         --             --
Repurchase of common stock                         --               --            --         --             --
Cancellation of treasury shares              (798,634)      (1,196,341)           --         --             --
Payment of dividends                               --               --            --         --             --
Net loss for the year                              --               --            --         --             --
                                            ---------        ---------       -------     ------      ---------
Balances at December 31, 2000               9,309,309        4,063,397       349,511     34,951      4,253,765

Reversal of deferred
   compensation                                    --               --            --         --       (303,223)
Amortization of deferred
   compensation                                    --               --            --         --             --
Repurchase of common stock                         --               --            --         --             --
Cancellation of treasury shares              (723,667)        (630,587)           --         --             --
Conversion of preferred stock
   into common stock                           36,642            1,832       (18,321)    (1,832)            --
Payment of dividends                               --               --            --         --             --
Net loss for the year                              --               --            --         --             --
                                            ---------        ---------       -------     ------      ---------
Balances at December 31, 2001               8,622,284        3,434,642       331,190     33,119      3,950,542

Transfer from temporary equity                  3,000            6,500            --         --             --
Reversal of deferred
   compensation                                    --               --            --         --        (42,994)
Amortization of deferred
   compensation                                    --               --            --         --             --
Repurchase of common stock                         --               --            --         --             --
Cancellation of treasury shares              (100,000)         (25,016)           --         --             --
Issuance of common stock
   purchase warrants                               --               --            --         --         11,382
Conversion of preferred stock
   into common stock                            1,880               94          (940)       (94)            --
Payment of dividends                               --               --            --         --             --
Net loss for the year                              --               --            --         --             --
                                            ---------        ---------       -------     ------      ---------
Balances at December 31, 2002               8,527,164       $3,416,220       330,250    $33,025     $3,918,930
                                            =========        =========       =======     ======      =========



                                   See notes to consolidated financial statements.
                                                        F-4

</TABLE>
<PAGE>

<TABLE>


                                  FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                             FOR THE PERIOD FROM JANUARY 1, 2000 TO DECEMBER 31, 2002

<S>                                      <C>             <C>           <C>            <C>           <C>

                                           Retained
                                           Earnings                                                Stockholders'
                                         (Accumulated     Deferred           Treasury Stock           Equity
                                           Deficit)     Compensation     Shares          Amount      (Deficit)
                                           -------      ------------     ------          ------       -------

Balances at January 1, 2000              $1,023,057      $(508,294)      (180,500)     $(222,624)   $9,593,638

Exercise of stock options                        --             --             --             --        55,920
Transfer from temporary equity                   --             --             --             --        18,000
Deferred compensation                            --       (173,035)            --             --            --
Amortization of deferred
   compensation                                  --        288,209             --             --       288,209
Repurchase of common stock                       --             --     (1,105,034)    (1,460,740)   (1,460,740)
Cancellation of treasury shares                  --             --        798,634      1,196,341            --
Payment of dividends                       (102,728)            --             --             --      (102,728)
Net loss for the year                      (689,408)            --             --             --      (689,408)
                                          ---------       --------      ---------      ---------     ---------
Balances at December 31, 2000               230,921       (393,120)      (486,900)      (487,023)    7,702,891

Reversal of deferred
   compensation                                  --        303,223             --             --            --
Amortization of deferred
   compensation                                  --         33,830             --             --        33,830
Repurchase of common stock                       --             --       (236,767)      (143,564)     (143,564)
Cancellation of treasury shares                  --             --        723,667        630,587            --
Conversion of preferred stock
   into common stock                             --             --             --             --            --
Payment of dividends                        (98,753)            --             --             --       (98,753)
Net loss for the year                    (5,208,223)            --             --             --    (5,208,223)
                                          ---------        -------      ---------       --------     ---------
Balances at December 31, 2001            (5,076,055)       (56,067)            --             --     2,286,181

Transfer from temporary equity                   --             --             --             --         6,500
Reversal of deferred
   compensation                                  --         42,994             --             --            --
Amortization of deferred
   compensation                                  --          2,985             --             --         2,985
Repurchase of common stock                       --             --       (100,000)       (25,016)      (25,016)
Cancellation of treasury shares                  --             --        100,000         25,016            --
Issuance of common stock
   purchase warrants                             --             --             --             --        11,382
Conversion of preferred stock
   into common stock                             --             --             --             --            --
Payment of dividends                        (99,287)            --             --             --       (99,287)
Net loss for the year                    (2,960,435)            --             --             --    (2,960,435)
                                          ---------        -------      --------        --------     ---------
Balances at December 31, 2002           $(8,135,777)      $(10,088)            --   $         --   $  (777,690)
                                          =========        =======      ========        ========     =========




                                   See notes to consolidated financial statements.
                                                        F-5

</TABLE>
<PAGE>
<TABLE>
<S>                                                             <C>               <C>              <C>
                                  FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                          Years ended December 31,
                                                                 2002              2001             2000

Cash flows from operating activities:
   Net loss                                                     $(2,960,435)      $(5,208,223)     $  (689,408)
 Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
   Depreciation and amortization                                    526,816           563,685          600,626
   Amortization of deferred compensation                              2,985            33,830          288,209
   Amortization of bond discount                                      3,852            18,033           31,736
   Loan reserves and write-offs                                          --           500,000          389,823
   Loss on disposal of furniture & equipment                          5,964                --               --
   Loss on investment                                                23,147                --               --
   Other                                                                 --                --           (1,448)
   Increase (decrease) in cash attributable to
     changes in assets and liabilities:
   Due from clearing firm                                          (445,291)       (1,740,744)       4,056,680
   Securities owned                                                 992,011         2,776,207         (499,418)
   Employee and broker receivables                                1,035,533          (495,954)      (1,157,381)
   Loans receivable - officers                                       24,028           (27,896)         (42,314)
   Income tax refund receivable                                     857,142        (1,069,442)              --
   Deferred income taxes - net                                      470,000           791,262       (1,057,006)
   Other assets                                                     482,103          (132,241)         651,005
   Deferred income                                                  672,990           850,000        3,933,333
   Securities sold, not yet purchased                              (245,078)         (141,381)         206,179
   Commissions payable                                             (966,042)        2,009,437       (1,073,003)
   Accounts payable                                                  86,383            39,868          (74,835)
   Accrued expenses                                                 552,986           594,307         (231,974)
   Income taxes payable                                                  --          (868,675)         365,560
   Other liabilities                                               (466,094)           99,444         (363,337)
                                                                  ---------         ---------        ---------
     Total adjustments                                            3,613,435         3,799,740        6,022,435
                                                                  ---------         ---------        ---------
     Net cash provided by (used in) operating activities            653,000        (1,408,483)       5,333,027
                                                                  ---------         ---------        ---------
Cash flows from investing activities:
   Collection of notes receivable                                        --            18,000           74,708
   Collection of Global leases receivable                                --           168,170          649,652
   Additions to property and equipment                             (266,854)         (308,061)        (722,205)
   Other assets                                                      31,821          (196,049)         (39,150)
                                                                    -------         ---------        ---------
     Net cash used in investing activities                         (235,033)         (317,940)         (36,995)
                                                                   --------         ---------        ---------
 Cash flows from financing activities:
   Payments of notes payable                                       (233,171)         (299,836)        (896,364)
   Proceeds from capital lease financing                                 --           606,195               --
   Repurchase of common stock                                       (25,016)         (143,564)      (1,460,740)
   Payments of capital leases payable                              (198,528)         (259,075)        (122,669)
   Payment of preferred stock dividends                             (99,287)          (98,753)        (102,728)
   Proceeds from issuance of 6% convertible debentures            1,030,000                --               --
   Proceeds from exercise of stock options and warrants                  --                --           55,920
   Other assets                                                     (32,700)               --          244,579
                                                                  ---------         ---------        ---------
      Net cash provided by (used in) financing activities           441,298          (195,033)      (2,282,002)
                                                                  ---------         ---------        ---------
Net increase (decrease) in cash and cash equivalents                859,265        (1,921,456)       3,014,030
Cash and cash equivalents at beginning of year                    1,779,554         3,701,010          686,980
                                                                  ---------         ---------        ---------
Cash and cash equivalents at end of year                        $ 2,638,819       $ 1,779,554      $ 3,701,010
                                                                  =========         =========        =========

Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
   Interest                                                   $      95,522      $    174,632     $    160,230
   Income taxes                                               $  (1,113,646)     $    894,852     $    725,800

Property and equipment financed under capital leases          $          --      $    662,290     $        --

Transfer of temporary equity to permanent capital             $          --      $         --     $     18,000

Equipment acquired through vendor financing                   $      31,017      $         --     $         --

Warrants charged to deferred financing costs in
   connection with debenture offering                         $      11,382      $         --     $         --




                                   See notes to consolidated financial statements.
                                                        F-6

</TABLE>
<PAGE>
<TABLE>
<S>             <C>



NOTE 1 -        NATURE OF BUSINESS

                First Montauk  Financial  Corp.  (the Company) is a holding  company  whose  principal  subsidiary,
                First Montauk Securities Corp. (FMSC), is engaged in securities  brokerage,  investment banking and
                trading.  FMSC is a  broker-dealer  registered  with the Securities  and Exchange  Commission and a
                member of the National  Association of Securities Dealers,  Inc. (NASD).  Through FMSC, the Company
                executes  principal and agency  transactions,  makes markets in  over-the-counter  securities,  and
                performs  investment  banking  services.  Customers  are  located  throughout  the  United  States.
                Montauk  Insurance  Services,  Inc. (MISI) sells a range of insurance  products.  Montauk Advisors,
                Inc. (MAI) previously sold investments in equipment  leases,  but is no longer active.  The Company
                operates in one business segment.


                FMSC clears all customer  transactions on a fully  disclosed basis through an independent  clearing
                firm.  Accordingly,  FMSC does not carry  securities  accounts  for  customers  nor does it perform
                custodial functions related to those securities.

NOTE 2 -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                Basis of Presentation

                The consolidated  financial  statements  include the accounts of the Company and its  subsidiaries.
                All intercompany accounts and transactions have been eliminated in consolidation.

                Certain items in the 2001 and 2000  financial  statements  have been  reclassified  to conform with
                the current year's presentation.

                Revenue Recognition

                Securities  transactions,  commission  income and  related  expenses  are  recorded on a trade date
                basis.  Underwriting  fees are recorded at the time the  underwriting  is completed  and the income
                is reasonably  determinable.  Sales  concessions  from  participation  in syndicated  offerings are
                recorded on settlement date.

                Securities  owned and  securities  sold,  not yet  purchased are stated at quoted market value with
                unrealized  gains and losses  included  in  earnings.  Investment  account  securities  not readily
                marketable are carried at estimated fair value as determined by management  with  unrealized  gains
                and losses included in earnings.

                Advances received under the Company's  financial  agreement with its clearing firm (see Note 3) are
                deferred and  amortized  to income over the  remaining  term of the  agreement on a  straight-line
                basis.  Other income included amortization of approximately $577,000, $400,000 and $67,000 in 2002,
                2001 and 2000, respectively.

                Advertising

                Advertising  costs are  expensed  as  incurred  and  totaled  approximately  $115,000,  $67,000 and
                $348,000 in 2002, 2001 and 2000, respectively.

                Depreciation and Amortization

                Furniture and equipment and leasehold  improvements  are stated at cost.  Depreciation of furniture
                and equipment and  amortization of capital leases are computed  generally on a straight-line  basis
                over the  estimated  useful  lives of the assets,  ranging  from three to ten years or terms of the
                leases,  respectively.  Leasehold  improvements  are  amortized  over the  shorter  of  either  the
                asset's useful life or the related lease term.

                Cash Equivalents

                For  purposes  of the  Statement  of Cash  Flows,  the  Company  considers  all highly  liquid debt
                instruments  purchased  with an original  maturity of three months or less to be cash  equivalents.
                Cash equivalents consisted of money market funds at December 31, 2002 and 2001.

                Net Loss per Share

                Basic loss per share is  computed  by dividing  net loss by the  weighted-average  number of common
                shares  outstanding  for the period.  Diluted loss per share  reflects the potential  dilution from
                the exercise or  conversion  of other  securities  into common  stock,  but only if  dilutive.  The
                following  securities  have been  excluded  from the  dilutive  per share  computation  as they are
                antidilutive:

                                                                               Year ended December 31,
                                                                         2002           2001           2000
                                                                         ----           ----           ----

                Stock options                                          4,072,498      5,243,998      4,509,698
                Warrants                                               9,345,338      9,242,338      9,242,338
                Convertible debt                                       2,084,028        345,263        345,263
                Convertible preferred stock                              660,500        662,380        699,022
<PAGE>


                Use of Estimates

                The  preparation  of financial  statements  in  conformity  with  accounting  principles  generally
                accepted in the United  States of America  requires  management to make  estimates and  assumptions
                that affect the reported  amounts of assets and  liabilities  and  disclosure of contingent  assets
                and  liabilities at the date of the financial  statements and the reported  amounts of revenues and
                expenses during the year.  Actual results could differ from those estimates.

                Long-lived Assets

                The Company evaluates  impairment  losses on long-lived assets used in operations,  primarily fixed
                assets,  when events and  circumstances  indicate that the carrying value of the assets,  might not
                be  recoverable  in  accordance  with FASB  Statement  No. 144  "Accounting  for the  Impairment or
                Disposal of  Long-lived  Assets".  For purposes of  evaluating  the  recoverability  of  long-lived
                assets,  the  undiscounted  cash flows  estimated to be generated by those assets would be compared
                to the  carrying  amounts of those  assets.  If and when the carrying  values of the assets  exceed
                their fair values, the related assets will be written down to fair value.

                Income Taxes

                The Company  uses the  liability  method to  determine  its income tax  expense as  required  under
                Statement  of  Financial  Accounting  Standards  No. 109 (SFAS 109).  Under SFAS 109,  deferred tax
                assets and  liabilities  are computed  based on  differences  between  financial  reporting and tax
                basis of assets and  liabilities,  and are measured  using the enacted tax rates and laws that will
                be in effect when the differences are expected to reverse.

                Deferred tax assets are reduced by a valuation  allowance  if, based on the weight of the available
                evidence,  it is more likely than not that all or some  portion of the deferred tax assets will not
                be realized.  The ultimate  realization of the deferred tax asset depends on the Company's  ability
                to generate sufficient taxable income in the future.

                The Company and its subsidiaries  file a consolidated  federal income tax return and separate state
                returns.

                Stock-based Compensation

                The Company  periodically  grants stock options to employees in accordance  with the  provisions of
                its stock option  plans,  with the  exercise  price of the stock  options  being set at the closing
                market  price of the  common  stock on the date of grant.  The  Company  accounts  for  stock-based
                compensation  plans under Accounting  Principles Board Opinion No. 25, "Accounting for Stock Issued
                to  Employees",  and  accordingly  accounts for employee  stock-based  compensation  utilizing  the
                intrinsic  value method.  FAS No. 123,  "Accounting for  Stock-Based  Compensation",  establishes a
                fair value based method of accounting for stock-based  compensation  plans. The Company has adopted
                the disclosure  only  alternative  under FAS No. 123,  which  requires  disclosure of the pro forma
                effects on earnings  and  earnings  per share as if FAS No. 123 had been adopted as well as certain
                other information.

                Stock  options  granted to  non-employees  are  recorded  at their fair  value,  as  determined  in
                accordance  with SFAS No. 123 and Emerging  Issues Task Force  Consensus No. 96-18,  and recognized
                over the  related  service  period.  Deferred  charges  for options  granted to  non-employees  are
                periodically re-measured until the options vest.

                In  December  2002,  the  FASB  issued  Statement  of  Financial   Accounting  Standards  No.  148,
                "Accounting for  Stock-Based  Compensation  -- Transition and  Disclosure"  ("FAS 148"),  which (i)
                amends FAS Statement No. 123,  "Accounting for  Stock-Based  Compensation,"  to provide  alterative
                methods of  transition  for an entity that  voluntarily  changes to the fair value based  method of
                accounting for  stock-based  employee  compensation  (ii) amends the disclosure  provisions of, FAS
                123 to require  prominent  disclosure  about the  effects  on  reported  net income of an  entity's
                accounting  policy  decisions with respect to stock-based  employee  compensation  and (iii) amends
                APB opinion No. 28, "Interim  Financial  Reporting," to require  disclosure  about those effects in
                interim financial information.

                Items (ii) and (iii) of the new  requirements  in FAS 148 are effective  for  financial  statements
                for fiscal years ending after December 15, 2002. The Company has adopted FAS 148 for the fiscal
                year ended December 31, 2002 and continues to account for  stock-based  compensation  utilizing the
                intrinsic value method. The additional disclosures required by FAS 148 are as follows:
<PAGE>


                                                                          Years ended December 31,
                                                                 2002              2001             2000
                                                                 ----              ----             ----

                Net loss applicable to common
                  stockholders, as reported                     $(3,059,722)      $(5,306,976)      $ (792,136)

                Add:  Stock  based  employee  compensation
                  expense included in reported net loss,
                  net of tax                                         -0-               -0-              -0-
                Deduct:   Total   stock   based   employee
                  compensation  expense  determined  under
                  the fair value based method for
                  all awards, net of tax                           (178,642)         (468,019)        (463,550)
                                                                  ---------         ---------        ---------
                Pro forma net loss                              $(3,238,364)      $(5,774,995)     $(1,255,686)
                                                                  =========         =========        =========
                Loss per share:
                Basic and diluted - as reported                     $(0.36)           $(0.61)           $(0.08)
                Basic and diluted - pro forma                       $(0.38)           $(0.66)           $(0.13)

                Pro  forma  net loss and loss per  share  information,  as  required  by SFAS No.  123,  have  been
                determined  as if the  Company  had  accounted  for  employee  stock  options  under the fair value
                method.  The fair  value of these  options  was  estimated  at  grant  date  using a  Black-Scholes
                option pricing model with the following weighted-average assumptions for 2002, 2001 and 2000:

                                                                          2002          2001            2000
                                                                          ----          ----            ----

                Risk free interest rates                                    1.97%           4.46%           6.07%
                Expected option lives                                   2.4 years       2.4 years       2.4 years
                Expected volatilities                                      87.64%             83%             72%
                Expected dividend yields                                       0%              0%              0%

                The  weighted-average  grant date fair  value of options  granted  during  2002,  2001 and 2000 was
                $.08, $.21 and $.49, respectively.

                Recent Pronouncement of the Financial Accounting Standards Board

                In July 2002, the FASB issued FASB  Statement No. 146,  Accounting  for the Costs  Associated  with
                Exit or Disposal  Activities.  This statement requires companies to recognize costs associated with
                exit or disposal  activities only when  liabilities for those costs are incurred rather than at the
                date of a  commitment  to an exit or  disposal  plan.  FASB No.  146  also  requires  companies  to
                initially measure  liabilities for exit and disposal  activities at their fair values. FASB No. 146
                replaces  Emerging  Issues Task Force (EITF)  Issues No. 94-3,  Liability  Recognition  for Certain
                Employee  Termination  Benefits  and  Other  Costs to Exit an  Activity  (including  Certain  Costs
                Incurred in a  Restructuring)  and EITF No. 88-10,  Costs  Associated  with Lease  Modification  or
                Termination.  The  provisions of FASB No. 146 are effective  for exit or disposal  activities  that
                are initiated  after  December 31, 2002.  The Company  anticipates  the adoption of this  statement
                will not have a material effect on its consolidated financial position or results of operations.

NOTE 3 -        AMENDED AND RESTATED FISERV FINANCIAL AGREEMENT

                In May 2000,  FMSC  entered  into a  ten-year  clearing  agreement  with  Fiserv  Securities,  Inc.
                ("Fiserv").  In  connection  with the  clearing  agreement,  FMSC and Fiserv  also  entered  into a
                financial  agreement  under which Fiserv was to provide cash  advances to FMSC under  certain terms
                and  conditions.  Upon the  conversion of FMSC's  accounts to Fiserv in November  2000, it received
                an initial cash  advance of  $4,000,000.  As of February 1, 2001,  the Company and FMSC amended and
                restated the financial  agreement with Fiserv.  Under the restated terms, the Company,  rather than
                FMSC,  will  be the  recipient  of  any  additional  cash  advances  payable  under  the  financial
                agreement.  The Company has further  assumed FMSC's  obligation with respect to the initial payment
                received  in  November  2000,  and  will be  solely  responsible  for  any  performance  and  early
                termination  penalties  without  recourse to FMSC.  In  consideration  of FMSC's  release  from its
                obligations  under the  financial  agreement  and to secure  Fiserv's  interest,  the  Company  has
                granted  to Fiserv a first  priority  lien in all of the  outstanding  shares of FMSC that it owns.
                The Company  received  additional  cash  advances  of  $1,250,000  each in November  2001 and 2002,
                respectively.

NOTE 4 -        SECURITIES OWNED and SOLD, NOT YET PURCHASED

                                                                             December 31,
                                                                 2002                          2001
                                                                 ----                          ----
                                                                      Sold                           Sold
                                                                      not yet                        not yet
                                                          Owned       Purchased         Owned        Purchased
                                                          -----       ---------         -----        ---------

                Municipal obligations                   $ 10,537         $--         $   51,813       $     --
                Stocks                                   111,216          --          1,001,705        230,923
                Corporate bonds                               --          --             37,031             --
                Options                                       --          --              5,120         14,155
                Certificates of deposit                   42,000          --                 --             --
                Mutual funds                              14,820          --                 --             --
                Other                                      2,008          --             34,223             --
                                                         -------          --          ---------        -------
                                                        $180,581         $--         $1,129,892       $245,078
                                                         =======          ====        =========        =======

                Securities  owned, and securities sold, not yet purchased  consist of trading  securities at quoted
                market values.  Nonmarketable  securities consist of investment  securities that cannot be publicly
                offered or sold unless registration has been effected under the Securities Act of 1933.

<PAGE>


NOTE 5 -        EMPLOYEE AND BROKER RECEIVABLES

                                                                                         December 31,
                                                                                    2002            2001
                                                                                    ----            ----

                Commission advances                                                 $ 265,678     $  611,896
                Forgivable loans                                                      167,221      1,148,624
                Other loans                                                           637,188        345,100
                                                                                    ---------      ---------
                                                                                   $1,070,087     $2,105,620
                                                                                    =========      =========

                The Company has an arrangement with certain  registered  representatives  to forgive their loans if
                they remain  licensed  with the Company  for an agreed  upon period of time,  generally  one to two
                years.  The loans are being  amortized to expense for  financial  reporting  purposes over the term
                of the loan.  Loan  amortization  expense was  $235,528,  $483,651 and  $129,986 in 2002,  2001 and
                2000,  respectively.  Other  loans to  employees  and  registered  representatives  are  payable in
                installments  generally  over periods of one to two years with interest rates ranging from 0% to 8%
                per annum.

NOTE 6 -        PROPERTY AND EQUIPMENT

                                                                                         December 31,
                                                                                    2002            2001
                                                                                    ----            ----

                Computer and office equipment                                     $ 2,852,536      $ 2,611,856
                Furniture and fixtures                                              1,243,861        1,195,186
                Leasehold improvements                                                802,790          802,790
                                                                                    ---------        ---------
                                                                                    4,899,187        4,609,832
                Less:  Accumulated depreciation and amortization                   (3,502,295)      (2,978,031)
                                                                                    ---------        ---------
                                                                                  $ 1,396,892      $ 1,631,801
                                                                                    =========        =========

                Depreciation expense was $526,816, $563,685 and $600,626 in 2002, 2001 and 2000, respectively.

                During 2001, the Company  established a $500,000  reserve  against  payments  previously  made to a
                vendor for the development of applications  software,  and in 2002 instituted a lawsuit against the
                vendor.  In July 2002, the Company settled the lawsuit upon receipt of a $230,000 cash payment.

NOTE 7 -        LOANS RECEIVABLE - OFFICERS

                Loans receivable at December 31, 2002 were as follows:

                Chief Executive Officer (CEO)                                                         $133,368
                Chief Operating Officer (COO)                                                           45,568
                                                                                                       -------
                Total                                                                                 $178,936
                                                                                                       =======


                Commencing April 11, 2003, the CEO's remaining  principal  balance will be paid off in 52 bi-weekly
                installments  of  $2,576,  and the  COO's  remaining  principal  balance  will  be  paid  off in 26
                bi-weekly  installments  of $1,630.  Both loans carry  interest at the rate of 3% per annum and are
                evidenced by unsecured promissory notes.

NOTE 8 -        NOTES PAYABLE

                                                                                           December 31,
                                                                                     2002               2001
                                                                                     ----               ----

                 a)   Convertible promissory notes, net of discount                   $48,057         $227,376
                 b)   Subordinated note payable                                           --            50,000
                                                                                       ------          -------
                                                                                      $48,057         $277,376
                                                                                       ======          =======

                 a)   Notes payable in thirty-six  monthly  non-interest  bearing  installments  of $16,404 through
                      September  2002,  plus  balloon  payments  of  $112,000,  which  include  interest of $12,000
                      calculated on the basis of 8% of the balloon  amount  beginning in month nineteen of the note
                      term.  The Company  recorded a loan  discount on the notes of  $64,609,  which was  amortized
                      over the note terms  using the  interest  method.  The notes were  convertible  into  345,263
                      common  shares  of the  Company's  common  stock  based on a  conversion  price of $2.00  per
                      share.  In  September  2002,  the  parties  agreed to  refinance  the balloon  payments.  The
                      amended terms provided for six monthly  installments  of $16,404 and a final payment in March
                      2003  of  $15,889,  including  interest  at the  rate  of 8% per  annum.  The  Company's  CEO
                      personally guaranteed repayment of the refinanced amounts.
<PAGE>

                b)    Note  bearing  interest  at 8% per  annum;  subordinated  to the  claims  of  FMSC's  general
                      creditors under a subordination agreement approved by the NASD.

NOTE 9 -        6% CONVERTIBLE DEBENTURES

                In December  2002,  the Company  raised gross  proceeds of $1,030,000 in a private  placement of 6%
                convertible  debentures.  The debentures are convertible  into 2,060,000  shares of common stock at
                $.50 per share,  subject to adjustment for stock dividends and stock splits,  and mature five years
                from  the  date  of  issuance  unless  previously  converted.  Interest  is  payable  in  cash on a
                semi-annual  basis until  maturity or  conversion,  commencing  on April 1, 2003. In the event that
                the  closing  bid  price of the  Company's  common  stock is 200% of the  conversion  price for the
                twenty (20) consecutive  trading days prior to the date of notice of conversion or prepayment,  the
                Company,  at its option,  may upon  thirty  (30) days  written  notice to the  holders,  demand the
                conversion  of some or all of the  debentures,  or  prepay  some  or all of the  debentures  at the
                following  prepayment  prices:  130% of the  principal  amount if prepaid from the date of issuance
                until the first  anniversary  of the date of  issuance;  120% of the  principal  amount if  prepaid
                anytime  thereafter.  The debentures contain certain covenants which,  among other things,  prevent
                the sale of all or substantially  all of the Company's assets without  provision for the payment of
                the  debentures  from such  sales  proceeds,  and  making  loans to any  executive  officers  or 5%
                stockholders.

                Offering  costs of  approximately  $44,000  have  been  capitalized  and are being  amortized  on a
                straight-line basis over the term of the debentures.

NOTE 10 -       INCOME TAXES

                The provision for income taxes (income tax benefit) consists of the following:

                                                                               Year ended December 31,
                                                                         2002           2001           2000
                                                                         ----           ----           ----

                Currently payable (refundable):
                      Federal                                           $(212,300)      $(893,978)  $    838,225
                      State                                                36,300          11,727        225,502
                                                                          -------         -------      ---------
                                                                         (176,000)       (882,251)     1,063,727
                                                                          -------         -------      ---------

                Deferred:
                      Federal                                             470,000         483,978       (817,223)
                      State                                                    --         307,284       (239,783)
                                                                          -------         -------      ---------
                                                                          470,000         791,262     (1,057,006)
                                                                          -------         -------      ---------
                Provision for income taxes (income tax benefit)         $ 294,000      $  (90,989)  $      6,721
                                                                          =======         =======      =========

                Following is a  reconciliation  of the income tax  provision  (benefit)  with income taxes based on
                the federal statutory rate:

                                                                               Year ended December 31,
                                                                         2002           2001           2000
                                                                         ----           ----           ----

                Expected federal tax benefit at statutory rate          $ (926,397)   $(1,802,142)     $(220,319)
                Non-deductible expenses                                     35,680         65,400         32,219
                State taxes, net of federal tax effect                    (144,958)      (230,898)       (44,355)
                Change in valuation allowance                            1,329,675      1,876,651        239,176
                                                                         ---------      ---------        -------
                                                                       $   294,000  $     (90,989)   $     6,721
                                                                         =========      =========        =======
<PAGE>

                The tax  effects  of the  temporary  differences  that give  rise to  significant  portions  of the
                deferred tax assets and liabilities as of December 31, 2002 and 2001 are:

                                                                                           December 31,
                                                                                     2002               2001
                                                                                     ----               ----
                Deferred tax assets:
                   Deferred income                                                 $ 2,177,729      $ 1,913,333
                   Reserves and allowances                                           1,366,266          849,213
                   Tax loss carryforwards                                              258,125          165,163
                   Stock-based compensation                                            261,286          270,092
                   Other                                                                31,725           37,655
                                                                                     ---------        ---------
                Sub total                                                            4,095,131        3,235,456
                Valuation allowance                                                 (3,635,131)      (2,305,456)
                                                                                     ---------        ---------
                Net deferred tax assets                                              $ 460,000     $    930,000
                                                                                     =========        =========

                The Company has  recorded a valuation  allowance  to offset tax  benefits  arising  primarily  from
                deferred  revenue,  reserves,  tax loss  carryforwards and stock-based  compensation  because their
                realization is uncertain.  Unreserved  deductible temporary  differences are expected to reverse in
                2003 and 2004.  As of December 31,  2002,  the Company has  approximately  $.1 million and $5.8 million
                of federal and state net operating  loss  carryforwards,  respectively,  available to offset future
                taxable income.  These losses expire at various dates through 2022.

                The Company is seeking the recovery of  approximately  $212,000 of federal  income taxes  through a
                loss carryback refund claim.  The claim is subject to IRS review.

                Two state taxing authorities are currently  conducting routine  examinations of the Company's sales
                and income tax returns. The Company cannot predict the outcome of the audits at this time.

NOTE 11 -       COMMITMENTS AND CONTINGENT LIABILITIES

                Leases

                The Company  leases office  facilities and equipment  under  operating  leases  expiring at various
                dates  through  2005.  The lease for the  Company's  headquarters  has a  six-year  renewal  option
                through 2011.

                During 2001, the Company entered into two capital leases under a  sale/leaseback  arrangement  with
                a leasing company.  The transactions  resulted in a gain of approximately  $45,000,  which has been
                deferred and is being amortized on a straight-line basis over the related lease terms.

                Future minimum lease payments as of December 31, 2002 are as follows:

                                                                                      Capital          Operating
                                                                                      Leases           Leases
                                                                                      -------          ---------

                             2003                                                      $248,916       $1,181,595
                             2004                                                       114,396        1,103,126
                             2005                                                        15,711          296,302
                             2006                                                            --          169,500
                                                                                        -------        ---------
                   Total minimum lease payments                                         379,023       $2,750,523
                   Less:  Amount representing interest                                  (35,341)       =========
                                                                                         ------
                                                                                       $343,682
                                                                                        =======

                Operating  lease  expense for 2002,  2001 and 2000 totaled  $1,392,658,  $1,253,711  and  $955,866,
                respectively.

                Other assets  include a certificate of deposit in the amount of $79,000,  which is  collateralizing
                a letter of credit issued for the benefit of a landlord.

                Employment agreements

                The Company's  board of directors  has approved new  employment  agreements  with similar terms for
                its CEO and its COO.  The  agreements expire in  December  2005 and
                provide for a base annual  salary of $256,218,  increasing  by 10% per annum on January 1st of each
                contract  year.  Each  employee will also be entitled to share a bonus pool equal to 10% of the net
                pre-tax profit of the Company,  as defined,  provided that, in the event the pre-tax profit is less
                than $500,000 in any year,  no bonus will be paid for that year.  The  agreements  also provide for
                severance payments under various circumstances,  including voluntary  termination,  termination for
                cause,  and termination  resulting from a change of control,  as defined in the agreements.  In the
                event of termination  resulting from a change in control,  each officer, in addition to any accrued
                base salary and bonuses,  twenty-four  additional  months of base  salary,  and a  continuation  of
                benefits  for  twenty-four  months,  will be  entitled to a cash  payment (or a credit  against the
                exercise price of employee stock  options) equal to three times the most recent  five-year  average
                of the officer's gross income.

                During 2002, the CEO and COO each waived their rights to approximately $126,000 of base salary.
<PAGE>

                Legal matters

                FMSC is a  respondent  in numerous  arbitrations  arising  from  customer  purchases  of high yield
                corporate  bonds which  declined in market value after the purchases  were made. The claims allege,
                among other charges,  unsuitable  recommendations and/or improper use of margin, and seek aggregate
                compensatory  damages in excess of $12  million.  Some of the claims seek  punitive  damages  and the
                recovery of various  costs.  The Company is  vigorously  defending  these actions and believes that
                there are  meritorious  defenses in each case.  There is no remaining insurance  coverage  available
                for the payment of settlements and/or judgments that may result from these particular claims.

                FMSC is also a respondent or  co-respondent  in various other legal  proceedings  which are related
                to its securities  business.  FMSC is contesting  these claims and believes  there are  meritorious
                defenses  in each  case.  The  availability  of  insurance  coverage  in any particular case is
                determined  on a case by case  basis by the  insurance  carrier,  and is  limited  to the  coverage
                limits within the policy for any individual claim and in the aggregate.

                As of December 31, 2002, the Company has accrued $1,154,000 for litigation costs that are probable
                and can be reasonably estimated based on a review of existing claims, arbitrations and unpaid
                settlements.  Management  cannot give  assurance  that this accrual will be adequate to cover actual
                costs that may be  subsequently  incurred.  It is not  possible  to  predict  the  outcome  of  other
                matters pending against FMSC. All such cases are, and will continue to be,  vigorously  defended.
                However, litigation is subject to many  uncertainties,  and some of these actions and proceedings may
                result in adverse judgments.  After considering all relevant facts,  available  insurance coverage and
                the advice of litigation counsel, it is possible that the Company's consolidated  financial condition,
                results of operations,  or cash flows could be materially  affected by unfavorable  outcomes or
                settlements of certain pending litigation.

                FMSC has also filed a claim against one of its competitors for raiding, unfair competition and use
                of proprietary and confidential information.  The Company has obtained temporary injunctive relief
                from the Supreme Court of New York, as well as a consent injunctive order from an NASD arbitration
                panel.  A hearing will be held later this year to determine the damages portion of the Company's
                claims.  Management is unable to determine at this time what damages, if any, might be awarded.

NOTE 12 -       FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK and CONCENTRATION OF CREDIT RISK

                The Company  executes  securities  transactions on behalf of its customers.  If either the customer
                or a  counter-party  fail to perform,  the Company by  agreement  with its  clearing  broker may be
                required to discharge the  obligations of the  non-performing  party.  In such  circumstances,  the
                Company  may sustain a loss if the market  value of the  security is  different  from the  contract
                value of the transaction.

                The Company seeks to control  off-balance-sheet  risk by monitoring  the market value of securities
                held or given as collateral in compliance  with  regulatory  and internal  guidelines.  Pursuant to
                such  guidelines,  the  Company's  clearing  firm  requires  additional  collateral or reduction of
                positions,  when necessary.  The Company also completes credit  evaluations  where there is thought
                to be credit risk.

                The Company has sold  securities  that it does not currently own and will  therefore be required to
                purchase  such  securities  at a future date.  The Company has recorded  these  obligations  in the
                financial  statements  at market  values of the related  securities  ($-0- and $245,078 at December
                31,  2002 and 2001,  respectively)  and will  incur a loss if the  market  value of the  securities
                increases subsequent to year-end.

                Financial  instruments  that  potentially  subject the  Company to  significant  concentrations  of
                credit risk consist  principally  of cash and  securities  inventories.  The Company  maintains all
                inventory  positions and a  significant  portion of its cash  balances at its clearing  firm.  Cash
                balances held at banks may periodically exceed insurance coverage.

NOTE 13 -       401(k) PLAN

                The Company  sponsors a defined  contribution  pension plan covering all  participating  employees.
                The Company may elect to contribute up to 100% of each  participant's  annual  contribution  to the
                plan.  There were no employer contributions in 2002, 2001 or 2000.
<PAGE>


NOTE 14 -       TEMPORARY EQUITY - STOCK SUBJECT TO REDEMPTION

                During 2002,  the holder of 3,000 shares of common stock subject to  redemption  agreed to sell the
                shares  and  provided  a  general  release  to the  Company.  Accordingly,  the  shares  have  been
                reclassified to permanent capital as of December 31, 2002.

NOTE 15 -       STOCK OPTION PLANS

                2002 Stock Incentive Plan

                In June 2002, the Company  adopted and its  stockholders  approved the 2002 Incentive  Stock Option
                Plan (the "2002 Plan"),  replacing the 1992  Incentive  Stock Option Plan (the "1992 Plan"),  which
                expired in September  2002.  The Company has  reserved up to  5,000,000  shares of common stock for
                issuance under the 2002 Plan. The 2002 Plan permits the grant of incentive  stock options  ("ISOs")
                to employees or  employees  of its  subsidiaries.  Non-qualified  stock  options  ("NQSOs")  may be
                granted to employees,  consultants, and independent registered representatives.  As of December 31,
                2002,  options  to  purchase  a total of 476,000  shares  were  outstanding  and  4,525,000  shares
                remained available for future issuance under the 2002 Plan.

                The 2002 Plan provides for the grant of options,  including ISOs, NQSOs, stock appreciation  rights
                or  any  combination  thereof  (collectively,  "Awards").  The  exercise  price  of the  Awards  is
                established  by the Board of Directors  and, in the case of ISOs, the per share exercise price must
                be equal to at  least  100% of fair  market  value  of a share of the  common  stock on the date of
                grant.  The Board of Directors  determines the terms and provisions of each award granted under the
                2002 Plan,  including  the  exercise  price,  term and vesting  schedule.  Under the 2002 Plan,  no
                individual will be granted ISOs  corresponding  to shares with an aggregate fair value in excess of
                $100,000 in any calendar year. The 2002 Plan will terminate in 2012.

                2002 Non-Executive Director Stock Option Plan

                In June 2002, the Company adopted and its  stockholders  approved the 2002  Non-Executive  Director
                Stock Option Plan (the "2002 Director  Plan"),  replacing the  Non-Executive  Director Stock Option
                Plan,  which expired in September 2002. Under the 2002 Director Plan, each  non-executive  director
                will  automatically  be granted an option to purchase 20,000 shares,  pro rata, on September 1st of
                each year or partial year of service.  The Plan will be  administered  by the Board of Directors or
                a committee of the Board,  which shall at all times consist of not less than two  officer/directors
                of the Company who are  ineligible  to  participate  in the 2002 Director  Plan.  The 2002 Director
                Plan does not contain a reserve for a specific  number of shares  available for grant.  Each option
                issued under the 2002 Director  Plan will be  immediately  vested NQSOs,  and will have a five-year
                term and an  exercise  price equal to the 100% of the fair  market  value of the shares  subject to
                such option on the date of grant.  The 2002 Director Plan will terminate in 2012.

                1996 Management Incentive Plan

                In June 2000, the Company's  stockholders  approved an amendment to the 1996  Management  Incentive
                Plan (the "1996  Plan") to increase the number of shares  reserved  for issuance to key  management
                employees  from  2,000,000  to  4,000,000  shares.  Awards can be granted  through the  issuance of
                incentive  stock rights,  stock options,  stock  appreciation  rights,  limited stock  appreciation
                rights,  and shares of restricted  Common Stock.  The exercise price of an option  designated as an
                ISO may in no event be less  than  100% of the then  fair  market  price of the  stock  (110%  with
                respect to ten percent  stockholders),  and not less than 85% of the fair market  price in the case
                of other options. The 1996 Plan will terminate in June 2006.
<PAGE>

                A summary of the  activity in the  Company's  stock option  plans for the  three-year  period ended
                December 31, 2002 is presented below:

                                                                                                          Weighted
                                                                                                           Average
                                                                                                          Exercise
                                                                                         Shares            Prices
                                                                                         ------            ------

                  Options outstanding, December 31, 1999                                 3,519,700          1.68
                      Granted                                                            2,014,498          1.87
                      Canceled                                                            (967,500)         1.37
                      Exercised                                                            (57,000)          .98
                  Options outstanding, December 31, 2000                                 4,509,698          1.84
                      Granted                                                            1,130,000          1.29
                      Canceled                                                            (395,700)         1.69
                  Options outstanding, December 31, 2001                                 5,243,998          1.73
                      Granted                                                              573,000           .55
                      Canceled                                                          (1,744,500)         1.84
                  Options outstanding, December 31, 2002                                 4,072,498          1.52

                Additional information with respect to options under the Company's option plans is as follows:

                The  Company   applies  APB  No.  25  in  accounting  for  employee  stock  options.   Accordingly,
                compensation  is recognized in the  consolidated  financial  statements  only for the fair value of
                options issued to consultants  and affiliate  brokers.  Such  compensation  is amortized to expense
                over the related  options'  vesting  periods.  Compensation  expense  recognized in 2002,  2001 and
                2000 totaled $2,985, $33,830 and $288,209, respectively.

                Additional  information  as of December  31,  2002 with  respect to all  outstanding  options is as
                follows:

                                              Options Outstanding                        Options Exercisable
                                              -------------------                        -------------------
                                                     Weighted
                                                      Average          Weighted                         Weighted
                                                     Remaining          Average                          Average
                                      Number        Contractual        Exercise         Number          Exercise
             Range of prices        Outstanding        Life              Price        Exercisable         Price
             ---------------        -----------        ----              -----        -----------         -----

              $0.22 - $0.30              65,000         4.82             $0.25             13,000         $0.25
              $0.31 - $0.50             322,000         4.75              0.47             78,800          0.41
              $0.54 - $0.83             767,000         3.52              0.74            516,600          0.76
              $1.00 - $1.50             576,498         2.25              1.42            477,549          1.41
              $1.56 - $2.22           2,169,000         1.84              1.93          1,751,000          1.92
              $2.38 - $2.75             173,000         2.39              2.55            119,600          2.57

              $0.22 - $2.75           4,072,498         2.52             $1.52          2,956,549         $1.61

<PAGE>


NOTE 16 -       STOCKHOLDERS' EQUITY (DEFICIT)

                Rights Offering

                In February 1998, the Company  completed an offering of 3,072,779  Units,  each Unit  consisting of
                one Class A  Redeemable  Common  Stock  Purchase  Warrant,  one  Class B  Redeemable  Common  Stock
                Purchase  Warrant,  and one Class C Redeemable  Common Stock  Purchase  Warrant.  The Warrants have
                the following exercise prices and terms:

                                                      Exercise Price                 Exercise Period
                               Warrant                   Per Share                from Date of Issuance
                               -------                   ---------                ---------------------

                             Class A                       $3.00                       Three years    (see below)
                             Class B                        5.00                       Five years
                             Class C                        7.00                       Seven years

                Each  shareholder  of record as of December 15, 1997 received three rights for each share of Common
                Stock held as of the record date,  with three rights  required to subscribe  for a single Unit at a
                price of $.45 per Unit.  In December  2000,  the Company's  board of directors  approved a two-year
                extension  of the Class A  Warrants.  Both Class A and Class B Warrants  expired  on  February  17,
                2003,  leaving  3,072,446  Class C warrants  outstanding.  The Class C warrants  expire in February
                2005.

                Preferred Stock

                In 1999,  the Company's  board of directors  authorized  the issuance of up to 625,000  shares of a
                Series A Convertible Preferred Stock with the following features:

                Par value:                       $.10 per share
                Dividends:                       6%  payable  quarterly  at the  rate  of  $.075  per  share  until
                                                 conversion
                Voting rights:                   None
                Liquidation preference:          $5.00 per share
                Conversion:                      Automatic  conversion  into two  shares of  Common  Stock at $2.50
                                                 per share once the  closing  price for the  Common  Stock is $3.50
                                                 or above for 20  consecutive  trading  days,  and the  shares  are
                                                 registered for public sale.

                During 1999, the Company issued  349,511 Series A shares in a private  exchange  offering to Global
                lease  investors.  During 2002 and 2001, 940 and 18,321  preferred shares were converted into 1,880
                and 36,642 shares of common stock, respectively.

                The Company is presently  authorized to issue 4,375,000  additional shares of Preferred Stock, none
                of which has been issued at December  31,  2002.  The rights and  preferences,  if any, to be given
                to these preferred shares will be designated at the time of issuance.

                Stock Repurchase Program

                During  2002 and 2001,  the  Company  repurchased  100,000  and  236,767  shares  for  $25,016  and
                $143,564, respectively, under a stock repurchase program authorized by the board of directors.

                Warrants

                The  Company  issued  103,000  common  stock  purchase   warrants  as  compensation  to  registered
                representatives  in connection  with the December 2002 debenture  offering.  The Company valued the
                warrants at $11,382 using the Black-Scholes  option pricing method,  and included the warrant value
                in deferred financing costs.

                During 1999, the Company issued 25,000 common stock purchase  warrants in connection  with a Global
                lease  settlement.  The warrants are  exercisable  at $1.75 per share for a five-year  period.  The
                Company valued the warrants at $27,382 using the Black-Scholes option pricing model.
<PAGE>

NOTE 17 -       FAIR VALUE OF FINANCIAL INSTRUMENTS

                Substantially  all  of  the  Company's  financial  instruments  at  December  31,  2002  and  2001,
                consisting  primarily of marketable equity securities,  amounts due from FMSC's clearing firms, and
                notes payable are carried at, or  approximate  fair value due to their  short-term  nature,  or the
                use of mark-to-market accounting for marketable securities.

NOTE 18 -       NET CAPITAL REQUIREMENTS

                FMSC is subject to the Securities and Exchange  Commission  Uniform Net Capital Rule (Rule 15c3-1),
                which requires FMSC to maintain  minimum net capital,  as defined.  At December 31, 2002,  FMSC had
                net capital of  $1,085,853,  which was  $777,574 in excess of its required net capital of $308,279.
                FMSC's ratio of aggregate indebtedness to net capital was 4.26 to 1.

NOTE 19 -       UNAUDITED QUARTERLY RESULTS OF OPERATIONS

                                               March 31,        June 30,       September 30,       December 31,
                                                 2002             2002             2002                2002
                                                 ----             ----             ----                ----

Revenues                                     $12,748,468      $12,876,729      $10,738,742        $11,602,805
Expenses                                      13,044,130       13,849,861       11,243,268         12,789,920
Net loss                                        (295,662)        (973,132)        (504,526)        (1,187,115)
Net loss applicable to common
  stockholders                                  (320,502)        (997,971)        (529,365)        (1,211,884)

Loss per common share:

   Net loss applicable to common
      stockholders - basic and diluted              (.04)            (.12)            (.06)              (.14)


                                                March 31,         June 30,    September 30,       December 31,
                                                  2001              2001           2001              2001
                                                  ----              ----           ----              ----

Revenues                                     $11,712,547      $14,608,537      $12,192,917        $12,706,414
Expenses                                      12,331,999       15,391,658       14,267,380         14,437,601
Net loss                                        (619,452)        (783,121)      (2,074,463)        (1,731,187)
Net loss applicable to common
   stockholders                                 (642,918)        (807,961)      (2,099,303)        (1,756,794)

Loss per common share:

   Net loss applicable to common
      stockholders - basic and diluted              (.07)            (.09)            (.24)              (.20)

                Net loss per share is computed  independently for each of the quarters  presented.  Therefore,  the
                sum of the quarterly net loss per share figures does not  necessarily  equal the total computed for
                the entire year.

NOTE 20 -       VALUATION AND QUALIFYING ACCOUNTS

                                                                          Additions
                                         Balance at     Charged to        Charged to                  Balance at
                                         beginning      costs and         other                       end
                                         of period      expenses          accounts     Deductions     of period
                                         ---------      --------          --------     ----------     ---------

Valuation allowance for deferred
 tax assets:
   Year ended December 31, 2002          $2,305,456        $1,329,675        $--  $           --     $3,635,131
   Year ended December 31, 2001             428,805         1,876,651         --              --      2,305,456
   Year ended December 31, 2000             189,629           239,176         --              --        428,805

Reserve for notes receivable:
   Year ended December 31, 2002          $       --        $       --        $--  $           --     $       --
   Year ended December 31, 2001                  --                --         --              --     $       --
   Year ended December 31, 2000                  --           239,000         --        (239,000)            --

NOTE 21 -       SUBSEQUENT EVENT

                In January 2003,  the Company  issued an additional  $210,000  principal  amount of 6%  convertible
                debentures.  These  debentures  are subject to the same terms as those issued in December 2002 (see
                Note 9). The Company  also issued  21,000  warrants to  registered  representatives  in  connection
                with the debenture offering.

</TABLE>

<PAGE>
                                                                  Exhibit 3.3


                          FIRST MONTAUK FINANCIAL CORP.
                    CERTIFICATE OF AMENDMENT TO DESIGNATE THE
                        RELATIVE RIGHTS, PREFERENCES AND
                        LIMITATIONS AND NUMBER OF SHARES
                                       OF
                            SERIES A PREFERRED STOCK

                   (Pursuant to Section l4A:7-2 of the General
                  Corporations Law of the State of New Jersey)


     First Montauk  Financial Corp., a corporation  organized and existing under
the laws of the State of New Jersey, DOES HEREBY CERTIFY THAT:

     FIRST: The name of the Corporation is First Montauk Financial Corp.

     SECOND:  Pursuant to authority conferred upon the Board of Directors by the
Certificate  of  Incorporation  of  the  Corporation  under  the  provisions  of
l4A:7-2(2) of the General  Corporations  Law of the State of New Jersey,  all of
the Directors of the Corporation, duly adopted, the following resolution:

     RESOLVED,  that pursuant to the authority  vested in the Board of Directors
of this  Corporation by Section l4A:7-2 of the General  Corporations  Law of the
State of New Jersey and in accordance  with the provisions of its Certificate of
Incorporation,  a class of preferred  stock of this  Corporation  to be known as
Series A Convertible  Preferred Stock, is hereby created and provided for, to be
limited in amount to 625,000  shares and this Board of Directors  hereby  fixes,
states and expresses the terms,  designation,  relative rights,  preferences and
limitations of such Class in the  particulars  required by but not  specifically
set forth in said Certificate of  Incorporation,  or any amendment  thereto,  as
follows:

     (a) Designation.

     The  designation  of this  class of  preferred  shares  shall be  "Series A
Convertible Preferred Stock", $.10 par value (the "Series A Preferred Stock").

     (b) Dividends

     (i) Holders of shares of the Series A Preferred  Stock shall be entitled to
receive,  if and  when  declared  payable  from  time to time  by the  Board  of
Directors from funds legally available  therefor,  dividends in cash at the rate
of 6% per  share  per  annum  (computed  on the  basis of a 360 day year for the
actual number of days elapsed), and no more, payable quarterly on the 1st day of
January, April, July and October in each year (unless such day is not a business
day,  in which  event on the next  business  day),  to holders of record as they
appear on the register for the Series A Preferred Stock on the 15th of December,
the  15th of  March,  the  l5th of June  or the  15th of  September  immediately
preceding the dividend payment date. A quarterly  dividend period shall begin on
the day following each dividend payment date set forth above and end on the next
succeeding  dividend  payment  date.  If dividends  shall not have been paid, or
declared and set apart for payment,  upon each outstanding share of the Series A
Preferred Stock at the aforesaid  rates,  such deficiency shall be cumulative in
full (and thereby accumulate).

     (ii) Such dividends  shall be payable  before any cash  dividends  shall be
declared or paid upon or set apart for the common stock,  no par value,  or such
other  stock  into  which  said  common  stock  may  be  converted,  issued  and
outstanding of the Corporation (the "Common Stock"),  so that if at any time any
dividends upon the outstanding shares of Series A Preferred Stock at the rate of
6% per annum shall not have been paid thereon or declared and set apart therefor
with respect to all preceding  dividend  periods,  the amount of the  deficiency
shall be fully paid or declared and set apart for payment, but without interest,
before any distribution,  whether by way of dividend or otherwise, but excluding
stock dividends payable in Common Stock,  shall be declared or paid upon, or set
apart for, the Common Stock.

     (c) Redemption.

     (i) Redemption: The Corporation may not redeem the whole or any part of the
shares of Series A Preferred Stock.

     (d) Liquidation.
<PAGE>


     In the event of any voluntary or involuntary dissolution,  liquidation,  or
winding up of the affairs of the  corporation,  after  payment or provision  for
payment of the debts and other  liabilities of the  Corporation,  the holders of
the Series A Preferred  Stock shall be entitled to receive,  from the net assets
of the Corporation, $5.00 per share plus an amount equal to all dividends unpaid
on such share up to and including the date fixed for distribution,  and no more,
before any  distribution  shall be made to the holders of junior stock.  Neither
the  merger  nor  consolidation  of the  Corporation,  nor  the  sale  lease  or
conveyance of all or a part of its assets,  shall be deemed to be a voluntary or
involuntary  liquidation,  dissolution  or  winding  up of  the  affairs  of the
Corporation within the meaning of this Paragraph d.

     (e) Voting Rights.

     The holders of a share or shares of Series A Preferred Stock shall not have
any voting  rights,  except as provided by the  General  corporation  Law of the
State of New Jersey.

     (f) Conversion.

     (i) Optional Conversion.

     Each holder of Series A  Preferred  Stock may at any time after the date of
issuance upon surrender of the certificates therefor,  convert any or all of his
Series A Preferred Stock into fully paid and  nonassessable  Common Stock of the
Corporation,  at a  conversion  rate of two shares of Common  Stock for each one
share of Series A Preferred Stock being converted. At the time of conversion all
cumulated but unpaid dividends shall be paid in cash to the converting Preferred
Shareholder.

     Such option to convert shall be exercised by surrendering  for such purpose
to the Corporation or its agent, as provided  above,  certificates  representing
the shares to be  converted,  duly  endorsed in blank or  accompanied  by proper
instruments  of  transfer,  and  at the  time  of  such  surrender,  the  person
exercising  such option to convert shall be deemed to be the holder of record of
the  Common  Stock  issuable  on  such  conversion,   notwithstanding  that  the
certificates representing such Common Stock shall not then be actually delivered
to him. No fractional  shares of Common Stock shall be issued upon conversion of
Series A Preferred Stock but, in lieu of any fraction of a share of Common Stock
which would  otherwise be issuable in respect of the aggregate  number of shares
of this Series  surrendered  for conversion at one time by the same holder,  the
Corporation  shall pay in such case an  amount  equal to the sum of the  current
market price of the  Corporation's  Common Stock multiplied by a number equal to
the fraction of a share.

     (ii) Automatic Conversion

     Each share of Series A Preferred Stock is automatically  converted into two
shares of the Company's Common Stock,  without any action by the holder,  if (a)
the closing price of the Company's  Common Stock,  as defined below, is $3.50 or
more for 20  consecutive  trading days,  subject to certain  adjustments to pre-
vent dilution (the  "Automatic  Conversion  Date");  and (b) the shares issuable
upon  conversion of the Series A Preferred  Stock are registered for public sale
under the  Securities  Act of 1933,  as  amended.  Commencing  on the  automatic
Conversion  Date, each  certificate for Series A Preferred Stock shall be deemed
to  represent  the  number of shares of Common  Stock  into  which the  Series A
Preferred Stock  represented by such certificate  shall be convertible;  and the
Corporation  shall  treat  all  certificates  for  Series A  Preferred  Stock as
certificates  for the  maximum  number of shares of Common  Stock into which the
Series  A  Preferred  Stock  originally  represented  by  such  certificate  was
convertible.  At the time of conversion all cumulated but unpaid dividends shall
be paid in cash to the converting Preferred Shareholder.

     (iii) For the purposes of any  computation  pursuant to this Paragraph (f),
the current market price of the Corporation's Common Stock shall be deemed to be
the average  daily  closing  prices of the  Corporation's  Common  Stock for the
thirty (30) consecutive days immediately preceding the date on which such shares
are duly  surrendered  for  conversion.  For purposes of this paragraph (f), the
"closing  price" for each day shall be the last sales  price  regular way or, in
case no sales takes place on such day,  the average of the closing bid and asked
prices  regular  way, in either case on the New York Stock  Exchange,  or if the
Corporation's  Common  Stock  is not  listed  or  admitted  to  trading  on such
Exchange,  on the  Principal  national  securities  exchange on which the Common
Stock is listed or admitted to trading,  or if not listed or admitted to trading
on any national securities  exchange,  the average of the high bid and low asked
price  for  such day as  reported  by the  National  Association  of  Securities
Dealers,  Inc.  through  NASDAQ,  or if the National  Association  of Securities
Dealers,  Inc.  through  NASDAQ shall not have reported any bid and asked prices
for the Common  Stock for such day,  the average of the bid and asked prices for
such day reported by the National Quotation Bureau,  Inc., or if no such bid and
asked  prices can be obtained  from any such firm,  the fair market value of one
share of the Common Stock on such day as  determined  in good faith by the Board
of Directors of the Corporation.
<PAGE>


     (g) Anti-Dilution Provisions

     The rate of  conversion  provided  for in  subparagraph  (f)  hereof of two
shares of Common  Stock for each one  share of Series A  Preferred  Stock  being
converted is based upon a price of the Preferred Shares of $5.00 for each Series
A Preferred Share.

     The rate of conversion and the number and kind of securities into which the
Series A Preferred  Shares are  convertible  shall be subject to adjustment from
time to time upon the happening of certain events as hereinafter  provided.  The
rate of  conversion  in effect at any time and the number and kind of securities
into which the Preferred  Shares are convertible  shall be subject to adjustment
as follows:

     (l) In case the Corporation shall (i) pay a dividend or make a distribution
on its  shares of Common  Stock in shares of Common  Stock,  (ii)  subdivide  or
reclassify  its  outstanding  Common Stock into a greater  number of shares,  or
(iii) combine or reclassify its  outstanding  Common Stock into a smaller number
of shares,  the rate of  conversion in effect at the time of the record date for
such  dividend or  distribution  or of the effective  date of such  subdivision,
combination or  reclassification  shall be proportionately  adjusted so that the
Series A Preferred  Shareholder after such date shall be entitled to receive the
aggregate  number and kind of shares which,  if the Series A Preferred Stock had
been converted by such Shareholder immediately prior to such date, he would have
owned upon such  conversion  and been  entitled to receive  upon such  dividend,
subdivision,  combination or  reclassification.  For example, if the Corporation
declares  a 2 for l stock  dividend  or stock  split and the rate of  conversion
immediately  prior to such  event was $5 for two  shares of  Common  Stock,  the
adjusted rate of conversion  immediately after such event would be $2.50 for two
shares of Common Stock. Such adjustment shall be made successively  whenever any
event listed above shall occur.

     (2) In case the Corporation shall hereafter issue rights or warrants to all
holders of its Common Stock  entitling them to subscribe for or purchase  shares
of Common Stock (or  securities  convertible  into Common  Stock) at a price (or
having a conversion  price per share) less than the current  market price of the
Common Stock (as defined in Subsection  (f) above) on the record date  mentioned
below,  the rate of conversion shall be adjusted so that the same shall be equal
to the  price  determined  by  multiplying  the  rate of  conversion  in  effect
immediately  prior to the date of such issuance by a fraction,  the numerator of
which shall be the sum of the number of shares of Common  Stock  outstanding  on
the record date  mentioned  below and the number of additional  shares of Common
Stock which the aggregate offering price of the total number of shares of Common
Stock  so  offered  (or  the  aggregate  conversion  price  of  the  convertible
securities so offered)  would purchase at such current market price per share of
the Common Stock, and the denominator of which shall be the sum of the number of
shares  of  Common  Stock  outstanding  on such  record  date and the  number of
additional  shares of Common Stock offered for subscription or purchase (or into
which the convertible  securities so offered are  convertible).  Such adjustment
shall be made successively whenever such rights or warrants are issued and shall
become  effective  immediately  after the record date for the  determination  of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities  convertible into Common
Stock are not  delivered)  after the  expiration  of such rights or warrants the
rate of conversion  shall be  readjusted  to the rate of conversion  which would
then be in effect had the  adjustments  made upon the issuance of such rights or
warrants  been made upon the basis of  delivery  of only the number of shares of
Common Stock (or securities convertible into Common Stock) actually delivered.

     (3) In case the Corporation  shall  hereafter  distribute to the holders of
its  Common  Stock  evidences  of its  indebtedness  or assets  (excluding  cash
dividends  or  distributions  and  dividends  or  distributions  referred  to in
Subsection  (l)  above) or  subscription  rights or  warrants  (excluding  those
referred  to in  Subsection  (2)  above),  then in each  such  case  the rate of
conversion in effect  thereafter  shall be determined by multiplying the rate of
conversion in effect  immediately prior thereto by a fraction,  the numerator of
which shall be the total number of shares of Common Stock outstanding multiplied
by the current  market price per share of Common Stock (as defined in Subsection
(f) above), less the fair market value (as determined by the Corporation's Board
of Directors) of said assets or evidences of  indebtedness  so distributed or of
such rights or warrants,  and the denominator of which shall be the total number
of shares of Common Stock  outstanding  multiplied by such current  market price
per share of Common Stock. Such adjustment shall be made  successively  whenever
such a record date is fixed.  Such  adjustment  shall be made  whenever any such
distribution  is made and shall become  effective  immediately  after the record
date  for  the   determination   of   shareholders   entitled  to  receive  such
distribution.

     (4)  Whenever  the rate of  conversion  of the Series A Preferred  Stock is
adjusted  pursuant to Subsections  (l), (2) and (3) above,  the number of Shares
issuable upon conversion of the Series A Preferred Stock shall simultaneously be
adjusted by multiplying the number of Shares initially  issuable upon conversion
of the Series A Preferred  Stock by the rate of conversion in effect on the date
hereof and  dividing  the  product so  obtained  by the rate of  conversion,  as
adjusted.
<PAGE>


     (5) No adjustment in the rate of conversion  shall be required  unless such
adjustment  would  require an increase or decrease of at least ten cents ($0.l0)
in such price;  provided,  however, that any adjustments which by reason of this
Subsection  (g) are not  required to be made shall be carried  forward and taken
into account in any subsequent  adjustment  required to be made  hereunder.  All
calculations  under this Section (g) shall be made to the nearest cent or to the
nearest  one-hundredth  of a share, as the case may be. Anything in this Section
(g) to the contrary  notwithstanding,  the  Corporation  shall be entitled,  but
shall  not be  required,  to make such  changes  in the rate of  conversion,  in
addition to those  required by this Section (g), as it, in its sole  discretion,
shall  determine to be advisable in order that any dividend or  distribution  in
shares of Common Stock,  subdivision,  reclassification or combination of Common
Stock,  issuance  of  warrants  to  purchase  Common  Stock or  distribution  of
evidences of indebtedness or other assets (excluding cash dividends) referred to
hereinabove in this Section (g) hereafter made by the Corporation to the holders
of its Common  Stock  shall not  result in any tax to the  holders of its Common
Stock or securities convertible into Common Stock.

     (6) Whenever the rate of conversion is adjusted,  as herein  provided,  the
Corporation  shall  promptly  cause a notice  setting forth the adjusted rate of
conversion and adjusted  number of Shares issuable upon conversion of each share
of  Series A  Preferred  Stock  to be  mailed  to the  holders  of the  Series A
Preferred  Stock, at their last addresses.  The Corporation may retain a firm of
independent certified public accountants selected by the Board of Directors (who
may be  the  regular  accountants  employed  by the  Corporation)  to  make  any
computation  required by this Section (g), and a certificate signed by such firm
shall be conclusive evidence of the correctness of such adjustment.

     (7)  Whenever the rate of  conversion  shall be adjusted as required by the
provisions  of this Section (g), the  Corporation  shall  forthwith  file in the
custody of its Secretary or an Assistant  Secretary at its principal  office, an
officer's  certificate  showing the adjusted  rate of  conversion  determined as
herein  provided,  setting forth in reasonable  detail the facts  requiring such
adjustment,  including a statement of the number of additional  shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
the manner of computing such adjustment.  Each such officer's  certificate shall
be made  available  at all  reasonable  times  for  inspection  by any  Series A
Preferred  Shareholder,  and the  Corporation  shall,  forthwith after each such
adjustment,  mail a copy by certified mail of such  certificate to each Series A
Preferred Shareholder.

     THIRD:  The  foregoing   resolution  of  the  Board  of  Directors  of  the
Corporation was duly adopted by Unanimous Consent on May 18, 1999.

     FOURTH: The Certificate of Incorporation is amended so that the designation
and the number of shares of each class and Series  acted upon in the  resolution
and the relative  rights,  preferences  and  limitations  of each such class and
series, are as stated in the resolution.

     IN WITNESS  WHEREOF,  the  undersigned  hereby  executes  this document and
affirms that the facts set forth herein are true under the  penalties of perjury
this 18TH day of May, 1999.


                                    /s/ Herbert Kurinsky
                                    ---------------------------------------
                                    Herbert Kurinsky, President

CORPORATE SEAL
                                     ATTEST:

                                    /s/ William J. Kurinsky
                                    ---------------------------------------
                                    William J. Kurinsky, Secretary



<PAGE>


                                                                Exhibit 99.1



    CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the Annual Report of FIRST MONTAUK  FINANCIAL CORP. (the
"Company")  on Form 10-K for the period  ending  December 31, 2002 as filed with
the Securities  and Exchange  Commission on the date hereof (the  "Report"),  I,
Herbert Kurinsky, Chief Executive Officer of the Company,  certify,  pursuant to
18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:

     (1) The Report fully  complies  with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and result of  operations of the
Company.



/s/ Herbert Kurinsky
---------------------------------------
Herbert Kurinsky
Chief Executive Officer
April 14, 2003
<PAGE>

                                                                Exhibit 99.2



    CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of FIRST MONTAUK  FINANCIAL CORP. (the
"Company")  on Form 10-K for the period  ending  December 31, 2002 as filed with
the Securities  and Exchange  Commission on the date hereof (the  "Report"),  I,
William J. Kurinsky, Chief Financial Officer of the Company,  certify,  pursuant
to  18  U.S.C.  section  1350,  as  adopted  pursuant  to  Section  906  of  the
Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully  complies  with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and result of  operations of the
Company.


/s/ William J. Kurinsky
---------------------------------------
William J. Kurinsky
Chief Financial Officer
April 14, 2003