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, 1998
                                       OR
         o        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.
             (Exact name of registrant as specified in its charter)

       New Jersey                                           22-1737915
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                         Identification No.)
328 Newman Springs Road, Red Bank, NJ                         07701
 (Address of principal executive offices)                   (Zip Code)

Registrant's telephone number, including area code              (732) 842-4700
-------------------------------------------------------------------------------

Securities registered pursuant to Section 12(b) of the Act:

                                                     Name of each exchange on
         Title of each class                              which registered

               None                

Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, no par value
                                (Title of class)
                            [Cover Page 1 of 2 Pages]



<PAGE>
                                       2









     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(D) of the  Exchange  Act during the past 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 ___

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B is not contained in this form,  and no disclosure  will 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. [ ]

The issuer's revenues for its most recent fiscal year:  $41,876,378.

     The  aggregate  market  value of the voting  stock  held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid  and   asked   prices   of  such   stock,   as  of   April   13,   1999  was
$19,384,316.

     The number of shares of Common Stock outstanding,  as of April 13, 1999 was
9,890,727.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                 Not Applicable





















                            [Cover Page 2 of 2 Pages]



<PAGE>
                                       3






                                     PART I
Item 1. Business

Introduction
------------

     First Montauk Financial Corp. ("FMFC") is a holding company, which, through
its  wholly-owned  subsidiary,  First  Montauk  Securities  Corp.  ("FMSC"),  is
primarily engaged as a retail and institutional  securities brokerage firm. FMFC
also sells insurance products through its subsidiary Montauk Insurance Services,
Inc.  ("MISI").  FMSC is a  registered  broker/dealer  with the  Securities  and
Exchange Commission ("SEC"), a member of the National  Association of Securities
Dealers Regulation,  Inc. ("NASD"),  the Municipal  Securities Rule Making Board
("MSRB"),  and the Securities Investor Protection  Corporation ("SIPC").  FMSC's
business  activities consist primarily of retail sales and trading of listed and
unlisted equity and fixed-income securities; government, municipal and corporate
securities;   and  options.   FMSC  earns   commissions   from   individual  and
institutional   securities  transactions  and  market  making  activities.   All
securities  transactions  are cleared  through  FMSC's  clearing firm on a fully
disclosed basis. FMSC also provides  investment banking services such as private
and public  securities  offerings.

     FMSC is  currently  licensed  to conduct its  broker/dealer  business in 49
states,  the District of Columbia,  and the  Commonwealth  of Puerto Rico.  FMSC
maintains  approximately 148 branch and/or satellite  offices,  all of which are
maintained  by  affiliates.   The  Company  has   approximately  360  registered
representatives  and  services  approximately  46,000  retail and  institutional
customer accounts.

     FMSC's primary method of operation is the affiliate  program,  which allows
registered  representatives to operate as independent contractors.  An affiliate
of FMSC establishes his 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  is  entitled  to retain a
significantly higher percentage of the commissions generated by his sales than a
registered  representative in a standard  brokerage  arrangement.  The affiliate
program is designed to attract  experienced  brokers with existing clientele who
desire to operate their own office.

     FMSC has also expanded its general securities business by adding registered
representatives  to its main corporate office.  FMSC is continuously  seeking to
establish  additional branch offices at sites and locations to be selected,  the
timing and location of which will be based upon prevailing business and economic
conditions.

     In 1991,  MISI was formed for the purpose of offering and selling  variable
annuity,  variable  life  as well  as  traditional  life  and  health  insurance
products. Currently, MISI is licensed in the states of Alabama, Alaska, Arizona,
California,   Colorado,  Connecticut,   Delaware,  Florida,  Georgia,  Illinois,
Indiana,  Iowa, Kansas,  Kentucky,  Maine,  Maryland,  Massachusetts,  Michigan,
Minnesota,  Montana (pending),  Missouri, New Hampshire, New Jersey, New Mexico,
New York, North Carolina,  North Dakota, Oklahoma,  Pennsylvania,  Rhode Island,
South Carolina,  Tennessee, Texas, Vermont, Virginia,  Washington, West Virginia
and Wisconsin. MISI derives revenue from insurance-related products and services
from the existing  customer base of FMSC's Registered  Representatives,  who are
insurance licensed. In fiscal year 1998, the Company earned gross commissions of
$2,544,092 from the sale of insurance and annuity policies.

     In 1998, FMSC registered with the Securities and Exchange  Commission under
the  Investment  Advisers  Act of 1940 in order to provide  investment  advisory
services and offer fee-based managed accounts to its clientele.  Currently, FMSC
is  licensed  as an  Investment  Advisor  in  the  States  of  Alaska,  Arizona,
California,  Connecticut,  Florida, Hawaii, Indiana, New Jersey, New York, North
Carolina,  Pennsylvania,  Texas,  and West  Virginia.  Although to date FMSC has
received  minimal  revenue from its  advisory  services,  management  intends to
promote this area of operation during the next fiscal year.

     FMFC and its  subsidiaries  maintain their principal  executive  offices at
Parkway 109 Office Center,  328 Newman Springs Road, Red Bank, New Jersey 07701,
(732) 842-4700.


<PAGE>
                                       4




Recent Developments
-------------------

Global Loans

     In  1996,  the  Company  formed  Montauk   Advisors,   Inc.  ("MAI")  as  a
wholly-owned  subsidiary  to act as an agent for various  leasing  companies  to
offer  business  equipment  leases to its  clientele.  In fiscal year 1997,  MAI
ceased doing  business due to concerns  over the  financial  condition of Global
Financial  Corp.  ("Global"),  the company that sold and currently  services the
leases, and an affiliated equipment vendor,  Fem-Com Systems Inc. ("FCS"). Since
1997 MAI has made loans to Global totaling approximately $2,217,000. These loans
were made for the purpose of assisting Global in meeting cash flow  deficiencies
arising  from the  nonpayment  of  scheduled  monthly  installments  on  certain
delinquent,  canceled and  non-performing  leases. The loans, some of which bear
interest  at 8% per  annum  and were  due at  various  times  during  1998,  are
currently in default.  The notes are  guaranteed by Global,  FCS,  Biblio,  Inc.
("Biblio")  and the  shareholder  of FCS and  Biblio.  The notes  are  partially
collateralized  by  mortgage  liens  on  real  estate  owned  by  the  principal
shareholder  of FCS and  Biblio,  a pledge of the shares of Global and FCS,  and
various liens on the assets of FCS. The Company does not believe the  collateral
will be  sufficient  to cover the unpaid  balance of the loans and therefore has
reserved for the portion of the loans deemed to be uncollectible. As of December
31, 1998,  MAI had loaned  $2,066,045 to Global,  and had  established a reserve
against the loans totaling $1,775,000.

     In August 1998,  Global  informed the  purchasers of the leases that it was
reducing  the monthly  payments to 60% of the  original  amount.  The Company is
reevaluating  its continued  financial  support of Global through loan advances,
and is attempting to formulate a final  resolution of the Global  leases.  There
can be no assurance that the Company will not incur significant  expenditures in
respect of this matter in the future.

Century Discount Investments

     In June 1997,  FMSC  established  a discount  brokerage  division  "Century
Discount  Investments"  ("Century"),  to offer  investors  convenient and prompt
retail brokerage services at significantly  reduced commission rates. Century is
designed  to serve  investors  who do their  own  research  and make  their  own
investment  decisions.  These  customers  seek to  avoid  the  higher  brokerage
commissions  for  securities  research,   market  recommendations  or  portfolio
management associated with full service brokerage firms. FMSC believes that this
market segment has become increasingly significant to the brokerage industry and
will continue to grow in the future.  Century's business will concentrate on the
execution of unsolicited  transactions on an agency basis from retail customers.
Century is able to offer customers reduced commission rates since its service is
not dependent on individual  broker-customer  relationships  to generate orders.
Century does not assign customer accounts to individual  brokers and all Century
registered representatives have immediate access to customer accounts and market
information necessary to respond to any customer inquiry and order.

     In  February  1999,  FMSC  appointed  Seth Rosen to fill the newly  created
position of President of Century.  FMSC intends to use Mr. Rosen's experience in
the discount  brokerage  industry to expand Century's services and customer base
in 1999,  including  offering online discount  brokerage and related  investment
services.  The online service will provide  customers with automated  securities
order  placement,  market  information  and  research  capabilities  through the
Internet.  Eventually,  Century  intends  to offer a broad  range of  investment
services to the self-directed, sophisticated online retail customer.

Description of Business
-----------------------

     FMSC is a New Jersey based broker-dealer registered with the Securities and
Exchange  Commission,  and a member of the National  Association  of  Securities
Dealers,  Inc.,  the Municipal  Securities  Rule Making Board and the Securities
Investor  Protection  Corporation.  Its business  activities  include  sales and
trading  of  listed  and  OTC  equity  and  fixed-income  securities;  sales  of
government,  municipal  and  corporate  securities;  options  and market  making
activities.  FMSC is  registered  to conduct  its  business  in 49  states,  the
District of Columbia and the Commonwealth of Puerto Rico.

<PAGE>
                                       5





     As of  February  23,  1999,  FMSC  operated  148  affiliate  branch  and/or
satellite  offices in  addition  to its main  office  located  in Red Bank,  New
Jersey. There are approximately 360 registered representatives in these offices,
as well as 68 support staff employees in the main office.  Affiliate  branch and
satellite offices are located in the following 28 states and Saudi Arabia:

                      AFFILIATE BRANCH/
STATE                 SATELLITE OFFICE  

Alaska                        1
Arizona                       2
California                    7
Connecticut                   4
Delaware                      1
Florida                       8
Georgia                       2
Illinois                      1
Indiana                       1
Massachusetts                 1
Minnesota                     3
Mississippi                   1
Missouri                      2


                    AFFILIATE BRANCH/
STATE               SATELLITE OFFICE  

New Hampshire                 1
North Carolina                6  
North Dakota                  2
New Jersey                   27
New Mexico                    1
New York                     36
Ohio                          2
Pennsylvania                 18
Rhode Island                  2
Tennessee                     1
Texas                         2
Virginia                      5
Washington                    8
West Virginia                 1
Wisconsin                     1
Saudi Arabia                  1


FMSC transacts business in the following areas:

Equities:
         Listed                            26%
         Over-The-Counter                  35%
Municipal, Government                       3%
Corporate Bonds                             4%
Unit Investment Trusts                      1%
Mutual Funds                               16%
Options                                     9%
Insurance                                   6%



<PAGE>
                                       6





     The following  table reflects  FMSC's  various  sources of revenues and the
percentage of total revenues for fiscal 1998.  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
other trading activities.

                                             Year Ended December 31, 1998
                                             ----------------------------

                                             Amount               Percent
                                             ------               -------

         Agency commissions from
          Equity Securities,
          Options and Mutual Funds         $30,741,404             73.4%

         Principal Transactions in
          Equity Securities, Municipal,
          Government and Corporate Bonds$    8,795,599             21.0%

         Interest and other Income(1)      $ 1,572,063              3.8%

         Investment Banking(2)             $   767,312              1.8%
                                            ----------              --- 

         Total Revenues                    $41,876,378            100.0%
                                      
(1)  "Other Income" consists primarily of rental income and dividends.

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


Registered Representative Recruitment and
Registered Representative Affiliate Program
-------------------------------------------
 
     FMSC's   goal   is  to   recruit   well-trained,   experienced   registered
representatives  who require  little  training  and who have  proven  production
records  with  an  established  customer  account  base.  Since  all  registered
representatives are paid on a commission earned basis, the costs associated with
the hiring of new  registered  representatives  are limited to general  expenses
consisting  of  orientation   materials,   compliance  manuals  and  operational
information.

     FMSC continues to experience significant  competition from other securities
brokerage firms for registered  representatives.  Larger, more established firms
with greater financial resources possess an advantage in competing with FMSC and
attracting  representatives,  clients and investment  dollars.  (See "Business -
Competition".)

The Affiliate Program
---------------------

     FMSC's affiliate program is designed to attract professionals in all facets
of the  financial  services  industry  to  affiliate  with  FMSC  as  registered
representatives. These individuals must possess a sufficient level of commission
brokerage  business and  experience to enable the  individual  to  independently
support his own office. The program also enables financial professionals such as
insurance agents, real estate brokers, financial planners, and accountants,  who
already  provide some type of financial or brokerage  services to their clients,
to become a registered  representative  with FMSC. This is intended to allow the
professional to offer securities  products and services to their clients through
FMSC,  and  insurance  products  through MISI.  Affiliates  operate in their own
office,  which  functions  as either a registered  branch  office or a satellite
location.  A location is considered a registered  branch if it contains three or
more  registered   individuals,   and  publicly  offers  brokerage  services.  A
registered branch is designated as either an Office of Supervisory  Jurisdiction
(OSJ) or  non-OSJ  branch  office  depending  on whether  the office  contains a
registered   principal   responsible   for   the   supervision   of   registered
representatives  at that  location.  A satellite  location  has fewer than three
individuals who conduct business,  does not have a registered principal on site,
and does not  publicly  offer  brokerage  services.  Registered  representatives
within a satellite  location are supervised by a registered  principal at an OSJ
or FMSC's headquarters.  Management believes the affiliate program is attractive
to  established  brokers  because it combines  the  flexibility  of operating an
independent office with the structure and support of an established firm.
<PAGE>
                                       7


     In each case,  the affiliate is solely  responsible  for the payment of all
expenses associated with the operation of his office, including rent, utilities,
furniture, equipment, stock quotation machines, supplies etc. Under the program,
the affiliate  receives a  significantly  higher  percentage of the  commissions
generated by his sales than a registered  representative would normally receive.
FMSC believes,  based on the experience of management  and  information  derived
from  professional  associations,  that  standard  commission  payout  rates for
registered  representatives  of retail firms is approximately  40%-50%,  whereas
affiliates  receive  payouts  averaging  80%-85%.  FMSC  receives  a  percentage
(averaging  15%-20%  after  deduction  of  clearing  costs)  of the  affiliate's
commissions with no operating expenses directly  attributable to the maintenance
of the specific affiliate office. (See "Administration,  Operations, Transaction
Processing and Customer Accounts").

     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 and investment advisory programs;  and
research,  compliance,  supervision and related services.  Currently, Schroder &
Co., Inc.  provides  clearing  services for FMSC, and E D & F Man  International
Securities, Inc. and others provide execution services.

     Each  affiliate  is required to obtain and maintain in good  standing  each
license required by the SEC and NASD to conduct the type of securities  business
in which the  affiliate  will engage and to  register  in the various  states in
which he intends to service  customers.  If the  affiliate  wishes to expand his
operation,  he controls the hiring and immediate  supervision  of any additional
registered representatives subject to FMSC's policies and procedures and overall
approval  and  supervision.  If the  affiliate  office  contains  three  or more
registered  representatives,  the affiliate must obtain a principal's license to
ensure  proper  supervision.  The office will then be designated as an Office of
Supervisory Jurisdiction.

     FMSC is ultimately responsible for supervising each and every affiliate and
related  registered  representative.  FMSC can incur substantial  liability from
improper  actions  of  any  of  the  affiliate   representatives.   (See  "Legal
Proceedings").  Effective  January 1, 1996, the Company  obtained a professional
liability  errors and omissions  insurance  policy which  provides  coverage for
certain actions taken 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. The program provides coverage for
each incident up to  $1,000,000  with an aggregate  policy limit of  $5,000,000,
with a deductible  per incident of $50,000.  The first $10,000 of the deductible
is the responsibility of individual representatives.  These limits apply through
January  31,  2000,  when  the  policy  is  up  for  renewal.   Each  registered
representative  is required to pay a portion of the policy  premium.  The policy
excludes claims involving the sale of low-priced  securities  (penny stocks) and
partnerships;  criminal or deliberate  fraudulent acts,  defamation,  as well as
certain other activities.

Retail Commission Business
--------------------------

     Most of FMSC's  revenues are derived from agency and principal  commissions
from retail (individual) and institutional  customers on brokerage  transactions
in exchange-listed and over-the-counter equity and fixed income securities. When
FMSC  receives  an order  for a  security  in which  FMSC  makes a market or has
inventory,  FMSC may act as a  principal  and  purchase  from,  or sell to,  its
customer the desired  security on a disclosed basis at a price set in accordance
with applicable securities regulations.
<PAGE>
                                       8


Investment Banking Activities 
----------------------------- 

     The Company's  investment  banking  revenues are  principally  derived from
participation in public  offerings of equity  securities and acting as placement
agent in the private  placement of  securities.  The Company does not  generally
derive a significant  or material  portion of its revenues  from its  investment
banking  operation.  For the fiscal year ended  December  31,  1998,  investment
banking activities, including sales concessions earned as a syndicate or selling
group member,  accounted for  approximately 2% of the Company's  revenues.  FMSC
acted as a placement  agent in three private  placements and  participated  as a
syndicate or selling group member in approximately 105 offerings in fiscal 1998.

     Participation as a managing underwriter or 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 law, 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 FMSC'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. See "Net Capital Requirements".
 
Principal Transactions 
---------------------- 

     FMSC acts as both  principal and agent in the  execution of its  customers'
orders  in the  over-the-counter  market.  FMSC  buys,  sells and  maintains  an
inventory of various securities in order to "make a market" in those securities.
In executing  customer orders for  over-the-counter  securities in which it does
not make a market,  the Company  charges a commission  and acts as agent between
its customers and another firm which is a market-maker. However, when the buy or
sell order is in a security in which FMSC makes a market, the Company may act as
principal and purchase  securities  from or sell  securities  to its  customers,
which  includes the  permissible  mark-up or mark-down  from the current  market
price, in accordance with applicable regulations.

     Trading  profits or losses depend upon the skills of the employees  engaged
in market-making  activities,  the capital  allocated to positions in securities
and the general trend of prices in the securities markets.  Trading as principal
requires the  commitment of capital and creates an  opportunity  for profits and
risk of loss due to  market  fluctuations.  FMSC may take  both  long and  short
positions in those securities in which it makes a market.

Investment Activities
---------------------

     FMSC also seeks to realize  investment  gains by  purchasing,  selling  and
holding  securities for its own account.  FMSC is required to commit the capital
necessary for use in these investment activities.  The amount of such capital to
be committed at any particular time will vary according to market,  economic and
financial  factors,  including  the other  aspects  of the  Company's  business.
Additionally,  in connection with its investment banking  activities,  FMSC from
time to time  receives  warrants  that entitle it to purchase  securities of the
corporate issuers for which FMSC raises capital or provides  advisory  services.
These warrants,  which are placed in FMSC's  investment  account,  vary in value
based upon the market price, if any, of the underlying security and the terms of
the warrant.


<PAGE>
                                       9


Research Services
-----------------

     Research  activities  include  the review and  analysis  of general  market
conditions,  industry segments and specific companies;  the issuance of in-depth
written reports on companies,  with  recommendations on specific actions to buy,
sell or  hold;  the  furnishing  of  information  to  retail  and  institutional
customers;  and responses to inquiries  from  customers and account  executives.
Research services are directed  primarily at identifying  attractive  investment
opportunities  in small,  medium and emerging growth  companies,  and in special
situation  investments.  FMSC  presently  conducts a limited  amount of research
activities  directly through a research analyst employed by it and also utilizes
external sources.  These direct research  activities  principally  relate to the
preparation   of  specialized   reports  on  selected   securities  for  general
distribution  to FMSC's  retail  customers,  and/or  research  assistance to the
Company's  retail sales force.  The Company  also  obtains  additional  research
reports and  information  from various  other  sources,  such as Schroder & Co.,
Inc., Emerald Research, Argus, and others.

Asset Management and Portfolio Advisory Service Fees
----------------------------------------------------

     FMSC is an 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  as an
investment adviser in those states requiring registration, including:

                Alaska                       New Jersey
                California                   New York
                Connecticut                  North Carolina
                Delaware                     Pennsylvania
                Florida                      Rhode Island
                Indiana                      Texas
                Massachusetts                Washington
                Michigan                     West Virginia

     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.

     In October  1998,  FMSC signed a limited  clearing  agreement  with Wexford
Clearing  Services  Corp.  ("Wexford"),  a division of Prudential  Securities to
offer its "Mutual  Fund Choice"  program.  The  program,  managed by  Prudential
Advisors,  Inc.,  enables  the  registered  representatives  to prepare an asset
allocation  model for the client  choosing  from a selected  universe  of mutual
funds  suitable  for the client.  The funds are  purchased  at net asset  value,
without  a sales  charge,  and  included  in the  designed  portfolio.  For this
service,  the  client is  charged a  quarterly  fee based  upon the value of the
assets in the  portfolio.  A portion of the fee is  retained by  Prudential  for
managing the accounts and providing statements to the clients.

     Management's  goal is to  increase  fee-based  revenues  by  continuing  to
provide diversified advisory services and products to its affiliates.

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,  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 Corporate  Securities Group, Inc., Robert
Thomas Securities, 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.  The Company  has  recently
entered the discount  brokerage arena through its Century  Discount  Investments
division.  (See "Recent  Developments".)  Additionally,  the recent 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.
<PAGE>
                                       10


     Other financial institutions, notably commercial banks and savings and loan
associations,  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 which 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 during a transitional  period.  FMSC
is  currently  implementing  new  computer  programs  developed  by the Clearing
Broker,  Schroder & Co.,  Inc., to better  service its affiliates and to attract
new brokers.  The system 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  through a computer work
station.

Administration, Operations, Transaction Processing and Customer Accounts  
------------------------------------------------------------------------  

     FMSC currently utilizes the services of Schroder & Co., Inc. as its primary
clearing  broker  (the  "Clearing  Broker").  FMSC  does not  hold any  funds or
securities of its customers.  The Clearing Broker, on a fee basis, processes all
securities  transactions  for FMSC's  account and the accounts of its customers.
Services of the Clearing Broker include billing and credit control, and receipt,
custody  and  delivery  of  securities,  for which  FMSC  pays a portion  of the
commissions it receives from customer  transactions.  By engaging the processing
services of a clearing broker, FMSC is exempt from certain reserve  requirements
imposed by Rule  15c3-3  under the  Securities  Exchange  act of 1934 (the "1934
Act").  (See "Net  Capital  Requirements".)  The  Clearing  Broker is  neither a
partner nor a joint  venturer with FMSC,  nor does the Clearing  Broker have any
direct or indirect interest in FMSC,  financial or otherwise,  or any control of
FMSC's business,  affairs or internal operations.  The Clearing Broker, however,
does  provide  secured  margin  loans to FMSC and its  customers  to finance the
purchase of securities.  Under its clearing  agreement with the Clearing Broker,
FMSC has agreed to indemnify and hold the Clearing  Broker harmless from certain
liabilities  or claims.  As required by the NASD 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  $50,000,000  of
protection  provided  by a private  insurance  company  for the  benefit of each
customer. SIPC is funded through assessments on registered broker-dealers.  SIPC
fees are assessed at the rate of .00065% of net operating revenues (as defined).

Government Regulation
---------------------

     The  securities  industry is subject to extensive and  constantly  evolving
federal and state regulations promulgated by the SEC and various state agencies,
as well as self-regulatory organizations such as the NASD. The principal purpose
of such  regulations is the  protection of customers and the securities  markets
rather than the protection of creditors and shareholders of broker-dealers.  The
SEC is the  federal  agency  charged  with  the  administration  of the  federal
securities  laws. Much of the regulation of  broker-dealers,  however,  has been
delegated  to  self-regulatory  organizations,  principally  the  NASD  and  the
national securities exchanges.  These self-regulatory  organizations adopt rules
(subject to approval by the SEC) which govern the industry and conduct  periodic
examinations  of member  broker-dealers.  Securities  firms are also  subject to
regulation  by state  securities  commissions  in the  states in which  they are
registered.  FMSC is  registered  with,  and  subject  to, the state  securities
commissions  in 49 states,  the  District of Columbia  and the  Commonwealth  of
Puerto Rico.
<PAGE>
                                       11


     The  regulations to which  broker-dealers  are subject cover all aspects of
the securities  industry,  including  sales  methods,  trading  practices  among
broker/dealers,  capital structure of securities  firms,  record keeping and the
conduct  of  directors,  officers,  employees  and  registered  representatives.
Additional  legislation,  changes  in  rules  promulgated  by  the  SEC  and  by
self-regulatory  bodies or  changes  in the  interpretation  or  enforcement  of
existing  laws and rules  often  directly  affect  the method of  operation  and
profitability  of  broker/dealers.  The SEC and the  self-regulatory  bodies may
conduct administrative proceedings which can result in censure, fine, suspension
or  expulsion  of  a  broker/dealer,   its  officers,  employees  or  registered
representatives.

Net Capital Requirements
------------------------

     As a registered  broker/dealer  and member of the NASD,  FMSC is subject to
the SEC's Net Capital  Rule which is  designed to measure the general  financial
integrity and liquidity of a broker/dealer.

     Net  capital  is  defined  as the net worth of a  broker/dealer  subject to
certain  adjustments,  and  computed  pursuant  to the  "aggregate  indebtedness
method".  Aggregate  Indebtedness  is the  total  of  certain  liabilities  of a
broker/dealer arising from or in connection with any transaction whatsoever, and
includes,  among other things, money borrowed,  money payable against securities
loaned and  securities  "failed to  receive,"  the  market  value of  securities
borrowed to the extent to which no  equivalent  value is paid or  credited.  For
broker/dealers  using this method,  the Net Capital Rule requires that the ratio
of aggregate indebtedness, as defined, to net capital, as defined, not exceed 15
to 1, and imposes  restrictions  on operations as described  below. In computing
net capital,  various adjustments to net worth are made with a view to excluding
assets  which are not readily  convertible  into cash and making a  conservative
statement of other assets,  such as a firm's position in securities.  Compliance
with the Net Capital  Rule limits those  operations  of  securities  firms which
require the intensive use of their capital, such as underwriting commitments and
principal trading activities,  and limits the ability of securities firms to pay
dividends.

     In addition to the above requirements, funds invested as equity capital may
not be  withdrawn,  nor may  any  unsecured  advances  or  loans  be made to any
stockholder  of a registered  broker-dealer,  if,  after  giving  effect to such
withdrawal, advance or loan and to any other such withdrawal, advance or loan as
well as to any scheduled  payments of  subordinated  debt which are scheduled to
occur  within six  months,  the net capital of the  broker-dealer  would fail to
equal 120% of the minimum dollar amount of net capital  required or the ratio of
aggregate  indebtedness to net capital would exceed 10 to 1. Further,  any funds
invested in the form of  subordinated  debt  generally  must be  invested  for a
minimum  term of one year and  repayment  of such debt may be  suspended  if the
broker-dealer fails to maintain certain minimum net capital levels. For example,
scheduled  payments of  subordinated  debt are  suspended  in the event that the
ratio of aggregate indebtedness to net capital of the broker-dealer would exceed
12 to 1 or if its net  capital  would be less  than 120% of the  minimum  dollar
amount of net capital required.

     At  December  31,  1998,  FMSC had net  capital  of  $1,668,964  which  was
$1,418,964  in excess  of  required  net  capital,  and its  ratio of  aggregate
indebtedness  to net capital was 2.17 to 1. Failure to maintain the required net
capital  may  subject  a firm  to  suspension  or  expulsion  by the  NASD,  the
Commission  and  other   regulatory   bodies  and  ultimately  may  require  its
liquidation.  The  net  capital  rule  also  prohibits  payments  of  dividends,
redemption  of stock and the  prepayment  or payment in respect of  principal of
subordinated  indebtedness  if net capital,  after giving effect to the payment,
redemption or repayment,  would be less than specified  percentage (120%) of the
minimum  net capital  requirement.  Compliance  with the net capital  rule could
limit those operations of the Company's brokerage  subsidiaries that require the
intensive use of capital, such as underwriting and trading activities,  and also
could  restrict the  Company's  ability to withdraw  capital from its  operating
subsidiaries, which in turn, could limit the Company's ability to pay dividends,
repay debt and redeem or purchase shares of its outstanding capital stock.

Employees
---------

     The Company currently has approximately 360 registered  representatives  of
which 315 are  associated  with  affiliate  offices.  In  addition,  the Company
employs 88 support employees in the areas of operations, compliance, accounting,
and administration.

     There is an intense  competition among securities firms for executives with
extensive  securities  industry  experience.  To a large  degree,  FMSC's future
success  will  depend  upon its  continuing  ability to locate,  hire and retain
highly skilled executives. FMSC considers its relations with its employees to be
satisfactory.
<PAGE>
                                       12


Item 2.   Properties

Offices and Facilities
----------------------

     In March 1997, the Company entered into a new seven year lease (the "Master
Lease"),  commencing  February 1, 1998 for 22,762 square feet of gross  rentable
area at its executive  offices  which are located at Parkway 109 Office  Center,
328 Newman  Springs  Road,  Red Bank,  New Jersey.  The rent for the premises is
$35,850  per month,  and in  addition  to the base  rent,  the  Company  pays as
additional  rent,  a  proportional  share of any  increases in real estate taxes
above the amount paid during the 1998 calendar year, insurance premiums relating
to the premises, and all utility charges relating to the use of the premises. 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 First Amendment to the Lease covers an aggregate of
32,442 gross rentable square feet at a monthly rental payment of $52,000 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.

     In  June  1996,  Montauk  Insurance   Services,   the  Company's  insurance
subsidiary,  leased  3,150  square  feet in  Paramus,  New  Jersey  to house its
administrative  offices.  In September  1997 the Paramus  office also became the
home of Century  Discount  Investments,  the  Company's  new discount  brokerage
operation. The three year lease provides for monthly base rent of $5,053 for the
first year,  $5,315 for the second  year,  and $5,578 for the third  year.  MISI
extended the term of this lease for an additional one year term.

     Facilities for all branch and/or satellite  offices are the  responsibility
of the  Affiliate  and FMSC  incurs no cost,  expense  or  obligation  for these
facilities.  Similarly,  all furnishings,  fixtures,  telephone systems,  office
equipment   and  quote  and  market  data  systems  are   likewise   solely  the
responsibility of the Affiliate.

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.

     In June 1997,  the  Securities  and  Exchange  Commission  entered an Order
against  FMSC  relating to an alleged  failure to  supervise a former  affiliate
office in Houston,  TX.  Without  admitting  or denying the findings of the SEC,
FMSC  consented  to the  issuance  of an Order,  making  findings  and  imposing
remedial sanctions and a  Cease-and-Desist  Order. FMSC was (1) ordered to cease
and desist from present or future violations of Securities  (15)(c) and 17(a) of
the Securities  Exchange Act of 1934 ("Exchange  Act") and Rules 15c3-1,  17a-3,
17a-5 and 17a-11 thereunder, (2) censured and required to pay a fine of $50,000,
and (3)  required  to pay  disgorgement  and  interest  of  $227,042,  which was
credited towards previously paid customer settlements.

     In  addition,  FMSC  was  required  to,  and  did  retain,  an  independent
Consultant to conduct a review of, and to report and make  recommendations as to
FMSC's supervisory and compliance policies and procedures,  particularly as they
relate to the firm's affiliate  program and the supervision of the firm's branch
offices by the main office. On February 1, 1999, FMSC submitted its Affidavit of
Compliance  setting forth the details of its adoption and  implementation of the
recommendations  contained in the Consultant's  Final Report.  In summary,  FMSC
developed and implemented  substantial changes to its supervisory and compliance
policies and procedures,  including the  development of a hierarchical  regional
supervisory  structure.  As part of this  restructuring,  FMSC  hired a National
Supervisor,  appointed three Regional Supervisors for the East, Central and West
Regions, and designated other branch office managers as Divisional  Supervisors.
In  addition,  FMSC  revised  its  internal  audit  and  recruiting  procedures,
developed supervisory compliance policies and procedures,  and during early 1999
held its first Regional/Divisional Supervisory training program.

     In February  1997,  FMSC  entered  into a Consent  Decree with the State of
Florida,  without  admitting  or denying the  findings,  relating to the alleged
failure to supervise a former affiliate office in Houston.  FMSC agreed to pay a
fine of $15,000, engage an independent  consultant,  as well as other provisions
temporarily limiting brokerage activities in the State of Florida.  During 1998,
FMSC  conducted  internal  audits of its Florida  branches and was  inspected by
examiners  from the  State of  Florida.  The  State's  examination  has not been
completed,  but FMSC expects that this matter will be  concluded  during  Spring
1999. In the interim,  FMSC has been granted  permission  to recruit  brokers in
existing branch offices within the State.
<PAGE>
                                       13


     FMSC has been the  subject of other legal  actions  relating to the sale of
securities  by the Houston  office.  In 1996,  the  Company,  without  admitting
liability or wrongdoing,  settled  various claims  asserted by Escambia  County,
Florida for  $900,000 in cash.  In January  1997,  the Company  settled  another
customer  lawsuit  for  $750,000,   with  $500,000  payable  upon  execution  of
settlement  documents,  and the  balance  of  $250,000  payable  in five  annual
installments of $50,000 plus interest at 8% per annum. The five installments are
evidenced by notes payable,  which have been  subordinated  to the claims of the
Company's  general  creditors  under a subordination  agreement  approved by the
NASD.

     The  Company  was a  defendant  in a civil  action  brought  by the City of
Painesville,  Ohio in connection with its purchase of mortgage-backed securities
related to the activities of the former  Houston branch office  representatives.
The Company settled this claim for $500,000 in June 1998.

     FMSC is both a claimant and counter-respondent in an arbitration,  which it
brought against another securities firm arising out of the trading activities of
the former  Houston branch office.  The firm has filed a  counter-claim  against
FMSC seeking an unspecified amount of damages.

     FMSC is a respondent in various  customer  arbitrations  seeking damages of
various  amounts.  In one  arbitration  a  customer  seeks  damages in excess of
$1,000,000  as a result of  alleged  forgery  and  misappropriation  by a former
registered  representative  who was the executor of the estate and trustee under
the client's  will.  Another  claimant  seeks damages as a result of the alleged
mishandling of a customer account, seeking damages that aggregate $650,000. FMSC
is vigorously  defending  both of these actions and believes it has  meritorious
defenses.

     FMSC is a respondent  in another  customer  arbitration  seeking to hold it
liable  as a  successor  in  interest  to  another  broker-dealer  with whom the
customer  conducted  securities  transactions  upon which the claim was brought.
FMSC has strongly asserted that it is not a successor to any other broker-dealer
and is vigorously defending this claim.

     FMSC is also named as a respondent in other pending  customer  arbitrations
and litigations relating to its securities business. These claims are in various
stages of progress  and are being  vigorously  contested or settled as warranted
under the specific facts and circumstances of each case.  Although management is
unable to derive a meaningful estimate of the possible costs that may arise from
these  pending  claims,  they believe it will not have a  significant  impact on
future earnings.

     The  Company  continues  to review the extent to which  settled and pending
claims,  including  Houston  customer  settlements,  may be  covered  under  its
insurance  policies.   In  January  1997,  the  Company  negotiated  a  $650,000
settlement  with one of its  insurance  carriers in  consideration  of a general
release  from  coverage  on various  matters.  The  Company  has also filed suit
against one of its insurers to compel coverage of several settled claims.  There
can be no  assurance  that the  Company  will be  successful  in its  efforts to
recover  additional funds from its insurers on settled claims,  or that monetary
losses,  if any, from future claims,  settlements  or adverse  judgments will be
covered under the Company's existing insurance policies.



Item 4.   Submission of Matters on a Vote of Security Holders
            Not Applicable.



 

<PAGE>
                                       14



                                     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 NASD  Bulletin  Board
system and by the National  Daily  Quotation  Service  published by the National
Quotation Bureau,  Inc. 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.

B.       Market Information

     The Company's Common Stock commenced trading in the over-the-counter market
in 1987. On April 14, 1999,  the  Company's  common stock had a high and low bid
price of $2.75 and $2.66, respectively.

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

Common Stock

Fiscal Year 1998                      High $           Low $
     
     1st Quarter                      2.875            2.00
     2nd Quarter                      3.28             2.41
     3rd Quarter                      2.53             1.01
     4th Quarter                      1.875            1.125

Fiscal Year 1997                      High $           Low $

     1st Quarter                      3.125             .96
     2nd Quarter                      2.78125          2.4375
     3rd Quarter                      2.75             2.15625
     4th Quarter                      2.875            2.1875


<PAGE>
                                       15


<TABLE>

Item 6.  Selected Financial Data
                                                                   Year ended December 31,
<S>                               <C>             <C>              <C>              <C>           <C> 
                                  1998            1997             1996             1995          1994
Operating results:
Revenues:
Commissions                   $30,741,404      $ 27,018,244   $ 25,749,690     $ 17,113,296    $ 9,861,294
Net dealer inventory
 and trading gains              8,795,599         7,257,576      7,660,700        9,763,940      7,781,667
Investment banking                767,312         1,433,100        634,329          388,249        766,013
Insurance recovery                   -              650,000           -                -              -
Interest and other income       1,572,063         1,383,713      1,044,969        1,076,718        691,413
                                ---------         ---------      ---------        ---------        -------
 
Total revenues                 41,876,378        37,742,633     35,089,688       28,342,203     19,100,387
                               ----------        ----------     ----------       ----------     ----------
Expenses:
Commissions, employee
 compensation and
 benefits                      31,766,060        26,785,205     25,428,184       19,542,578     14,242,933
Clearing and floor
 brokerage                      3,674,859         3,021,709      3,139,142        3,112,474      1,828,197
Communications and
 occupancy                      2,557,313         1,860,350      1,662,936        1,260,209        961,582
Legal matters and
 related costs                  2,377,336         1,452,001      2,731,997        1,542,328        345,735
Write-down of Note
 Receivable - Global
 Financial Corp.                1,775,000             --             --               --             --
Other operating expenses        2,961,974         2,093,670      2,006,615        1,439,926      1,247,345
Interest                          131,215            84,695        105,772          192,752        157,660
                               ----------        ----------     ----------       ----------     ----------
Total expenses                 45,243,757        35,297,630     35,074,646       27,090,267     18,783,452
                               ----------        ----------     ----------       ----------     ----------
Income (loss) before
 income taxes                  (3,367,379)        2,445,003         15,042        1,251,936        316,935
Income taxes (benefit)           (604,532)          968,178        (17,747)         483,848        124,799
 
Net income (loss)             $(2,762,847)     $  1,476,825    $    32,789      $   768,088    $   192,136
Net income (loss)
 applicable to
 common stock                 $(2,762,847)     $  1,476,825    $    32,789      $   768,088    $   192,136
Net income per
 common share:
    Basic                     $     (0.28)     $       0.17    $      0.01      $      0.10    $      0.02
    Diluted                   $     (0.28)     $       0.14    $      0.01      $      0.09    $      0.02
Weighted average shares outanding
    Basic                       9,725,116         8,788,734      7,767,224        8,044,622      8,070,406
    Diluted                     9,725,116        10,351,032      8,623,538        8,380,906      8,409,267
Financial condition:
Total assets                  $11,543,734      $ 11,971,934    $ 8,742,039      $10,486,967    $ 7,082,267
Total liabilities             $ 5,320,107      $  4,732,467    $ 4,625,260      $ 6,886,021    $ 4,066,545
Common Stock issued with
 Guaranteed selling price     $    36,500      $    346,500    $   421,500      $      -       $       -
Stockholders' equity          $ 6,187,127      $   6,892,967    $3,695,279      $ 3,600,946    $ 3,015,722

</TABLE>

<PAGE>
                                       16


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

Results of Operations - Three Years Ended December 31, 1998

     Fiscal 1998 was the Company's tenth  consecutive  year of record  revenues,
surpassing  1997 record levels of  $37,743,000.  Total  revenues of  $41,876,000
represented an increase of 11% over the prior year. The Company  benefited along
with the rest of the brokerage  industry as fiscal 1998  continued the extremely
favorable  market  trends of the prior two fiscal  years.  Almost every  revenue
category  realized higher  revenues when compared with the prior two years;  the
sole exception being investment banking, which is discussed below.

                                         Year Ended December 31,
                          1998                   1997                    1996
                         (000's)    % Change    (000's)    % Change     (000's)
                         -------    --------    -------    --------     -------
Revenues:
Commissions               $30,741       14     $ 27,018        5       $ 25,750
Net dealer inventory
 and trading gains          8,796       21        7,258       (5)         7,661
Investment banking            767     ( 46)       1,433      126            634
Insurance recovery           --       (100)         650      100           --
Interest and other income   1,572       14        1,384       32          1,045
                          $41,876       11      $37,743        8        $35,090

     The rise in revenues in fiscal years 1998 and 1997 resulted from  increased
commissions,  both  in  absolute  dollars  and  as  a  percentage,  from  agency
transactions in general securities (stocks,  bonds and options). The increase in
agency  transactions is primarily  attributable to the addition of several high-
volume affiliated brokers.  Commissions from mutual fund transactions  accounted
for the largest dollar increase from 1996 to 1997.

     Net trading profits increased 21% in 1998 from the prior year, primarily as
a result of increased  principal trading in fixed income securities.  Investment
banking revenues significantly declined in 1998 as compared to 1997, the year in
which FMSC earned  significant  fees from the  underwriting of an initial public
offering for Pacific  Health  Laboratories,  Inc.  However,  revenues from other
investment banking activities, including participation in syndicates and selling
groups,  increased  in 1998  over  1997  levels  as a direct  result  of  FMSC's
increased focus and efforts in this area.


                              Year Ended December 31,
                          1998                   1997                    1996
                         (000's)    % Change    (000's)    % Change     (000's)
                         -------    --------    -------    --------     -------

Expenses:
Commissions, employee
 compensation and
 benefits                $ 31,766       19      $ 26,785       5      $ 25,428
Clearing and floor
 brokerage                  3,675       22         3,022      (4)        3,139
Communications and
 occupancy                  2,557       37         1,860      12         1,663
Legal matters and
 related costs              2,377       63         1,452     (47)        2,732
Write-down of Note
 Receivable - Global
 Financial Corp.            1,775      100          --         0          --
Other operating expenses    2,962       41         2,094       4         2,007
Interest                      131       54            85     (20)          106
                           ------       --        ------     ---        ------
Total expenses           $ 45,243       28      $ 35,298       1       $35,075

     During  1998,  the Company  paid  commissions,  employee  compensation  and
employee  benefits  of  $31,766,000  (76% of  total  revenues)  as  compared  to
$26,785,000  (71% of total revenues) in 1997. This category  includes  salaries,
commission  expense,  and benefits for salaried  employees.  Commissions paid to
registered representatives for fiscal 1998 totaled $26,622,000 and accounted for
more than $4,200,000, or 85% of the total increase in this expense category over
fiscal 1997. This is due to a combination of higher payouts  utilized to attract
the larger producing registered representatives, and an increase in transactions
revenue in 1998.
<PAGE>
                                       17


     For  1998,  the  Company  paid  salaries  of  $4,247,000  for   management,
operations  and  clerical  personnel,  as  compared  to  $3,658,000  in 1997 and
$2,753,000  in 1996.  The  increase  in 1997 and 1998 was due  primarily  to the
compensation  of  employees  of the Century  Discount  division,  who are paid a
salary  rather than on a commission  basis.  The Company  also hired  additional
trading assistants, compliance and operational personnel.

     Clearing  costs  increased by $653,000  from 1997 to 1998 and  decreased by
$117,000 from 1996 to 1997.  The dollar  increase in 1998 reflects the increased
volume in securities  transactions,  which carry  clearance and floor  brokerage
charges.  Clearing  costs as a  percentage  of  revenues  have  remained  fairly
constant over the period from 1996 to 1998.

     Communications and occupancy costs rose by $697,000 in 1998, an increase of
over 37% from 1997. The largest increase in this category is in the area of rent
expense.  This is a result of a new master lease  agreement  effective  February
1998,  which expanded the Company's  facilities.  The new seven-year  lease,  as
amended,  covers an aggregate of 32,442 gross rentable  square feet at a monthly
rental  payment of $52,000  through  January 2005. The amended master lease also
contains  a six-year  renewal  option  providing  for a base  rental  payment of
approximately  $65,000 per month. The continuing  increases in communication and
information  processing  expenses in fiscal  1998 and 1997  reflect the costs of
further   enhancement  and  expansion  of  the  Company's  systems  of  internal
communication and information dissemination,  as well as higher general business
volume which gave rise to increased costs for telephone, postage and market data
services.

     Legal  matters  and  related  costs  include  payments to defend and settle
customer  claims,  provisions  for  pending  litigation  and  general  corporate
matters.  These costs  totaled  $2,377,000  in 1998, an increase of 63% over the
prior year.

     The Company was a defendant  in a civil  action  relating to FMSC's  former
Houston affiliate office that sold mortgage-backed  securities to its customers.
The Company settled this claim for $500,000 in June 1998. A similar  arbitration
proceeding,  which was  reserved  for in 1998,  was  settled  in early  1999 for
$100,000.  The Company  either  settled or accrued for  various  other  customer
arbitrations throughout 1998, aggregating $750,000.

     FMSC is both a claimant and counter-respondent in an arbitration,  which it
brought against another securities firm arising out of the trading activities of
the former  Houston branch office.  The firm has filed a  counter-claim  against
FMSC seeking an unspecified amount of damages.

     FMSC is also a  respondent  in  other  pending  customer  arbitrations  and
litigations  relating to its  securities  business.  These claims are in various
stages of progress and are being vigorously  contested.  Management is unable to
derive a  meaningful  estimate of the amount or range of possible  loss that may
arise out of pending litigation  (including  litigation costs) in any particular
subsequent  quarter  or  annual  period,  or in the  aggregate.  However,  it is
possible that the financial  condition,  results of operation,  or cash flows of
the  Company in  subsequent  quarterly  or annual  periods  could be  materially
affected by the ultimate outcome of such pending litigation.

     The  Company  continues  to review the extent to which  settled and pending
claims,  including  Houston  customer  settlements,  may be  covered  under  its
insurance  policies.   In  January  1997,  the  Company  negotiated  a  $650,000
settlement  with one of its  insurance  carriers in  consideration  of a general
release  from  coverage  on various  matters.  The  Company  has also filed suit
against one of its insurers to compel coverage of several settled claims.  There
can be no  assurance  that the  Company  will be  successful  in its  efforts to
recover  additional funds from its insurers on settled claims,  or that monetary
losses,  if any, from future claims,  settlements  or adverse  judgments will be
covered under the Company's existing insurance policies.
<PAGE>
                                       18


     As required by SEC Order,  and in an effort to reduce  future  legal claims
and  liabilities,  the Company  retained an independent  consultant to conduct a
review of, and to report and make  recommendations  as to FMSC's supervisory and
compliance  policies and  procedures,  particularly as they relate to the firm's
affiliate  program and the  supervision of the firm's branch offices by the main
office.  FMSC developed and implemented  substantial  changes to its supervisory
and  compliance  policies  and  procedures,   including  the  development  of  a
hierarchical regional supervisory structure. As part of this restructuring, FMSC
hired a National Supervisor,  appointed three Regional Supervisors for the East,
Central  and West  Regions,  and  designated  other  branch  office  managers as
Divisional  Supervisors.  In addition,  FMSC revised its recruiting  procedures,
developed    supervisory    compliance    materials    and   held   its    first
Regional/Divisional Supervisory training program.

     Management  believes that these measures,  along with other planned action,
will assist in the reduction of customer claims.  However, there is no assurance
that the Company will be  successful in its efforts to reduce such claims in the
future.

     During 1997 and 1998,  the  Company,  through its  wholly-owned  subsidiary
Montauk  Advisors Inc.,  ("MAI"),  made various loans to Global  Financial Corp.
("Global"). These loans have a balance as of April 15, 1999 of $2,217,000 before
reserves.  Global is a lease  servicing  company  that sold leases  through MAI.
These loans were made for the purpose of  assisting  Global in meeting cash flow
deficiencies  arising from the nonpayment of scheduled  monthly  installments on
certain delinquent, canceled and non-performing leases. The loans, some of which
bear  interest at 8% per annum and were due at various  times during  1998,  are
currently in default. The notes are guaranteed by Global, FemCom Systems,  Inc.,
("FCS"),  Biblio,  Inc.  ("Biblio") and the  shareholder of FCS and Biblio.  The
notes are partially collateralized by mortgage liens on real estate owned by the
principal  shareholder  of FCS and Biblio,  a pledge of the shares of Global and
FCS, and various liens on the assets of FCS.

     During  1998,  the Company  undertook a full review of the Global  loans to
evaluate their collectability,  and determined that, based on various events and
circumstances,  including  the default  status of the loans,  the  insolvency of
Global  and FCS,  and  steadily  declining  collections  on the lease  portfolio
serviced by Global,  the loans to Global have been  impaired.  Accordingly,  the
Company  has  recorded  an  impairment  loss  of  $1,775,000  in  its  financial
statements  for 1998.  This amount  reflects  management's  best estimate of the
extent of the loan impairment based on available current information,  including
the amount and value of the collateral.

     Other operating expenses increased from $2,094,000 in 1997 to $2,962,000 in
1998.  The majority of the  $868,000  increase,  or  $394,000,  is the result of
reserves and  write-offs of customer  unsecured  debits and broker  receivables.
Advertising  and business  development  costs increased by $139,000 in 1998. The
increase  reflects the  Company's  continued  use of  advertising  and marketing
campaigns  to attract  registered  representatives  to  affiliate  program.  The
Company  expects  advertising  and business  development  costs to increase with
respect  to the  promotion  of its  new  discount  brokerage  division,  Century
Discount Investments.
<PAGE>
                                       19


     The  Company's  effective  tax rate in 1998 and  1997  was  (18)%  and 40%,
respectively.  The rate in 1998 is lower than expected  because of  management's
decision to reduce the future tax benefits  available  from net  operating  loss
carryforwards  and other deferred tax assets by recording a valuation  allowance
of $731,000 in the 1998  Statement  of  Operations.  The  decision  was based on
uncertainties  regarding the resolution of various  pending legal claims and the
previously  discussed  Global  matter.  Offsetting  these  concerns  in  part is
management's  favorable view of market conditions in 1999, and the settlement of
practically all claims related to the Houston office.

     The Company's  record revenues were achieved as a result of the combination
of a robust economy and favorable  investment  climate in the United States, and
the  addition of new  affiliated  registered  representatives  during  1998.  In
expectation of future revenue growth, the Company is continuing to invest in its
infrastructure.   This   investment   includes   expansion   of  its   corporate
headquarters,   development   of  new  marketing  and   advertising   campaigns,
acquisition of a new data management system, and the hiring of additional legal,
trading and compliance personnel.

     Despite  continued  strong revenue  growth,  the Company's  performance was
again  negatively  impacted by costs  totaling $ 2,377,000  to defend and settle
various  legal  matters  during  1998,  as  well  as  the  write-down  of a note
receivable  from Global  Financial  Corp. of $1,775,000.  These costs,  in large
part,  accounted  for the net loss of  $2,763,000  suffered  by the  Company for
fiscal 1998.

Liquidity and Capital Resources

     The Company  maintains a highly liquid  balance sheet with more than 50% of
the Company's assets consisting of cash and cash equivalents,  securities owned,
and  receivables  from the  Company's  clearing  firm and other  broker-dealers.
Market  making and other  securities  dealer  activities  require the Company to
carry significant levels of securities inventories in order to meet customer and
internal  trading  needs.  The balances in the  Company's  cash,  inventory  and
clearing  firm  accounts  can and do  fluctuate  significantly  from day to day,
depending  on  market  conditions,   daily  trading  activity,   and  investment
opportunities.  The Company monitors these accounts on a daily basis in order to
ensure  compliance  with  regulatory   capital   requirements  and  to  preserve
liquidity.

     Operating activities used cash of $378,000 during 1998. Inventory positions
of securities held by the Company  decreased by $924,000,  while securities sold
but not yet purchased  decreased by $482,000.  Loan reserves,  specifically  the
reserve against Global loans, increased by $1,775,000.

     In 1998 and 1997,  the  Company  realized  tax  benefits  of  $116,000  and
$723,000,  respectively,  related to the  exercise of stock  options  during the
fiscal year. (See Notes to the  consolidated  financial  statements).  These tax
benefits  are  available  to reduce  actual  corporate  tax  liabilities.  Under
applicable  accounting  rules,  such  benefits  are  reported  as an increase in
stockholders' equity rather than as an item of income.

     Investing activities required cash of $1,847,000 during the year. Additions
to capital expenditures consumed $986,000,  most of which was for the renovation
of the newly acquired lease space at the headquarters  complex. The remainder of
capital  expenditures  were for the  purchase  of new  computers  to support the
Company's  upgraded and enhanced  market data  services,  office  furniture  and
equipment  for the  home  office  expansion  and the  development  of the  sales
tracking  and  operations   management   system.   The  Company   projects  1999
expenditures  for  technology  and  other  capital  needs  to  be  approximately
$600,000.

     Net amounts  advanced to brokers and  affiliates  increased  by $329,000 to
$598,000.  The  increase  is  attributable  to  loans  to new  affiliates  as an
inducement to join the Company,  advances to  employees,  and  receivables  from
brokers  as a result of  trading  losses and  customer  debits  which are broker
obligations.
<PAGE>
                                       20


     MAI made loans to Global,  net of  repayments,  of $1,497,000 in 1998,  and
additional  net loans to Global of  $176,000  to date in 1999.  The  Company  is
reevaluating  its continued  financial  support of Global through loan advances,
and is attempting to formulate a final  resolution of the Global leases in order
to minimize further economic losses.  There can be no assurance that the Company
will not incur significant expenditures in respect to this matter in the future.
(See Notes to  Consolidated  Financial  Statements  and Recent  Developments  in
Business Section)

     Financing activities provided cash of $2,049,000 in 1998. In March 1998 the
Company  received  gross  proceeds of $1,383,000  from the offering of 3,072,779
units; each unit consisting of one Class A Warrant,  one Class B Warrant and one
Class C Warrant  exercisable at various  prices over the next six years.  Should
the market price of the Company's  common stock  increase to the level where any
or  all  of  the  classes  or a  portion  of  the  classes  of  warrants  become
exercisable,  the Company will obtain  additional  proceeds from the exercise of
the warrants.  An additional  $347,000 was received from the exercise of 432,050
stock  options by various  individuals  during the year.  In October  1998,  the
Company issued a series of Convertible  Promissory Notes aggregating $570,000 to
a private  investor in  consideration  of $300,000 in cash and an income  stream
from  equipment  lease  investments  with a remaining  balance of  approximately
$270,000.  The  notes  carry  interest  at the  rate of 10% per  annum,  payable
semi-annually,  and are  convertible  into a maximum  of  380,000  shares of the
Company's  Common Stock at the rate of $1.50 per share. The notes mature in five
years;  however,  the Company is required to pay 20% of the original outstanding
principle  amount into a sinking fund on or before each annual  anniversary date
of the Notes.  The equipment  lease  investments are serviced by Global and were
originally  sold to  investors  through  MAI.  The Company  has  recorded a loan
discount of $99,899,  representing the difference  between the note principal of
$570,000,  and the cash received plus the estimated  discounted  payment  stream
from the leases. The discount is being amortized over the term of the notes.

     The Company  has various  bank notes  totaling  $244,844.  These notes bear
interest at the prime rate (7.75% at December 31, 1998), and are  collateralized
by equipment owned by the Company.  Principal payments are scheduled as follows:
1999 - $95,925, 2000 - $95,925, and 2001 - $52,944.

     In 1998, the Company entered into a capital lease arrangement with Sun Data
to  acquire  new  equipment   costing   $88,000  and  to  refinance   through  a
sale/leaseback   transaction   existing  fixed  assets  with  a  book  value  of
approximately $340,000. The net cash received by the Company as a result of this
transaction was approximately $270,000.

     At December  31,  1998,  the  Company's  broker-dealer  subsidiary  had net
capital  of  $1,669,000,  which was  $1,419,000  in excess of its  required  net
capital of $250,000,  and the ratio of aggregate indebtedness to net capital was
2.17 to 1.

     In 1997 the  Company  converted  a portion  of one of its legal  settlement
obligations  into a  subordinated  loan with the debtor.  The five year $250,000
loan  bears  interest  at the rate of 8% per  annum,  with  payments  of $50,000
principal  and  interest on the  declining  balance due on the first of April of
each of the five years of the loan.  The first payment of principal and interest
was made on April 1, 1998. The loan is subordinated to the liabilities of FMSC's
general creditors, and has been approved as to its form by the NASD.

Purchase Commitments

     In 1997,  the  Company  entered  into a  three-year  agreement  with a long
distance  carrier  under which the Company has  committed to pay minimum  annual
charges of $300,000 in each of the three contract  years,  in  consideration  of
favorable  rates  on  telephone  and  data  communications  service  during  the
commitment period.
<PAGE>
                                       21


Year 2000 Issue

     The onset of the year 2000 brings  challenges to companies who use and rely
on computers  and  technology as a function of their  businesses.  Many existing
computer programs were designed and developed without  considering the impact of
the upcoming change in the century. If not corrected, many computer applications
could fail or create erroneous results by or at the year 2000.

     The Company has reviewed its  compliance  with what has come to be known as
the Year 2000 Issue  ("Y2K").  The  Company  does not create or develop  its own
proprietary  computer  programs.  Rather,  it is reliant  on outside  vendors or
providers for  verification of the compliance of their  applications,  which are
utilized by the Company.  The Company has  currently  identified 17 programs and
applications that were purchased/licensed by the Company for various departments
as mission  critical  systems  requiring  compliance with Y2K. We have requested
each vendor to supply verification that the program and/or application  utilized
by the firm is, or will be, Y2K compliant before the Year 2000.

     The most  significant  of these outside  vendors is the Company's  clearing
firm,  Schroder & Co.,  Inc.  Schroder & Co.  has been  mandated  by the NYSE to
participate  in  industry  testing  of  all  computer   interfaces  relating  to
securities processing. These tests have been ongoing since early Spring 1999. To
date, the Company has not been advised of any problems  relating to the clearing
firm's  compliance  with  Y2K  readiness.  The  Company  voluntarily  agreed  to
participate  with  Schroder  in point to point  testing  of the  interfaces  and
applications  provided by them. We anticipate  that such tests will be completed
by August 31, 1999.

     The  Company  has  designated  an  individual  within the  organization  to
coordinate the Y2K compliance  issues and to communicate  with each software and
service provider, to ensure Y2K compliance before the turn of the century. While
management  has  not  finalized  an  estimate  of the  cost of  internal  system
modifications,  it does not believe that these costs will have a material impact
on the Company's operations in fiscal 1999.

     In addition,  FMSC  inventoried  its computer and systems  operations  that
could be affected by Y2K issues,  including steps to remediate systems requiring
such attention. This has included a review of our facilities,  office equipment,
telecommunications  systems,  market data services and third-party  products and
services used by our company,  and retention of  consultants,  where  necessary.
During  February,  1999,  FMSC  issued a letter to  securities  account  clients
reporting on the progress of its Y2K readiness  program.  The Company is working
to take the necessary steps to ensure,  as far as  practicable,  that the firm's
systems will function without  interruption  after the millennium  change.  FMSC
expects to continue its evaluation process relating to contingency planning.

     FMSC, as a registered  broker-dealer and investment adviser, is required to
and has made required filings with various regulatory authorities concerning the
status of its preparedness progress for Y2K compliance. FMSC has also contracted
with an independent public accounting firm to conduct a special Y2K audit and to
complete its report prior to April 30, 1999. Such report is required pursuant to
applicable SEC and NASD rules and regulations.
<PAGE>
                                       22


Impact of Inflation and Other Factors

     Management  of 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 Company's 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 and has other adverse effects on the securities
markets and the value of securities held in inventory,  it may adversely  affect
the Company's financial position and results of operations.

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.  In order  to  comply  with  the  terms of the safe
harbor,  the Company  cautions readers that a variety of factors could cause the
Company's  actual results to differ  materially from the anticipated  results or
other expectations expressed in the Company's 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 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 the  Company.  The Company does not
undertake  any  obligation  to  publicly  update or revise  any  forward-looking
statements.

Recently Issued Accounting Pronouncement

     In June 1998, the Financial  Accounting Standards Board issued SFAS No. 133
"Accounting   for  Derivative   Instruments  and  Hedging   Activities",   which
establishes  accounting and reporting standards for all derivative  instruments.
SFAS No. 133 is effective for fiscal years  beginning  after June 15, 1999.  The
adoption  of SFAS No.  133 is not  expected  to have a  material  impact  on the
Company's financial position or results of operations.


<PAGE>
                                       23

                                      


Item 8.    Financial Statements

          See Financial Statements attached hereto.

Item 9.    Disagreements on Accounting and Financial Disclosure

          Not Applicable.



<PAGE>
                                       24




                                    PART III

Item 10. Directors and Executive Officers

     The Directors and  Executive  Officers of the Company and its  subsidiaries
are as follows:

         Name                Age  Position

Herbert Kurinsky             67   Director,  President  and  Chief  Executive
                                  Officer  of  FMFC  and  of  FMSC  and
                                  Registered Options Principal of FMSC

William J. Kurinsky          38   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.   41   General Counsel,  FMFC, Chief Administrative
                                  Officer,  Vice President and General
                                  Securities Principal of FMSC

Norma Doxey                  59   Director, VP of Operations, FMSC

Ward R. Jones, Jr.           68   Director

David I. Portman             58   Director
                                               

     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.

     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>
                                       25




     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 neice 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
August through  September,  1986, she was  operation's  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.

     David I.  Portman has been a director of the Company since  June 15,  1993.
From 1978 to the present,  Mr. Portman served as the President of Triad Property
Management,  Inc., a private  corporation  which builds,  invests in and manages
real estate properties in the State of New Jersey. Mr. Portman was a Director of
Ultra Med, Inc. from 1986 to 1991, a high tech medical  equipment  manufacturer.
Mr.   Portman  also  serves  as  a  director  and  officer  of  Pacific   Health
Laboratories,  Inc.,  a position he has held since August  1995.  In 1997,  FMSC
underwrote  an initial  public  offering of the common  stock of Pacific  Health
Laboratories, Inc., and is currently a market maker in the stock.


<PAGE>
                                       26


Significant Employees

     Mark D. Lowe, 40, has been President of Montauk  Insurance  Services,  Inc.
since  October  1998.  From 1982 to 1998 Mr. Lowe was a Senior  Consultant  with
Congilose & Association, 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.

     Seth Rosen,  46, has been President of Century Discount  Investments  since
September  1998.  From  December  1997 to June  1998,  Mr.  Rosen  served  as an
executive  consultant  with Cowen & Co. From 1994 to 1997, Mr. Rosen served as a
Managing  Director  of  National  Discount  Brokers,   a  division  of  Sherwood
Securities.

Certain Reports

     No person  who,  during the fiscal  year ended  December  31,  1998,  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.

Item 11. Executive Compensation
         ----------------------

Summary of Cash and Certain Other Compensation

     The following 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,
1998, 1997 and 1996 to each of the named executive officers of the Company.

                           SUMMARY COMPENSATION TABLE

                         Annual Compensation            Long Term
                                                        Compensation

                                                         Securities
                                                         Underlying
Name & Principal                                    Other Annual  Options/ SARs
Position              Year  Salary       Bonus      Compensation  Granted(1) 

Herbert Kurinsky       1998  $175,000    $ 0         $ 10,096(2)    100,000
 Chairman, Chief       1997  $168,269    $ 0         $  2,724(2)     50,000
 Executive Officer (3) 1996  $175,000    $ 40,000    $ 41,072(2)       0

William J. Kurinsky    1998  $175,000    $ 0         $ 10,221(4)    100,000
Vice President,        1997  $158,173    $ 0         $  1,534(4)     75,000
 Chief Operating and   1996  $175,000    $ 0         $ 11,884(4)       0
 Financial Officer
 and Secretary (5)

Robert I. Rabinowitz   1998  $125,000    $15,000     $    295(6)    100,000
General Counsel, FMFC, 1997  $111,154    $10,000     $  5,676(6)     75,000
Chief Administrative   1996  $100,000    $ 5,000     $    383(6)       0
 Officer, FMSC (7)
<PAGE>
                                       27

                             
     1) In 1997, the Board of Directors  authorized a grant to purchase  50,000,
75,000 and 75,000 shares of the Company's Common Stock each to Herbert Kurinsky,
William J. Kurinsky and Robert I. Rabinowitz at exercise  prices of $.96,  $1.05
and $1.0625,  respectively.  These options have vested and are exercisable until
January 14, 2002. In 1998, the Board of Directors authorized an additional grant
to purchase  100,000 shares at exercise prices of $1.9375,  $2.13 and $1.9375 to
Herbert  Kurinsky,  William J. Kurinsky and Robert I. Rabinowitz,  respectively.
See "Aggregated  Options/Sar Exercises in Last Fiscal Year and Fy-End Option/Sar
Values."

     2)  Includes  (i)  for  1998,  vacation  pay of  $10,096;  (ii)  for  1997,
commissions  of  $2,724;  (iii) for 1996,  an  automobile  allowance  of $7,512,
commissions of $10,512, dues of $7,440 and loan forgiveness of $15,606.

     3) Mr.  Herbert  Kurinsky is the  beneficial  owner of 1,518  shares of the
Company's  Common Stock as of December 31, 1998, which shares had a market value
of $2,182 as of that date,  without  giving  effect to the  diminution  in value
attributable to the restriction on said shares.

     4) Includes: (i) for 1998, commissions of $125 and vacation pay of $10,096;
(ii) for 1997,  commissions of $1,534;  (ii) for 1996,  loan  forgiveness in the
amount of $11,884.

     5) Mr. William  Kurinsky is the beneficial owner of 1,348,423 shares of the
Company's  Common Stock as of December 31, 1998, which shares had a market value
of $1,938,358 as of that date,  without giving effect to the diminution in value
attributable to the restriction on said shares.

     6) Includes  commissions of $295 in 1998; (ii) $5,676 for 1997,  (iii) $383
for 1996.

     7) Mr. Robert I. Rabinowitz is the beneficial  owner of 2,500 shares of the
Company's  Common Stock as of December 31, 1998, which shares had a market value
of $3,594 as of that date,  without  giving  effect to the  diminution  in value
attributable to the restriction on said shares.

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 1998, the Board of
Directors met on three  occasions and all directors were present.

Committees of the Board of Directors

     The Board of Directors has established an Audit Committee comprised of Ward
R. Jones and David Portman.  The Audit Committee met on 1 occasion during fiscal
year 1998. The Audit Committee  reviews (i) the Company's audit functions,  (ii)
the  finances,  financial  condition,  and interim  financial  statements of the
Company with  management,  and (iii),  the year end financial  statements of the
Company with the Company's independent auditors.  Members of the Audit Committee
do not receive additional compensation for such service.

<PAGE>
                                       28


                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

     The  following  table  contains  information  with  respect  to  the  named
executive officers concerning options granted during the year ended December 31,
1998

                                INDIVIDUAL GRANTS

                      Number of       % of Total
                      Underlying      Granted to    Exercise
                      Options/SARs    Employees in  or Base       Expiration
Name                  Granted(#)      Fiscal Year   Price ($Sh)   Date
    
Herbert Kurinsky        100,000          7.2%       $1.9375        8/02/03
William J. Kurinsky     100,000          7.2%       $2.13          8/02/03
Robert I. Rabinowitz    100,000          7.2%       $1.9375        8/02/03


               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 31,1998  December 31,1998(1)
----                   --------  --------  ----------------  -------------------
                                              Exercisable        Exercisable
                                              /Unexercisable     /Unexercisable
Herbert Kurinsky          --     $0             390,000/0        $  560,625/$0
William J. Kurinsky    200,000   $550,000       415,000/0        $  596,563/$0
Robert I. Rabinowitz      --     $0             230,000/0        $  330,625/$0


     (1) Based  upon the  closing  bid price of the  Company's  Common  Stock on
December 31, 1998 ($1.4375 per share), less the exercise price for the aggregate
number of shares subject to the options.


Employment Agreements

     In  January  1996,  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 $175,000
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.  The agreements have been renewed for an additional  year.
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  which 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.
<PAGE>
                                       29


Incentive Stock Option Plan

     In September 1992, the Company adopted the 1992 Incentive Stock Option Plan
(the "1992  Plan").  The 1992 Plan provided for the grant of options to purchase
up to  2,000,000  shares  of the  Company's  Common  Stock and is  intended  for
employees  of  the  Company  and  consultants.   In  June  1998,  the  Company's
shareholders  approved an  amendment  to the 1992 Plan (the  "Amended  Plan") to
increase the number of shares reserved for issuance from 3,500,000 to 6,000,000.
Under  the  terms  of  the  Amended  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 Amended  Plan is  administered  by the Board of Directors or by a Stock
Option  Committee  designated by the Board of Directors.  The Board or the Stock
Option  Committee,  as the case may be,  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 or Committee has full authority to interpret the Amended Plan
and to establish and amend rules and regulations relating thereto.

     Under the Amended 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 or the Stock  Option  Committee,  as the case may be, 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 Amended Plan will expire in 2006. To date, options to purchase a
total of 4,156,500  shares of the Company's  Common Stock have been issued under
the Amended 1992 Plan.

Director Plan

     In September  1992, the Company  adopted the  Non-Executive  Director Stock
Option Plan (the "Director Plan").  The Director Plan provides for issuance of a
maximum of 1,000,000  shares of Common Stock upon the exercise of stock  options
granted  under the Director  Plan.  Options are granted  under the Director Plan
until 2002 to (i)  non-executive  directors  as defined and (ii)  members of any
advisory board established by the Company who are not full time employees of the
Company  or any of its  subsidiaries.  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.

     In June 1996,  the  Company's  shareholders  approved an  amendment  to the
Non-Executive  Director  Stock  Option  Plan to provide for the  elimination  of
non-discretionary  stock grants to members of any advisory board  established by
the Company.  An eligible  member of an advisory  board may receive an option to
purchase  shares  of the  Company's  Common  Stock  under the  Director  Plan as
provided for in the discretion of the Company's Board of Directors.
<PAGE>
                                       30


     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 three  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 180,000 options have been granted to
the Company's Non-Executive members of the Board of Directors.

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.  Awards may be
granted under the Management Plan to executive management employees by the Board
of Directors or a committee of the board,  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-lSOs  similar to the options granted under the Employee Stock Option
Plan,  except that the exercise  price of non-lSOs 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.

     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.  To date the Company has granted a
total of 1,185,000 options under the Senior Management Plan.
<PAGE>
                                       31


Item 12.  Security Ownership of Certain
          Beneficial Owners and Management
          --------------------------------

     The  following  table  sets  forth,  as of April 14,  1999,  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                             391,518(2)         3.8%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701

William J. Kurinsky                        1,773,423(3)        16.6%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701

Robert I. Rabinowitz, Esq.                   286,999(4)         2.8%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
 
Ward R. Jones                                 90,000(5)           *
7 Leda Lane
Guilderland, NY 12084

Norma Doxey                                   42,400(6)           *
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701

David I. Portman                             179,800(7)         1.8%
300 Ocean Avenue, Apt. 6A
Long Branch, NJ 07740

All Directors and                          2,764,140(2-7)      23.9%
Officers as a group
(7 persons in number)

* 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 390,000 shares of Common Stock.

     (3) Includes  vested and presently  exercisable  options of Mr.  William J.
Kurinsky  to  purchase  415,000  shares of Common  Stock,  and  120,000  Class A
Warrants, 120,000 Class B Warrants and 120,000 Class C Warrants.

     (4) Includes  265,000 shares of Common Stock reserved for issuance upon the
exercise of vested and presently exercisable stock options,  35,000 of which are
owned by Mr. Rabinowitz's wife, of which he disclaims beneficial ownership,  and
2,000 shares are owned by his children.  Mr.  Rabinowitz also owns 5,833 Class A
Warrants, 5,833 Class B Warrants and 5,833 Class C Warrants.
<PAGE>
                                       32


     (5) Includes  90,000 shares of Common Stock  reserved for issuance upon the
exercise of vested and presently exercisable stock options.

     (6) Includes  35,000 shares of Common Stock  reserved for issuance upon the
exercise of 25,000  vested and  presently  exercisable  stock options and 10,000
shares non-vested stock options.

     7) Includes  80,000  shares of Common Stock  reserved for issuance upon the
exercise of vested and  presently  exercisable  stock  options,  16,600  Class A
Warrants, 16,600 Class B Warrants and 16,600 Class C Warrants.


     NOTE:All Class A Warrants are  exercisable  at $3.00 per share for a period
          of three (3) years from February 17, 1998.
          All  Class B Warrants  are  exercisable  at $5.00 per share for a
          period of five (5) years from February 17, 1998.
          All  Class C Warrants  are  exercisable  at $7.00 per share for a
          period of seven (7) years from February 17, 1998.

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>
                                       33



                                     PART IV


Item 14.          Exhibits, Financial Statements
                  and Reports on Form 8-K   
                  ------------------------------    

(A) 1.   Financial Statements
         --------------------

         See Financial Statements Attached Hereto.
 
    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,  there
          were no reports filed on Form 8-K.


<PAGE>
                                       34


                                   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
                                                 ----------------------------- 
                                                 Herbert Kurinsky, President
Dated:  April 15, 1999

     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 15, 1999
-------------------------------                   
Herbert Kurinsky
President, Chief Executive
Officer and Director


/s/ William J. Kurinsky
-------------------------------                                  April 15, 1999
William J. Kurinsky
Vice-President, Chief Operating
and Chief Financial Officer, and
Principal Accounting Officer,
Secretary and Director


/s/ Norma Doxey                                                  April 15, 1999
-------------------------------                                  
Norma Doxey, Director



/s/ Ward R. Jones, Jr.
-------------------------------                                  April 15, 1999
Ward R. Jones, Jr., Director


/s/ David I. Portman
-------------------------------                                  April 15, 1999
David I. Portman, Director


<PAGE>
                                       35



                                 EXHIBITS INDEX
 

     The exhibits  designated  with an asterisk (*) have  previously  been filed
with the Commission in connection with the Company's  Registration  Statement on
Form S-l,  File No.  33-24696,  those  designated  (**) have been filed with the
Company's  Form  10-KSB  for the fiscal  year ended  December  31,  1993,  those
designated  (***) have been  previously  filed with the  Company's  Registration
Statement on Form S-3,  File No.  33-65770,  and pursuant to 17 C.F.R.  Sections
201.24 and 240.12b-32,  are incorporated by reference to the document referenced
in brackets following the description of such exhibits.  Those designated (****)
denotes  exhibits  which have been filed with the Company's  Form 10-KSB for the
fiscal year ended December 31, 1994. Those designated  (******) denotes exhibits
which have been filed with the  Company's  Proxy  Statement  dated May 30, 1996.
Those  designated  (*******)  denotes  exhibits  which  have been filed with the
Company's  Form  10-KSB  for the fiscal  year ended  December  31,  1996.  Those
designated  (********) denotes exhibits which have been filed with the Company's
Form 10-K for the fiscal year ended December 31, 1997, and (++) denotes exhibits
filed herewith.


Exhibit No.                                 Description

   3.1*        Amended and Restated Certificate of Incorporation adopted at
               1989 Special Meeting in lieu of Annual Meeting of Shareholders.
 
   3.2*        Amended and Restated By-Laws.
 
   4.1*        Form of Common Stock Certificate.

   4.4*        Form of Underwriter's Warrant.
 
  10.7*        Sublease between Prime Asset Management Corp. and the Registrant
               dated December 6, 1989.
 
  10.8*        Clearing Agreement between the Registrant and Wertheim Schroder
               & Co., Incorporated dated January 21, 1991.

  10.10*       Lease Agreement between the Registrant and Hovchild dated
               May 25, 1990.

  10.11***     Employment Agreement between First Montauk Financial Corp. and
               Herbert Kurinsky dated January 1, 1993.
 
  10.12***     Employment Agreement between First Montauk Financial Corp. and
               William Kurinsky dated January 1, 1993.
 
  10.13***     Lease Agreement between First Montauk Securities Corp. and River
               Office Equities dated September 7, 1993.
 
  10.14****    Lease Addendum Agreement between First Montauk Securities Corp.
               and River Office Equities dated June 21, 1994.
 
  10.15*****   Sublease Agreement between First Montauk Securities Corp.
               and Pilot Laboratories, Inc. dated  September  19,  1995,  and
               Master  Lease Agreement between River Office Equities and Pilot
               Laboratories, Inc. dated  August 31, 1987.

  10.16*****   Office Lease Agreement between First Montauk Securities Corp.
               and River Office Equities dated January 31, 1996.

  10.17******* Office Lease Agreement between First Montauk Securities Corp.
               and River Office Equities dated March 5, 1997.
<PAGE>
                                       36


  10.18++      Employment Agreement between First Montauk Securities Corp. and
               Mark Lowe dated October 15, 1998.

  10.19++      Employment Agreement between First Montauk Securities Corp. and
               Seth Rosen dated January 25, 1999.

  27++         Financial Data Schedule

  28.1*        1992 Incentive Stock Option Plan.

  28.2*        1992 Non-Executive Director Stock Option Plan.
 
  28.3******   Amended and Restated 1992 Incentive Stock Option Plan.

  28.4******   Non-Executive Director Stock Option Plan - Amended and Restated
               June 28, 1996

  28.5******   1996 Senior Management Incentive Stock Option Plan.

  28.6*******  Employment Agreement between First Montauk Financial Corp. and
               Herbert Kurinsky dated January 1, 1996.

  28.7*******  Employment Agreement between First Montauk Financial Corp. and
               William J. Kurinsky dated January 1, 1996.

  28.8******** First  Amendment to Office Lease  Agreement dated March 5, 1997
               between First Montauk  Securities  Corp.  and River Office
               Equities dated March 3, 1998.
  








<PAGE>
                                       37






                         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,
1998 and 1997, and the related consolidated statements of operations, changes in
stockholders'  equity,  and cash flows for each of the three years in the period
ended  December  31,  1998.  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  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  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, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended  December 31, 1998 in  conformity  with  generally  accepted
accounting principles.



                                Schneider Ehrlich & Associates LLP
                                (successor to Schneider Ehrlich & Wengrover LLP)

Jericho, New York
March 17, 1999














     

<PAGE>

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

                                                            December 31,
                                                      1998               1997

ASSETS

Cash                                           $   613,513         $   789,883
Due from clearing firm                           2,876,202           2,707,782
Securities owned, at market                      2,685,879           3,150,772
Securities owned, not readily marketable, at
 estimated fair value                               47,381             506,732
Commissions receivable                             250,803             246,250
Employee and broker receivables                    598,212             927,195
Furniture, equipment and leasehold
 improvements - net                              2,074,470           1,357,854
Notes receivable                                   477,729             938,054
Due from officers                                  131,501             146,691
Other assets                                     1,087,289           1,164,753
Deferred tax assets - net                          700,755              35,968
                                                ----------          ----------
     Total assets                              $11,543,734         $11,971,934
                                               ===========         ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Securities sold, but not yet purchased,
 at market                                     $   327,047         $   809,523
Notes payable - bank                               244,844             340,769
Subordinated notes payable                         200,000             250,000
Convertible promissory notes payable               473,625               --
Commissions payable                              1,531,644           1,624,316
Accounts payable                                   802,497             501,267
Accrued expenses                                   905,154             812,590
Capitalized lease payable                          373,579               --
Other liabilities                                  461,717             394,002
                                                 ---------           ---------
     Total liabilities                           5,320,107           4,732,467
                                                 ---------           ---------
                                                 
Common stock issued with guaranteed
 selling price - no par value, 18,000
 and 173,000 shares issued and
 outstanding, respectively                          36,500             346,500

Commitments and contingencies (See Notes)

STOCKHOLDERS' EQUITY

Preferred Stock, 5,000,000 shares authorized,
 $.10 par value, no shares issued and
 outstanding                                          --                  --
Common Stock, no par value, 30,000,000 shares
 authorized, 9,801,493 and 9,198,444 shares
 issued and outstanding, respectively            4,980,977           4,334,173
Additional paid-in capital                       2,979,831           1,173,437
Retained earnings (accumulated deficit)         (1,192,471)          1,570,376
Less:  Deferred compensation                      (581,210)           (185,019)
                                                  --------            -------- 
     Total stockholders' equity                  6,187,127           6,892,967
                                                 ---------           ---------

     Total liabilities and stockholders'
      equity                                   $11,543,734         $11,971,934
                                               ===========         ===========





                See notes to consolidated financial statements.

<PAGE>

                 FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                               Years ended December 31,
                                        1998            1997            1996
Revenues:

Commissions                          $30,741,404    $27,018,244     $25,749,690
Principal transactions                 8,795,599      7,257,576       7,660,700
Investment banking                       767,312      1,433,100         634,329
Insurance recovery                         --           650,000           --
Interest and other income              1,572,063      1,383,713       1,044,969
                                       ---------      ---------       ---------

                                      41,876,378     37,742,633      35,089,688
                                      ----------     ----------      ----------

Costs and expenses:

Commissions, employee compensation
 and benefits                         31,766,060     26,785,205      25,428,184
Clearing and floor brokerage           3,674,859      3,021,709       3,139,142
Communications and occupancy           2,557,313      1,860,350       1,662,936
Legal matters and related costs        2,377,336      1,452,001       2,731,997
Write-down of Note Receivable
 - Global Financial Corp.              1,775,000         --               --
Other operating expenses               2,961,974      2,093,670       2,006,615
Interest                                 131,215         84,695         105,772
                                       ---------      ---------       ---------
 
                                      45,243,757     35,297,630      35,074,646
                                      ----------     ----------      ----------

Income (loss) before income taxes     (3,367,379)     2,445,003          15,042

Income taxes (tax benefit)              (604,532)       968,178         (17,747)
                                        --------        -------         ------- 

Net income (loss)                    $(2,762,847)   $ 1,476,825     $    32,789
                                     ===========    ===========     ===========
Per share of Common Stock:

     Basic                           $     (0.28)   $       .17     $       .01
                                     ===========    ===========     ===========

     Diluted                         $     (0.28)   $       .14     $       .01
                                     ===========    ===========     ===========

Number of common shares used in
     basic earnings per share          9,725,116      8,788,734       7,767,224
Incremental shares from assumed
     conversion of options                 --         1,562,298         856,314
                                       ---------      ---------       ---------

Number of common shares used in
 diluted earnings per share            9,725,116      10,351,032      8,623,538
                                       =========      ==========      =========







                 See notes to consolidated financial statements.


<PAGE>
<TABLE>
    
                                                            FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                                                       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                                       FOR THE PERIOD FROM JANUARY 1, 1996 TO DECEMBER 31, 1998

    

                                                                         Retained 
                                                              Additional  Earnings
                                           Common Stock       Paid-in     (Accumulated  Treasury  Stock  Deferred     Stockholders'
                                        Shares      Amount    Capital     Deficit)      Shares    Amount Compensation Equity
                                        ------      ------    -------     ------------  --------  ------ ------------ -------------
<S>                                    <C>        <C>          <C>        <C>            <C>     <C>         <C>      <C>

Balances at January 1, 1996            7,920,106  $3,320,012   $ 220,172  $    60,762     --     $   --     $   --      $ 3,699,946

Exercise of stock options                137,375      89,611      --            --        --         --         --          89,611
Tax benefit related to exercise 
 of stock options                          --          --        23,789         --        --         --         --          23,789
Repurchase of common stock                 --          --          --           --     (196,802)  (230,506)     --       (230,506)
Shares issued to settle legal claims     165,000     178,650       --           --        --         --         --         178,650
Net income for the year                    --          --          --          32,789     --         --         --          32,789
                                       ---------   ---------    -------      ------     -------    -------   ------      ---------
Balances at December 31, 1996          8,222,481   3,588,273    243,961        93,551  (196,802)  (230,506)     --       3,695,279

Exercise of stock options                973,025     662,754       --           --        --         --         --         662,754
Exercise of common stock
 purchase warrants                       150,000     187,500       --           --        --         --         --         187,500
Deferred compensation                      --          --       206,871         --        --         --      (206,871)       --
Amortization of deferred
 compensation                              --          --         --            --        --         --        21,852       21,852
Cancellation of shares held
 in treasury                            (196,802)   (230,506)     --            --      196,802    230,506       --           --
Sale of restricted stock                  12,240      23,027      --            --        --         --          --          23,027
Transfer from temporary equity            37,500     103,125      --            --        --         --          --         103,125
Tax benefit related to exercise
 of stock options                          --          --       722,605         --        --         --          --        722,605
Net income for the year                    --          --         --        1,476,825     --         --          --      1,476,825
                                       ---------   ---------  ---------     ---------   -------   -------     -------     ---------
Balances at December 31, 1997          9,198,444   4,334,173  1,173,437     1,570,376     --         --      (185,019)   6,892,967

Proceeds from rights offering              --          --     1,382,751          --       --         --         --       1,382,751
Registration costs                         --          --      (236,317)         --       --         --         --        (236,317)
Exercise of stock options                432,050     342,419      --             --       --         --         --         342,419
Exercise of common stock
 purchase warrants                           999       4,995      --             --       --         --         --           4,995
Deferred compensation                      --          --       544,179          --       --         --      (544,179)       --
Amortization of deferred compensation      --          --         --             --       --         --       147,988      147,988
Transfer from temporary equity           170,000     299,390      --             --       --         --         --         299,390
Tax benefit related to exercise of
 stock options                             --          --       115,781          --       --         --         --         115,781
Net loss for the year                      --          --         --      $(2,762,847)    --         --         --      (2,762,847)
                                       ---------   ---------   --------    ----------   ------    -------    --------     --------- 
Balances at December 31, 1998          9,801,493  $4,980,977 $2,979,831   $(1,192,471)    --     $   --     $(581,210) $ 6,187,127
                                       =========  ========== ==========    ===========  ======    =======    =========  ==========

 
                                                               See notes to consolidated financial statements.
</TABLE>
              
<PAGE>

                 FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                             Years ended December 31,
                                        1998           1997          1996
 
INCREASE (DECREASE) IN CASH

Cash flows from operating activities:
     Net income (loss)               $(2,762,847)  $1,476,825     $  32,789
                                      -----------   ---------      --------
Adjustments to reconcile net income
 (loss) to net cash provided by
 (used in) operating activities:
     Common stock issued with
      guaranteed selling price            30,000       28,125       421,500
     Shares issued to settle legal claims --             -          178,650
     Tax benefit related to exercise of
      stock options                      115,781      722,605        23,789
     Depreciation and amortization       357,831      348,508       272,050
     Amortization of deferred
      compensation                       147,988       21,852          --
     Amortization of bond discount         3,524        --             --
     Loan reserves                     1,775,000       69,000          --
     Payment of common stock guarantees  (40,610)       --             --
     Other                                22,000        --             --
     Increase (decrease) in cash
      attributable to changes in assets
      and liabilities:
     Due from clearing firm             (168,420)   (842,357)   (4,171,457)
     Securities owned - at market        464,893  (1,021,337)    4,985,072
     Securities owned - not readily
      marketable                         459,351    (506,732)          --
     Commissions receivable               (4,553)    (89,837)      227,455
     Other assets                         22,224    (532,728)     (338,846)
     Deferred income taxes              (664,787)    516,200      (182,995)
     Securities sold but not yet
      purchased                         (482,476)    681,896       (38,755)
     Commissions payable                 (92,672)     72,098        85,028
     Income taxes payable                  --          --         (621,690)
     Accounts payable                    301,229      12,570       105,385
     Accrued expenses                     70,564    (749,307)      419,782
     Other liabilities                    67,715     213,486      (315,240)
                                       ---------  ----------     --------- 
         Total adjustments             2,384,582  (1,055,958)    1,049,728
                                       ---------  ----------     ---------
         Net cash provided by (used in)
          operating activities          (378,265)    420,867     1,082,517
                                        --------  ----------     ---------

Cash flows from investing activities:
     Due from officers                    15,190      25,287       (16,454)
     Employee and broker receivables     328,983    (185,592)     (384,078)
     Issuance of notes receivable     (2,091,704)   (788,414)        --
     Collection of notes receivable      777,029      11,360        52,000
     Purchase of stock in ECM              --           --         (60,000)
     Sale of stock in ECM                  --           --          36,000
     Capital expenditures               (986,315)   (534,005)     (668,314)
     Other assets                        109,344      15,087       (87,460)
                                      ----------   ---------     --------- 
         Net cash used in investing
          activities                  (1,847,473) (1,456,277)   (1,128,306)
                                      ----------  ----------    ---------- 

Cash flows from financing activities:
     Proceeds from notes payable         300,000        --         479,625
     Payments of notes payable          (145,925)   (117,536)      (68,864)
     Proceeds from capital lease
      financing                          304,068        --            --
     Issuance of common stock              --         23,027          --
     Repurchase of common stock            --           --        (230,506)
     Payments of capitalized lease
      payable                            (18,621)       --            --
     Proceeds from rights offering     1,382,751        --            --
     Registration costs                 (120,320)       --            --
     Proceeds from exercise of common
      stock options and warrants         347,415     850,254        89,611
                                       ---------   ----------    ---------
         Net cash provided by financing
          activities                   2,049,368     755,745       269,866
                                       ---------   ----------    ---------
Net increase (decrease) in cash         (176,370)   (279,665)      224,077
Cash at beginning of year                789,883   1,069,548       845,471
                                       ---------   ----------    ---------
Cash at end of year                  $   613,513  $  789,883    $1,069,548
                                      ==========   ==========    =========


<PAGE>
                 FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (continued)

Supplemental disclosures of cash flow
information:
     Cash paid (refunded) during the
      period for:
         Interest                    $   131,215  $   84,695   $   105,772
         Income taxes                $  (223,871) $ (203,480)  $ 1,019,242


Debt issued in exchange for lease
 investment                          $   170,101       --           --
 
Equipment financed under capital
 lease                               $    88,132       --           --

Transfer of temporary equity to
 permanent capital                   $   340,000 $    103,125       --

 


































                 See notes to consolidated financial statements.

<PAGE>



NOTE 1 -        NATURE OF BUSINESS

     First  Montauk   Financial  Corp.  and  subsidiaries  (the  "Company")  are
primarily engaged in securities  brokerage,  investment banking and trading. The
Company's principal  subsidiary,  First Montauk Securities Corp. ("FMSC"),  is a
broker-dealer registered with the Securities and Exchange Commission ("SEC") and
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  underwriting and investment banking
services. Customers are located throughout the United States.

     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.

     The Company also has two other wholly-owned subsidiaries, Montauk Insurance
Services,  Inc. ("MISI") and Montauk Advisors,  Inc. ("MAI"). MISI sells a range
of insurance products; MAI previously sold investments in equipment leases.

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 are eliminated
in consolidation.

                Revenue Recognition

     Securities transactions, investment banking revenues, and commission income
and related  expenses are recorded on a trade date basis.  Securities  owned and
securities  sold but not yet repurchased are stated at quoted market values with
unrealized gains and losses reflected 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.

     Commissions  earned from the sale of insurance products are recognized upon
approval of the customer application by the insurance carrier.

                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  seven  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.

               Statement of Cash Flows

     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.

                Net Income (Loss) per Share

     The Company has adopted Statement of Financial  Accounting Standards No.128
(SFAS 128),  "Earnings per Share," which  supersedes APB Opinion No. 15 (APB No.
15). SFAS 128 requires dual presentation of basic and diluted earnings per share
(EPS)  for  complex  capital  structures  on  the  face  of  the  Statements  of
Operations. Basic EPS is computed by dividing net income by the weighted-average
number of common  shares  outstanding  for the period.  Diluted EPS reflects the
potential  dilution  from the exercise or conversion  of other  securities  into
common  stock.  Earnings  per share data have been  restated to conform with the
provisions of SFAS 128. The impact of the change was not material.

<PAGE>

                Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  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

     In  accordance  with  SFAS  No.  121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for  Long-Lived  Assets to be Disposed  of",  the Company
records  impairment losses on long-lived assets used in operations,  when events
and   circumstances   indicate  that  the  assets  might  be  impaired  and  the
undiscounted  cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets.

                Stock-based Compensation

     The Company  accounts for  stock-based  compensation in accordance with the
provisions  of SFAS No.  123.  SFAS No. 123  requires  that the  Company  either
recognize in its financial  statements costs related to its employee stock-based
compensation  plans,  such as stock option and stock purchase plans, or make pro
forma disclosures of such costs in a footnote to the financial  statements.  The
Company has elected to continue to use the intrinsic  value-based  method of APB
Opinion no. 25, as allowed  under SFAS 123,  to account for all of its  employee
stock-based  compensation  plans.  The  compensatory  value of options issued to
outside  directors,  affiliate  brokers,  and other  non-employees is charged to
operations over the vesting period of the option grants.

                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.

     Under APB No. 25, compensation expense arising from the exercise of certain
employee stock options is deductible for income tax purposes only.  Accordingly,
the  related tax  benefits  from these  deductions  do not affect net income for
financial reporting  purposes,  and are accounted for as increases in additional
paid-in capital.

                Recently Issued Accounting Pronouncement

     In June 1998, the Financial  Accounting Standards Board issued SFAS No. 133
"Accounting  for  Derivative   Instruments  and  Hedging  Activities",     which
establishes  accounting and reporting standards for all derivative  instruments.
SFAS No. 133 is effective for fiscal years  beginning  after June 15, 1999.  The
adoption  of SFAS No.  133 is not  expected  to have a  material  impact  on the
Company's financial position or results of operations.

NOTE 3 -        TRADING AND INVESTMENT SECURITIES

     Marketable  securities  owned  and sold but not yet  purchased  consist  of
trading securities stated at quoted market values, as indicated below:

                                                    December 31,
                                            1998                 1997
                                                Sold but             Sold but
                                                not yet              not yet
                                      Owned     Purchased    Owned   Purchased

Obligations of U. S. government
   and its agencies              $    20,900  $   --    $   304,815  $  --
State and municipal obligations       41,415      --        515,781     --
Corporate stocks and bonds         2,353,286   243,119    2,042,020   799,503
Corporate bonds                      270,278    50,738      288,156     2,466
Options and warrants                    --      33,190        --        7,554
                                   ---------   -------    ---------   -------
                                  $2,685,879  $327,047  $ 3,150,772  $809,523
                                  ==========  ========  ===========  ========


<PAGE>

    Securities not readily  marketable  include  investment  securities (a) for
which there is no market on a  securities  exchange or no  independent  publicly
quoted market,  (b) that cannot be publicly offered or sold unless  registration
has been  effected  under  the  Securities  Act of 1933,  or (c) that  cannot be
offered  or sold  because  of other  arrangements,  restrictions  or  conditions
applicable to the  securities or to the Company.  At December 31, 1998 and 1997,
these securities at estimated fair values consisted of the following:

                                                           December 31,
                                                        1998          1997

                Corporate stocks                   $      --        $236,640
                Options and warrants                  47,381         270,092
                                                      ------         -------
                                                   $  47,381        $506,732
                                                      ======         =======

NOTE 4 -        EMPLOYEE AND BROKER RECEIVABLES

                This account consists of the following:
                                                           December 31,
                                                        1998          1997

                Commission advances                 $ 79,317       $215,119
                Loans to brokers and non-executive
                 employees                           518,895        712,076
                                                     -------        -------
                                                    $598,212       $927,195
                                                     =======        =======

                Receivables are generally non-interest bearing and due on
                 demand.

NOTE 5 -        FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

     Furniture, equipment and leasehold improvements consist of the following:

                                                          December 31,
                                                     1998             1997
    
                Furniture and fixtures         $   812,360       $  672,988
                Computer and office equipment    2,033,729        1,442,108
                Leasehold improvements             513,014          169,560
                                                 ---------        ---------
                                                 3,359,103        2,284,656
                Less:  Accumulated depreciation
                 and amortization               (1,284,633)        (926,802)
                                                ----------        --------- 
                                               $ 2,074,470       $1,357,854
                                                ==========        =========

                Depreciation expense was $357,831, $348,508 and $272,050 in
                 1998, 1997 and 1996, respectively.


NOTE 6 -        NOTES RECEIVABLE
                                                           December 31,
                                                        1998          1997

                Environmental Coupon Marketing, Inc.
                 (ECM)                                $149,640      $149,640
                Global Financial Corp. (Global)        322,237       582,804
                Fem-Com Copy Systems, Inc. (FCS)         5,852       205,610
                                                       -------       -------
                                                      $477,729      $938,054
                                                       =======       =======

a)   ECM is a closely-held marketer of recycling programs to retailers. The loan
     is currently in default and stated at approximate net realizable value. The
     1997 financial statements reflect a $69,000 write-down of the loan.

     Also in 1997, the Company wrote off its $84,000 investment in ECM common
     stock.
<PAGE>
 
b)   Beginning in 1997, MAI has made loans to Global, the financing company that
     packaged  and sold  leasing  investments  through  MAI,  in order to assist
     Global in meeting cash flow  deficiencies  arising from the  nonpayment  of
     scheduled  monthly  installments on certain  delinquent and  non-performing
     leases. Most of the arrears are due from leases originated by FCS, Global's
     affiliated equipment vendor, and Biblio, Inc.  ("Biblio"),  an affiliate of
     FCS.  The  MAI  notes  are  guaranteed  by  Global,  FCS,  Biblio,  and the
     shareholder  of FCS and  Biblio.  The notes are further  collateralized  by
     mortgage liens on real estate owned by the shareholder of FCS and Biblio, a
     pledge of all of the  outstanding  shares in Global,  and various  recorded
     liens on the assets of FCS and Biblio.

     During 1998,  the Company  undertook  a full review of the Global  loans to
     evaluate their collectability, and determined that, based on various events
     and  circumstances,   including  the  default  status  of  the  loans,  the
     insolvency  of Global and FCS, and steadily  declining  collections  on the
     lease portfolio serviced by Global, the loans to Global have been impaired.
     Accordingly,  the Company has recorded an impairment  loss of $1,775,000 in
     its financial  statements for 1998. The loan reserve reflects  management's
     best estimate of the extent of loan impairment  based on available  current
     information. Eventual outcomes could differ from estimated amounts.

c)   MAI  has  provided  FCS  with  working  capital  financing  to  purchase
     equipment for resale to FCS customers. The balance is payable on demand.

NOTE 7 -        DUE FROM OFFICERS

     Advances to officers are unsecured and currently  bear interest at the rate
of 6% per annum. These loans are due on demand.  Interest on these loans totaled
$8,223, $7,817 and $9,428 in 1998, 1997 and 1996, respectively.


NOTE 8 -        NOTES PAYABLE - BANK

     These notes  evidence two secured term loans bearing  interest at the prime
rate (7.75% at December 31, 1998), and are  collateralized by equipment owned by
the parent corporation.  Principal  maturities are scheduled as follows:  1999 -
$95,925, 2000 - $95,925, and 2001 - $52,994.

NOTE 9 -        SUBORDINATED NOTES PAYABLE

     The notes are payable in four remaining annual installments of $50,000 plus
interest  at 8% per  annum.  Each note is  subordinated  to the claims of FMSC's
general creditors under a subordination agreement approved by the NASD.

NOTE 10 -       CONVERTIBLE PROMISSORY NOTES PAYABLE

     In 1998,  the  Company  issued a series  of  convertible  promissory  notes
aggregating  $570,000 to a private investor in consideration of $300,000 in cash
and an income stream from the  assignment of equipment  lease  investments.  The
notes carry interest at the rate of 10% per annum,  payable  semi-annually,  and
are convertible  into up to 380,000 shares of the Company's  Common Stock at the
rate of $1.50 per share. The notes mature in five years; however, the Company is
required to pay 20% of the original outstanding principal into a sinking fund on
or before each annual  anniversary  date of the notes. The notes are callable at
the  Company's  option upon thirty days  written  notice at 105% above par.  The
equipment  lease  investments  assigned  to the Company in the  transaction  are
serviced by Global and were originally sold to the investor through MAI.

     The Company has  recorded a loan  discount  of  $99,899,  representing  the
difference  between the note  principal of $570,000,  and the cash received plus
the estimated  discounted  payment stream from the leases. The discount is being
amortized over the term of the notes. Amortization expense was $3,524 in 1998.

NOTE 11 -       ACCRUED EXPENSES

                Accrued expenses consist of the following:

                                                           December 31,
                                                       1998           1997

               Reserves for legal matters          $661,531         $640,000
               Other                                243,623          172,590
                                                    -------          -------
                                                   $905,154         $812,590
                                                    =======          =======


<PAGE>

NOTE 12 -       INCOME TAXES

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


                                                   December 31,
                                        1998           1997             1996

          Currently payable
           (refundable):
              Federal            $      --        $ 299,584        $ 150,505
              State                   60,255        161,134           37,103
                                  ----------        -------         --------
                                      60,255        460,718          187,608
                                  ----------        -------         --------

          Deferred:
              Federal             (1,008,591)       470,277         (198,875)
              State                 (387,665)        37,183           (6,480)
              Valuation allowance    731,469           --               --
                                  ----------        -------         --------
                                    (664,787)       507,460         (205,355)
                                  ----------        -------         -------- 
                                 $  (604,532)     $ 968,178        $ (17,747)
                                  ==========        =======         ======== 


     The current portion of the federal income tax benefit in 1997 reflects
     refundable  taxes  of  approximately  $193,000  from the  carryback  of net
     operating  losses.  At  December  31,  1998 the  Company  had  federal  net
     operating loss carryforwards of $173,000 available to offset future federal
     taxable income. The carryforwards expire at various dates through 2018.

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


                                                    December 31,
                                           1998         1997            1996

          Expected statutory federal
           income tax                  $(1,144,909)   $831,301       $  2,256
          Non-taxable income                --         (12,080)        (5,457)
          Non-deductible expenses           11,456      10,200          4,576
          State taxes, net of federal
           tax benefit                    (200,021)    146,700        (19,122)
          Other                             (2,527)     (7,943)          --
          Valuation allowance              731,469        --             --
                                        ----------     -------        ------- 
                                       $  (604,532)   $968,178       $(17,747)
                                        ==========     =======        ======= 



     The tax effects of the temporary  differences that give rise to significant
     portions of the deferred tax assets and liabilities as of December 31, 1998
     and 1997 are:


                                                           December 31,
                                                       1998            1997

          Deferred tax assets:
              Accrued reserves                    $1,205,632         $171,465
              Net operating loss                     160,190           87,504
              Other                                  146,697           33,349
                                                   ---------          -------
                                                   1,512,519          292,318
                                                   ---------          -------

          Deferred tax liabilities:
              Unrealized investment gains             16,952          197,990
              Depreciation                            54,176           58,360
              Other                                    9,167             --
                                                   ---------          -------
                                                      80,295          256,350
                                                   ---------          -------
                                                   1,432,224           35,968
          Valuation allowance                       (731,469)            --
                                                    --------          -------
          Net deferred tax asset                  $  700,755         $ 35,968
                                                   =========          =======


     Based on its review of available  evidence,  management  has  established a
     valuation  allowance to offset a portion of the  benefits of the  Company's
     net deferred tax assets because their realization is uncertain.
<PAGE>

NOTE 13 -       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.

     In 1998, the Company  entered into a capital lease to acquire new equipment
costing $88,000 and to refinance through a sale/leaseback  transaction  existing
fixed assets with a book value of approximately $304,000.


    Future minimum lease payments as of December 31, 1998 were:

                                                     Capital        Operating
                                                     Lease           Leases

                        1999                        $142,704       $  836,005
                        2000                         142,704          719,047
                        2001                         146,986          648,758
                        2002                           --             642,184
                        2003                           --             639,993
                        Thereafter                     --             693,325
                                                     -------        ---------

                   Total minimum lease payments      432,394       $4,179,312
                   Less:  Amount representing                       =========
                    interest on capital lease         58,815
                                                     -------
                                                    $373,579
                                                     =======

     Operating lease expense for 1998, 1997 and 1996 totaled $857,715,  $498,815
     and  $426,172, respectively.

     Legal Matters

     The  Company  has been  involved  in a number of  lawsuits  and  regulatory
investigations  relating to the sale of securities by a former  affiliate office
located in Houston, Texas. In 1996, the Company,  without admitting liability or
wrongdoing,  settled  various claims  asserted by Escambia  County,  Florida,  a
former  customer of the Houston  office,  for $900,000 in cash. In January 1997,
the Company settled another customer lawsuit for $750,000, with $500,000 payable
upon execution of settlement  documents,  and the balance of $250,000 payable in
five annual  installments  of $50,000  plus  interest at 8% per annum.  The five
installments are evidenced by notes payable, which have been subordinated to the
claims of FMSC's general creditors under a subordination  agreement  approved by
the  NASD.  In 1997,  FMSC  entered  into an Offer  of  Settlement  with the SEC
relating to the activities of the Houston office. Under terms of the settlement,
FMSC paid a $50,000 fine and agreed to engage an independent compliance examiner
to audit FMSC's  compliance  procedures.  FMSC was permitted to offset other SEC
monetary assessments totalling  approximately  $227,000 against Houston customer
settlements  previously  paid by the firm.  FMSC entered into a similar  consent
decree with the State of Florida, pursuant to which FMSC paid a $15,000 fine and
agreed to temporary  restrictions on brokerage activities in the state. In 1998,
the Company settled another  Houston  customer  lawsuit for $500,000 in cash. In
March  1999,  the  Company  reached a $100,000  settlement  in the last  pending
customer lawsuit involving the Houston office.

<PAGE>

     FMSC is also both a claimant  and a  counter-respondent  in an  arbitration
which it brought  against  another  securities  firm  arising out of the trading
activities  of the  former  Houston  office.  The  securities  firm has  filed a
counterclaim against FMSC seeking an unspecified amount of damages.

     In an unrelated matter, FMSC settled a customer arbitration for $500,000 in
cash in 1997.  Under terms of the  settlement,  the  Company  also issued to the
customer and her counsel a total of 150,000 five-year  warrants to purchase FMFC
common  stock for $1.25  per  share.  Two of the  Company's  officers  agreed to
guarantee a minimum selling price of $1.917 per share with respect to the shares
underlying the warrants and  established a $100,000 escrow account with personal
funds to secure the  guarantee.  The  warrantholders  had a sixty-day  period in
which to exercise  the warrants  and sell the shares,  commencing  from the date
that the warrants were registered for resale.  The warrant  registration  became
effective in June 1997. The individuals  exercised their warrants and sold their
shares in 1997 at prices exceeding the guaranteed minimum.

     FMSC is currently a respondent in certain pending customer arbitrations and
other matters relating to its securities  business.  These claims are in various
stages of progress and are being vigorously  contested.  Management is unable to
derive a  meaningful  estimate of the amount or range of possible  loss that may
arise out of pending litigation  (including  litigation costs) in any particular
subsequent  quarterly or annual  period,  or in the  aggregate.  However,  it is
possible that the financial condition,  results of operations,  or cash flows of
the  Company in  subsequent  quarterly  or annual  periods  could be  materially
affected by the ultimate outcome of such pending litigation.

     The  Company  continues  to review the extent to which  settled and pending
claims,  including  Houston  customer  settlements,  may be  covered  under  its
insurance  policies.   In  January  1997,  the  Company  negotiated  a  $650,000
settlement  with one of its  insurance  carriers in  consideration  of a general
release  from  coverage  on various  matters.  The  Company  has also filed suit
against one of its insurers to compel coverage of several settled claims.  There
can be no  assurance  that the  Company  will be  successful  in its  efforts to
recover  additional funds from its insurers on settled claims,  or that monetary
losses,  if any, from future  settlements  or adverse  judgments will be covered
under the Company's existing insurance policies.

     Purchase commitments

     In 1997,  the  Company  entered  into a  three-year  agreement  with a long
distance  carrier  under which the Company has  committed to pay minimum  annual
charges of $300,000 in each of the three contract  years,  in  consideration  of
favorable  rates  on  telephone  and  data  communications  service  during  the
commitment period.

     Income tax audit

     The Internal  Revenue Service is currently  conducting a field audit of the
Company's  federal  income tax returns for 1995,  1996 and 1997.  The Company is
unable to determine  at this time what impact,  if any, the outcome of the audit
will have on its business, financial condition or results of operations.


NOTE  14  -  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. As part of its normal brokerage activities, FMSC also assumes short
positions in its inventory. The establishment of short positions exposes FMSC to
off-balance-sheet risk in the event prices increase, as FMSC may be obligated to
acquire the securities at prevailing market prices.

     FMSC 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, FMSC's clearing firm requires
additional  collateral  or reduction of  positions,  when  necessary.  FMSC also
completes credit evaluations where there is thought to be credit risk.

    Financial  instruments that potentially  subject the Company to significant
concentrations  of  credit  risk  consist  principally  of cash  and  securities
inventories.  The  Company  places its cash  primarily  in  commercial  checking
accounts.  Balances may from time to time exceed federally insured limits.  Cash
and securities inventories maintained at FMSC's clearing firm are uninsured.

NOTE 15 -       DEFINED CONTRIBUTION PLAN

     The Company sponsors a defined  contribution pension plan [401(k)] covering
all participating  employees.  The Company may elect to contribute up to 100% of
each participant's  annual contribution to the plan. Employer  contributions for
1998, 1997 and 1996 amounted to $38,077, $33,060, and $44,400, respectively.
<PAGE>

NOTE 16 -       COMMON STOCK ISSUED WITH GUARANTEED SELLING PRICE

     From time to time, the Company has issued unregistered shares of its Common
Stock in settlement of various  customer claims and invoices for legal services.
With  respect to these  shares,  the Company  provides a guarantee to pay to the
selling stockholder the difference between a target price and the actual selling
price of the shares upon expiration of the statutory holding period. The holders
of the shares may elect to retain the shares  once the  holding  period  lapses.
Such an election  will  release the Company from any further  obligation  to the
stockholders.

     The  Company  has  established  a  temporary  equity  account to record its
maximum  liability from the  guarantees.  Payment of any shortfall is charged to
this account. Any balance remaining at the end of the respective holding periods
is credited to  permanent  capital.  Following is a schedule of activity in this
account for 1998 and 1997:

                                                      Shares           Amount

     Balance, January 1, 1997                         210,500        $ 421,500

     Increase in guarantee with respect to
      37,500 at $.75 per share                           --             28,125

     Reclassification of shares to permanent capital  (37,500)        (103,125)
                                                      -------          ------- 
     Balance, December 31, 1997                       173,000          346,500

     Issuance of additional shares                     15,000           30,000

     Payment of guarantee                                --            (40,610)

     Reclassification of shares to permanent capital (170,000)        (299,390)
                                                      -------          -------
     Balance, December 31, 1998                        18,000         $ 36,500
                                                      =======          =======


NOTE 17 -       STOCK OPTION PLANS

     The Company  currently has three option plans in place:  The 1992 Incentive
Stock  Option Plan (the "1992  Plan"),  the 1992  Non-Executive  Director  Stock
Option Plan (the "Director Plan"), and the 1996 Senior Management Incentive Plan
(the "1996 Plan").

     In June 1998, the Company's  stockholders approved an amendment to the 1992
Plan to increase the number of shares  reserved for issuance  from  3,500,000 to
6,000,000  shares.  Under the 1992 Plan,  options  may be granted to  employees,
consultants  and  registered  representatives  of the Company,  but only options
issued to employees will qualify for incentive  stock option  treatment  (ISOs).
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 of  grant.  However,  ISOs
granted to a ten percent  stockholder  shall have an exercise  price of at least
110% of such fair market value.  At the time an option is granted,  the Board of
Directors  shall fix the period within which it may be exercised.  Such exercise
period  shall not be less than one year nor more than ten years from the date of
grant. The 1992 plan will expire in May 2002.

     The Company has reserved  1,000,000 shares of its Common Stock for issuance
under the Director Plan.  Options to purchase  20,000 shares of Common Stock are
granted to each Non-Executive  Director on August 1 of each year,  provided such
individual  has  continually   served  as  a  Non-Executive   Director  for  the
twelve-month  period  immediately  preceding the date of grant. The options will
expire in five years from the date of grant.  The exercise price of such options
shall be equal to the fair market  value of the  Company's  Common  Stock on the
date of grant. The Director Plan will terminate in May 2002.

     In 1996,  the  Company's  stockholders  also  ratified  the 1996 Plan.  The
Company has reserved 2,000,000 shares for issuance to key management  employees.
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 shall 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, 1998 is presented below:

                                                                   Range of
                                                                   Exercise
                                               Shares              Prices

Options outstanding, December 31, 1995        2,117,500       $ .41  -  1.75
      Granted                                   279,000         .875 -  1.33
      Canceled                                 (123,000)        .56  -  1.00
      Exercised                                (137,375)        .50  -  1.00


Options outstanding,  December 31, 1996       2,136,125       $ .41  -  1.75
      Granted                                 1,517,500         .96  -  2.75
      Canceled                                  (56,500)        .56  -   .875
      Exercised                                (973,025)        .41  -  1.75

Options outstanding,  December 31, 1997       2,624,100       $ .41  -  2.75
      Granted                                 1,442,500        1.00  -  2.50
      Canceled                                 (381,250)        .50  -  2.75
      Exercised                                (432,050)        .41  -  2.25

Options outstanding,  December 31, 1998       3,253,300       $ .69  -  2.75

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

Shares of common stock available
 for future grant                                                4,108,550
Weighted-average grant date fair value of options
 granted during each year using the Black-Scholes
 option pricing model
          1996                                                     $.55
          1997                                                     $.73
          1998                                                     $.71

     The Company  applies APB No. 25 in accounting  for employee  stock options.
Accordingly, compensation is recognized in the financial statements only for the
fair  value  of  options  issued  to  non-employee  directors,  consultants  and
affiliate  brokers.  Such  compensation is amortized to expense over the related
options'  vesting  periods.  Compensation  expense  recognized  in 1998 and 1997
totaled $147,988 and $21,652, respectively.

     Pro forma net earnings and earnings 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 1998, 1997 and 1996:

                                             1998         1997           1996

Risk free interest rates                    5.03%        6.23%          6.05%
Expected option lives                   2.4 years   3.75 years        5 years
Expected volatilities                       46.5%        46.5%          76.5%
Expected dividend yields                       0%           0%             0%

The Company's pro forma information follows:

Net income (loss)                            1998         1997           1996

As reported                             $(2,762,847)   $1,476,825      $ 32,789
Proforma                                 (3,292,291)    1,246,276       (26,597)

Basic income (loss) per share
      As reported                             $(.28)         $.17         $ .01
      Proforma                                $(.34)          .14          (.01)

Diluted income (loss) per share
      As reported                             $(.28)         $.14         $ .01
      Proforma                                $(.34)          .12          (.01)

<PAGE>

     The full impact of calculating compensation expense for stock options under
SFAS No. 123 is not  reflected  in pro forma net income,  since such  expense is
amortized over the vesting period of those options as they vest.

     Additional  information  as of  December  31,  1998  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

$.69 -  .96        737,600          1.61       $0.80      627,400      $0.81
1.00 - 1.38        789,200          3.43        1.14      387,080       1.12
1.56 - 1.94        702,500          4.36        1.79      352,500       1.87
2.00 - 2.75      1,024,000          4.05        2.43      422,440       2.41

                 3,253,300          3.41       $1.61    1,789,420      $1.46


NOTE 18 -       STOCKHOLDERS' EQUITY

                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
     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.  The
offering raised gross proceeds of $1,382,750 before deducting registration costs
of approximately  $236,000.  There are currently  3,072,446 Class A, Class B and
Class C warrants outstanding, respectively.

     Recapitalization

     In June 1997,  the  Company's  stockholders  approved an  amendment  to the
Company's  Certificate  of  Incorporation  to  increase  the number of shares of
Common Stock authorized for issuance from 15,000,000 to 30,000,000.

     Preferred Stock

     The Company is presently  authorized to issue 5,000,000 shares of Preferred
Stock,  none of which have been issued at December 31, 1998. The preference,  if
any, to be given to preferred shares is determinable at the time of issuance.

     Stock Repurchases

     In 1996,  the Company  repurchased a total of 196,802  shares of its Common
Stock in the open market for $230,506 under now expired stock buy-back  programs
authorized by the Board of Directors.  All of the  repurchased  shares have been
cancelled.

     Sale of Restricted Stock

     In 1997, the Company sold 12,240 unregistered shares of its Common Stock to
an affiliate broker for total consideration of $23,027.

     Issuance of Common Stock

     During  fiscal 1996,  the Company  issued a total of 165,000  shares of its
Common Stock to settle various customer claims. The Company recorded a charge to
earnings of $178,650 upon issuance of the shares.

<PAGE>

NOTE 19 -       FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  Financial  Accounting  Standards  Board issued  Statement of Financial
Accounting  Standards  No.  107,  Disclosures  About  Fair  Value  of  Financial
Instruments,  which  requires  that all  entities  disclose  the  fair  value of
financial  instruments,  as defined, for both assets and liabilities  recognized
and not recognized in the statement of financial condition. Substantially all of
the Company's financial  instruments at December 31, 1998,  consisting primarily
of marketable debt and equity securities, amounts due from FMSC's clearing firm,
accounts  payable and  accrued  expenses,  and notes  payable are carried at, or
approximate fair value due to their short-term nature, the use of mark-to-market
accounting  for  trading  securities,  or  because  they carry  market  rates of
interest.

NOTE 20 -       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, 1998, FMSC had net capital of $1,668,964,  which was
$1,418,964  in excess of its required  net capital of $250,000.  FMSC's ratio of
aggregate indebtedness to net capital was 2.17 to 1.

NOTE 21 -       RELATED PARTY TRANSACTION

     In 1997,  FMSC  served as  underwriter  for an initial  public  offering of
PacificHealth  Laboratories  ("PHL")  common stock.  One of the directors of the
Company is a director, officer and major stockholder of PHL. FMSC also served as
placement agent for two private placements of PHL securities in 1996, from which
it earned placement fees of $366,000.  Management  believes that the fees earned
by FMSC on the PHL financings represent arm's-length compensation.