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

                                    Form 10-K

(Mark One)

|X|       ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
          OF 1934 For the fiscal year ended December 31, 2008

|_|       TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
          EXCHANGE ACT OF 1934 For the transition period from
                         to

                                     0-6729
                      ------------------------------------
                             Commission file number

                          FIRST MONTAUK FINANCIAL CORP.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

     New Jersey                                         22-1737915
-------------------------                ---------------------------------------
(State of incorporation)                   (IRS Employer Identification Number)

                            Parkway 109 Office Center
                             328 Newman Springs Road
                               Red Bank, NJ 07701
--------------------------------------------------------------------------------
                     (Address of principal executive office)

                                 (732) 842-4700
--------------------------------------------------------------------------------
                           (Issuer's telephone number)

Securities registered under Section 12(b) of the Exchange Act: NONE

Securities registered under Section 12(g) of the Exchange Act: Common Stock,
no par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.  Yes [   ]   No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15 (d) of the Securities Exchange Act.  Yes [ ] No [X]

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

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer [  ]                    Accelerated filer [  ]
Non-accelerated filer   [  ]                    Smaller reporting company [X]
(do not check if a smaller reporting company)
<PAGE>

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  [  ]

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

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter (June 30, 2008): $682,955.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: On May 14, 2009 there were
9,956,940 shares outstanding of common stock of the Registrant.

                       DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(e) under the Securities Act of 1933.

                                      None


<PAGE>
Table of Contents
<TABLE>
<S>                 <C>

                                     PART I
                                                                                                            PAGE

Item 1.             Business                                                                                  4

Item 1A.            Risk Factors - Not applicable                                                             7

Item 1B.            Unresolved Staff Comments                                                                 7

Item 2.             Properties                                                                                7

Item 3.             Legal Proceedings                                                                         8

Item 4.             Submission of Matters to a Vote of Security Holders                                       10

                                     PART II


Item 5.             Market For the Company's Common Equity and Related Stockholder Matters                    11

Item 6.             Selected Financial Data- Not applicable                                                   12

Item 7.             Management's Discussion and Analysis of Financial Condition and Results of Operations     13

Item 7A.            Quantitative and Qualitative Disclosures About Market Risk                                23

Item 8.             Financial Statements and Supplemental Data                                                23

Item 9A.            Controls and Procedures                                                                   24

Item 9B.            Other Information                                                                         25


                                    PART III


Item 10.            Directors and Executive Officers of the Registrant                                        26

Item 11.            Executive Compensation                                                                    30

Item 12.            Security Ownership of Certain Beneficial Owners and Management                            36

Item 13.            Certain Relationships and Related Transactions                                            38

Item 14.            Principal Accounting Fees and Services                                                    38

                                     PART IV


Item 15.            Exhibits and Financial Statement Schedules                                                40

</TABLE>
<PAGE>


Disclosure Regarding Forward Looking Statements

         Statements included in this Report that do not relate to present or
historical conditions are "forward-looking statements" within the meaning of
that term in Section 27A of the Securities Act of 1933, as amended, and in
Section 21F of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Additional oral or written forward-looking statements may be made by the
Company from time to time, and such statements may be included in documents that
are filed with the Securities and Exchange Commission ("SEC"). Such
forward-looking statements involve risks and uncertainties that could cause
results or outcomes to differ materially from those expressed in such
forward-looking statements. Forward-looking statements may include, without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations and intentions and are intended to be made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Words
such as "believes," "forecasts," "intends," "possible," "expects," "estimates,"
"anticipates," or "plans" and similar expressions are intended to identify
forward-looking statements.

Item 1.   Business

General

         First Montauk Financial Corp. (the "Company") is a New Jersey-based
financial services holding company whose principal subsidiary, First Montauk
Securities Corp. ("First Montauk"), had operated as a full service retail and
institutional securities brokerage firm. Since July 2000, First Montauk had
operated under the registered trade name "Montauk Financial Group". References
in this Annual Report on Form 10-K to Montauk Financial Group shall refer solely
to our subsidiary First Montauk. Montauk Financial Group had provided a broad
range of securities brokerage and investment services to a diverse retail and
institutional clientele, as well as corporate finance and investment banking
services to corporations and businesses. First Montauk Financial Corp. also sold
insurance products through its subsidiary, Montauk Insurance Services, Inc.

         At the Annual Meeting of Shareholders held on October 17, 2008, the
shareholders of the Company approved the asset purchase agreement executed by
the Company and its principal subsidiary, First Montauk, with First Allied
Securities, Inc. ("First Allied") as of July 9, 2008 ("Purchase Agreement")
providing for the sale of substantially all of the assets of First Montauk to
First Allied. On December 15, 2008 the Company and First Montauk completed the
transaction. First Allied is an affiliate of Advanced Equities Financial Corp.
("Advanced Equities"). Upon the closing, under the Purchase Agreement, certain
of First Montauk's independent registered representatives joined First Allied,
and First Allied acquired the right to service the customer accounts of those
representatives that join First Allied. As previously disclosed in its proxy
statement to shareholders, dated September 23, 2008, upon completion of the
transaction with First Allied, substantially all of the assets of First Montauk
were acquired by First Allied, and First Montauk ceased its broker-dealer and
investment advisor operations. To that end, on December 23, 2008, First Montauk
filed Form BDW and Form ADV-W with the SEC, effective December 31, 2008, to
withdraw its registration as a broker-dealer and to terminate our registration
as an investment advisor. The Form ADV-W was effective on December 31, 2008 and
the Form BDW was accepted and approved by the SEC on February 23, 2009. In
accordance with generally accepted accounting principles ("GAAP"), due to the
substantial nature of the sale of First Montauk, the Company determined that all
of the operations are considered to be discontinued.

         Under the terms of the Purchase Agreement, an aggregate purchase price
of approximately $4,197,000 was determined. Upon the signing of the Purchase
Agreement, First Allied paid $250,000 to First Montauk. At closing, First
Montauk received a credit for the cancellation of the balance of principal and
interest outstanding totaling approximately $1,055,670 under a secured

<PAGE>

convertible promissory note, dated December 7, 2007 executed in connection with
a loan to First Montauk by an affiliate of First Allied. The third payment of
$2,000,000 was received on January 15, 2009 with the balance of $891,388
expected on March 17, 2009, in accordance with the Purchase Agreement. On that
date we received $676,431 and were advised by First Allied that they were making
an adjustment to the purchase price of $14,957 and were withholding an
additional $200,000 based on their claim of indemnification under the Purchase
Agreement. We agreed with the purchase price adjustment of $14,957 but
challenged First Allied's right to withhold $200,000. We subsequently entered
into an agreement with First Allied in which we permitted them to retain $50,000
and apply it towards any expenses incurred in connection with an attempt by a
former customer to add First Allied as a named respondent in a pending
arbitration case in which we, First Montauk, certain of our executive officers
and certain individual registered representatives were previously named as
respondents. First Allied therefore paid the balance of $150,000 to us in April
2009. The agreement further provides that in the event that First Allied's
defense costs are less than $50,000, First Allied will pay us the remaining
balance and if its expenses exceed $50,000 in connection with this arbitration,
we must indemnify First Allied for its costs above $50,000.

         The Company is subject to a court order issued by a New Jersey Superior
Court on January 14, 2009, requiring that the balance of the sale proceeds of
the asset sale to First Allied be held in escrow for the benefit of the
Company's creditors. The court order was issued in conjunction with a lawsuit
initiated by a former customer of First Montauk who invested in a private
offering of a real estate Section 1031 like-kind exchange program, captioned
Dawn A. Dunbar, Zeneth Eidel, and Doris Eidel v. First Montauk Financial Corp.,
First Montauk Securities Corp., Kenneth R. Bolton, et al (Monmouth County Docket
No.L-4949-08). On April 14, 2009, the Court entered a consent order permitting
the Company to pay auditing fees of $80,000 in connection with the filing of the
Company's Form 10-K. On May 8, 2009, the Court entered a second consent order
permitting the Company to pay other expenses from the sale proceeds totaling
$452,065. The Company agreed that the remaining balance of $381,348 would remain
in escrow pending further order of the Court.

         As a result of the substantial obligations outstanding that are due and
payable by the Company, we do not anticipate that the Company's shareholders
will receive any distribution of any proceeds of the sale of assets completed to
First Allied. The board of directors is evaluating the benefits of positioning
the Company as a shell company to be used as a potential merger candidate for
another operating business. At this time we do not have any specific merger,
stock exchange, asset acquisition, reorganization or other business combination
under consideration or contemplation. We have not contacted any potential target
business nor had any discussions, formal or otherwise, with respect to such a
possible transaction.

Employees

         The employment contracts of Victor K. Kurylak, First Montauk's
President and Chief Executive Officer and Celeste M. Leonard, the Registrant's
Executive Vice President and Chief Compliance Officer of First Montauk,
terminated on December 31, 2008 in accordance with their respective terms and
were not renewed by the Registrant. Mr. Kurylak remains on the Board of
Directors of the Registrant.

         As of December 31, 2008, Montauk Financial Group had six employees,
consisting of a Chief Financial Officer and five administrative employees.

         Until February 23, 2009, Montauk Financial Group was registered as a
broker-dealer with the SEC, Financial Industry Regulatory Authority ("FINRA")
(formerly the National Association of Securities Dealers), the Municipal
Securities Rule Making Board, the National Futures Association, and the
Securities Investor Protection Corporation ("SIPC"), and was licensed to conduct
its brokerage activities in all 50 states, the District of Columbia, and the
Commonwealth of Puerto Rico.
<PAGE>

         In the past, competition, government regulation and the volatility of
capital markets affected us and were reported in our public filings. As of the
filing date of this document, such items are no longer applicable to the
Company.

Securities Broker/Dealer Professional Liability Insurance

         From January 31, 2006 through January 30, 2009 Montauk Financial Group
carried a securities Broker/Dealer professional liability insurance policy
covering negligent acts, errors or omissions by an insured individual acting on
behalf of the insured Broker/Dealer in providing securities transactions,
investment management services, financial investment advice and the purchase
and/or sale of securities.

         This policy excluded coverage for certain types of business activities,
including but not limited to, claims involving the sale of penny stocks and
limited partnerships, accounts handled on a discretionary basis and deliberately
fraudulent and/or criminal acts. Upon the expiration of the prior policy, we
purchased a policy continuation or "run-off policy" for a period of three years
beginning January 31, 2009. The coverage terms of the run-off policy are
essentially the same as the prior policy but with reduced coverage limits
($1,500,000 policy aggregate limit; $500,000 per claim with $25,000 per claim
retention), for the entire three year coverage period. First Montauk offered
this extended coverage to former registered representatives and collected
approximately $60,000 from those who signed up to participate in the program,
which was used to partially offset the $515,000 policy premium. Any former
registered representatives that did not elect to participate in this policy will
not be covered.

Executive and Organization Liability Insurance Policy

         We carry an executive and organization liability insurance policy (also
known as Directors and Officers liability insurance), which covers our executive
officers, directors and counsel against any claims for monetary damages arising
from the covered individuals actual or alleged breach of duty, neglect, error,
misstatement, misleading statement or omission when acting in the capacity of
his/her position as an executive officer, director and/or counsel on our behalf.
Policy exclusions include, but are not limited to, claims made against covered
individuals attributable to the committing of any deliberate criminal or
fraudulent acts, illegal or improper payments, and others. Upon the expiration
of the current policy in June 2009, we intend to purchase a "run off" policy
which will extend the policy coverage for an additional six years.

General Business Developments during 2008

Definitive Asset Purchase Agreement

         On July 9, 2008, we and First Montauk signed the Purchase Agreement
with First Allied, providing for the sale of substantially all of the assets of
First Montauk to First Allied.

         Under the Purchase Agreement, many of First Montauk's independent
registered representatives joined First Allied, and First Allied acquired the
right to service the customer accounts of those registered representatives that
joined First Allied. The aggregate purchase price for the purchased assets was
equal to 30% of the aggregate commission and fee income for the trailing twelve
(12) month period ended on June 30, 2008 which was generated by the registered
representatives who joined First Allied, which was determined to be
approximately $4,197,000.
<PAGE>

         On October 27, 2008 at the Annual Meeting of Shareholders, holders of a
majority of our outstanding shares eligible to vote approved the Purchase
Agreement with First Allied and the transaction closed effective on December 15,
2008.

         The terms of the Purchase Agreement called for the Purchase Price to be
paid in several installments; the initial payment of $250,000 being made on July
15, 2008. At the closing on December 15, 2008, First Montauk received a credit
for the cancellation of the balance of principal and interest outstanding
totaling approximately $1,055,670 under a secured convertible promissory note,
dated December 7, 2007 executed in connection with a loan to First Montauk by an
affiliate of First Allied. The third payment of $2,000,000 was received on
January 15, 2009 with the balance of $891,388 expected on March 17, 2009, in
accordance with the Purchase Agreement. On that date we received $676,431 and
were advised by First Allied that they were making an adjustment to the purchase
price of $14,957 and were withholding an additional $200,000 based on their
claim of indemnification under the Purchase Agreement. We agreed with the
purchase price adjustment of $14,957 but challenged First Allied's right to
withhold $200,000. We subsequently entered into an agreement with First Allied
in which we permitted them to retain $50,000 and apply it towards any expenses
incurred in connection with an attempt by a former customer to add First Allied
as a named respondent in a pending arbitration case in which we, First Montauk,
certain of our executive officers and certain individual registered
representatives were previously named as respondents. First Allied therefore
paid the balance of $150,000 to us in April 2009. Based on this we adjusted the
amount due from First Allied to $2,826,431. The agreement further provides that
in the event that First Allied's defense costs are less than $50,000, First
Allied will pay us the remaining balance and if its expenses exceed $50,000 in
connection with this arbitration, we must indemnify First Allied for its costs
above $50,000.

Stock Repurchase

         On October 20, 2008, we entered into a stock repurchase agreement with
FMFG Ownership Inc. by Gerard A. McHale, Jr. as Chapter 11 Bankruptcy Trustee of
The 1031 Tax Group LLC et al., as Chapter 11 Debtors to purchase 3,300,308
shares of our common stock, no par value, for $100,000. The stock repurchased
was cancelled and had the effect of reducing the total number of our common
shares outstanding from 13,257,248 to 9,956,940.

Election of Directors

         At the Annual Meeting of Shareholders on October 17, 2008, holders of a
majority of outstanding shares eligible to vote, voted to elect Celeste M.
Leonard as a Class I director to serve for a three-year term and until her
successor shall have been elected and shall have qualified. On March 23, 2009,
we subsequently received Ms. Leonard's resignation from her position on the
board of directors.

Item 1A.      Risk Factors

Not applicable based on filing as smaller reporting company.

Item 1B.   Unresolved Staff Comments

None

Item 2.   Properties

         We maintain our corporate headquarters and executive offices at Parkway
109 Office Center, 328 Newman Springs Road, Red Bank, New Jersey. On September
22, 2004 we entered into a 4th Amendment to our Master Lease dated March 1997
for our corporate headquarters in Red Bank, New Jersey. The amendment provides

<PAGE>

for a lease term of five (5) years, which commenced on February 1, 2005, for
27,255 square feet. The lease provides for monthly rent payments of $50,762. As
additional rent, we are required to pay a proportional share of any increases in
real estate taxes and operating expenses above the amount paid during the 2005
calendar year, insurance premiums and all utility charges related to the
premises. The amendment contains a five-year option to renew at a rental payment
equal to the then-current fair market rate per square foot applicable to the
leased premises. We have notified the building landlord of our intent to
terminate our lease prior to the expiration date of January 31, 2010, and have
requested that the space be shown and leased to new tenants. On March 20, 2009,
we received a default notice from the landlord due to our failure to pay the
monthly rental payment for the month of March 2009. The default notice demands
that the premises be vacated by May 1, 2009, which we complied with, so that the
landlord may re-let the premises. In the event that the landlord cannot find a
replacement tenant or tenants, we may be liable for all or a portion of the
remaining rental payments. As of December 31, 2008, the Company has accrued for
all lease payments due through the end of the lease term, January 31, 2010.

Item 3.   Legal Proceedings

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

         As a condition to obtaining approval from FINRA for the asset purchase
transaction, First Montauk was required to establish and fund an escrow account
for the benefit of customers with current and/or future claims against the firm.
In November 2008 the escrow account was established with the law firm Becker
Poliakoff, LLP as the escrow agent. In January 2009 the account was funded with
$366,000 pursuant to the requirements of FINRA, which can only be utilized to
pay settlements of customer claims and complaints, any arbitration awards or
judgments with respect to such claims, and legal, accounting and other expenses
related to the investigation, administration and defense of such claims (limited
to the amount of any retention amount for claims covered by insurance.)
Subsequent to the balance sheet date, $65,000 has been paid from the account for
the settlement of two customer arbitrations.

         The West Oaks Mall Litigations

         There are four (4) separate legal proceedings (three civil law suits
and one FINRA arbitration; each listed below and referred to as "West Oaks
Mall") arising from First Montauk's participation in one particular private
offering involving a Section 1031 tax free exchange investment program, offered
and sold by Investment Properties of America ("IPofA"). The offering, named
"IPofA WOM MASTER Lease Co, LP", required customers seeking a Section 1031 tax
free exchange real estate investment to deposit cash and assume a portion of the
master mortgage on the property, which was a retail mall outside of Houston,
Texas. In 2008, the mall filed for bankruptcy protection and the investors were
required to give up any ownership interest in exchange for a release of their
obligations on the mortgage.

         Each of these lawsuits contain similar allegations including fraud,
negligent misrepresentation, breach of duty of care, and violations of the
various state securities laws in the states where each Plaintiff resides. In
addition to naming the Company and First Montauk, each of these suits names the
individual registered representatives, as well as our former President and Chief
Executive Officer ("CEO") and our former Chief Compliance Officer ("CCO"),
as defendants. The complaints also allege an undisclosed relationship between
the IPofA and Mr. Edward H. Okun ("Okun") with Defendants First Montauk and
a former registered representative of First Montauk. Mr. Okun was a private
investor who owned several companies which we had entered into a definitive
merger agreement with in 2006. The merger never took place and in June 2007 we
entered into a settlement agreement with Mr. Okun and several other named
defendants to settle various lawsuits arising out of the terminated merger
agreement.  Through his related entities, Mr. Okun had held almost 50% of the
Company's outstanding common stock at certain times during 2007.

         On January 26, 2009 we received a coverage determination notice from
Lexington Insurance Company ("Lexington"), the insurance carrier under our
Broker/Dealer Professional Liability Insurance Policy (the "Policy"), regarding
these cases, wherein it described its coverage position with respect to the West
Oaks Mall matters. Lexington is a subsidiary of American International Group,
Inc. ("AIG"). Lexington advised us that under the Policy all of the West Oaks
Mall claims arise out of "Interrelated Wrongful Acts" which provides that all of
these claims be treated as one claim for coverage purposes. Therefore, Lexington
stated that there is $1,000,000 of coverage (subject to the other exclusions
described below), with one $100,000 retention. The letter also stated that
although the Policy would provide defense coverage, no indemnity coverage would
be available for any of these claims as a result of two separate exclusions in
the Policy. The Limited Partnership/REIT Insolvency Exclusion excludes indemnity
coverage for any investment in a limited partnership or REIT that becomes
insolvent. Lexington's position is that the West Oaks Mall matters arise out of
the insolvency of IPofA WOM LeaseCo, LP, as well as the bankruptcy of the West
Oaks Mall. As such, there is no indemnity coverage.
<PAGE>

         Lexington also cites as an exclusion from coverage the amended
Definition of Investment Banking Activity in the Policy which limits coverage
for Section 1031 exchange programs to those listed in the amended Policy
Endorsement. Because IPofA was not listed among the approved providers of
Section 1031 exchange programs, it is Lexington's position that there is no
indemnity coverage for these claims based upon this provision of the Policy.

         The Company will be challenging Lexington's coverage positions with
respect to these claims, but there can be no assurance that First Montauk will
be successful in obtaining indemnity coverage under the Policy for any of the
West Oaks Mall cases. In the event that First Montauk is unable to secure
indemnity coverage, any settlement or adverse judgment or award against First
Montauk, could have a material adverse affect on the Company's financial
condition.

         The following lists each of the pending West Oaks Mall-related
litigations and the amounts invested in the program by each of the Plaintiffs:
<TABLE>
    <S>                                                   <C>                             <C>

         Caption of Pending Case                                 Venue                       Invested Amount
     ---------------------------------------------------- ------------------------------- -----------------------
     Jeanette E. Newman and Norma Register v. First       U.S. District Court, North      $2.2 Million
     Montauk Financial Corp., First Montauk Securities    Carolina
     Corp., Kenneth R. Bolton, et al (#7:08-cv-116D).
     ---------------------------------------------------- ------------------------------- -----------------------
     ---------------------------------------------------- ------------------------------- -----------------------

     ---------------------------------------------------- ------------------------------- -----------------------
     ---------------------------------------------------- ------------------------------- -----------------------
     Dawn A. Dunbar, Zeneth Eidel, and Doris Eidel v.     Superior Court of New           $1.94 Million
     First Montauk Financial Corp., First Montauk         Jersey-Monmouth County
     Securities Corp., Kenneth R. Bolton, et al
     (#L-4949-08).
     ---------------------------------------------------- ------------------------------- -----------------------
     ---------------------------------------------------- ------------------------------- -----------------------

     ---------------------------------------------------- ------------------------------- -----------------------
     ---------------------------------------------------- ------------------------------- -----------------------
     Keith  Sperling  and  Martha A.  Olivares-Sperling,  Superior Court of New           $1.67 Million
     Maury  Duff  Peck,   Catharine  G.  Meeks,   Eugene  Jersey-Monmouth County
     Brughelli,  Jr.  and  Patricia  Brughelli  v. First
     Montauk Financial Corp.,  First Montauk  Securities
     Corp., Kenneth R. Bolton, et al
     ---------------------------------------------------- ------------------------------- -----------------------
     ---------------------------------------------------- ------------------------------- -----------------------

     ---------------------------------------------------- ------------------------------- -----------------------
     ---------------------------------------------------- ------------------------------- -----------------------
     Michael Sokobin and Helene Sokobin v. First          FINRA Arbitration               $442,000
     Montauk Financial Corp., First Montauk Securities
     Corp., Kenneth R. Bolton, et al (FINRA Case No.
     08-04146
     ---------------------------------------------------- ------------------------------- -----------------------
</TABLE>
<PAGE>

         Court Order Restricting Use of Asset Sale Proceeds

         The Company is subject to a court order issued by a New Jersey superior
court on January 14, 2009, requiring that the balance of the sale proceeds of
the asset sale to First Allied be held in escrow for the benefit of the
Company's creditors. The court order was issued in conjunction with a lawsuit
initiated by a former customer of First Montauk who invested in a private
offering of a real estate Section 1031 like-kind exchange program, captioned
Dawn A. Dunbar, Zeneth Eidel, and Doris Eidel v. First Montauk Financial Corp.,
First Montauk Securities Corp., Kenneth R. Bolton, et al (Monmouth County Docket
No.L-4949-08). On April 14, 2009, the court entered a consent order permitting
the Company to pay auditing fees of $80,000 in connection with the filing of the
Company's Form 10-K. On May 8, 2009, the court entered a second consent order
permitting the Company to pay other expenses from the sale proceeds totaling
$452,065. The Company agreed that the remaining balance of the sale proceeds of
$381,348 would remain in escrow pending further order of the court.

         We are a respondent or co-respondent in various other legal
proceedings, which are related to our former securities business. Management is
contesting these claims and believes that there are meritorious defenses in each
case. However, litigation is subject to many uncertainties, and some of these
actions and proceedings may result in adverse judgments. Further, the
availability of insurance coverage is determined on a case-by-case basis by the
insurance carrier, and is limited to the coverage limits within the policy for
any individual claim and in the aggregate. After considering all relevant facts,
available insurance coverage and consultation with litigation counsel,
management believes that significant judgments or other unfavorable outcomes
from pending litigation could have a material adverse impact on our consolidated
financial condition, results of operations, and cash flows in any particular
quarterly or annual period, or in the aggregate.

         As of December 31, 2008, the Company has accrued for other potential
legal liabilities that are probable and can be reasonably estimated based on a
review of existing claims and arbitrations. The accrual is included in accrued
expenses at December 31, 2008. Management cannot give assurance that this amount
will be adequate to cover actual costs that may be subsequently incurred.
Further, it is not possible to predict the outcome of other matters pending
against the Company.

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

         On October 17, 2008, we held our annual meeting of shareholders (1) to
consider and act upon the approval and adoption of the Purchase Agreement, and
(2) to consider and act upon the re-election of Celeste M. Leonard as our Class
I Director, both of which received majority approval of shareholders.



<PAGE>
                                     PART II

Item 5.           Market of and Dividends on our Common Equity and
                  Related Stockholder Matters

A.      Principal Market and Market Information

         Our common stock is traded in the over-the-counter market. Trading in
our common stock is reported on the FINRA Bulletin Board system and in the pink
sheets published by Pink Sheets LLC. We believe that there is an established
public trading market for our common stock based on the volume of trading in our
common stock and the existence of market makers who regularly publish quotations
for our common stock. Our common stock commenced trading in the over-the-counter
market in 1987. On May 18, 2009, our common stock had bid and offer prices of
$0.001 and $0.04 per share, respectively. At December 31, 2008 our common stock
had a closing price of $0.01 per share. Quotations on the OTCBB reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.

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

       Common Stock

       Calendar Year 2009               High Bid       Low Bid

       1st Quarter                      $.005          $.005

       Calendar Year 2008               High Bid       Low Bid

       1st Quarter                      $.20           $.11
       2nd Quarter                      $.15           $.06
       3rd Quarter                      $.08           $.01
       4th Quarter                      $.02           $.005

       Calendar Year 2007               High Bid       Low Bid

       1st Quarter                      $.61           $.46
       2nd Quarter                      $.70           $.35
       3rd Quarter                      $.40           $.28
       4th Quarter                      $.30           $.16


B.       Number of Record Holders

         The approximate number of record holders of our common stock as of May
14, 2009 was 448. Such number of record holders was determined from our
stockholder records, and does not include beneficial owners of our common stock
whose shares are held in the names of various security holders, dealers and
clearing agencies. We believe there are in excess of 350 beneficial holders of
our common stock.
<PAGE>

C.       Dividend Policy

         We have not paid any dividends on our common stock since our inception,
and do not expect to pay any dividends on our common stock in the foreseeable
future and plan to retain earnings, if any, to finance the development and
expansion of our business. We pay quarterly dividends on outstanding shares of
our Series A Preferred Stock at the rate of 6% per annum, subject to the
limitations under the New Jersey Business Corporation Act. There are currently
outstanding 22,282 shares of Series A Preferred Stock.

D.       Issuance of Unregistered Securities

         There were no issuances of unregistered securities during 2008.

E.       Stock Repurchases

         On October 20, 2008, we entered into a stock repurchase agreement with
FMFG Ownership Inc. by Gerard A. McHale, Jr. as Chapter 11 Bankruptcy Trustee of
The 1031 Tax Group LLC et al., as Chapter 11 Debtors to purchase 3,300,308
shares of our common stock, no par value, for $100,000. The stock repurchase had
the effect of reducing the total number of our common shares outstanding from
13,257,248 to 9,956,940

F.       Securities Authorized For Issuance Under Equity Compensation Plans

         See Item 11. "Executive Compensation".

Item 6.  Selected Financial Data

          Not applicable due to smaller reporting company status.



<PAGE>


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

Forward-Looking Statements

         This report contains forward-looking statements within the meaning of
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. In some cases, forward-looking statements can be identified by words such
as "believe," "expect," "anticipate," "plan," "potential," "continue" or similar
expressions. Forward-looking statements also include the assumptions underlying
or relating to any of the foregoing statements. Such forward-looking statements
are based upon current expectations and beliefs and are subject to a number of
factors and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements including, but not
limited to, risks described from time to time in the Company's filings with the
SEC, press releases and other communications. All forward-looking statements
included in this report are based on information available to the Company on the
date hereof. The Company undertakes no obligation (and expressly disclaims any
such obligation) to update forward-looking statements made in this report to
reflect events or circumstances after the date of this report or to update
reasons why actual results would differ from those anticipated in such
forward-looking statements.

         The following detailed discussion and analysis of the Company's
financial condition and results of operations should be read in conjunction with
the December 31, 2008 financial statements and related notes included in
separate sections of this Form 10-K.

Overview

         Substantially all of our business activities consist of the securities
brokerage and investment banking activities of our wholly owned subsidiary,
First Montauk, a FINRA registered broker-dealer. First Montauk conducts
operations in four principal categories, all of which are in the financial
services industry. These categories are:

     o   securities brokerage activities for which First Montauk earns
         commissions or fees;
     o   corporate finance revenues consisting primarily of fees generated from
         private offerings of securities in which we act as placement agent and
         new issues of equity and preferred stock offerings in which we
         participate as a selling group or syndicate member;
     o   proprietary trading for which First Montauk records profit or loss,
         depending on trading results and riskless principal transactions with
         customers; and
     o   other income, primarily interest earned on customer balances.

         Because we operate in the financial services industry, our revenues and
earnings are substantially affected by general financial market conditions.
Therefore, the amount of our revenues depends greatly on levels of market
activity requiring the services we provide.
<PAGE>

         At the Annual Meeting of Shareholders held on October 17, 2008, the
shareholders of the Company approved the Purchase Agreement executed by the
Company, First Montauk, and First Allied as of July 9, 2008 providing for the
sale of substantially all of the assets of First Montauk to First Allied. On
December 15, 2008 the Company and First Montauk completed the transaction. Upon
the closing, under the Purchase Agreement, certain of First Montauk's
independent registered representatives joined First Allied, and First Allied
acquired the right to service the customer accounts of those representatives
that join First Allied. As previously disclosed in its proxy statement to
shareholders, dated September 23, 2008, upon completion of the sale of assets to
First Allied, substantially all of the assets of First Montauk were sold to and
acquired by First Allied, and First Montauk ceased its broker-dealer and
investment advisor operations. To that end, on December 23, 2008, First Montauk
filed Form BDW and Form ADV-W with the SEC, effective December 31, 2008, to
withdraw its registration as a broker-dealer and to terminate our registration
as an investment advisor. The Form ADV-W was effective on December 31, 2008 and
the Form BDW was accepted and approved by the SEC on February 23, 2009. In
accordance with GAAP, due to the substantial nature of the sale of First
Montauk, the Company determined that all of its operations are considered to be
discontinued.

         Under the terms of the Purchase Agreement, an aggregate purchase price
of approximately $4,197,000 was determined. Upon the signing of the Purchase
Agreement, First Allied paid $250,000 to First Montauk. At closing, First
Montauk received a credit for the cancellation of the balance of principal and
interest outstanding totaling approximately $1,055,670 under a secured
convertible promissory note, dated December 7, 2007 executed in connection with
a loan to First Montauk by an affiliate of First Allied. The third payment of
$2,000,000 was received on January 15, 2009 with the balance of $891,388
expected on March 17, 2009, in accordance with the asset purchase agreement. On
that date we received $676,431 and were advised by First Allied that they were
making an adjustment to the purchase price of $14,957 and were withholding an
additional $200,000 based on their claim of indemnification under the Purchase
Agreement. We agreed with the purchase price adjustment of $14,957 but
challenged First Allied's right to withhold $200,000. We subsequently entered
into an agreement with First Allied in which we permitted them to retain $50,000
and apply it towards any expenses incurred in connection with an attempt by a
former customer to add First Allied as a named respondent in a pending
arbitration case in which we, First Montauk, certain of our executive officers
and certain individual registered representatives were previously named as
respondents. First Allied therefore paid the balance of $150,000 to us in April
2009. Based on the two holdbacks mentioned above, we adjusted the amount due
from First Allied as of December 31, 2008 to $2,826,431. The agreement further
provides that in the event that First Allied's defense costs are less than
$50,000, First Allied will pay us the remaining balance and if its expenses
exceed $50,000 in connection with this arbitration, we must indemnify First
Allied for its costs above $50,000.

         The Company is subject to a court order issued by a New Jersey Superior
Court on January 14, 2009, requiring that the balance of the sale proceeds of
the asset sale to First Allied be held in escrow for the benefit of the
Company's creditors. The court order was issued in conjunction with a lawsuit
initiated by a former customer of First Montauk who invested in a private

<PAGE>

offering of a real estate Section 1031 like-kind exchange program, captioned
Dawn A. Dunbar, Zeneth Eidel, and Doris Eidel v. First Montauk Financial Corp.,
First Montauk Securities Corp., Kenneth R. Bolton, et al (Monmouth County Docket
No.L-4949-08). On April 14, 2009, the Court entered a consent order permitting
the Company to pay auditing fees of $80,000 in connection with the filing of the
Company's Form 10-K. On May 8, 2009, the Court entered a second consent order
permitting the Company to pay other expenses from the sale proceeds totaling
$452,065. The Company agreed that the remaining balance of $381,348 would remain
in escrow pending further order of the Court.

         As a result of the substantial obligations outstanding that are due and
payable by the Company to various creditors, we do not anticipate that the
Company's shareholders will receive any distribution of any proceeds of the sale
of assets just completed. The board of directors is evaluating the benefits of
positioning the Company as a shell company to be used as a potential merger
candidate for another operating business. At this time we do not have any
specific merger, stock exchange, asset acquisition, reorganization or other
business combination under consideration or contemplation. We have not contacted
any potential target business or had any discussions, formal or otherwise, with
respect to such a transaction.

         The consolidated financial statements for 2008 were prepared on the
going concern basis of accounting, which contemplates realization of assets and
satisfaction of liabilities in the normal course of business as disclosed in
Note 2 to the consolidated financial statements. Certain conditions that exist
raise substantial doubt about our ability to continue as a going concern.
Management's plans are also disclosed in Note 2. The consolidated financial
statements do not include any adjustments that might result from this
uncertainty.

Business Environment in 2008

      During the first half of 2008, economic growth in the United States slowed
and the U.S. entered a recession. The lessening of liquidity that began in 2007
accelerated during 2008 and the U.S. markets experienced unprecedented
challenges as credit contracted further, the downturn in economic growth
broadened, and a number of major financial institutions faced serious problems.
Concerns regarding future economic growth and corporate earnings, as well as
illiquidity in the credit markets created challenging conditions for the equity
markets which experienced significant broad-based declines, with equity indices
significantly lower at the end of 2008 as compared to the end of 2007. Fixed
income and equity markets experienced high levels of volatility, broad-based
declines in asset prices and further reduced levels of liquidity, particularly
in the fourth quarter of 2008. The impact of these events created a challenging
environment for investment banking opportunities and sharply narrowed the
ability to distribute securities in the equity and debt capital markets.

      The results of our operations for 2008 reflect these challenging market
factors, which contributed to reduced levels of capital markets activity. The
continuation of the volatile markets and unfavorable economic conditions of 2008
had a material impact on our business.

      Our financial performance was highly dependent on the environment in which
our business operated. Overall, during 2008, the macro business environment for
our business was extremely challenging, and contributed to our decision to sell
substantially all of our assets and discontinue operations.
<PAGE>

Results of Operations

         There were several factors that contributed to the decline in overall
revenues and the results of operations. Factors such as the decline in the
number of producing registered representatives and the pending asset sale of the
brokerage operations coupled with the market conditions and slow down in the
economy. Soon after the announcement in October 2008 of the Company's decision
to enter into the asset sale with First Allied, representatives that had decided
not to join First Allied left First Montauk to join other firms. The distraction
caused by the pending asset sale, created an environment of declining revenues
for registered representatives who were evaluating the decision to join First
Allied.

         The following provides a breakdown of total revenues by source,
excluding the gain on the sale of our brokerage operations, for the years ended
December 31, 2008 and 2007 (in thousands of dollars).

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

                                         ----------------------------- ----------------------------------
                                              December 31, 2008                December 31, 2007
                                         ----------------------------- ----------------------------------
                                           Amount       % of Total         Amount          % of Total
                                                         Revenues                           Revenues
                                         ------------ ---------------- ---------------- -----------------
                                         ------------ ---------------- ---------------- -----------------
          Commissions
              Equities                        $7,913              32%          $12,498               32%
              Mutual Funds                     3,923              16%            6,042               15%
              Insurance                        3,014              12%            4,386               11%
              Investment Advisory              3,981              16%            4,314               11%
              Alternative Products             1,300               5%            4,164               10%
              Fixed Income                       269               1%              324                1%
                                         ------------ ---------------- ---------------- -----------------
                                         ------------ ---------------- ---------------- -----------------
              Total                           20,400              82%           31,728               80%
          Principal Transactions               1,768               7%            1,535                4%
          Investment Banking                     674               3%            3,580                9%
          Interest and Other
              Interest                         1,354               5%            2,055                5%
              Other                              718               3%              658                2%
              Total                            2,072               8%            2,713                7%
                                         ------------ ---------------- ---------------- -----------------
              Total revenues                 $24,914             100%          $39,556              100%
</TABLE>
<PAGE>

2008 Financial Overview (All Operations are Discontinued)

         For the year ended December 31, 2008, revenues were $24.9 million,
compared to $39.6 million for the year ended December 31, 2007. The 37 percent
decrease in revenues was driven by decreased commissions of $11.3 million and
investment banking revenues of $2.9 million. Interest income decreased by
approximately $709,000 in 2008 compared to the prior year. Other income
increased approximately $60,000, compared to the prior year. The 2008 year
included a $288,000 insurance recovery received from our fidelity bond carrier
resulting from a claim filed arising out of fraudulent stock purchases in the
first quarter of 2008. (See Note 14 - "Fraudulent Activity Loss" in the Notes to
the Consolidated Financial Statements for more details). As a result of the
transaction with First Allied, the Company reported approximately $2.9 million
as "gain on sale of brokerage operations" in the financial statements. Loss per
basic and diluted share for the year ended December 31, 2008 was $0.03 compared
to a loss per basic and diluted share of $0.14 for the year ended December 31,
2007. The Company reported a net loss applicable to common shareholders of
$403,000 for the year ended December 31, 2008, compared to a net loss applicable
to common shareholders of $2.2 million for the year ended December 31, 2007.

2008 Compared to 2007

Commission Revenue

         Commissions are comprised of revenues from the sale of equities, fixed
income, mutual funds, insurance, asset management fees and alternative products.
Commission revenue for 2008 decreased $11.3 million to $20.4 million from $31.7
million in 2007. The decline in the number of producing registered
representatives and the pending asset sale of the brokerage operations, coupled
with the market conditions and slow down in the economy, contributed to the
decrease in revenues in every category.

Principal Transactions

         Total revenues from principal transactions, which include
mark-ups/mark-downs on transactions in which we act as principal, proprietary
trading and the sale of fixed income and equity securities increased $233,000,
from $1.54 million for 2007 to $1.77 million for 2008.

Investment Banking

         In 2008, investment banking revenues decreased by $2.9 million, from
$3.6 million in 2007 to 674,000 in 2008. The decrease in investment banking
revenues is attributable to the Company having completed a smaller number of
investment banking transactions, primarily in PIPE (private investments in
public equities) deals, during 2008 when compared to 2007. The PIPE business
slowed considerably in 2008. Almost three-fourths of overall PIPE transactions
that were completed in 2007 had resulted in losses in 2008, at least in
mark-to-market terms (or in terms of the present value of their investments).
Therefore, institutions and private equity firms were much more conservative
when considering investments in PIPEs during 2008 limiting the number of new
PIPE transactions. This category also includes new issues of equity and
preferred stock offerings of securities in which we participate as a selling
group or syndicate member. In addition, the Company receives fees for providing
financial advice to various companies pertaining to their business affairs.

Interest and Other Income

         Interest and other income decreased $641,000 in 2008, or 24%, from $2.7
million in 2007 to $2.1 million in 2008. In 2008, the Company reported an
insurance recovery of $288,000 received from our fidelity bond carrier resulting
from a claim filed arising out of fraudulent stock purchases in the first
quarter of 2008. Of the net decrease in interest and other income, $701,000 was
from the reduction in interest income. This decrease was directly related to the
amount of margin debit carried by customers, along with the reduction in
interest charged on these accounts.
<PAGE>

Expenses

         Total expenses decreased by $13.4 million, or 32%, in 2008 to $28.2
million from $41.6 million in 2007. Included in the expenses for 2008 are
severance payments for terminated employees of $562,000 and $338,000 of losses
as a result of fraudulent trading activity. (See Note 14 - "Fraudulent Activity
Loss" in the Notes to the Condensed Consolidated Financial Statements for more
details). Also included in total expenses are monthly contractual obligations
for rent, equipment leases and miscellaneous costs of approximately $805,000
that the Company is financially unable to meet and is in default based on its
discontinued operations and therefore has been expensed in total as of December
31, 2008. Included in the expenses for 2007 are severance payments for
terminated employees of $341,000, consulting agreements for two prior executives
of $219,000, litigation costs associated with the Okun affiliates of $400,000
and costs associated with an SEC investigation and the resolution of a
settlement with both the SEC and FINRA of approximately $518,000.

The following chart provides a breakdown of total expenses for the years ended
December 31, 2008 and 2007(in thousands of dollars).
<TABLE>
<S>                                      <C>           <C>           <C>             <C>

                                         -----------------------------------------------------------
                                                                Years Ended
                                         -----------------------------------------------------------
                                         --------------------------- -------------------------------
                                             December 31, 2008             December 31, 2007
                                         --------------------------- -------------------------------
                                                                     --------------- ---------------
                                            Amount      % of Total       Amount        % of Total
                                                         Expenses                       Expenses
                                         ------------- ------------- --------------- ---------------
                                         ------------- ------------- --------------- ---------------
Commissions, employee   compensation          $20,884           74%         $33,996             82%
and benefits
Clearing and floor brokerage                    1,171            4%           1,478              4%
Communications and   occupancy                  2,407            8%           1,673              4%
Legal matters and related costs                   911            3%           1,672              3%
Other operating expenses                        2,709           10%           2,779              7%
Interest                                          118            1%              26             <1%
Total operating expenses                      $28,200          100%         $41,624            100%
Provision for income taxes                         $7                           $16
</TABLE>
<PAGE>

         Commission expense, consistently the largest expense category and
directly related to commission revenue, decreased 40%, or $11.2 million, from
$28.0 million for 2007, to $16.8 million for 2008. Compensation and benefits
expense for management, operations and clerical personnel, which include
salaries, severance payments, payroll taxes, stock and option compensation,
health insurance premiums, and bonus accruals, decreased for 2008, to $4.07
million from $6.0 million, a decrease of approximately $1.9 million over 2007.
Included in 2008 was approximately $722,000 in severance costs and bonus costs
payments associated with employment contracts for various personnel compared
with approximately $811,000 in 2007.

Clearing and Floor Brokerage

         Clearing and floor brokerage costs which are greatly affected by volume
and type of transactions decreased approximately $307,000 from 2007 to 2008.

Communications and Occupancy

         Communications and occupancy costs increased approximately $734,000
from 2007 to 2008, from $1.67 million in 2007 to $2.41 million in 2008. Due to
the Company's discontinuation of its brokerage operations and the asset sale,
approximately $773,000 of monthly contractual obligations were expensed in
December 2008. Of this amount, approximately $554,000 was attributable to the
remainder of its monthly rent obligation.

Legal matters and related costs

         Legal matters and related settlement costs decreased approximately
 $760,000, from $1.67 million in 2007 to $911,000 in 2008. Legal fees for 2008
 were $494,000, compared to $1.26 million in 2007. In 2007, we incurred
 approximately $400,000 (net of insurance reimbursement) in legal fees related
 to various lawsuits involving the termination of an anticipated acquisition in
 December 2006. Other legal fees in 2007 included costs associated with an SEC
 investigation and a resulting settlement with both the SEC and FINRA of
 approximately $518,000, as well as fees associated with customer claims. The
 cost of legal settlements for 2008 increased approximately $318,000 when
 compared to 2007.

         As of December 31, 2008, we have accrued litigation costs that are
probable and can be reasonably estimated based on a review of existing claims,
arbitrations and unpaid settlements. Management cannot give assurance that this
amount will be adequate to cover actual costs that may be subsequently incurred.
Further, it is not possible to predict the outcome of other matters pending
against us. All such cases will continue to be vigorously defended.

Other Operating Expenses

          Other operating expenses decreased by approximately $70,000, to $2.71
million in 2008 from $2.78 million in 2007. Included in this category is
approximately $338,000 of losses as a result of fraudulent trading activity that
occurred during the first quarter of 2008. (See Note 14 - "Fraudulent Activity
Loss" in the Notes to the Condensed Consolidated Financial Statements for more
details). Absent this loss, other operating expenses would have decreased by
approximately $408,000. Included in the 2008 operating costs are increases in
depreciation expense of $92,000, E&O insurance premiums of $61,000, professional
fees of $104,000 and broker bad debt expense of $107,000. These increases were
offset by decreases in branch office audits of $128,000, consulting and
professional fees of $267,000, office expense and supplies of $69,000, seminars
and training expense of $49,000 and travel and entertainment expenses of
$44,000.
<PAGE>

         Income tax expense for the years ended December 31, 2008 and 2007 were
$7,100 and $16,000, respectively. As of December 31, 2008 and 2007, other future
tax benefits have been entirely offset by a valuation allowance because, based
on the weight of available evidence, it is more likely than not that the
recorded deferred tax assets will not be realized in future periods.

Liquidity and Capital Resources

         We have sold substantially all of our assets and have ceased our
broker-dealer and investment advisory operations as of December 15, 2008. The
cash proceeds from First Allied, along with any of our remaining cash and other
assets may be insufficient for us to satisfy our known and contingent
liabilities. In addition, we do not have other operations which can generate
additional cash. As a result, there is substantial doubt about our ability to
continue as a going concern. The accompanying consolidated financial statements
have been prepared assuming that we will continue as a going concern, which
contemplates among other things, the realization of assets and satisfaction of
liabilities in the normal course of business. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

         Overall, cash decreased for 2008 by $354,000. Net cash used in
operating activities during 2008 was $472,000, as a result of a net loss of
$397,000 and a non-cash gain on sale from brokerage operations of $2,896,000.
These decreases were partially offset by non-cash charges for depreciation and
amortization of $245,000. Cash was further reduced by an increase in prepaid
expenses of $43,000 and net decreases in commissions' payable of $1,329,000 and
other liabilities and income taxes payable of $20,000. Cash was increased by
decreases in due from clearing firm, securities owned, employee and broker
receivables and other assets of $1,620,000, $119,000, $285,000 and $976,000,
respectively. Cash was further increased by increases in accounts payable and
accrued expenses of $46,000 and $922,000, respectively.

         Net cash used in operating activities during 2007 was $1,082,000, as a
result of a net loss of $2,085,000 adjusted by non-cash charges including
depreciation and amortization of $140,000. Cash was further reduced by a net
increase in other assets of $561,000 and decreases in commissions payable,
accounts payable and accrued expenses of $639,000, $57,000 and $639,000,
respectively. These decreases to cash were partially offset by decreases in the
amount due from our clearing firm, securities owned, prepaid expenses and
employee and broker receivables of $2,640,000, $39,000, $35,000 and $55,000,
respectively.

         Additions to property and equipment of $25,000 offset by cash proceeds
from the sale of brokerage operations received in 2008 of $250,000, provided
cash from investing activities for 2008. In 2007, investing activities consumed
$46,000 for additions to capital expenditures.

         Financing activities in 2008 used $107,000 due to the repurchase of
3,300,308 shares of common stock for $100,000 and the payment of preferred stock
dividends of $6,700. Financing activities in 2007 provided net cash of $851,000
due to the issuance of a convertible secured note in the amount of $1,000,000,
partially offset by payments of preferred stock dividends of $124,000.

Financing Activities

         On December 7, 2007, the Company entered into a note purchase agreement
(the "Note Purchase Agreement") with AEFC-FMFK Investment Corp. ("AEFC-IC"),
another company affiliated with First Allied and Advanced Equities (See Note 1
to the Consolidated Financial Statements), pursuant to which AEFC-IC was issued
a 10% Convertible Secured Note due on December 31, 2008 for a principal amount

<PAGE>

borrowed of $1,000,000 (the "AEFC-IC Note"). The AEFC-IC Note accrued interest
on the unpaid principal amount at the rate of 10% per annum, which was paid
monthly in arrears on or before the 10th day of the month following the interest
accrual.  The principal amount of the AEFC-IC Note and all accrued and unpaid
interest was due to be paid in full on December 31, 2008.

         On December 15, 2008, the date of closing of the Purchase Agreement,
principal of $1,000,000 and accrued interest of $55,670, was applied toward the
purchase price and the Note was cancelled and deemed paid in full. In connection
with the cancellation of the AEFC-IC Note, all security interests, including the
shares of stock of the Company's subsidiaries, First Montauk and Montauk
Insurance Services, Inc., were released back to the Company.

         As a result of the substantial obligations outstanding that are due and
payable by the Company, we do not anticipate that the Company's shareholders
will receive any distribution of any proceeds of the sale of assets completed to
First Allied. The board of directors is evaluating the benefits of positioning
the Company as a shell company to be used as a potential merger candidate for
another operating business. At this time we do not have any specific merger,
stock exchange, asset acquisition, reorganization or other business combination
under consideration or contemplation. We have not contacted any potential target
business, or had any discussions, formal or otherwise, with respect to such a
possible transaction.

Net Capital

         At December 31, 2008, First Montauk had net capital of $966,052 which
was $800,990 in excess of its required net capital of $165,062 and the ratio of
aggregate indebtedness to net capital was 2.56 to 1.

Contractual Obligations

         The Company has contractual obligations to make future payments in
connection with its short-term debt and non-cancelable lease agreements. Future
minimum lease commitments under all non-cancelable leases have been accrued
based on the Company's discontinuation of its brokerage and other business
operations and its inability to continue meeting its monthly contractual
obligations (See Notes 9 and 12 to the Notes to Consolidated Financial
Statements).

Critical Accounting Policies

         We prepare our financial statements in accordance with accounting
principles generally accepted in the United States of America. Preparing
financial statements in accordance with generally accepted accounting principles
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities as
of the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The following paragraphs include a
discussion of some of the significant accounting policies and methods applied to
the preparation of our consolidated financial statements. (See Note 3 to the
Notes to Consolidated Financial Statements for further discussion of significant
accounting policies.)

Use of Estimates

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

Revenue Recognition

         Securities transactions, commission income, sales concessions from
participation in syndicated offerings and related expenses are recorded on a
trade date basis. Insurance and mutual fund commissions received from outside
vendors are recognized as income when earned. Securities owned and securities
sold, but not yet repurchased are stated at quoted market value with unrealized
gains and losses included in earnings. Investment account securities not readily
marketable are carried at estimated fair value as determined by management with
unrealized gains and losses included in earnings.
<PAGE>

Long-lived Assets

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

Income Taxes

         Due to significant operating losses from we have established a
valuation allowance against all of our deferred tax benefits as of December 31,
2008, and we intend to maintain it until we determine that it is more likely
than not that deferred tax assets will be realized. Our income tax expense
recorded in the future will be reduced to the extent of offsetting decreases in
our valuation allowance. The realization of our remaining deferred tax assets is
primarily dependent on forecasted future taxable income.

         The Company adopted FIN 48 "Accounting for Uncertainty in Income Taxes"
in January 2007 to measure its tax positions in the consolidated financial
statements. The Company's practice is to recognize interest and/or penalties
related to income tax matters in income tax expense.

New Accounting Standards

         In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 157, Fair Value Measurements ("SFAS 157"), to define how
the fair value of assets and liabilities should be measured in accounting
standards where it is allowed or required. In addition to defining fair value,
the Statement established a framework within GAAP for measuring fair value and
expanded required disclosures surrounding fair value measurements. In February
2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, Effective Date of
FASB Statement No. 157, which delayed the effective date by one year for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis. On October 2008, the FASB issued FSP FAS 157-3, Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active, to
clarify the application of SFAS 157 in a market that is not active and provides
an example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. This FSP
was effective immediately. In April 2009, the FASB issued FSP FAS 157-4.
Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly, to provide additional guidance for estimating fair value when the
volume and level of activity for the asset or liability have significantly
decreased. This FSP will be effective for interim and annual reporting periods
ending after June 15, 2009. We adopted SFAS 157 for financial assets and
financial liabilities on January 1, 2008, and the adoption did not have a
material impact on our financial position, results of operations, or cash flows.

         In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities-Including an Amendment of FASB
Statement No. 115" ("SFAS 159"). SFAS 159 allows companies to measure certain
financial instruments at fair value without having to apply complex hedge
accounting provisions and to report unrealized gains and losses on elected items
in earnings. This Statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007. The adoption of SFAS 159 did not
have a material impact on the Company's results of operations or financial
position because we had no assets or liabilities for which we elected the fair
value option.

         In December 2007, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 141R (revised
2007), Business Combinations, which replaces SFAS No 141. The Statement retains
the purchase method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are recognized in
the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141R is effective for business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
<PAGE>

         In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements-and Amendment of ARB No. 51
("SFAS 160"). SFAS 160 establishes accounting and reporting standards pertaining
to ownership interests in subsidiaries held by parties other than the parent,
the amount of net income attributable to the parent and to the noncontrolling
interest, changes in a parent's ownership interest, and the valuation of any
retained noncontrolling equity investment when a subsidiary is deconsolidated.
This Statement also establishes disclosure requirements that clearly identify
and distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS 160 is effective for fiscal years beginning on or
after December 15, 2008. The adoption of SFAS 160 is not currently expected to
have a material effect on the Company's financial position, results of
operations, or cash flows.

         In March 2008, the Financial Accounting Standards Board ("FASB") issued
FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging
Activities ("SFAS 161"). The new standard is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity's financial position, financial performance, and cash flows. It is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged. The
Company is currently evaluating the impact of adopting SFAS 161 on its
consolidated financial statements.

         In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments, to require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. This FSP
also amends APB Opinion No. 28, Interim financial Reporting, to require those
disclosures in summarized financial information at interim reporting periods.
The Company will comply with the additional disclosure requirements beginning in
the second quarter of 2009.

         In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments. This FSP
amends the other-than-temporary impairment guidance in U.S. GAAP for debt and
equity securities in the financial statements. This FSP does not amend existing
recognition and measurement guidance related to other-than-temporary impairments
of equity securities. The FSP shall be effective for interim and annual
reporting periods ending after June 15, 2009. The Company currently does not
have any financial assets that are other-than-temporary impaired.

         In April 2009, the SEC released Staff Accounting Bulletin No. 111 ("SAB
111"), which amends SAB Topic 5-M. SAB 111 notes that FSP No. 115-2 and FAS
124-2 were scoped to debt securities only, and the FSP referred readers to SEC
SAB Topic 5-M for factors to consider with respect to other-than-temporary
impairments for equity securities. With the amendments in SAB 111, debt
securities are excluded from the scope of Topic 5-M, but the SEC staff's views
on equity securities are still included within the topic. The Company currently
does not have any financial assets that are other-than-temporary impaired.

Item 7A.      Quantitative and Qualitative Disclosures about Market Risk

Market Risk Exposure

         We have financial instruments that are subject to interest rate risk
and market risk. Historically, we have not experienced material gains or losses
due to interest rate changes. Based on the current holdings, the exposure to
interest rate risk and market risk are not material.

Item 8.      Financial Statements

         See Financial Statements attached hereto at pages F-1 to F-33.
<PAGE>

Item 9.      Changes in and Disagreements with Accountants on Accounting and
             Financial Disclosure

         None

Item 9A.    Controls and Procedures

a) Evaluation of Disclosure Controls and Procedures.

         Under the supervision and with the participation of management,
including the Company's Chief Executive Officer and Acting Chief Financial
Officer, the Company conducted an evaluation of the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act) as of December 31, 2008. The Company's disclosure controls and
procedures are designed to ensure that information required to be disclosed in
the reports the Company files under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to the
Company's management, including our Chief Executive Officer and Acting Chief
Financial Officer, to allow for timely decisions regarding required disclosures.

         Based on this evaluation, the Company's Chief Executive Officer and
Acting Chief Financial Officer concluded that, as of December 31, 2008, the
Company's disclosure controls and procedures were not effective, since the
Company did not file its Form 10-K within the required due date as required by
the rules and regulations of the SEC.

b) Management's Annual Report on Internal Control over Financial Reporting.

         Management is responsible for establishing and maintaining adequate
internal control over financial reporting. The Company's internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of the Company's financial reporting and the
preparation of the Company's financial statements for external purposes in
according with the U.S. generally accepted accounting principles. The Company's
internal control over financial reporting includes policies and procedures that:

        o         Pertain to the maintenance of records that, in reasonable
                  detail, accurately and fairly reflect transactions and
                  dispositions of assets of the Company;

        o         Provide reasonable assurance that transactions are recorded
                  as necessary to permit preparation of consolidated financial
                  statements in accordance with U.S. generally accepted
                  accounting principles, and that receipts and expenditures are
                  being made only in according with authorizations of management
                  and directors of the Company; and

        o         Provide reasonable assurance regarding prevention or timely
                  detection of unauthorized acquisition, use, or disposition of
                  the Company's assets that could have a material effect on the
                  consolidated financial statements.

         Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. In addition, projections of
any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

         As of December 31, 2008, management has assessed the effectiveness of
the Company's internal control over financial reporting based on the framework
established in "Internal Control--Integrated Framework" issued by the Committee
of Sponsoring Organizations of the Treadway Commission. A material weakness is a
deficiency or a combination of deficiencies in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of the Company's annual or interim consolidated financial
statements will not be prevented or detected on a timely basis.
<PAGE>

         Our management, with the participation of the Chief Executive Officer
and Acting Chief Financial Officer, evaluated the effectiveness of the Company's
internal control over financial reporting as of December 31, 2008. Based on this
evaluation, our management, with the participation of the Chief Executive
Officer and Acting Chief Financial Officer, concluded that, as of December 31,
2008, our internal control over financial reporting was effective.

         This annual report does not include an attestation report of the
Company's independent registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to
attestation by the Company's registered public accounting firm pursuant to
temporary rules of the SEC that permit the Company to provide only management's
report in this annual report.

c) Changes in Internal Control Over Financial Reporting

         During the quarter ended December 31, 2008, there has been no change in
our internal control over financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) under the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

Item 9B.        Other Information

         None





<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers

     The names and ages of each director of the Company, each of their principal
occupations at present and for the past five (5) years and certain other
information about each of the directors are set forth below:
<TABLE>
<S>                                                                                          <C>           <C>
                                                                                                           Director
Name                                                                                         Age           Since
-------------------------------------------------------------------------------------------- ------------- -----------
-------------------------------------------------------------------------------------------- ------------- -----------
VICTOR K. KURYLAK served as Chief Executive  Officer from February 1, 2005 through December  52            2005
31, 2008.  From January 1, 2004 through January 31, 2005, Mr. Kurylak was our President and
Chief  Operating  Officer.  From January  2001 through  December  2003,  Mr.  Kurylak was a
self-employed  business  consultant,  and was  retained  by us  prior to his  becoming  our
President and Chief Operating  Office.  From November 1995 through December 2000 he was the
owner and  Executive  Vice  President for Madison  Consulting  Group/Summit  Insurance,  an
independent  insurance brokerage firm. Mr. Kurylak received his Bachelor of Sciences degree
in Engineering from Princeton University in 1979.
-------------------------------------------------------------------------------------------- ------------- -----------
-------------------------------------------------------------------------------------------- ------------- -----------

-------------------------------------------------------------------------------------------- ------------- -----------
-------------------------------------------------------------------------------------------- ------------- -----------
WARD R. JONES, JR. was employed by Shearson Lehman Brothers as a registered  representative  77            1991
from 1955 through 1990, eventually achieving the position of Vice President.  Mr. Jones was
a  registered  representative  of  Montauk  Financial  Group  from 1991 to 2005 but did not
engage in any securities business. Mr. Jones is now retired from the securities business.
-------------------------------------------------------------------------------------------- ------------- -----------
-------------------------------------------------------------------------------------------- ------------- -----------

-------------------------------------------------------------------------------------------- ------------- -----------
-------------------------------------------------------------------------------------------- ------------- -----------
BARRY D.  SHAPIRO,  CPA has been with the  accounting  firm,  Withum,  Smith + Brown  since  67            2000
October  2000 in its Red Bank office and is  currently a  shareholder.  Prior to that,  Mr.
Shapiro was a partner of Shapiro & Weisman CPAs P.A.  from 1976 through 1996 when he became
a partner of Rudolf,  Cinnamon & Calafato.  P.A. until joining Withum,  Smith + Brown.  Mr.
Shapiro  is a member of the New Jersey  Society  of  Certified  Public  Accounts,  where he
currently  participates  on the IRS Co-Op and State Tax  Committees.  Mr. Shapiro is a past
Trustee,  Treasurer  and Vice  President of the NJSCPA.  He has been involved in many civic
and  community  activities,  as well as  charitable  organizations,  including the Monmouth
County New Jersey Chapter of the American  Cancer Society and the Ronald  McDonald House of
Long Branch, NJ. Mr. Shapiro received a B.S. in accounting from Rider University in 1965.
-------------------------------------------------------------------------------------------- ------------- -----------
-------------------------------------------------------------------------------------------- ------------- -----------
<PAGE>

-------------------------------------------------------------------------------------------- ------------- -----------
-------------------------------------------------------------------------------------------- ------------- -----------
DAVID I. PORTMAN  rejoined our Board of Directors on February 24, 2006,  and had previously  67            2002
served  on our  Board  from  1993  until  2002.  Mr.  Portman  is the  president  of  TRIAD
Development,  a real estate company that has numerous  commercial and rental  properties in
New Jersey,  a position that he has held since 1988.  In addition,  Mr.  Portman  currently
services as a director of  Pacifichealth  Laboratories,  Inc.,  a publicly  held  nutrition
technology  company,  a position he has held since  August  1995.  Mr.  Portman has a BS in
Pharmacy and an MBA.
-------------------------------------------------------------------------------------------- ------------- -----------
-------------------------------------------------------------------------------------------- ------------- -----------

-------------------------------------------------------------------------------------------- ------------- -----------
-------------------------------------------------------------------------------------------- ------------- -----------
CELESTE M. LEONARD has served as an Executive Vice President and Chief  Compliance  Officer  53            2007
of First Montauk from  September  2006 through  December 31, 2008.  Ms. Leonard has over 28
years of compliance and supervision  experience in the financial services  industry.  Prior
to joining the Company in 2006, Ms. Leonard had been the Sales Practice  Director for Smith
Barney  Citigroup  in New York City,  a  position  she had held since  November  2004.  She
previously worked as a Senior Vice President for Business Control  Management for Neuberger
Berman,  LLC in New York from March 2004 through  November 2004. From February 1996 through
March 2004, Ms. Leonard was an Executive  Director/National  Director of Branch Supervision
for CIBC  Oppenheimer  Corp. and oversaw  supervision  and risk  management for the private
client  division's 19 branch locations.  On March 23, 2009, Ms. Leonard resigned  effective
immediately as a director of the Company.
-------------------------------------------------------------------------------------------- ------------- -----------
</TABLE>

Additional Executive Officers of the Company who are Not Directors:
<TABLE>
<S>                          <C>     <C>

---------------------------- ------- ---------------------------------------------------------------------------------
Name                         Age
---------------------------- ------- ---------------------------------------------------------------------------------
---------------------------- ------- ---------------------------------------------------------------------------------
Mindy A. Horowitz            51      Ms. Horowitz has served as our Acting Chief Financial Officer from February 1,
                                     2005 through April 30, 2009. She has been the Interim Chief Executive Officer, as of
                                     January 1, 2009, since Mr. Kurylak's employment as President and Chief Executive
                                     Officer expired.  In January 2005, she became the Chief Financial
                                     Officer and Financial and Operations Principal of First Montauk Securities
                                     Corp. When she first joined the Company in September 1995, she was the Vice
                                     President of Finance. Prior to that, Ms. Horowitz was a tax partner with and
                                     held other positions at the accounting firm of Broza, Block & Rubino from 1981
                                     through 1995 when she joined First Montauk. Ms. Horowitz graduated with a MS in
                                     accounting from Monmouth University in 1981. She is a past President of the
                                     Estate and Financial Planning Council of Central New Jersey.
---------------------------- ------- ---------------------------------------------------------------------------------
</TABLE>
<PAGE>

         Our 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 our 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 our company (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 company which
is materially and demonstrably injurious to the company, 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.

Certain Reports

         No person who, during the year ended December 31, 2008, was a Director,
officer or beneficial owner of more than ten percent of our common stock (which
is the only class of our securities registered under Section 12 of the Exchange
Act) failed to file on a timely basis, reports required by Section 16 of the
Exchange Act during the most recent fiscal year or prior years. The foregoing is
based solely upon our review of Forms 3 and 4 during the most recent fiscal year
as furnished us under Rule 16a-3(d) under the Exchange Act, and Forms 5 and
amendments thereto furnished to us with respect to its most recent fiscal year,
and any representation received by us from any reporting person that no Form 5
is required.

Meetings of Directors

         During 2008, the full Board of Directors met on six occasions. No
member of the Board of Directors attended less than 75% of the aggregate number
of (i) the total number of meetings of the Board of Directors or (ii) the total
number of meetings held by all Committees of the Board of Directors.

Committees of the Board of Directors

         The Board of  Directors  has  three  committees:  Audit  Committee,
Compensation  Committee  and  Special Committee.  Our Board of Directors
currently consists of five individuals,  three of whom are independent directors
as defined in the Marketplace Rules of the Nasdaq Stock Market.  Our independent
directors are Ward R. Jones, Jr., Barry D. Shapiro and David I. Portman.

         For the year ended December 31, 2008, the members of the committees,
and a description of the duties of the Committees were as follows:

         Audit Committee.  Our Audit Committee acts to:

        o review with management our finances, financial condition and interim
          financial statements;
        o review with our independent auditors the year-end financial
          statements; and
        o review implementation with the independent auditors and management any
          action recommended by the independent auditors and the retention and
          termination of our independent auditors.

     During the year ended  December 31, 2008,  the Audit  Committee met on five
occasions.  The Audit Committee  adopted a written charter governing its actions
effective  June 23, 2000.  During the year,  the members of the Audit  Committee

<PAGE>

were Ward R. Jones,  Barry D. Shapiro and David I. Portman.  Both of the members
of our Audit Committee were "independent"  within the definition of that term as
provided in the  Marketplace  Rules of the Nasdaq  Stock  market.  The Board has
determined that Mr. Barry D. Shapiro qualified as the Audit Committee  financial
expert as defined under applicable Securities and Exchange Commission rules. Mr.
Shapiro serves as chairman of this committee. Mr. Portman was appointed to serve
on this committee at the time of his election to our Board in February 2006.

     Compensation  Committee.   The  Compensation  Committee  functions  include
administration  of  our  2002  Incentive  Stock  Option  Plan  and  1996  Senior
Management  Option Plan and the  negotiation  and review of all  employment  and
separation agreements with our executive officers. The Compensation  Committee's
members during 2008 were Ward R. Jones, Barry D. Shapiro and David Portman.  Mr.
Jones serves as chairman of this  committee.  During the year ended December 31,
2008, the committee met on two occasions.

     Special  Committee.  The  Special  Committee  of the  Board  was  formed on
February 24, 2006 for the purpose of reviewing and evaluating  any  transactions
that may be  presented  to the Board for the  benefit of the  shareholders.  Mr.
David Portman serves as chairman of this committee. The Special Committee, which
consists  of our  three  independent  members  of the  Board,  did not meet as a
separate committee in 2008.

Compensation Committee Interlocks and Insider Participation

         There are no Compensation Committee interlocks between the members of
our Compensation Committee and any other entity. None of the members of the
Board's Compensation Committee are executive officers of our company.

 Compensation of Directors

         We pay our Directors who are not also our employees 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. In 2007 the Board authorized an increase in the annual
payment from $5,000 to $15,000 payable in advance in quarterly installments.
Members of the Audit Committee are also entitled to any additional $5,000
payment per annum payable in advance in quarterly installments.

Code of Ethics

         On March 29, 2004, our Board of Directors approved the Code of Ethics
and Business Conduct for our company. Our Code of Ethics and Conduct covers all
our employees and Directors, including our Chief Executive Officer and President
and Acting Chief Financial Officer. A copy of our Code of Ethics and Conduct was
filed as Exhibit 14 to our Annual Report on Form 10-K for 2003. We did not amend
or waive any provisions of the Code of Ethics and Business Conduct during the
year ended December 31, 2008.
<PAGE>

Item 11.  Executive Compensation

         The following table provides certain information concerning all Plan
and Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-K) compensation
awarded to, earned by, paid or accrued by us during the years ended December 31,
2008, 2007 and 2006 to each of our NEO's.



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

                                                                                                          o
                                                                    Non-Equity    Nonqualifiedn
                                                                    Incentive     Deferred
                                                    Stock   Option  Plan          Compensati-o All Other
Name and Principal      Fiscal  Salary   Bonus      Awar-ds Awards  Compensa-tion Earnings     Compensa-ti Total
Position                Year    ($)            ($)  ($)     ($)     ($)           ($)          ($)         ($)

Victor K. Kurylak,
President, Chief          2008  270,000          0       0       0             0            0  312,270(1)   582,270
Executive Officer,        2007  292,500          0       0       0             0            0           0   292,500
FMFC and Montauk          2006  300,000    200,000       0       0             0                        0   500,000
Financial. Group
Celeste M. Leonard,
Chief Compliance          2008  200,000  100,000(2)      0       0             0            0           0   300,000
Officer, Montauk          2007  200,000    100,000       0       0             0            0           0   300,000
Financial Group           2006  200,000    200,000       0       0             0            0           0   400,000
Mindy A. Horowitz,
Acting Chief
Financial Officer,
FMFC, Chief Financial
Officer and Fin. Op.
Montauk Financial         2008  160,000     20,000       0       0             0            0  140,000(3)  320,000
Group                     2007  160,000          0       0       0             0            0           0  160,0000
                          2006  152,000     35,000       0       0             0            0           0  187,000
</TABLE>

1)       Due to the expiration of Mr. Kurylak's employment agreement effective
         December 31, 2008, he was entitled to a severance payment equivalent to
         one year's base salary. The amount due and payable to him was $300,000
         as of December 31, 2008. This amount has been accrued for on the
         Company's books but has not yet paid. In addition, Mr. Kurylak received
         commissions of $12,270 in 2008.
2)       In accordance with Ms. Leonard's employment agreement she was entitled
         to a $100,000 bonus for 2008. This amount has been accrued for on the
         Company's books but has not yet been paid.
3)       On November 13, 2008, an amended and restated employment agreement was
         signed between Mindy A. Horowitz and the Company. In exchange for Ms.
         Horowitz agreeing to extend her employment agreement through April 30,
         2009 and to waive any annual salary or severance pay payable under the
         Original Agreement, the Company agreed to pay Ms. Horowitz $140,000 in
         November 2008.

<PAGE>

Employment Contracts, Termination of Employment and Change in Control Agreements

Victor K. Kurylak

         Effective February 1, 2005, the Board approved the appointment of
Victor K. Kurylak as our Chief Executive Officer and entered into a new
employment agreement. Mr. Kurylak was granted 1,000,000 shares of our common
stock as a bonus for our performance for the year ended December 31, 2004, and
in consideration of his assuming the position of Chief Executive Officer, which
shares vest in increments of one third commencing on February 1, 2005, December
31, 2005 and December 31, 2006. In the event of a change of control of the
Company, all unvested shares would vest. Mr. Kurylak agreed to the cancellation
of 250,000 of his outstanding stock options with an exercise price of $0.75 per
share. His prior agreement entered into effective January 1, 2004 was
terminated.

         Under the terms of Mr. Kurylak's employment agreement, he received a
base salary of $275,000 per year; subject to annual increases of 10% provided we
have profits of at least $500,000 per annum. In addition, Mr. Kurylak was
entitled to receive medical and other benefits that we have in effect for its
executives. Mr. Kurylak was entitled to participate in our executive bonus pool,
which has been established by the Board to constitute 15% of our net pre tax
profit. Further, Mr. Kurylak was also entitled to a portion of the corporate
finance bonus pool defined as 20% of all underwriters and/or placement agent
warrants or options that are granted to Montauk Financial Group upon the same
price, terms and conditions afforded to Montauk Financial Group as the
underwriter or placement agent, but not to exceed 50% of what is retained by
Montauk Financial Group after issuance to the registered representatives who
participated in the placements. In the event of termination without cause, Mr.
Kurylak would be entitled to a severance payment consisting of accrued
compensation, continuation of his benefits and payment of his base salary for a
period of the greater of three months or the unexpired term.

         As of May 9, 2007, the Company and Mr. Kurylak executed an Amended and
Restated Employment Agreement ("Amended Employment Agreement"). Pursuant to the
Amended Employment Agreement, Mr. Kurylak continued his employment with the
Company as President. On June 15, 2007, the Company and Mr. Kurylak executed
Amendment Number One to the Amended and Restated Employment Agreement
("Amendment to Amended Employment Agreement") to correctly state that Mr.
Kurylak remains employed in the capacity of President and Chief Executive
Officer of both the Company and First Montauk. Mr. Kurylak's employment contract
was renewed for one year under the terms of the Amended Employment Agreement
previously filed and expired on December 31, 2008.

         Pursuant to the terms of the Amended and Restated Employment Agreement,
since Mr. Kurylak's employment terminated as a result of the expiration of his
agreement at the end of the Term, Mr. Kurylak is entitled to the severance
payment which is currently due and owing by the Company.

         The Agreement provided that in the event Mr. Kurylak is a member of the
Board of Directors of the Company on the termination date, the payment of any
and all compensation due under the Amended Employment Agreement, except the
accrued compensation, is expressly conditioned on Mr. Kurylak's resignation from
the Board of Directors within five (5) business of the termination date.
However, by agreement between Mr. Kurylak and the Board of Directors, Mr.
Kurylak agreed to remain on the Board Directors without forfeiting his rights to
any compensation then due and owing.

         The Amended Employment Agreement contains confidentiality obligations
that survive indefinitely and non-solicitation and non-competition obligations
that end on the first anniversary of the date of cessation of Mr. Kurylak's
employment.

         Pursuant to the terms of his agreement, Mr. Kurylak's employment
terminated on December 31, 2008. A severance payment of $300,000 remains due and
owing him by the Company.

Celeste M. Leonard

         In August 2006, First Montauk entered into an employment agreement with
Ms. Celeste M. Leonard with respect to her new position as a Chief Compliance
Officer of First Montauk. The employment agreement provides her with an annual
base salary of $200,000 and bonuses of $200,000 for 2006 and $100,000 each year
through December 31, 2008, provided she is still employed by the Company at the
end of each year. Ms. Leonard's employment terminated on December 31, 2008. A
bonus payment of $100,000 for 2008 remains due and owing her by the Company.

Mindy A. Horowitz

         In 2005, we entered into a new employment agreement with Mindy Horowitz
who serves as our Acting Chief Financial Officer. The Board also approved a
restricted stock award to her of 100,000 shares of common stock as a performance
bonus award and as an incentive to continue her employment with us. The
agreement had an initial term of one year ending February 1, 2006 and is
renewable for successive one-year terms unless we provide 120 days' prior
written notice of our intention not to renew the agreement. This agreement is
currently in effect.
<PAGE>

         Under her agreement, Ms. Horowitz received a base salary of $140,000
per year, which was increased to $160,000 per year in 2007. She is eligible to
participate in our bonus and option plans, receives health and benefits as
provided to our executives and is entitled to a car allowance. In the event of
termination of her employment without cause, Ms. Horowitz would be entitled to
receive a severance payment equal to the sum of (i) one year's salary, (ii) her
portion of the bonus pool payments she would otherwise be entitled to following
termination and (iii) payment of the costs of health and other benefits for 12
months following termination.

         In October 2008, Ms. Horowitz executed an Amended and Restated
Employment Agreement ("Amended Employment Agreement"). The Amended Employment
Agreement was executed to ensure that Ms. Horowitz would be available to provide
her services and experience to the Company for up to an additional three months
after the expiration of her prior employment agreement to assist with the wind
down of the Company's affairs. Under the terms of Ms. Horowitz's original
employment agreement, her employment by the Company was scheduled to expire on
January 31, 2009 at which time she would have been entitled to severance pay in
the amount of $140,000 if her employment was were not renewed. Under the terms
of the Amended Employment Agreement, Ms. Horowitz continued her duties as Senior
Vice President and Acting Chief Financial Officer of the Company through January
31, 2009 and received her base salary and other benefits. During the extended
period from February 1, through April 30, 2009, Ms. Horowitz has continued to
serve as the Company's Acting Chief Financial Officer but has not received any
salary. She is being provided with an office and facilities commensurate with
the performance of her duties as well as certain other fringe benefits provided
to other executive officers. In lieu of any annual salary or severance pay under
her original employment agreement and in consideration of the duties and
services to be provided by Ms. Horowitz during the extended period, she received
a lump sum payment in the amount of $140,000 on November 14, 2008.

         The Amended Employment Agreement contains non-solicitation and
non-competition obligations that end on the first anniversary of the date of
cessation of Ms. Horowitz's employment.

         Ms. Horowitz has also been serving as Interim Chief Executive Officer,
as of January 1, 2009, since Mr. Kurylak is no longer employed by the Company as
President and Chief Executive Officer.

         SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

2008 GRANTS OF PLAN-BASED AWARDS

         There were no grants made to any NEOs of options or restricted stock
during the year ended December 31, 2008.
<PAGE>

OUTSTANDING EQUITY AWARDS AT 2008 YEAR-END
<TABLE>
<S>             <C>          <C>          <C>          <C>      <C>          <C>            <C>             <C>          <C>

                             Options Awards                                                 Stock Awards
--------------- ------------ ------------ ------------ -------- ------------ -------------- --------------- ------------ ----------
                                                                                                                          Equity
                                                                                                                          Incentive
                                                                                                                          Plan
                                                                                                             Equity       Awards:
                                                                                                             Incentive    Market or
                                            Equity                                                           Plan         Payout
                                           Incentive                                                         Awards:      Value of
                                             Plan                                                            Number of    Unearned
                                            Awards                                                           Unearned     Shares,
                 Number of    Number of    Number of                                                         Shares,      Units or
                Securities    Securities   Securities                          Number of     Market Value of Units        Other
                Underlying    Underlying   Underlying  Options              Shares or Units  Shares or Units or Other     Rights
                Unexercised  Unexercised   Unexercised Exercise   Option     of Stock That    of Stock That  Rights That  That Have
                Options (#)   Options (#)  Unearned     Price   Expiration     Have Not       Have Not       Have Not     Not Vested
Name            Exercisable  Unexercisable Options (#)   ($)       Date       Vested (#)      Vested ($)     Vested (#)      ($)
--------------- ------------ ------------ ------------ -------- ------------ -------------- --------------- ------------ ----------
--------------- ------------ ------------ ------------ -------- ------------ -------------- --------------- ------------ ----------
Mindy A.          75,000(1)  0            -            1.25     07/27/10     -              -               -            -
Horowitz
--------------- ------------ ------------ ------------ -------- ------------ -------------- --------------- ------------ ----------
</TABLE>

1)         Represents the number of vested stock options as of December 31,
           2008. These options vested 100% upon grant on July 28, 2005. Options
           expire 5 years from the date of grant.

2008 OPTION EXERCISES AND STOCK VESTED

         There were no options exercises or stock that vested during the year
ended December 31, 2008.
<PAGE>

2008 DIRECTOR'S COMPENSATION TABLE

         The following table shows, for the year ended December 31, 2008, the
compensation paid to each of our non-executive directors:

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

         ------------------------------ --------------------- ---------------- ---------------------
         Name                           Fees Earned or Paid   Option Awards    Total ($)
                                        in Cash ($)           ($)(2)
         ------------------------------ --------------------- ---------------- ---------------------
         ------------------------------ --------------------- ---------------- ---------------------
         Barry Shapiro                    22,750(1)           0                  22,750
         ------------------------------ --------------------- ---------------- ---------------------
         ------------------------------ --------------------- ---------------- ---------------------
         Ward R Jones Jr.                 22,750(1)           0                  22,750
         ------------------------------ --------------------- ---------------- ---------------------
         ------------------------------ --------------------- ---------------- ---------------------
         David Portman                    22,500(1)           0                  22,500
         ------------------------------ --------------------- ---------------- ---------------------
</TABLE>

         (1) Represents payments made to each Mr. Shapiro, Mr. Jones and Mr.
         Portman for a) annual cash payment of $15,000 as a non-executive board
         member, b) annual cash payment of $5,000 as a member of the Audit
         Committee, and c) cash payment of $2,750 to each Mr. Shapiro and Mr.
         Jones and $2,250 to Mr. Portman for attendance at Board and Audit
         Committee meetings in 2008.

Incentive Stock Option Plan

         In June 2002, we adopted the 2002 Incentive Stock Option Plan (the
"2002 Incentive Plan"), which provides for the grant of options to purchase up
to 5,000,000 shares of our common stock by our employees, registered
representatives and consultants. Under the terms of the 2002 Incentive Plan,
options granted there under may or may not be designated as options which
qualify for incentive stock option treatment under Section 422A of the Code.

         The 2002 Incentive Plan is administered by our Board of Directors which
has the discretion to determine the eligible employees to whom, and the times
and the price at which, options will be granted; whether such options shall be
Incentive Stock Options or Non-Incentive Stock Options; the periods during which
each option will be exercisable; and the number of shares subject to each
option. The Board has full authority to interpret the 2002 Incentive Plan and to
establish and amend rules and regulations relating thereto.

         Under the 2002 Incentive Plan, the exercise price of an option
designated as an Incentive Stock Option 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 Incentive Stock Option is granted to a ten
percent stockholder such exercise price shall be at least 110% of such fair
market value. Exercise prices of Non-Incentive Stock Options may be less than
such fair market value. The aggregate fair market value of shares subject to
options granted to a participant that are designated as Incentive Stock Options
that become exercisable in any calendar year may not exceed $100,000.

         The Board may, in its sole discretion, grant bonuses or authorize loans
to or guarantee loans obtained by an optionee to enable such optionee to pay any
taxes that may arise in connection with the exercise or cancellation of an
option. Unless sooner terminated, the 2002 Incentive Plan will expire in 2012.
<PAGE>

         Effective as of the date of this Annual Report, since the adoption of
the 2002 Incentive Plan, we have issued 1,000 options to registered
representatives and employees, which have not been exercised or cancelled.

Director Plan

          In June 2002, we adopted the Non-Executive Director Stock Option Plan
(the "Director Plan"). The Director Plan provides that each Non-Executive
Director will automatically be granted an option to purchase 20,000 shares each
September 1st, provided such person has served as a director for the 12 months
immediately prior to such September 1st. A Non-Executive Director who has not
served as a director for an entire year prior to September 1st of each year
shall receive a pro rata number of options. Options are granted under the
Director Plan until 2012 to Non-Executive Directors who are not our full time
employees.

         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 Director 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 our common stock or a combination of both. The term of
each option commenced on the date it is granted and unless terminated sooner as
provided in the Director Plan, expires five years from the date of grant. The
Director Plan is administered by a committee of the Board of Directors composed
of not fewer than two persons who are our officers (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.

         In 2006, due to the then pending merger agreement with the Okun
Purchasers, no options were issued to Non-Executive Directors. However, in 2007,
following termination of the merger agreement, we issued 55,000 options to the
three Non-Executive Directors with respect to the 2006 year, as well as 60,000
options granted for 2008. No options were issued under the Director Plan in
2008. To date, a total of 195,000 options are outstanding in our Non-Executive
Director Plan.

Senior Management Plan

         In 1996, we adopted the 1996 Senior Management Incentive Plan (the
"1996 Management Plan"). The 1996 Management Plan provides for the issuance of
up to 2,000,000 shares of common stock either upon issuance of options issued
under the 1996 Management Plan or grants of restricted stock or incentive stock
rights. The Board of Directors or a committee of the Board may grant awards
under the 1996 Management Plan to executive management employees, if one is
appointed for this purpose. The 1996 Management Plan provides for four types of
awards: stock options, incentive stock rights, stock appreciation rights, and
restricted stock purchase agreements. The stock options granted under the 1996
Management Plan can be either incentive stock options or non-incentive stock
options, similar to the options granted under the 2002 Incentive Plan, except
that the exercise price of non-incentive stock options 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 us. 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 a committee of the Board may grant limited stock
appreciation rights, which become exercisable upon a "change of control" of our
Company. A change of control includes the purchase by any person of 25% or more
of the voting power of our outstanding securities, or a change in the majority
of the Board of Directors.
<PAGE>

         In June 2000, at our Annual Meeting of Shareholders, a resolution was
passed amending the 1996 Management Plan to increase the number of shares of
common stock reserved for issuance from 2,000,000 to 4,000,000. Options to
purchase 225,000 shares of our common stock are currently outstanding under the
1996 Management Plan and to date we have issued an aggregate of 2,300,000 shares
of our common stock as restricted stock awards to senior management under this
Plan.

         Awards granted under the 1996 Management Plan are also entitled to
certain acceleration provisions that cause awards granted under this Plan to
immediately vest in the event of a change of control or sale of our company. The
1996 Management Plan expired in June 2006 and therefore no additional grants are
available to be made under this Plan.

Item 12.  Security Ownership of Certain
          Beneficial Owners and Management

         The following table sets forth certain information as of April 15, 2009
with respect to (i) each director and each executive officer, (ii) all directors
and officers as a group, and (iii) the persons (including any "group" as that
term is used in Section l3(d)(3) of the Exchange Act ), known by us to be the
beneficial owner of more than five (5%) percent of our common stock. Shares of
common stock subject to options exercisable within 60 days from the date of this
table are deemed to be outstanding and beneficially owned for purposes of
computing the percentage ownership of such person but are not treated as
outstanding for purposes of computing the percentage ownership of others.

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

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

                                                              Number of Shares          Percent
           Victor K. Kurylak (6)
           Parkway 109 Office Center
           328 Newman Springs Road
           Red Bank, NJ 07701                                    1,250,000               12.55%

           Celeste M. Leonard (7)
           Parkway 109 Office Center
           328 Newman Springs Road
           Red Bank, NJ 07701                                                0               0%

           Mindy A. Horowitz
           Parkway 109 Office Center
           328 Newman Springs Road
           Red Bank, NJ 07701                                      175,000 (2)            1.74%

           Ward R. Jones
           300 West Jersey Road
           Lehigh Acres, FL  33936                                 100,000 (3)            1.00%

           David I. Portman
           142 Highway 35
           Eatontown, NJ 07724                                      85,000 (4)                 *

           Barry D. Shapiro, CPA
           331 Newman Springs Road
           Red Bank, NJ 07701                                       80,000 (5)                 *

           All  Directors  and  Officers  as  a
           group (6 persons in number)                           1,690,000               16.97%
------------------------------------------
</TABLE>
<PAGE>

* Indicates less than 1%
 (1) Unless otherwise indicated below, each director, officer and 5% shareholder
     has sole voting and sole investment power with respect to all shares that
     he beneficially owns.
 (2) Includes vested and presently exercisable options of Ms. Horowitz to
     purchase 75,000 shares of common stock. Amounts and percentages indicated
     for Ms. Horowitz include an aggregate of 100,000 shares of common stock.
 (3) Includes vested and presently exercisable options of Mr. Jones to purchase
     80,000 shares of common stock.
 (4) Includes vested and presently exercisable options of Mr. Portman to
     purchase 35,000 shares of common stock.
 (5) Includes  vested and  presently  exercisable  options of Mr.  Shapiro to
     purchase 80,000 shares of common stock.
 (6) Mr. Kurylak's  employment  agreement expired on December 31, 2008 and was
     not renewed. Mr. Kurylak remains a director of the Company.
 (7) Ms.  Leonard's  employment  agreement  expired on  December  31,  2008 and
     was not renewed.  Ms. Leonard resigned as a director of the Company on
     March 23, 2009.

Equity Compensation Plan Information

         The following table provides information about our common stock that
may be issued upon the exercise of options and rights under all of our existing
equity compensation plans as of December 31, 2008, including the 2002 Incentive
Stock Option Plan, the Director Plan and the 1996 Management Plan, as amended.
Information concerning each of the aforementioned plans is set forth above. Each
of the 1992 Non-Executive Director Stock Option Plan and 1996 Management Plan
has expired and no additional options may be granted under such plans. Unexpired
options granted pursuant to such plans prior to their expiration, however,
remain exercisable (when vested) until the expiration of the individual option
grant.
<TABLE>
<S>                             <C>                        <C>                          <C>

============================== =========================== =========================== ==============================
                                                                                           Number of Securities
                                                                                          Remaining Available for
                                Number of Securities to                                Future Issuance Under Equity
                                be Issued upon Exercise                                Compensation Plans Excluding
                                 of Outstanding Options    Weighted Average Exercise      Securities Reflected in
                                       and Rights             Price of Outstanding              Column (a)
        Plan Category                     (a)                     Options (b)                       (c)
============================== =========================== =========================== ==============================
============================== =========================== =========================== ==============================

Equity Compensation Plans
Approved by Stockholders              1,056,000(1)                   $0.81                    4,263,802(2,3)
------------------------------ --------------------------- --------------------------- ------------------------------
------------------------------ --------------------------- --------------------------- ------------------------------

Equity Compensation Plans
Not Approved by Stockholders              N/A                         N/A                           N/A
------------------------------ --------------------------- --------------------------- ------------------------------
------------------------------ --------------------------- --------------------------- ------------------------------

Total                                 1,056,000(1)                   $0.81                    4,263,802(2,3)
============================== =========================== =========================== ==============================
</TABLE>
<PAGE>

1.       Includes 506,000 options issued pursuant to the our 2002 Incentive
         Plan, 195,000 options issued pursuant to our Director Plan, and 355,000
         options and shares issued pursuant to our 1996 Management Plan.
2.       Includes 3,950,802 options available for issuance under our 2002
         Incentive Plan.
3.       Includes 300,000 options assumed available for issuance under our
         Director Plan.

Item 13.  Certain Relationships and Related Transactions, and Director
          Independence

         There  were no  related-party  transactions  during  2008.  For
information  concerning  the terms of the employment  agreements  entered into
between us and Mr. Victor K. Kurylak,  Ms. Mindy A. Horowitz,  and Ms. Celeste
M. Leonard, see Item 11. "Executive Compensation" above.

Item 14.  Principal Accountant Fees and Services.

         Our Audit Committee has engaged Parente Randolph, LLC, Certified Public
Accountants, as its independent accountants for the current fiscal year. Our
predecessor auditors, Lazar Levine & Felix LLP merged into Parente Randolph, LLC
on February 15, 2009.  The audit services provided by our auditors consist of
examination of financial statements, services relative to filings with the SEC,
and consultation in regard to various accounting matters.  The following table
presents the total fees paid for professional audit and non-audit services
rendered by our independent auditors for the audit of our annual financial
statements for the year ended December 31, 2008 and 2007, respectively, and fees
billed for other services rendered by our independent auditors during those
periods.

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

       ---------------------------------- ------------------------------ ------------------------------------
                                                             Year Ended                           Year Ended
                                                      December 31, 2008                    December 31, 2007
       ---------------------------------- ------------------------------ ------------------------------------

       Audit Fees (1)                                          $178,755                            $ 184,238
       ---------------------------------- ------------------------------ ------------------------------------

       Audit-Related Fees (2)                                    $1,000                           $   19,000
       ---------------------------------- ------------------------------ ------------------------------------

       Tax Fees (3)                                             $34,700                             $ 42,290
       ---------------------------------- ------------------------------ ------------------------------------

       All Other Fees (4)                                       $19,300                           $   10,000
       ---------------------------------- ------------------------------ ------------------------------------

       Total                                                   $233,755                            $ 255,528
       ---------------------------------- ------------------------------ ------------------------------------
</TABLE>
<PAGE>

(1)      Audit services consist of audit work performed in the preparation of
         financial statements for the fiscal year and for the review of
         financial statements included in Quarterly Reports on Form 10-Q during
         the fiscal year, as well as work that generally only the independent
         auditor can reasonably be expected to provide, including consents for
         registration statement flings and responding to SEC comment letters on
         annual and quarterly filings.
(2)      Audit-related services consist of assurance and related services that
         are traditionally performed by the independent auditor, including due
         diligence related to mergers and acquisitions, agreed upon procedures
         report and accounting and regulatory consultations.
(3)      Tax services consist of all services performed by the independent
         auditor's tax personnel, except those services specifically related to
         the audit of the financial statements, and includes fees in the areas
         of tax compliance, tax planning, and tax advice.
(4)      Other services consist of those service not captured in the other
         categories.

         Our Audit Committee has determined that the services provided by our
independent auditors and the fees paid to them for such services has not
compromised the independence of our independent auditors.

         Consistent with SEC policies regarding auditor independence, the Audit
Committee has responsibility for appointing, setting compensation and overseeing
the work of the independent auditor. In recognition of this responsibility, the
Audit Committee has established a policy to pre-approve all audit and
permissible non-audit services provided by the independent auditor. Prior to
engagement of the independent auditor for the next year's audit, management will
submit a detailed description of the audit and permissible non-audit services
expected to be rendered during that year for each of four categories of services
described above to the Audit Committee for approval. In addition, management
will also provide to the Audit Committee for its approval a fee proposal for the
services proposed to be rendered by the independent auditor. Prior to the
engagement of the independent auditor, the Audit Committee will approve both the
description of audit and permissible non-audit services proposed to be rendered
by the independent auditor and the budget for all such services. The fees are
budgeted and the Audit Committee requires the independent auditor and management
to report actual fees versus the budget periodically throughout the year by
category of service.

         During the year, circumstances may arise when it may become necessary
to engage the independent auditor for additional services not contemplated in
the original pre-approval. In those instances, the Audit Committee requires
separate pre-approval before engaging the independent auditor. To ensure prompt
handling of unexpected matters, the Audit Committee may delegate pre-approval
authority to one or more of its members. The member to whom such authority is
delegated must report, for informational purposes only, any pre-approval
decisions to the Audit Committee at its next scheduled meeting. The four
categories of services provided by the independent auditor are as defined in the
footnotes to the fee table set forth above.
<PAGE>

                                     PART IV

Item 15.          Exhibits

         1.       Financial Statements

         See the Consolidated Financial Statements and Notes thereto, together
with the report thereon of Parente Randolph, LLC dated May 14, 2009 and Lazar
Levine & Felix LLP dated March 27, 2008, beginning on page F-1 of this report.

         2.       Exhibits

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


<PAGE>


                                   SIGNATURES

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

                                     FIRST MONTAUK FINANCIAL CORP.


                                     By  /s/ Mindy A. Horowitz
                                     -------------------------------------------
Dated:  May 18, 2009                 Mindy A. Horowitz
                                     Interim  Chief  Executive  Officer and
                                     Acting Chief  Financial Officer

         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/ Mindy A. Horowitz                                               May 18, 2009
--------------------------------------------
Mindy A. Horowitz, Interim Chief Executive
Officer and Acting Chief Financial Officer
and Principal Accounting Officer


/s/ Victor K. Kurylak                                               May 18, 2009
--------------------------------------------
Victor K. Kurylak, Director


/s/ Ward R. Jones, Jr.                                              May 18, 2009
--------------------------------------------
Ward R. Jones, Jr., Director


/s/ Barry D. Shapiro                                                May 18, 2009
--------------------------------------------
Barry D. Shapiro, Director


/s/ David I. Portman                                                May 18, 2009
--------------------------------------------
David I. Portman, Director

<PAGE>

                                  EXHIBIT INDEX

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

   ---------------- ---------------------------------------------------------------------------------------------
   Exhibit No.                                              Description

   2.1              Agreement  and Plan of Merger  dated as of  February  10,  2005 by and among  First  Montauk
                    Financial  Corp.,   Olympic  Cascade  Financial  Corp.  and  FMFC  Acquisition   Corporation
                    (Previously filed as Exhibit 10.1 to our Current Report on
                    Form 8-K dated February 11, 2005).

   2.2              Amended and  Restated  Agreement  and Plan of Merger  dated as of June 27, 2005 by and among
                    First  Montauk  Financial  Corp.,  Olympic  Cascade  Financial  Corp.  and FMFC  Acquisition
                    Corporation  (Previously  filed as Exhibit 10.1 to our Current Report on Form 8-K dated June
                    28, 2005).

   2.3              Letter Agreement dated as of October 24, 2005 terminating the Amended and Restated Agreement
                    and Plan of Merger, dated June 27, 2005, by and among Olympic Cascade Financial Corporation,
                    OLY Acquisition Corporation and First Montauk Financial Corp. (Previously filed as Exhibit
                    10.2 to our Current Report on Form 8-K dated October 25, 2005).

   2.4              Agreement  and Plan of Merger  dated as of May 5, 2006 by and among  FMFG  Ownership,  Inc.,
                    FMFG  Acquisition Co. Inc. and First Montauk  Financial Corp.  (Previously  filed as Exhibit
                    10.1 to our Current Report on Form 8-K dated May 9, 2006).

   2.5              Settlement  Agreement,  dated as of May 8, 2007, among First Montauk Financial Corp., Edward
                    H. Okun, Investment Properties of America, LLC, IPofA Waterview,  LLC, FMFC Acquisition Co.,
                    FMFG  Ownership I Co.,  FMFG  Ownership II, Victor K.  Kurylak,  Ward R. Jones,  Jr.,  Barry
                    Shapiro,  David Portman and Mindy Horowitz  (Previously filed as Exhibit 10.1 to our Current
                    Report on Form 8-K dated May 11, 1007).

   2.6              Settlement  Agreement dated as of June 15, 2007 among First Montauk Financial Corp.,  Edward
                    H. Okun, Investment Properties of America, LLC, IPofA Waterview,  LLC, FMFG Acquisition Co.,
                    FMFG Ownership II, Victor K. Kurylak,  Ward R. Jones, Jr., Barry Shapiro,  David Portman and
                    Mindy  Horowitz  (Previously  filed as Exhibit 10.1 to our Current  Report on Form 8-K dated
                    June 15, 2007).

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

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

   3.3              Certificate  of  Designations  of  Series A  Preferred  Stock.  (Previously  filed  with the
                    Commission  as an  exhibit  to our  Annual  Report on Form 10-K for the  fiscal  year  ended
                    December 31, 2002).

   3.4              Form of Certificate of Amendment of Certificate of Designation of Rights and  Preferences of
                    Series B Preferred Stock  (Previously filed as Exhibit 3.1 to our Current Report on Form 8-K
                    dated February 9, 2005).

   3.5              Amendment to Amended and Restated Certificate of Incorporation  adopted at Annual Meeting of
                    Shareholders  held on June 23,  2005  (Previously  filed as  Exhibit A to  Definitive  Proxy
                    Statement dated May 19, 2005).

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

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

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

   4.4              Form of  Debenture  Sold in Private  Placement.  (Previously  filed with the  Commission  as
                    Exhibit 4.1 to Report on Form 8-K dated January 5, 2004).

   4.5              Form of Placement  Agent  Warrant  (Previously  filed with the  Commission as Exhibit 4.2 to
                    Report on Form 8-K dated January 5, 2004).

   4.6              Promissory Note issued to Herbert Kurinsky dated February 1, 2006 (Previously filed as Exhibit
                    4.1 to Current Report on Form 8-K dated February 1, 2006).

   4.7              Rights  Agreement,  dated as of August 8, 2004,  among First  Montauk  Financial  Corp.  and
                    Continental  Stock Transfer & Trust Company,  as Rights Agent  (Previously  filed as Exhibit
                    4.1 to our Current Report on Form 8-K dated August 8, 2007).

   4.8              First Amendment to the Rights Agreement,  dated as of December 7, 2007, by and between First
                    Montauk  Financial  Corp. and  Continental  Stock Transfer & Trust Company,  as Rights Agent
                    (Previously  filed as Exhibit  10.2 to our  Current  Report on Form 8-K dated  December  13,
                    2007).

   4.9              Note  Purchase  Agreement,  dated as of  December  7, 2007,  by and  between  First  Montauk
                    Financial  Corp. and AEFC FMFK  Investment  Corp.  (Previously  filed as Exhibit 10.1 to our
                    Current Report on Form 8-K dated December 13, 2007).

   4.10             Amendment to Note  Purchase  Agreement,  dated as of December 17, 2007, by and between First
                    Montauk  Financial Corp. and AEFC-FMFK  Investment Corp.  (Previously filed as Exhibit 4.8.1
                    to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007).

   4.11             Amendment to Note Purchase Agreement, dated as of December 17, 2007, by and between First
                    Montauk Financial Corp. and AEFC FMFK Investment Corp. (Previously  filed as Exhibit 4.8.1
                    to our Annual Report on Form 10-K/A dated May 9, 2008).

   4.12             Secured  Convertible  Promissory  Note,  dated  December 7, 2007,  executed by First Montauk
                    Financial  Corp.  (Previously  filed as Exhibit  4.8.2 to our Annual  Report on Form  10-K/A
                    dated May 9, 2008).

   4.13             Stock  Pledge  Agreement,  dated as of  December  7,  2007,  by and  between  First  Montauk
                    Financial Corp. and AEFC FMFK  Investment  Corp.  (Previously  filed as Exhibit 4.8.3 to our
                    Annual Report on Form 10-K/A dated May 9, 2008).

   4.14             Contingent Warrant,  executed by First Montauk Financial Corp.  (Previously filed as Exhibit
                    4.8.4 to our Annual Report on Form 10-K/A dated May 9, 2008).

   4.15             Prepayment Warrant,  executed by First Montauk Financial Corp.  (Previously filed as Exhibit
                    4.8.5 to our Annual Report on Form 10-K/A dated May 9, 2008).

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

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

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

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

   10.5++           Employment  Agreement dated as of January 1, 2004 between Herbert Kurinsky and First Montauk
                    Financial  Corp.  (Previously  filed as Exhibit  10.13 to our Annual Report on Form 10-K for
                    the fiscal year ended December 31, 2004).
<PAGE>

   10.6++           Employment Agreement dated as of January 1, 2004 between William J. Kurinsky and First Montauk
                    Financial Corp. (Previously filed as Exhibit 10.14 to our Annual Report on Form 10-K for the
                    fiscal year ended December 31, 2004).

   10.7++           Employment Agreement dated as of January 1, 2004 between Victor K. Kurylak and First Montauk
                    Financial Corp. (Previously filed as Exhibit 10.15 to our Annual Report on Form 10-K for the
                    fiscal year ended December 31, 2004).

   10.8++           1992 Incentive Stock Option Plan (Previously  filed with the Commission as an exhibit to our
                    Registration Statement on Form S-l, File No. 33-24696).

   10.9++           1992  Non-Executive  Director Stock Option Plan (Previously  filed with the Commission as an
                    exhibit to our Registration Statement on Form S-l, File No. 33-24696).

   10.10++          Amended  and  Restated  1992  Incentive  Stock  Option  Plan.  (Previously  filed  with  the
                    Commission as an exhibit to our Proxy Statement dated May 30, 1996).

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

   10.12++          1996 Senior Management  Incentive Stock Option Plan (Previously filed with the Commission as
                    an exhibit to our Proxy Statement dated May 30, 1996).

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

   10.14++          1996 Senior Management Incentive Plan Amended as of June 23, 2000 (Previously filed with the
                    Commission as an exhibit to our Proxy Statement dated May 23, 2000).

   10.15++          2002 Incentive Stock Option Plan.  (Previously  filed with the Commission as an Exhibit A to
                    our Proxy Statement dated May 20, 2002).

   10.16++          2002  Non-Executive  Director  Stock Option Plan.  (Previously  filed with the Commission as
                    Exhibit B to our Proxy Statement dated May 20, 2002).

   10.17++          Form of Non-Executive Director Stock Option Award.  (Previously filed as Exhibit 10.1 to our
                    Report on Form 8-K dated September 2, 2004).

   10.18++          Form of Stock Option Award  pursuant to Incentive  Stock Option Plan.  (Previously  filed as
                    Exhibit 10.26 to our Annual Report on Form 10-K for the year ended December 31, 2004).

   10.19++          Form of Stock Option Award pursuant to 1996 Senior Management Stock Option Plan.
                    (Previously filed as Exhibit 10.27 to our Annual Report on Form 10-K for the year ended
                    December 31, 2004).

   10.20            Fourth  Amendment to Office Lease  Agreement  dated September 22, 2004 between First Montauk
                    Securities Corp. and River Office Equities  (Previously filed with the Commission as Exhibit
                    10.1 to Form 8-K dated September 28, 2004).

   10.21++          Separation  Agreement  between  First  Montauk  Financial  Corp.  and  William J.  Kurinsky,
                    effective as of February 1, 2005.  (Previously  filed as Exhibit  10.29 to our Annual Report
                    on Form 10-K for the year ended December 31, 2004).

   10.22++          Consulting  Agreement  between  First  Montauk  Financial  Corp.  and  William J.  Kurinsky,
                    effective as of February 1, 2005.  (Previously  filed as Exhibit  10.30 to our Annual Report
                    on Form 10-K for the year ended December 31, 2004).

   10.23++          Employment  Agreement  dated as of  February  1, 2005  between  Victor K.  Kurylak and First
                    Montauk  Financial  Corp.  (Previously  filed as Exhibit  10.31 to our Annual Report on Form
                    10-K for the year ended December 31, 2004).

   10.24++          Employment  Agreement  dated as of February 8, 2005 between  Robert I.  Rabinowitz and First
                    Montauk  Financial  Corp.  (Previously  filed as Exhibit  10.32 to our Annual Report on Form
                    10-K for the year ended December 31, 2004).

   10.25++          Employment  Agreement  dated as of  February 8, 2005  between  Mindy A.  Horowitz  and First
                    Montauk  Financial  Corp.  (Previously  filed as Exhibit  10.33 to our Annual Report on Form
                    10-K for the year ended December 31, 2004).
<PAGE>

   10.26            Termination  of  Clearing  Agreement  between  First  Montauk  Securities  Corp.  and Fiserv
                    Securities,  Inc. dated April 21, 2005  (Previously  filed as Exhibit 10.1 to Current Report
                    on Form 8-K filed on April 27, 2005).

   10.27            Termination of Financial and Security  Agreement among First Montauk Financial Corp.,  First
                    Montauk Securities Corp. and Fiserv Securities,  Inc. dated April 21, 2005 (Previously filed
                    as Exhibit 10.2 to Current Report on Form 8-K filed on April 27, 2005).

   10.28++          Separation  Agreement  between First Montauk  Financial  Corp.  and Herbert  Kurinsky  dated
                    February  1, 2006  (Previously  filed as Exhibit  10.1 to  Current  Report on Form 8-K dated
                    February 1, 2006).

   10.29++          Employment  Agreement  between  First Montauk  Securities  Corp.  and Celeste  Leonard dated
                    August  7,  2006  (Previously  filed as  Exhibit  10.1 to  Current  Report on Form 8-K dated
                    February 26, 2007).
   ---------------- ---------------------------------------------------------------------------------------------


   10.30++          Agreement and Release between First Montauk  Financial Corp. and Robert I. Rabinowitz  dated
                    November  14, 2006  (Previously  filed on November  14,  2006 as Exhibit  10.1 to  Quarterly
                    Report on Form 10-Q for the quarterly period ended September 30, 2006).

   10.31++          Consulting  Agreement  between First Montauk  Financial Corp. and Robert I. Rabinowitz dated
                    as of January 19, 2007.

   10.32++          Employment  Agreement between First Montauk Securities Corp. and Jeffrey J. Fahs dated as of
                    January 24, 2007.

   10.33++          Amended and Restated  Employment  Agreement between First Montauk Financial Corp. and Victor
                    K. Kurylak,  dated as of May 9, 2007 (Previously filed as Exhibit 10.2 to our Current Report
                    on Form 8-K filed on May 11, 2007).

   10.34++          Amendment Number One, dated as of June 15, 2007, to the Amended 2nd Restated Employment
                    Agreement, dated as of May 9, 2007, between Victor K. Kurylak and First Montauk Financial Corp.
                    (Previously filed as Exhibit 10.3 to Form 10-Q for the Quarter Ended June 30, 2007, dated
                    August 14, 2007).

   10.35++          Consulting  Agreement between First Montauk Financial Corp. and Phillip P. D'Ambrisi,  dated
                    September 1, 2007 (Previously  filed as Exhibit 10.1 to our Current Report on Form 8-K filed
                    on September 6, 2007.)

   10.36            Asset Purchase  Agreement,  dated as of July 9, 2008, by and among First Allied  Securities,
                    Inc., First Montauk Securities Corp. and First Montauk Financial Corp.  (Previously filed as
                    Exhibit 10.1 to our Current Report on Form 8-K dated July 14, 2008).

   10.37            Stock  Repurchase  Agreement,  dated as of October 20, 2008 by and between Gerard A. McHale,
                    Jr.,  as  Chapter 11 Trustee  of The 1031 Tax Group LLC and First  Montauk  Financial  Corp.
                    (Previously  filed as Exhibit 10.1 to our Quarterly  Report on Form 10-Q dated  November 19,
                    2008).

   10.38            Amended and  Restated  Employment  Agreement,  dated as of November  13, 2008 by and between
                    First Montauk  Financial  Corp. and Mindy A. Horowitz  (Previously  filed as Exhibit 10.2 to
                    our Quarterly Report on Form 10-Q dated November 19, 2008).

   14               Code of Ethics  (Filed as Exhibit  14 to our  Annual  Report on Form 10-K for the year ended
                    December 31, 2003).

   21*              Subsidiary Companies

   23.1*            Consent of Parente Randolph, LLC.

   23.2*            Consent of Lazar Levine & Felix LLP

   31.1*            Certification  of Interim  Chief  Executive  Officer  and  Acting  Chief  Financial  Officer
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

   32.1 *           Certification of Mindy A. Horowitz  pursuant to 18 U.S.C.  Section 1350, as adopted pursuant
                    to Section 906 of the Sarbanes-Oxley Act of 2002.
   ---------------- ---------------------------------------------------------------------------------------------

++ Denotes management contracts or compensation plans or arrangements in which
directors or executive officers are eligible to participate.
</TABLE>
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of
First Montauk Financial Corp. and Subsidiaries
Red Bank, New Jersey:

We have audited the consolidated statement of financial condition of First
Montauk Financial Corp. and Subsidiaries (the "Company") as of December 31,
2008, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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, 2008, and the results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements for the year ended December
31, 2008, have been prepared assuming that the Company will continue as a going
concern. As disclosed in Note 1 to the consolidated financial statements, the
Company sold its broker-dealer and investment advisory operations on December
15, 2008. The cash proceeds from the sale may not be sufficient to satisfy the
known and contingent liabilities of the ongoing Company which has no continuing
operations. Management's plans concerning these matters are also disclosed in
Note 1 to the consolidated financial statements. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.



/s/Parente Randolph, LLC
---------------------------
Parente Randolph, LLC
Morristown, New Jersey
May 14, 2009


                                      F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders
First Montauk Financial Corp.
Red Bank, New Jersey:


We have audited the consolidated statement of financial condition of First
Montauk Financial Corp. and subsidiaries as of December 31, 2007, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. 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 audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the schedule are free of material misstatement. The Company is
not required to have, nor were we engaged to perform, an audit of its internal
controls over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and the schedule, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements and the schedule. We believe
that our audit provides 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, 2007, and the results of
their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepts in the United States of America.





                                               /s/ Lazar Levine & Felix LLP
                                               ---------------------------------
                                               LAZAR LEVINE & FELIX LLP

New York, New York
March 27, 2008

                                      F-2
<PAGE>
<TABLE>

                                               FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                                               CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                                        (A DISCONTINUED OPERATION)

<S>                                                                                               <C>                   <C>

                                                                                                   December 31,         December 31,
                                                                                                       2008                 2007
                                                                                                   ------------         ------------
ASSETS
Cash                                                                                               $ 515,052             $ 868,836
Restricted cash                                                                                       86,982                     -
Due from clearing firm                                                                               727,577             2,347,946
Due from First Allied Securities                                                                   2,826,431                     -
Securities owned, at fair value                                                                       40,421               159,773
Prepaid expenses                                                                                     294,243               250,948
Employee and broker receivables - net of reserve for bad debt
    of $180,023 and $758,615, respectively                                                             3,096               288,049
Property and equipment - net                                                                               -               175,463
Other assets                                                                                         183,957             1,159,893
                                                                                                 -----------           ------------
    Total assets                                                                                 $ 4,677,759           $ 5,250,908
                                                                                                 ===========           ============

LIABILITIES
10% convertible note                                                                                     $ -           $ 1,000,000
Securities sold, not yet purchased, at fair value                                                          -                   201
Commissions payable                                                                                  411,115             1,739,713
Broker incentive payments                                                                          1,085,743                     -
Accounts payable                                                                                     302,957               256,549
Accrued expenses                                                                                   1,689,395               556,527
Income taxes payable                                                                                   2,872                11,358
Other liabilities                                                                                     39,571                51,528
                                                                                                   ---------             ----------
    Total liabilities                                                                              3,531,653             3,615,876
                                                                                                   ---------             ----------
Commitments and contingencies

STOCKHOLDERS' EQUITY
Preferred stock, 3,929,898 shares authorized, $.10 par value,
   no shares issued                                                                                        -                     -
Series A convertible preferred stock, 625,000 shares authorized, $.10 par value
   22,282  shares issued and outstanding; liquidation preference: $111,410                             2,228                 2,228
Series C participating cumulative preferred stock, 200,000 shares authorized,
  $.10 par value, no shares issued                                                                         -                     -
Common stock, no par value, 60,000,000 shares authorized,
   9,956,940 and 13,257,248 shares issued and outstanding; respectively                            9,535,468             9,621,030
Additional paid-in capital                                                                         4,035,064             4,035,064
Accumulated deficit                                                                              (12,426,654)          (12,023,290)
                                                                                                 ------------          ------------
    Total stockholders' equity                                                                     1,146,106             1,635,032
                                                                                                 ------------          ------------
    Total liabilities and stockholders' equity                                                   $ 4,677,759           $ 5,250,908
                                                                                                 ============          ============


                                             See notes to consolidated financial statements.

                                                                     F-3
</TABLE>
<PAGE>
<TABLE>

                                   FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                              (A DISCONTINUED OPERATION)

<S>                                                                            <C>                  <C>

                                                                                      Year ended Dec 31,
                                                                               ---------------------------------
                                                                                   2008                  2007
                                                                               -----------           -----------
Revenues:

Commissions                                                                    $20,399,448           $31,728,518
Principal transactions                                                           1,768,343             1,534,794
Investment banking                                                                 674,342             3,579,838
Interest and other income                                                        2,071,766             2,712,648
                                                                               -----------           -----------

     Total revenues                                                             24,913,899            39,555,798
                                                                               -----------           -----------
Expenses:

Commissions, employee compensation and benefits                                 20,884,562            33,995,993
Clearing and floor brokerage                                                     1,171,477             1,477,482
Communications and occupancy                                                     2,406,874             1,672,992
Legal matters and related costs                                                    911,068             1,672,716
Other operating expenses                                                         2,708,708             2,778,928
Interest                                                                           117,240                26,420
                                                                               -----------           -----------

     Total expenses                                                             28,199,929            41,624,531
                                                                               -----------           -----------
Loss before sale of brokerage operations and
provision for income taxes                                                      (3,286,030)           (2,068,733)
Gain on sale of brokerage operations                                             2,896,463                    -
                                                                               -----------           ------------
Loss before provision for income taxes                                            (389,567)           (2,068,733)
Provision for income taxes                                                           7,112                16,333
                                                                               -----------           -----------
Net (loss)                                                                        (396,679)           (2,085,066)
Preferred stock dividends                                                           (6,685)             (123,966)
                                                                               -----------           ------------
Net (loss) applicable to common stockholders                                    $ (403,364)         $ (2,209,032)
                                                                               ===========           ============

Basic and diluted net (loss) per share                                          $    (0.03)         $      (0.14)
                                                                               ===========           ============

Weighted average number of shares of stock outstanding,
  basic and diluted                                                             12,597,457            15,635,136





                                       See notes to consolidated financial statements.

                                                               F-4
</TABLE>
<PAGE>
<TABLE>

                                                  FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                                  FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
                                                             (A DISCONTINUED OPERATION)

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

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

Balances at December 31, 2006                305,369     30,537        -             -     18,526,553   11,646,620         950,592

Amortization of deferred compensation              -          -        -             -              -       29,823               -
Payment of preferred stock dividends               -          -        -             -              -            -               -
Exercise of incentive stock options                -          -        -             -          3,000          750               -
Redemption of preferred A stock                    - (1,629,549)       -             -              -            -       1,629,549
Cancellation of preferred A stock           (283,087) 1,601,240        -             -              -            -      (1,601,240)
Cancellation of preferred B stock                  -          -        -             -              -            -       1,000,000
Cancellation of common stock                       -          -        -             -     (5,272,305)  (2,056,163)      2,056,163
Net loss                                           -          -        -             -              -            -               -
                                          ------------------------  --------------------  --------------------------   ------------
Balances at December 31, 2007                 22,282        2,228      -             -     13,257,248    9,621,030       4,035,064

Amortization of deferred compensation              -            -      -             -              -       14,438               -
Payment of preferred stock dividends               -            -      -             -              -            -               -
Repurchase of common stock                         -            -      -             -              -            -               -
Cancellation of common stock                                                               (3,300,308)    (100,000)
Net income                                         -            -      -             -              -            -               -
                                          ------------------------  --------------------  --------------------------   ------------
Balances at December 31, 2008                 22,282      $ 2,228      -           $ -      9,956,940   $9,535,468     $ 4,035,064
                                          ========================  ====================  ==========================   ============




















                                               See notes to consolidated financial statements.

                                                                       F-5
</TABLE>
<PAGE>
<TABLE>

                                    FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                    FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
                                               (A DISCONTINUED OPERATION)

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

                                                   Accumulated                  Treasury Stock           Stockholders'
                                                     Deficit                 Shares         Amount          Equity
                                               ------------------       -------------------------------------------------
Balances at December 31, 2006                        (9,814,258)                    -             -         2,813,491
Amortization of deferred compensation                         -                     -             -            29,823
Payment of preferred stock dividends                   (123,966)                    -             -          (123,966)
Exercise of incentive stock options                           -                     -             -               750
Cancellation of preferred A stock                             -                     -             -                 -
Cancellation of preferred B stock                             -                     -             -         1,000,000
Cancellation of common stock                                  -                     -             -                 -
Net loss                                             (2,085,066)                    -             -        (2,085,066)
                                                  --------------           -------------------------------------------
Balances at December 31, 2007                       (12,023,290)                    -             -         1,635,032
Amortization of deferred compensation                         -                     -             -            14,438
Payment of preferred stock dividends                     (6,685)                    -             -            (6,685)
Repurchase of common stock                                    -            (3,300,308)     (100,000)         (100,000)
Cancellation of common stock                                  -             3,300,308       100,000
Net loss                                               (396,679)                    -             -          (396,679)
                                                  --------------           -------------------------------------------
Balances at December 31, 2008                     $ (12,426,654)                    -           $ -       $ 1,146,106
                                                  ==============           ===========================================



























                                          See notes to consolidated financial statements.

                                                                 F-6
</TABLE>
<PAGE>
<TABLE>

                                 FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                            (A DISCONTINUED OPERATION)

<S>                                                                  <C>              <C>

                                                                      Twelve months ended Dec 31,
                                                                     ------------------------------
                                                                         2008              2007
                                                                     -----------      -------------
CASH FLOWS FROM OPERATING ACTIVITIES

 Net loss                                                           $  (396,679)       $(2,085,066)

Adjustments to reconcile net loss to net cash used in
    operating activities:

 Depreciation and amortization of property and equipment                200,812            109,163
 Amortization of stock compensation and deferred costs                   44,438             29,823
 Gain on sale of brokerage operations                               (2,896,463)                 -
 Increase (decrease) in cash attributable to changes in assets
 and liabilities:
 Due from clearing firm                                               1,620,369          2,640,801
 Securities owned                                                       119,352             38,674
 Prepaid expenses                                                       (43,295)            34,532
 Employee and broker receivables                                        284,953             55,442
 Other assets                                                           975,936           (561,925)
 Securities sold, not yet purchased                                        (201)              (294)
 Commissions payable                                                 (1,328,598)          (639,222)
 Accounts payable                                                        46,408            (56,878)
 Accrued expenses                                                       921,661           (638,899)
 Income taxes payable                                                    (8,486)             7,191
 Other liabilities                                                      (11,957)           (15,628)
                                                                     -----------        -----------
NET CASH (USED IN) OPERATING ACTIVITIES                                (471,750)        (1,082,286)
                                                                     -----------        -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Additions to property and equipment                                    (25,349)           (45,593)
 Proceeds from sale of brokerage operations, net of
 amount used for restricted cash of $86,982                             163,018                 -
 Restricted cash                                                         86,982                 -
                                                                     -----------        -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                     224,651            (45,593)
                                                                     -----------        -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Payment of capital lease                                                     -               (820)
 Proceeds from exercise of incentive stock option                             -                750
 Payment of preferred stock dividends                                    (6,685)          (123,966)
 Proceeds from issuance of 10% convertible note                               -          1,000,000
 Repurchase of common stock                                            (100,000)                 -
 Payment of convertible debenture                                             -            (25,000)
                                                                     -----------        -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                    (106,685)           850,964
                                                                     -----------        -----------

Net (decrease) in cash                                                 (353,784)          (276,915)
Cash at beginning of period                                             868,836          1,145,751
                                                                     -----------        -----------

CASH AT END OF PERIOD                                               $   515,052        $   868,836
                                                                     ===========        ===========
Supplemental disclosures of cash flow information:
 Cash paid during the period for:
 Interest                                                           $   119,373        $    19,844
                                                                     ===========        ===========
 Income taxes                                                       $    19,278        $    11,343
                                                                     ===========        ===========
Noncash financing activity:
 Cancellation and redemption of Preferred A stock                   $         -        $    28,309
 Cancellation of Preferred B stock                                  $         -        $ 1,000,000
 Cancellation of common stock                                       $         -        $ 2,056,199

In connection with the sale of the brokerage
operations, the following non-cash items were
incurred in fiscal 2008:

 Due from First Allied Securities, Inc.                             $2,826,431
 Cancellation of 10% Convertible Note and
 accrued interest                                                   $1,055,670
 Broker incentive payments                                          $1,085,743
 Legal and other accrued expenses                                   $  155,537


                                   See notes to consolidated financial statements.

                                                      F-7
</TABLE>
<PAGE>


                 FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 -          DESCRIPTION OF BUSINESS AND SALE OF BROKERAGE OPERATIONS

                  First Montauk Financial Corp. (the "Company") is a holding
                  company whose principal subsidiary, First Montauk Securities
                  Corp. ("First Montauk"), operated as a securities
                  broker-dealer and investment adviser registered with the
                  Securities and Exchange Commission ("SEC"). Since July 2000,
                  First Montauk had operated under the registered trade name
                  "Montauk Financial Group". Through First Montauk, the Company
                  executed principal and agency transactions primarily for
                  retail customers, performed investment banking services, and
                  traded securities on a proprietary basis. First Montauk's
                  registered representatives offered and sold a variety of
                  investment related, insurance based products through Montauk
                  Insurance Services, Inc. ("MISI"), another subsidiary of the
                  Company. The Company operated in one business segment.
                  Customers were located primarily throughout the United States.

                  First Montauk cleared all customer transactions on a fully
                  disclosed basis through independent clearing firms.
                  Accordingly, First Montauk did not carry securities accounts
                  for customers nor did it perform custodial functions related
                  to those securities. First Montauk was a member of the
                  Financial Industry Regulatory Authority ("FINRA") and the
                  National Futures Association ("NFA").

                  At the Annual Meeting of Shareholders held on October 17,
                  2008, the shareholders of the Company approved the definitive
                  asset purchase agreement ("Purchase Agreement") executed by
                  the Company and its principal subsidiary, First Montauk
                  Securities Corp. ("First Montauk"), with First Allied
                  Securities Inc. ("First Allied") providing for the sale of
                  substantially all of the assets of First Montauk to First
                  Allied. On December
                  15, 2008, the Company and First Montauk completed the
                  transaction. Upon the closing, certain of First Montauk's
                  independent registered representatives joined First Allied,
                  and First Allied acquired the right to service the customer
                  accounts of those representatives that join First Allied.
                  Following the closing, First Montauk ceased its broker-dealer
                  and investment advisor operations. On December 23, 2008, First
                  Montauk filed Form BDW with the SEC, effective December 31,
                  2008, to withdraw its registration as a broker-dealer. The
                  filing was approved by the SEC on February 23, 2009. In
                  addition, on December 23, 2008, First Montauk filed Form ADV-W
                  to terminate its registration as an investment advisor, which
                  became effective on December 31, 2008.

                  Under the terms of the Purchase Agreement with First Allied,
                  the aggregate purchase price was approximately $4,197,000.
                  First Allied paid $250,000 to First Montauk upon the signing
                  of the Purchase Agreement on July 11, 2008. At the closing on
                  December 15, 2008, First Montauk received a credit for the
                  cancellation of the balance of principal and interest

                                      F-8
<PAGE>

                  outstanding totaling approximately $1,055,670 under a secured
                  convertible promissory note, dated December 7, 2007, executed
                  in connection with a loan to First Montauk by an affiliate of
                  First Allied (as further described in the next paragraph
                  below), leaving a balance due under the Purchase Agreement of
                  $2,826,431, after the purchase price adjustments of $14,957
                  and $50,000 (see below). The third payment of $2,000,000 was
                  received on January 15, 2009 with the balance of $891,388
                  expected on March 17, 2009, in accordance with the Purchase
                  Agreement. On that date we received $676,431 and were advised
                  by First Allied that they were making an adjustment to the
                  purchase price of $14,957 and were withholding an additional
                  $200,000 based on its claim of indemnification under the
                  Purchase Agreement. We agreed with the purchase price
                  adjustment of $14,957 but challenged First Allied's right to
                  withhold $200,000. On April 14, 2009 we entered into an
                  agreement with First Allied in which we permitted First Allied
                  to retain $50,000 and apply it towards any expenses incurred
                  in connection with an attempt by a former customer of First
                  Montauk to add First Allied as a named respondent in a pending
                  arbitration case. As a result, First Allied paid the balance
                  of $150,000 to us in April 2009. The agreement further
                  provides that in the event that First Allied's defense costs
                  are less than $50,000, they will pay us the remaining balance
                  and if First Allied's expenses exceed $50,000 in connection
                  with this arbitration, we must indemnify First Allied for its
                  costs above $50,000.

                  On December 7, 2007, the Company entered into a note purchase
                  agreement (the "Note Purchase Agreement") with AEFC-FMFK
                  Investment Corp. ("AEFC-IC"), an affiliate of First Allied,
                  which itself is a subsidiary of Advanced Equities Financial
                  Corp., pursuant to which AEFC-IC was issued a 10% Convertible
                  Secured Note due on December 31, 2008 for a principal amount
                  borrowed of $1,000,000 (the "AEFC-IC Note"). The AEFC-IC Note
                  accrued interest on the unpaid principal amount at the rate of
                  10% per annum, which was paid monthly in arrears on or before
                  the 10th day of the month following the interest accrual. The
                  principal amount of the AEFC-IC Note and all accrued and
                  unpaid interest was due to be paid in full on December 31,
                  2008. On December 15, 2008, the date of closing of the
                  Purchase Agreement, the principal amount and accrued interest
                  of $1,055,670 was applied toward the aggregate purchase price
                  and the AEFC-IC Note was cancelled and deemed paid in full. In
                  connection with the cancellation of the AEFC-IC Note, all
                  security interests, including the shares of stock of the
                  Company's subsidiaries, First Montauk and Montauk Insurance
                  Services Inc., were released back to the Company.

                  As a result of the sale of substantially all of the assets of
                  First Montauk, the Company determined that its business
                  activities should be considered discontinued operations and to
                  distinguish this operationally and for financial reporting
                  purposes, each financial statement is labeled "a discontinued
                  operation".
<TABLE>
                  <S>                                                                    <C>
                                      F-9
<PAGE>

                  The gain on the sale of brokerage operations was determined as
follows:

                    Aggregate purchase price                                           $4,197,058
                    Less: Legal costs related to sale                                    (149,895)
                          Purchase price adjustment                                       (14,957)
                          Indemnification agreement with First Allied                     (50,000)
                          Retention payments to brokers                                (1,085,743)
                                                                                        -----------
                    Gain on sale                                                       $2,896,463
                                                                                        ===========
</TABLE>

NOTE 2 -          GOING CONCERN

                  As disclosed in Note 1, the Company sold substantially all of
                  its assets and ceased its broker-dealer and investment
                  advisory operations of First Montauk as of December 15, 2008.
                  The cash proceeds received from First Allied along with any
                  remaining cash and other assets of the Company will be used to
                  settle known and contingent liabilities. However, the Company
                  does not have other operations which can generate additional
                  cash or revenues. The Board of Directors is evaluating whether
                  to position the Company as a shell company, but does not have
                  any specific plans. As a result, there is substantial doubt
                  about the Company's ability to continue as a going concern.
                  The accompanying consolidated financial statements have been
                  prepared, however, assuming that the Company will continue as
                  a going concern, which contemplates among other things, the
                  realization of assets and satisfaction of liabilities in the
                  normal course of business. The consolidated financial
                  statements do not include any adjustments that might result
                  from the outcome of this uncertainty.

NOTE 3 -          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                  Basis of Presentation

                  The consolidated financial statements include the accounts of
                  the Company and its subsidiaries, all of which are wholly
                  owned. All intercompany accounts and transactions have been
                  eliminated in consolidation.

                  Use of Estimates

                  The preparation of our financial statements requires us to
                  makes estimates that affect the reported amounts of assets,
                  liabilities, revenue and expense, and related disclosure of
                  contingent assets and liabilities. Accounting estimates are
                  based on historical experience and other factors that are
                  believed to be reasonable under the circumstances. However,
                  actual results may vary from these estimates under different
                  assumptions or condition.

                  Revenue Recognition Policies

                  Commissions. All customer securities transactions and
                  insurance and mutual fund commissions are reported in the
                  Consolidated Statements of Operations on a trade-date basis.
                  Revenues from alternative products received from outside
                  vendors were recognized as income when earned. Asset
                  management fees include revenues we received from management
                  fees from third-party managed funds and management and
                  administrative fees we received for assets managed by our
                  registered representatives who are Series 65 licensed. These
                  fees were based on the value of assets under management and
                  are generally recognized over the period that the related
                  service is provided based upon the beginning or ending Net
                  Asset Value of the relevant period. Our accounting for
                  commissions included the guidance contained in Emerging Issues
                  Task Force ("EITF") Issue No. 99-19, Reporting Revenues Gross
                  versus Net, and because we are the primary obligor of any such
                  arrangements, accordingly, we do not net expense against the
                  commission revenues.

                                      F-10
<PAGE>

                  Principal Transactions. Financial instruments owned and
                  financial instruments sold, but not yet purchased (all of
                  which are recorded on a trade-date basis) are valued at quoted
                  market value, with unrealized gains and losses reflected in
                  Principal transactions in the Consolidated Statements of
                  Operations on a trade-date basis. Market value generally is
                  determined based on listed prices or broker quotes. Securities
                  not readily marketable are carried at fair value based on our
                  management's best estimate, giving appropriate consideration
                  to reported prices, the extent of public trading in similar
                  securities and the discount from the listed price associated
                  with the cost at the date of acquisition, among other factors.

                  The Company's principal transaction revenues, by reporting
                  categories at December 31, 2008 and 2007, are as follows:
<TABLE>
                  <S>      <C>                <C>             <C>            <C>            <C>

                                                          2008                           2007
                           ------------------ ------------------------------ ------------------------------
                           ------------------ --------------- -------------- -------------- ---------------
                                                  Amount            %           Amount            %
                                                  ------            -           ------            -

                           Equities                  669,187         37.84%        386,361          25.17%
                           Fixed Income            1,099,156         62.16%      1,148,433          74.83%
                           ------------------ --------------- -------------- -------------- ---------------
                           ------------------ --------------- -------------- -------------- ---------------
                           Total                   1,768,343        100.00%      1,534,794         100.00%
                           ================== =============== ============== ============== ===============
</TABLE>

                  Investment Banking. Investment banking revenues are recorded
                  at the time a transaction is completed and the related income
                  is reasonably determined. Investment banking revenues include
                  management fees, net of reimbursable expenses, earned in
                  connection with private placement fees. Revenues from sales
                  concessions from participation in syndicated offerings are
                  recorded on a trade-date basis.

                  Interest Income. We recognize interest earned from clearing
                  firm rebates when received. Interest on broker loans is
                  recorded on the accrual basis.

                  Advertising

                  Advertising costs were expensed as incurred and totaled
                  $44,843 and $86,944 in 2008 and 2007, respectively.

                  Property and Equipment and Depreciation

                  Furniture, equipment and leasehold improvements were stated at
                  cost. Betterments are capitalized, while all other items are
                  expensed. Depreciation on furniture and equipment is computed
                  over the estimated useful lives of the assets, ranging from
                  three to ten years. Capitalized leased equipment is amortized
                  over the lease term. Leasehold improvements are amortized over
                  the shorter of either the asset's useful life or the related
                  lease term. Depreciation is computed using the straight-line
                  method for financial reporting purposes and on an accelerated
                  basis for income tax purposes. As of December 31, 2008, the
                  carrying value of furniture, equipment and leasehold
                  improvements was considered to be impaired, due to the sale of
                  the brokerage operations, and the impairment loss was
                  recognized as part of depreciation expense.

                  Cash

                  The Company maintains cash with major financial institutions.
                  From time to time the Company has funds on deposit with
                  commercial banks that exceed federally insured limits. As of
                  December 31, 2008 and December 31, 2007, the Company had cash
                  of $352,034 and $618,836, respectively, in excess of insured
                  limits.
                                      F-11
<PAGE>

                  Net Loss per Common Share

                  Basic net loss per share is computed on the basis of the
                  weighted average number of common shares outstanding. Diluted
                  net loss per share is computed on the basis of the weighted
                  average number of common shares outstanding plus the potential
                  dilution that could occur if securities or other contracts to
                  issue common shares were exercised and converted. In
                  determining basic net loss per share for the periods
                  presented, dividends paid on Series A Convertible Preferred
                  Stock are deducted to the net loss. No dividends were paid on
                  the Series C Participating Cumulative Preferred Stock. For
                  2008 and 2007, the basic and diluted loss per share
                  calculation is the same due to net losses. Accordingly, the
                  result of including potentially dilutive securities would be
                  anti-dilutive.

                  In accordance with Statement of Financial Accounting Standards
                  ("SFAS") No. 128, the following table reconciles basic shares
                  outstanding to fully diluted shares outstanding:
<TABLE>
                  <S>                                                        <C>            <C>

                                                                                 Years Ended December 31,
                                                                                   2008             2007
                                                                                   ----             ----
                  Numerator:

                     Net loss                                                   $(396,679)      $(2,085,066)
                     Preferred stock dividends                                     (6,685)         (123,966)
                                                                             -------------- -----------------
                                                                             -------------- -----------------

                  Numerator  for basic and  diluted  loss per share - - net
                  loss attributable to common stockholders                      $(403,364)      $(2,209,032)
                                                                             ============== =================
                                                                             ============== =================

                  Denominator:
                  Denominator  for  basic  and  diluted  loss  per  share -
                  -weighted average shares                                     12,597,457        15,635,136
                                                                             ============== =================

                  The following securities, presented on a common share
                  equivalent basis, have been excluded from the diluted loss per
                  share computations because they are antidilutive:

                                                                             Year ended December 31,
                                                                            2008                 2007
                                                                            ----                 ----

                          Stock Options                                1,056,000            1,871,200
                          Warrants                                            --              304,518
                          Convertible note                                    --            2,857,143
                          Convertible preferred stock                     44,564               44,564
                                                             -------------------- --------------------
                                                             -------------------- --------------------
                          TOTAL                                        1,100,564            5,077,425
                                                             ==================== ====================
</TABLE>
                                      F-12
<PAGE>

                  Long-lived Assets

                  The Company evaluates impairment losses on long-lived assets
                  used in operations, primarily property and equipment, when
                  events and circumstances indicate that the carrying value of
                  the assets might not be recoverable in accordance with FAS No.
                  144 "Accounting for the Impairment or Disposal of Long-lived
                  Assets". For purposes of evaluating the recoverability of
                  long-lived assets, the undiscounted cash flows estimated to be
                  generated by those assets would be compared to the carrying
                  amounts of those assets. If and when the carrying values of
                  the assets exceed their fair values, the related assets will
                  be written down to fair value. In connection with the sale of
                  substantially all of the assets of the Company, the Company
                  has determined that there was an impairment of property and
                  equipment for the year ended December 31, 2008 and has
                  therefore recognized a loss for the remaining carrying value
                  ($132,528) of those assets.

                  Income Taxes

                  The Company uses the liability method to determine its income
                  tax expense as required under SFAS 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
                  files a consolidated tax return for federal purposes and
                  separate state tax returns for the parent and each of its
                  subsidiaries.

                  Stock-based Compensation

                  The Company has periodically issued stock options to
                  employees, non-employee consultants and non-employee
                  independent registered representatives in accordance with the
                  provisions of its various stock option plans (collectively,
                  the "Plans"), with the exercise price of the stock options
                  being set at the greater of $ .50 or 120% of the closing
                  market price of the common stock on the date of grant.

                  Accounting for Employee Awards:

                  Effective January 1, 2006, the Plans are accounted for in
                  accordance with the recognition and measurement provisions of
                  SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS
                  123(R)"), which replaces SFAS No. 123, Accounting for
                  Stock-Based Compensation ("SFAS 123"), and supersedes
                  Accounting Principles Board Opinion No. 25 ("APB 25"),
                  Accounting for Stock Issued to Employees, and Related
                  Interpretations. SFAS 123(R) requires compensation costs
                  related to share-based payment transactions, including
                  employee stock options, to be recognized in the financial
                  statements. In addition, the Company adheres to the guidance
                  set forth within SEC Staff Accounting Bulletin ("SAB") No.
                  107, which provides the Staff's views regarding the
                  interaction between SFAS 123(R) and certain SEC rules and
                  regulations and provides interpretations with respect to the

                                      F-13
<PAGE>

                  adopting SFAS 123(R), the Company applied the modified
                  prospective approach to the transition. Under the modified
                  prospective approach, the provisions of SFAS 123(R) are to be
                  applied to new employee awards and to employee awards
                  modified, repurchased, or cancelled after the required
                  effective date. Additionally, compensation cost for the
                  portion of employee awards for which the requisite service has
                  not been rendered that are outstanding as of the required
                  effective date shall be recognized as the requisite service is
                  rendered on or after the required effective date. The
                  compensation cost for that portion of employee awards shall be
                  based on the grant-date fair value of those awards as
                  calculated for either recognition or pro-forma disclosures
                  under SFAS 123.

                  As a result of the adoption of SFAS 123(R), the Company's
                  results for the years ended December 31, 2008 and 2007 include
                  share-based compensation expense for the employee options and
                  shares totaling approximately $5,495 and $5,375, respectively,
                  and is included in the Consolidated Statements of Operations
                  within commissions, employee compensation and benefits. No
                  income tax benefit has been recognized in the Consolidated
                  Statements of Operations for share-based compensation
                  arrangements as the Company has provided for 100% valuation
                  allowance on net deferred tax assets.

                  Employee stock options compensation expense in 2008 and 2007
                  is the estimated fair value of options granted amortized on a
                  straight-line basis over the requisite service period for the
                  entire portion of the awards. The Company has not adjusted the
                  expense by estimated forfeitures, as required by SFAS 123(R)
                  for employee options, since the forfeiture rate based upon
                  historical data was determined to be immaterial.

                  Accounting for Non-Employee Awards:

                  The Company accounts for options granted to its non-employee
                  consultants and non-employee registered representatives using
                  the fair value in accordance with FAS 123 and EITF Issue No.
                  96-18 "Accounting for Equity Instruments That Are Issued to
                  Other Than Employees" ("EITF 96-18"). The adoption of FAS
                  123(R) and SAB 107 (defined below) as of January 1, 2006, had
                  no material impact on the accounting for non-employee awards.
                  The Company continues to consider the additional guidance set
                  forth in EITF 96-18.

                  Stock compensation expense related to non-employee options was
                  $8,943 for the year ended December 31, 2008 compared to
                  $24,447 for the year ended December 31, 2007. These amounts
                  are included in Consolidated Statements of Operations within
                  commissions, employee compensation and benefits.

                  The weighted average estimated fair value of all stock options
                  granted during the years ended December 31, 2008 and 2007 was
                  $249 and $6,846, respectively. The fair value of options at
                  the date of grant was estimated using the Black-Scholes option
                  pricing model. The expected volatility is based upon
                  historical volatility of our common stock and other
                  contributing factors. The expected term is based upon
                  observation of actual time elapsed between date of grant and
                  exercise of options for all employees.
                                      F-14
<PAGE>

                  The assumptions made in calculating the fair values of all
                  options are as follows:
<TABLE>
                          <S>                                         <C>                   <C>

                                                                              2008                  2007
                                                                              ----                  ----

                          Expected volatility                                  86%                   64%
                          Expected dividend yield                               0%                    0%
                          Risk-free interest rate                      1.55%-4.54%           3.45%-4.47%
                          Expected term (in years)                         0 years             1-4 years
</TABLE>

                  Recent Accounting Pronouncements

                  In September 2006, the Financial Accounting Standards Board
                  ("FASB") issued SFAS No. 157, Fair Value Measurements ("SFAS
                  157"), to define how the fair value of assets and liabilities
                  should be measured in accounting standards where it is allowed
                  or required. In addition to defining fair value, the Statement
                  established a framework within GAAP for measuring fair value
                  and expanded required disclosures surrounding fair value
                  measurements. In February 2008, the FASB issued FASB Staff
                  Position ("FSP") SFAS 157-2, Effective Date of FASB Statement
                  No. 157, which delayed the effective date by one year for all
                  nonfinancial assets and nonfinancial liabilities, except those
                  that are recognized or disclosed at fair value in the
                  financial statements on a recurring basis. In October 2008,
                  the FASB issued FSP SFAS 157-3, Determining the Fair Value of
                  a Financial Asset When the Market for That Asset Is Not
                  Active, to clarify the application of SFAS 157 in a market
                  that is not active and provides an example to illustrate key
                  considerations in determining the fair value of a financial
                  asset when the market for that financial asset is not active.
                  This FSP was effective immediately. In April 2009, the FASB
                  issued FSP SFAS 157-4. Determining Fair Value When the Volume
                  and Level of Activity for the Asset or Liability Have
                  Significantly Decreased and Identifying Transactions That Are
                  Not Orderly, to provide additional guidance for estimating
                  fair value when the volume and level of activity for the asset
                  or liability have significantly decreased. This FSP will be
                  effective for interim and annual reporting periods ending
                  after June 15, 2009. We adopted SFAS 157 for financial assets
                  and financial liabilities on January 1, 2008, and the adoption
                  did not have a material impact on our financial position,
                  results of operations, or cash flows.

                  In February 2007, the FASB issued SFAS No. 159, The Fair Value
                  Option for Financial Assets and Financial
                  Liabilities-Including an Amendment of FASB Statement No. 115
                  ("SFAS 159"). SFAS 159 allows companies to measure certain
                  financial instruments at fair value without having to apply
                  complex hedge accounting provisions and to report unrealized
                  gains and losses on selected items in earnings. This Statement
                  is effective for financial statements issued for fiscal years
                  beginning after November 15, 2007. The adoption of SFAS 159
                  did not have a material impact on the Company's results of
                  operations or financial position because we had no assets or
                  liabilities for which we elected the fair value option.
                                      F-15
<PAGE>

                  In December 2007, the FASB issued SFAS No. 141 (revised 2007),
                  Business Combinations ("SFAS 141(R)") which replaces SFAS No.
                  141. The statement retains the purchase method of accounting
                  for acquisitions, but requires a number of changes, including
                  changes in the way assets and liabilities are recognized in
                  the purchase accounting. It also changes the recognition of
                  assets acquired and liabilities assumed arising from
                  contingencies, requires the capitalization of in-process
                  research and development at fair value, and requires the
                  expensing of acquisition-related costs as incurred. SFAS 141R
                  is effective for business combinations for which the
                  acquisition date is on or after the beginning of the first
                  annual reporting period beginning on or after December 15,
                  2008.

                  In December 2007, the FASB issued SFAS No. 160, Noncontrolling
                  Interests in Consolidated Financial Statements-and Amendment
                  of ARB No. 51 ("SFAS 160"). SFAS 160 establishes accounting
                  and reporting standards pertaining to ownership interests in
                  subsidiaries held by parties other than the parent, the amount
                  of net income attributable to the parent and to the
                  noncontrolling interest, changes in a parent's ownership
                  interest, and the valuation of any retained noncontrolling
                  equity investment when a subsidiary is deconsolidated. This
                  Statement also establishes disclosure requirements that
                  clearly identify and distinguish between the interests of the
                  parent and the interests of the noncontrolling owners. SFAS
                  160 is effective for fiscal years beginning on or after
                  December 15, 2008. The adoption of SFAS 160 is not currently
                  expected to have a material effect on the Company's financial
                  position, results of operations, or cash flows.

                  In March 2008, the Financial Accounting Standards Board (FASB)
                  issued FASB Statement No. 161, Disclosures about Derivative
                  Instruments and Hedging Activities ("SFAS 161"). The new
                  standard is intended to improve financial reporting about
                  derivative instruments and hedging activities by requiring
                  enhanced disclosures to enable investors to better understand
                  their effects on an entity's financial position, financial
                  performance, and cash flows. It is effective for financial
                  statements issued for fiscal years and interim periods
                  beginning after November 15, 2008, with early application
                  encouraged. The Company is currently evaluating the impact of
                  adopting SFAS 161 on its consolidated financial statements.

                  In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1,
                  Interim Disclosures about Fair Value of Financial Instruments,
                  to require disclosures about fair value of financial
                  instruments for interim reporting periods of publicly traded
                  companies as well as in annual financial statements. This FSP
                  also amends APB Opinion No. 28, Interim Financial Reporting,
                  to require those disclosures in summarized financial
                  information at interim reporting periods. The Company will
                  comply with the additional disclosure requirements beginning
                  in the second quarter of 2009.

                  In April 2009, the FASB issued FSP No. SFAS 115-2 and SFAS
                  124-2, Recognition and Presentation of Other-Than-Temporary
                  Impairments. This FSP amends the other-than-temporary
                  impairment guidance in U.S. GAAP for debt and equity
                  securities in the financial statements. This FSP does not
                  amend existing recognition and measurement guidance related to
                  other-than-temporary impairments of equity securities. This
                  FSP shall be effective for interim and annual reporting
                  periods ending after June 15, 2009. The Company currently does
                  not have any financial assets that are other-than-temporary
                  impaired.
                                      F-16
<PAGE>

                  In April 2009, the SEC released SAB No. 111 ("SAB 111"), which
                  amends SAB Topic 5-M. SAB 111 notes that SFAS No. 115-2 and
                  SFAS 124-2 were scoped to debt securities only, and the FSP
                  referred readers to SEC SAB Topic 5-M for factors to consider
                  with respect to other-than-temporary impairments for equity
                  securities. With the amendments in SAB 111, debt securities
                  are excluded from the scope of Topic 5-M, but the SEC staff's
                  views on equity securities are still included within the
                  topic. The Company currently does not have any financial
                  assets that are other-than-temporary impaired.









NOTE 4 -          SECURITIES OWNED and SECURITIES SOLD, NOT YET PURCHASED
<TABLE>
                   <S>                                 <C>               <C>            <C>            <C>


                                                                             December 31,
                                                                   2008                            2007
                                                       ------------------------------ -------------------------------
                                                       ------------------------------ -------------------------------
                                                                Fair Value                      Fair Value
                                                                ----------                      ----------
                                                                        Sold not yet                    Sold not yet
                                                             Owned         purchased         Owned         purchased

                  Corporate stocks                         $38,847              $ --      $152,816              $201
                  U.S. government agency and
                  municipal obligations                      1,574                --         6,756                --
                  Other                                         --                --           201                --
                                                       ------------ ----------------- ------------- -----------------
                                                       ------------ ----------------- ------------- -----------------
                                                           $40,421              $ --      $159,773              $201
                                                       ============ ================= ============= =================
</TABLE>

                  Securities owned and securities sold, not yet purchased
                  consist of trading securities at quoted market values.
                  Included in corporate stocks are warrants in various
                  companies, some of which are publicly offered and can be sold
                  and some of which cannot be publicly offered or sold until
                  registered under the Securities Act of 1933, as amended
                  ("Securities Act"). At December 31, 2007, the estimated fair
                  value of these warrants was $85,215.
                                      F-17
<PAGE>
NOTE 5 -          EMPLOYEE AND BROKER RECEIVABLES
<TABLE>
                  <S>                                                 <C>                        <C>
                                                                              December 31,
                                                              -----------------------------------------------
                                                              ----------------------- -----------------------
                                                                            2008                       2007
                                                                            ----                       ----

                  Commission advances                                   $124,373                   $291,364
                  Forgivable loans                                            --                    167,083
                  Other loans                                             58,746                    588,217
                                                              ----------------------- -----------------------
                                                              ----------------------- -----------------------
                                                                         183,119                  1,046,664
                  Less: reserve for bad debt                           ( 180,023)                  (758,615)
                                                              ----------------------- -----------------------
                                                              ----------------------- -----------------------
                                                                          $3,096                   $288,049
                                                              ======================= =======================
</TABLE>
                  In the past, the Company provided forgivable loans to certain
                  registered representatives primarily for recruiting and
                  retention purposes. These loans were recorded at face value at
                  the time the loan was made. If the registered representative
                  did not meet specific requirements or terminated his or her
                  registration with the Company prior to the forgiveness of the
                  loan, management would evaluate the collectability of the
                  remaining loan amount. The loans were amortized to commission
                  expense for financial reporting purposes over the term of the
                  loan. Loan amortization charged to compensation was $0 and
                  $53,343 in 2008 and 2007, respectively. Other loans to
                  employees and registered representatives are payable in
                  installments generally over periods of one to five years with
                  interest rates ranging up to 8% per annum.

                  The Company establishes a reserve based on identification on a
                  loan by loan basis and records a bad debt expense at the time
                  a reserve is made. The collectability of each loan is
                  evaluated separately.

NOTE 6 -          PROPERTY AND EQUIPMENT
<TABLE>
                          <S>                               <C>                        <C>
                                                                 December 31,                Estimated
                                                                    2007                     Useful Life

                           Computer and office equipment              $2,947,268            3 to 7 years
                           Furniture and fixtures                      1,699,715           7 to 10 years
                           Leasehold improvements                        807,227           Term of lease
                                                            ---------------------
                                                            ---------------------
                                                                       5,454,210
                           Less: accumulated depreciation
                           and amortization expense                   (5,278,747)
                                                            ---------------------
                                                            ---------------------
                                                                        $175,463
                                                            =====================
</TABLE>

                  Depreciation and amortization expense was $200,812 (including
                  $132,528 related to impaired assets due to the sale of the
                  brokerage operations) and $109,163 in 2008 and 2007,
                  respectively.

NOTE 7 -          OTHER ASSETS

                  Other assets consist of the following:
<TABLE>
                  <S>                                                             <C>               <C>
                                                                                       December 31,
                                                                         --------------------------------------
                                                                                      2008                2007
                                                                                      ----                ----
                  Commissions receivable                                          $133,957            $531,460
                  Security deposits                                                 50,000             473,092
                  Insurance recovery receivable                                         --             124,999
                  Deferred financing costs                                              --              30,000
                  Other                                                                 --                 342
                                                                         ------------------ -------------------
                                                                         ------------------ -------------------
                                                                                  $183,957          $1,159,893
                                                                         ================== ===================
</TABLE>
                                      F-18
<PAGE>

                  Commissions receivable include amounts earned on mutual fund
                  and insurance transactions.

NOTE 8 -          REPURCHASE OF COMMON SHARES

                  On October 20, 2008, the Company entered into a stock
                  repurchase agreement with FMFG Ownership Inc. by Gerard A.
                  McHale, Jr. as Chapter 11 Bankruptcy Trustee of The 1031 Tax
                  Group LLC et al., as Chapter 11 Debtors (the "Selling
                  Stockholder") to purchase 3,300,308 shares of the Company's
                  common stock, no par value, owned by the Selling Stockholder
                  for $100,000. The common stock was cancelled by the Company on
                  December 31, 2008 and resulted in the reduction of the total
                  number of our common shares outstanding from 13,257,248 to
                  9,956,940.

NOTE 9 -          ACCRUED EXPENSES
<TABLE>
                  <S>                                                              <C>              <C>

                  December 31,
                  Accrued expenses consist of the following:                          2008              2007
                                                                                      ----              ----

                  Accrued litigation costs                                           $179,219         $227,000
                  Accrued payroll                                                     100,000          100,000
                  Accrued employment agreement costs                                  424,367           40,801
                  Accrued professional fees                                           138,155          151,210
                  Other accrued expenses                                              847,654           37,516
                                                                           ------------------- ----------------
                                                                           ------------------- ----------------
                                                                                   $1,689,395         $556,527
                                                                           =================== ================
</TABLE>

                  Other accrued expenses include monthly contractual
                  obligations for rent of $554,375, various equipment leases of
                  $169,616 and miscellaneous services of $80,848 that the
                  Company accrued on December 31, 2008 under SFAS No. 146,
                  Accounting for Costs Associated With Exit or Disposal
                  Activities.  These expenses are included in communication and
                  occupancy and other operating expenses. Therefore, these
                  expenses, that would normally be expensed through 2011 have
                  been expensed and accrued for as of December 31, 2008.

NOTE 10 -         BROKER INCENTIVE PAYMENTS

                  In connection with the Purchase Agreement (see Note 1), the
                  Company provided incentive payments to those First Montauk
                  registered representatives who agreed to become affiliated
                  with and accepted by First Allied. The incentive payment
                  amounts were based upon a percentage of the gross production
                  generated by those registered representatives for the period
                  from July 1, 2007 through June 30, 2008. The total amount of
                  these incentive payments was $1,085,743 and was paid from the
                  proceeds of the transaction with First Allied on January 20,
                  2009.


                                      F-19
<PAGE>

NOTE 11 -         INCOME TAXES

                  The provision for income taxes consists of the following:
<TABLE>
                    <S>                                     <C>                <C>

                                                              Years ended December 31,
                                                                  2008               2007
                                                   -------------------- ------------------
                                                   -------------------- ------------------
                   Currently payable:
                      Federal                                    $   -              $   -
                      State                                      7,100             16,000
                                                   -------------------- ------------------
                                                   -------------------- ------------------
                                                                 7,100             16,000


                   Deferred:
                      Federal                                        -                  -
                      State                                          -                  -
                                                   -------------------- ------------------
                                                   -------------------- ------------------
                                                                $7,100            $16,000
                                                   ==================== ==================
</TABLE>

                  Following is a reconciliation of the income tax provision with
                  income taxes based on the federal statutory rate:
<TABLE>
                  <S>                                                  <C>                  <C>

                                                                              Years ended December 31,
                                                                              2008                 2007
                                                                       -------------------- -------------------
                                                                       -------------------- -------------------
                  Expected federal tax benefit at statutory rate                 $(132,000)          $(704,000)
                  including the tax impact of the sale of the
                  brokerage operations in 2008
                  State taxes, net of federal tax rate                               4,700              11,000
                  Non-deductible expenses                                           10,000             149,000
                  Increase in valuation allowance                                  282,000             543,000
                  Other reserves not deductible                                   (157,600)             17,000
                                                                       -------------------- -------------------
                                                                       -------------------- -------------------
                  Provision for income taxes                                     $   7,100           $  16,000
                                                                       ==================== ===================

</TABLE>









                                      F-20
<PAGE>

                  The tax effects of the temporary differences that give rise to
                  significant portions of the deferred tax assets and
                  liabilities as of December 31, 2008 and 2007 are:
<TABLE>
                  <S>                                                   <C>                         <C>

                                                                                   Years ended December 31,
                                                                                   2008                 2007
                                                                       -------------------- ---------------------
                                                                       -------------------- ---------------------
                  Deferred tax assets:
                  Reserves and allowances                                        $ 636,000             $ 286,000
                  Federal tax loss carryforwards                                 1,794,000             1,611,000
                  State tax loss carryforwards                                     146,000               427,000
                  Accrued and stock-based compensation                             436,000               442,000
                  Other                                                             56,000                20,000
                                                                       -------------------- ---------------------
                                                                       -------------------- ---------------------
                  Subtotal                                                       3,068,000             2,786,000
                  Valuation allowance                                           (3,068,000)           (2,786,000)
                                                                       -------------------- ---------------------
                                                                       -------------------- ---------------------
                  Net deferred tax assets                                         $     --              $     --
                                                                       ==================== =====================
</TABLE>

                  The Company has determined that, based upon available
                  information, the probability of utilizing its deferred tax
                  assets does not meet the "more likely than not" test under
                  SFAS 109. As such, a 100% valuation allowance has been
                  provided against deferred tax assets as of December 31, 2008
                  and 2007.

                  On January 1, 2007, the Company adopted FASB Interpretation
                  No. 48, "Accounting for Uncertainty in Income Taxes--an
                  interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48
                  prescribes a comprehensive model for recognizing, measuring,
                  presenting and disclosing in the consolidated financial
                  statements tax positions taken or expected to be taken on a
                  tax return, including a decision whether to file or not to
                  file in a particular jurisdiction.  At the adoption date of
                  January 1, 2007 and at December 31, 2007 and December 31,
                  2008, the Company did not have any unrecognized tax
                  benefits. The Company's practice is to recognize interest
                  and/or penalties related to income tax matters in income tax
                  expense.

                  The Company and its subsidiaries file a consolidated federal
                  tax return and separate state returns. At December 31, 2008,
                  the Company has approximately $5,274,000 and $7,655,000 of
                  federal and state operating loss carryforwards, respectively,
                  available to offset future taxable income. These losses expire
                  at various dates through 2027. The 2007, 2006 and 2005 tax
                  returns are still open and potentially subject to examination
                  by federal and state taxing authorities.


                                      F-21
<PAGE>

NOTE 12 -         COMMITMENTS AND CONTINGENT LIABILITIES

                  Operating Leases:

                  The Company leases office facilities and equipment under
                  operating leases expiring at various dates through 2011.
                  Certain leases require the Company to pay increases in real
                  estate taxes, operating costs and repairs over certain base
                  year amounts. Operating lease expense for the years ended
                  December 31, 2008 and 2007 was approximately $1,394,900 and
                  $734,500, respectively.

                  Future minimum lease commitments under all non-cancelable
                  leases have been expensed and accrued for as of December 31,
                  2008 based on the Company's sale of its broker-dealer
                  operations.  (See Note 9).

                  Employment Agreements:

                  In 2007, the Company and Victor K. Kurylak executed an Amended
                  and Restated Employment Agreement pursuant to which Mr.
                  Kurylak's employment contract was renewed for one year through
                  December 31, 2008.

                  Mr. Kurylak's employment terminated as a result of the
                  expiration of his agreement at the end of the term on December
                  31, 2008. Pursuant to the terms of his Amended and Restated
                  Employment Agreement, Mr. Kurylak is entitled to accrued
                  compensation, any applicable bonus and a severance payment. A
                  severance payment of $300,000 remains due and owing him by the
                  Company.

                  Mr. Kurylak's Amended and Restated Employment Agreement also
                  contains confidentiality obligations that survive indefinitely
                  and non-solicitation and non-competition obligations that end
                  on the first anniversary of the date of cessation of his
                  employment.

                  In August 2006, First Montauk entered into an employment
                  agreement with Ms. Celeste M. Leonard, its Chief Compliance
                  Officer. The employment agreement provided her with an annual
                  base salary of $200,000 and bonuses of $200,000 for 2006 and
                  $100,000 for 2007 and 2008, provided she is still employed by
                  the Company at the end of each year. Ms. Leonard's employment
                  terminated on December 31, 2008 when her agreement was not
                  renewed. A bonus payment of $100,000 for 2008 remains due and
                  owing her by the Company.

                  In October 2008, Ms. Mindy A. Horowitz, the Acting Chief
                  Financial Officer ("CFO") executed an Amended and Restated
                  Employment Agreement ("Amended Employment Agreement"). The
                  Amended Employment Agreement was executed to ensure that the
                  CFO would be available to provide her services and experience
                  to the Company for up to an additional three months after the
                  expiration of her prior employment agreement to assist with
                  the wind down of the Company's affairs. Under the terms of the
                  original employment agreement, her employment by the Company
                  was scheduled to expire on January 31, 2009 at which time she
                  would have been entitled to severance pay in the amount of
                  $140,000 if her employment was were not renewed. Under the
                  terms of the Amended Employment Agreement, the CFO continued
                  her duties through January 31, 2009 and received her base
                  salary and other benefits. During the extended period from
                  February 1, through April 30, 2009, the CFO continued to serve
                  as the Company's Acting Chief Financial Officer but did not
                  receive any salary. In lieu of any annual salary or severance
                  pay under her original employment agreement and in
                  consideration of the duties and services to be provided by the
                  CFO during the extended period, she received a lump sum
                  payment in the amount of $140,000 on November 14, 2008.
                                      F-22
<PAGE>

                  Ms. Horowitz's Amended Employment Agreement also contains
                  non-solicitation and non-competition obligations that end on
                  the first anniversary of the date of cessation of her
                  employment.

                  Legal Matters:

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

                  As a condition to obtaining approval from FINRA for the sale
                  of substantially all of it assets to First Allied, First
                  Montauk was required to establish and fund an escrow account
                  for the benefit of customers with current and/or future claims
                  against the firm. In November 2008 the escrow account was
                  established with the Company's law firm acting as the escrow
                  agent. In January 2009 the account was funded with $366,000
                  (as required by FINRA) which can only be utilized to pay
                  settlements of customer claims and complaints, any arbitration
                  awards or judgments with respect to such claims, and legal,
                  accounting and other expenses related to the investigation,
                  administration and defense of such claims (limited to the
                  amount of any retention amount for claims covered by
                  insurance.) Subsequent to the balance sheet date, $65,000 has
                  been paid from the account for the settlement of two customer
                  arbitrations.

                  The West Oaks Mall Litigations:

                  There are four (4) separate legal proceedings (three civil law
                  suits and one FINRA arbitration; each listed below and
                  referred to as "West Oaks Mall") arising from First Montauk's
                  participation in one particular private offering involving a
                  Section 1031 tax free exchange investment program, offered and
                  sold by Investment Properties of America ("IPofA"). The
                  offering, named "IPofA WOM MASTER Lease Co, LP", required
                  customers seeking a Section 1031 tax free exchange real estate
                  investment to deposit cash and assume a portion of the master
                  mortgage on the property, which was a retail mall outside of
                  Houston, Texas. In 2008 the mall filed for bankruptcy
                  protection and the investors were required to give up any
                  ownership interest in exchange for a release of their
                  obligations on the mortgage.

                  Each of these lawsuits contain similar allegations
                  including fraud, negligent misrepresentation, breach of duty
                  of care, and violations of the various state securities laws
                  in the states where each Plaintiff resides. In addition to
                  naming the Company and First Montauk, each of these suits
                  names the individual registered representatives, as well as
                  our former President and Chief Executive Officer ("CEO") and
                  our former Chief Compliance Officer ("CCO"), as defendants.
                  The complaints also allege an undisclosed relationship between
                  the IPofA and Mr. Edward H. Okun ("Okun") with Defendants
                  First Montauk and a former registered representative of First
                  Montauk. Through his related entities, Mr. Okun had held
                  almost 50% of the Company's outstanding common stock
                  at certain times during 2007. Mr. Okun was a private investor
                  who owned several companies with which we had entered into a
                  definitive merger agreement in 2006. The merger never
                  took place and in June 2007, following several lawsuits
                  arising out of the terminated merger agreement, we entered
                  into a settlement agreement with Mr. Okun and several other
                  named defendants.
                                      F-23
<PAGE>

                  We have given requisite notice of these cases to our insurance
                  carrier, Lexington Insurance Company ("Lexington"), under our
                  Directors and Officers Liability Insurance Policy ("Policy")
                  due to the fact our CEO and CCO have been personally named in
                  the lawsuits due to their positions as officers of the
                  Company.  First Montauk is being represented by outside
                  counsel in each of these cases.


                  On January 26, 2009 we received a coverage determination
                  notice from Lexington regarding these cases, wherein it
                  described its coverage position with respect to the West Oaks
                  Mall matters.
                  Lexington advised us that under the Policy, all of the West
                  Oaks Mall claims arise out of "Interrelated Wrongful Acts"
                  which provides that all of these claims be treated as one for
                  coverage purposes. Therefore, Lexington states that there is
                  $1,000,000 of coverage (subject to the other exclusions
                  described below), with one $100,000 retention. The letter also
                  stated that although the Policy would provide defense
                  coverage, no indemnity coverage would be available for any of
                  these matters as a result of two separate exclusions in the
                  Policy. The Limited Partnership/REIT Insolvency Exclusion
                  excludes indemnity coverage for any investment in a limited
                  partnership or REIT that becomes insolvent. The insurance
                  company's position is that the West Oaks Mall matters arise
                  out of the insolvency of IPofA WOM LeaseCO LP, as well as the
                  bankruptcy of the West Oaks Mall.

                  Lexington also cites as an exclusion from coverage the amended
                  Definition of Investment Banking Activity in the Policy which
                  limits coverage for Section 1031 exchange programs to those
                  listed in the amended Policy Endorsement. Because IPofA was
                  not listed among the approved providers of Section 1031
                  exchange programs, it is the insurance company's position that
                  there is no indemnity coverage for these claims based upon
                  this provision of the Policy.

                  The Company and First Montauk will be challenging Lexington's
                  position on coverage under the Policy with respect to these
                  matters, but there can be no assurance that First Montauk will
                  be successful in obtaining indemnity coverage under the Policy
                  for any of the West Oaks Mall cases. In the event that First
                  Montauk is unable to secure indemnity coverage, any settlement
                  or adverse judgment or award against First Montauk, could have
                  a material adverse affect on the Company's financial
                  condition.

                  We are a respondent or co-respondent in various other legal
                  proceedings, which are related to our former securities
                  business. Management is contesting these claims and believes
                  that there are meritorious defenses in each case. However,
                  litigation is subject to many uncertainties, and some of these
                  actions and proceedings may result in adverse judgments.
                  Further, the availability of insurance coverage is determined
                  on a case-by-case basis by the insurance carrier, and is
                  limited to the coverage limits within the policy for any
                  individual claim and in the aggregate. After considering all
                  relevant facts, available insurance coverage and consultation
                  with litigation counsel, management believes that significant
                  judgments or other unfavorable outcomes from pending
                  litigation could have a material adverse impact on our
                  consolidated financial condition, results of operations, and
                  cash flows in any particular quarterly or annual period, or in
                  the aggregate.

                                      F-24
<PAGE>

                  Management has accrued a liability for litigation costs for
                  the suits related to the high-yield bonds and other litigation
                  that are probable and can be reasonably estimated. The accrual
                  is included in accrued expenses at December 31, 2008.
                  Management cannot give assurance that this accrual will be
                  adequate to absorb actual costs that may be subsequently
                  incurred.  Further, it is not possible to predict the outcome
                  of other matters pending against the Company.

                  As of December 31, 2008, the Company has accrued for other
                  potential legal liabilities that are probable and can be
                  reasonably estimated based on a review of existing claims and
                  arbitrations. Management cannot give assurance that this
                  amount will be adequate to cover actual costs that may be
                  subsequently incurred. As of December 31, 2008, it was not
                  possible to predict the outcome of any of these legal matters
                  pending against the Company and First Montauk. For litigation
                  that is not probable, the Company cannot estimate the possible
                  range of loss.

NOTE 13-          CLEARING AGREEMENT TERMINATIONS

                  In connection with the withdrawal of First Montauk's
                  broker-dealer registration, the clearing agreements with
                  National Financial Services, LLC ("NFS") and Pension Financial
                  Services Inc. were terminated effective December 31, 2008. The
                  clearing agreement with NFS included a termination fee in the
                  event that First Montauk terminated the agreement prior to May
                  2014. However, as a result of the withdrawal of First
                  Montauk's broker-dealer registration, this fee was waived.

NOTE 14 -         FRAUDULENT ACTIVITY LOSS

                  On January 24, 2008, a series of fraudulent purchase order
                  transactions were executed over the order entry system of NFS,
                  the Company's clearing broker, through an Internet protocol
                  address over the Internet, which reflected the user
                  identification and password information of one of First
                  Montauk's registered representatives. These transactions were
                  purchased without authorization in several customer accounts
                  of the registered representative.

                  After these transactions were executed, NFS contacted the
                  appropriate regulatory authorities to report the fraudulent
                  activities, which the regulatory authorities determined to let
                  stand. Thereafter, First Montauk took prompt market action to
                  liquidate the securities fraudulently purchased in order to
                  mitigate the loss to the Company. These transactions resulted
                  in a net loss to the Company of approximately $338,000 in the
                  quarter ended March 31, 2008, which is reflected in other
                  expenses in the Condensed Consolidated Statements of
                  Operation. The Company filed a claim on its fidelity bond and
                  business insurance carrier, in an attempt to recoup the loss
                  sustained and other expenses related to this matter.

                  On August 15, 2008, First Montauk received written
                  notification that its fidelity bond carrier, National Union
                  Fire Insurance Co. of Pittsburgh, Pennsylvania, would pay to
                  FMSC the sum of $288,000 in settlement of the Company's
                  fidelity bond claim arising out of fraudulent stock purchases.
                  On September 17, 2008, First Montauk received the payment of
                  $288,000.

NOTE 15 -         FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK and
                  CONCENTRATION OF CREDIT RISK

                  The Company executed securities transactions on behalf of its
                  customers. If either the customer or a counter-party fails to
                  perform, the Company by agreement with its clearing broker may

                                      F-25
<PAGE>

                  be required to discharge the obligations of the non-performing
                  party. In such circumstances, the Company may sustain a loss
                  if the market value of the security is different from the
                  contract value of the transaction.

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

                  The Company has sold securities that it does not currently own
                  and will therefore be required to purchase such securities at
                  a future date. The Company has recorded these obligations in
                  the financial statements at market values of the related
                  securities of $0 and $201 at December 31, 2008 and 2007,
                  respectively, and will incur a loss if the market value of the
                  securities increases subsequent to year-end.

                  Financial instruments that potentially subject the Company to
                  significant concentrations of credit risk consist principally
                  of cash, securities inventories and employee and broker
                  receivables. The Company maintains all inventory positions and
                  a significant portion of its cash balances at its clearing
                  firm. Cash balances held at commercial banks may periodically
                  exceed federal insurance limits (see Note 3).

NOTE 16 -         PENSION PLAN

                  The Company sponsored a defined contribution 401(k) pension
                  plan ("the Plan") covering substantially all employees who met
                  minimum age and service requirements. The Company may have
                  elected to contribute up to 100% of each participant's annual
                  contribution to the plan. There were no employer contributions
                  in 2008 or 2007. As a result of the Company's cessation of
                  business operations, the Plan was terminated effective
                  December 31, 2008 and all participants' accounts were
                  subsequently distributed.

NOTE 17 -         STOCKHOLDERS' EQUITY

                  The Company's charter authorizes the issuance of up to
                  5,000,000 shares of Preferred Stock. After the issuance of the
                  Series A, Series B and Series C Preferred Shares described
                  below, the Company is authorized to issue an additional
                  3,929,898 of Preferred Stock. The rights and preferences, if
                  any, to be given to these preferred shares would be designated
                  by the board of directors at the time of issuance.
                                      F-26
<PAGE>

                  SERIES A CONVERTIBLE PREFERRED STOCK

                  In 1999, the Company's board of directors designated a Series
                  A Convertible Preferred Stock with the following features:

                  Shares authorized:  625,000
                  Par value:  $.10 per share
                  Dividends: 6% per annum, payable quarterly at the rate of
                  $.075 per share until conversion
                  Voting rights:  None
                  Liquidation preference:   $5.00 per share
                  Conversion:  Convertible  at the option of the holder anytime
                  into two shares of Common Stock at $2.50 per share;  automatic
                  conversion  once the closing price for the Common Stock is
                  $3.50 or above for 20 consecutive trading days, and the shares
                  are registered for public sale.

                  In 1999, the Company issued 349,511 shares of Series A
                  Convertible Preferred Stock in an exchange offering related to
                  a settlement with holders of certain leases. Each share of the
                  Preferred Stock is convertible into two shares of Common Stock
                  and pays a quarterly dividend of 6%.

                  In June 2006, an affiliate of Mr. Okun purchased 283,087
                  shares of the Company's then 305,369 outstanding shares of
                  Series A Preferred Stock in privately negotiated transactions.

                  On June 15, 2007, as part of the settlement with Mr. Okun and
                  the Okun defendants an agreement was reached which required
                  the Okun Defendants to surrender for cancellation effective
                  June 15, 2007, all shares of Series A Preferred Stock (283,087
                  shares), all shares of Series B Preferred Stock (197,824
                  shares) and 5,272,305 shares of common stock previously owned
                  by the Okun defendants.

                  The Company has 22,282 Series A preferred shares issued and
                  outstanding with respect to which dividends were paid on the
                  Series A Preferred Stock in the amount of $6,685 and $67,077
                  during 2008 and 2007, respectively.

                  TEMPORARY EQUITY-SERIES B CONVERTIBLE REDEEMABLE PREFERRED
                  STOCK

                  In February 2005, the Company's board of directors designated
                  a Series B Convertible Redeemable Preferred Stock with the
                  following features:

                  Shares authorized:  445,102
                  Par value:  $.10 per share
                  Dividends: 8% per annum, payable quarterly at the rate of $.10
                  per share until conversion or redemption.
                  Voting rights:  Holders of Series B Preferred Stock are
                  entitled to vote together with common stockholders on all
                  matters in which they are entitled to vote. The number of
                  votes to which holders of Series B Preferred are entitled to
                  cast are ten per each share of Series B Preferred Stock
                  subject to certain adjustments.
                  Liquidation preference:   $5.055 per share
                  Conversion: Convertible at the option of the holder anytime
                  into ten shares of common stock with automatic conversion once
                  the closing price for the common stock is $1.01 for more than
                  60 trading days if the average daily trading volume exceeds
                  20,000 shares, or $1.26 for more than 60 trading days if the
                  average daily trading volume exceeds 10,000 shares, or $1.51
                  for more than 60 trading days.
                  Redemption: Optional redemption. The holder may require the
                  Company to redeem all or a portion of Series B Preferred Stock
                  by paying cash equal to the issue price plus all accrued and
                  unpaid dividends within 180 days after a redemption event. A
                  redemption event occurs: if the Company ceases to be a
                  reporting entity under the Securities Act; if the Company's
                  common stock ceases to be publicly traded for any reason; or,
                  upon liquidation of the Company.
                                      F-27
<PAGE>

                  In connection with a Separation Agreement entered into with
                  Mr. William J. Kurinsky, a former director and officer of the
                  Company, in 2005, 197,824 shares of a newly created class of
                  Series B Convertible Redeemable Preferred Stock ("Series B"),
                  par value $0.10 per share were issued, which had a deemed
                  issue price of $1,000,000, and was convertible into common
                  stock on the basis of ten shares of common stock for each
                  share of Series B. The Series B also provided that the
                  preferred shares have voting rights based upon the number of
                  shares of common stock into which it would be converted. The
                  Series B also included a cumulative dividend of 8% per year.
                  The shares are restricted securities under the Securities Act
                  and the regulations of the SEC and we relied upon the
                  exemption from registration under Section 4(2) of the
                  Securities Act to issue the shares of Series B.

                  On February 23, 2007, Mr. Okun purchased all the shares of
                  Series B in a private transaction at a price of $10.00 per
                  share of Series B. On June 15, 2007, as part of the settlement
                  with Mr. Okun and the Okun defendants an agreement was reached
                  which required the parties to surrender all shares of Series B
                  previously owned by the Okun defendants. On June 15, 2007,
                  197,824 shares of Series B were surrendered and cancelled.
                  There are currently no shares of Series B outstanding.

                  The Company paid no dividends on the Series B preferred stock
                  in 2008. In 2007 the Company paid $56,889 of dividends on the
                  shares of Series B preferred stock.

                  SERIES C PARTICIPATING CUMULATIVE PREFERRED STOCK-PREFERRED
                  STOCK PURCHASE RIGHTS

                  The board of directors of the Company adopted a
                  shareholder-rights plan in August 2008 and in connection
                  therewith designated a Series C Participating Cumulative
                  Preferred Stock, $.10 par value per share ("Series C Stock").
                  The rights were declared as a dividend of one preferred share
                  purchase right for each outstanding share of the common stock
                  of the Company. The dividend distribution was payable on
                  August 8, 2007 to shareholders of record on that date. When
                  exercisable, each right will entitle its holder to purchase
                  from the Company one one-hundredth of a share of the Company's
                  new Series C Stock, at a price of $2.00 per one one-hundredth
                  of a share of Series C, subject to adjustment. The Company has
                  created a series of 200,000 shares of authorized but not
                  issued preferred stock for the Series C Stock authorized in
                  this shareholder-rights plan. No shares of Series C Stock are
                  currently issued and outstanding.

                  The rights will become exercisable on the tenth business day
                  (unless further extended by a resolution adopted by a majority
                  of the "continuing directors" of our board of directors as of
                  the close of business on August 9, 2007 (the date of our 2007
                  Annual Meeting) following public announcement that a person or
                  group of affiliated or associated persons has acquired or
                  obtained the right to acquire beneficial ownership of 10% or
                  more of the common stock without approval of a majority of the
                  board of directors of the Company. The rights expire on August
                  8, 2017 unless earlier redeemed or exchanged by the Company.
                                      F-28
<PAGE>

                  In the event the Company is acquired in a merger or other
                  business combination transaction after the rights become
                  exercisable, each holder of a right would be entitled to
                  receive that number of shares of the acquiring company's
                  common stock equal to the result obtained by multiplying the
                  then current purchase price by the number one one-hundredths
                  of a share of Series C Stock for which a right is then
                  exercisable and dividing that product by 50% of the then
                  current market price per share of the acquiring company.

                  COMMON STOCK

                  During the second quarter of 2005, the board of directors
                  adopted and the shareholders approved an amendment
                  to the Company's Restated Certificate of Incorporation, to
                  increase the authorized number of shares of common stock from
                  30,000,000 to 60,000,000.

                  On October 20, 2008, the Company entered into a stock
                  repurchase agreement with FMFG Ownership Inc. by Gerard A.
                  McHale, Jr. as Chapter 11 Bankruptcy Trustee of The 1031 Tax
                  Group LLC et al., as Chapter 11 Debtors (the "Selling
                  Stockholder") to purchase 3,300,308 shares of the Company's
                  common stock, no par value, owned by the Selling Stockholder
                  for $100,000. The stock repurchase had the effect of reducing
                  the total number of our common shares from 13,257,248 to
                  9,956,940.

NOTE 19 -         STOCK OPTION PLANS

                  2002 Stock Incentive Plan

                  In June 2002, the Company adopted, and its stockholders
                  approved, the 2002 Incentive Stock Option Plan (the "2002
                  Plan"), replacing the 1992 Incentive Stock Option Plan (the
                  "1992 Plan"), which expired in September 2002. As of December
                  31, 2008, there were no options remaining under the 1992 Plan.

                  The Company has reserved up to 5,000,000 shares of common
                  stock for issuance under the 2002 Plan. The 2002 Plan provides
                  for the grant of options, including incentive stock options
                  ("ISOs") to employees; non-qualified stock options (NQSOs) to
                  employees; consultants and independent registered
                  representatives; and stock appreciation rights or any
                  combination thereof (collectively, "Awards"). The board of
                  directors determines the terms and provisions of each Award
                  granted under the 2002 Plan, including the exercise price,
                  term and vesting schedule. In the case of ISO's, the per share
                  exercise price must be equal to at least 100% of the fair
                  market value of a share of common stock on the date of grant,
                  and no individual will be granted ISOs corresponding to shares
                  with an aggregate fair value in excess of $100,000 in any

                                      F-29
<PAGE>

                  calendar year. The 2002 Plan will terminate in 2012. As of
                  December 31, 2008, options to purchase a total of 506,000
                  shares were outstanding and 3,950,802 shares remained
                  available for future issuance under the 2002 Plan.

                  2002 Non-Executive Director Stock Option Plan

                  In June 2002, the Company adopted and its stockholders
                  approved the 2002 Non-Executive Director Stock Option Plan
                  (the "2002 Director Plan"), replacing the 1992 Non-Executive
                  Director Stock Option Plan, which expired in September 2002.
                  Under the 2002 Director Plan, each non-executive director will
                  automatically be granted an option to purchase 20,000 shares,
                  pro rata, on September 1st of each year or partial year of
                  service. The Plan will be administered by the board of
                  directors or a committee of the Board, which shall at all
                  times consist of not less than two officer/directors of the
                  Company who are ineligible to participate in the 2002 Director
                  Plan. The 2002 Director Plan does not contain a reserve for a
                  specific number of shares available for grant. Each option
                  issued under the 2002 Director Plan will be immediately vested
                  NQSOs, and will have a five-year term and an exercise price
                  equal to the 100% of the fair market value of the shares
                  subject to such option on the date of grant. The 2002 Director
                  Plan will terminate in 2012. As of December 31, 2008, 195,000
                  options were outstanding under the 2002 Non-Executive Director
                  Stock Plan.

                  1996 Senior Management Plan

                  In June 2000, the Company's stockholders approved an amendment
                  to the 1996 Senior Management Plan (the "1996 Plan") to
                  increase the number of shares reserved for issuance to key
                  management employees from 2,000,000 to 4,000,000 shares.
                  Awards can be granted through the issuance of incentive stock
                  rights, stock options, stock appreciation rights, limited
                  stock appreciation rights, and shares of restricted Common
                  Stock. The exercise price of an option designated as an ISO
                  may in no event be less than 100% of the then fair market
                  price of the stock (110% with respect to ten percent
                  stockholders), and not less than 85% of the fair market price
                  in the case of other options. As of December 31, 2008, options
                  to purchase 355,000 shares of restricted common stock were
                  issued and outstanding. The 1996 Plan terminated in June 2006.








                                      F-30
<PAGE>

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

                  A summary of the activity in the Company's stock option plans
                  (excluding restricted common shares) for the two-year period
                  ended December 31, 2008 is presented below:

                                                                                                      Weighted
                                                                                                       Average
                                                                                                      Exercise
                                                                                      Shares            Prices
                  Options outstanding, December 31, 2006                            2,137,402            $.79

                           Granted                                                    456,000             .54
                           Exercised                                                   (3,000)            .25
                           Canceled                                                  (719,202)            .79
                                                                                  ------------
                  Options outstanding, December 31, 2007                            1,871,200            $.73

                           Granted                                                      6,000             .50
                           Exercised                                                        0             .00
                           Canceled                                                  (821,200)            .66
                                                                                     ------------------------
                  Options outstanding, December 31, 2008                            1,056,000            $.79
</TABLE>

                  Shares of common stock available for future grant under
                  Company plans totaled 3,963,802 as of December 31, 2008. This
                  number does not include options that are expected to be issued
                  during the remaining term of the 2002 Director's Plan, but for
                  which no specific reserve has been established.

                  The weighted-average grant date fair value per option granted
                  during the twelve months ended December 31, 2008 and 2007 was
                  $0.04 and $0.54, respectively. The intrinsic value of all
                  stock options exercisable and outstanding during the twelve
                  months of 2008 and 2007 was $0. Cash received from the
                  exercise of all stock options for the twelve months ended
                  December 31, 2008 and 2007 was $0 and $750, respectively.








                                      F-31
<PAGE>

                  Additional information as of December 31, 2008 with respect to
                  all outstanding options is as follows:
<TABLE>
         <S>                     <C>                <C>              <C>            <C>                <C>

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

         $0.25 - $0.50             354,000            1.99             $0.44              286,200         $0.43
         $0.51 - $1.00             329,000            2.02             $0.69              270,800         $0.63
         $1.01 - $1.25             373,000            1.64             $1.20              350,800         $1.21

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

         $0.25 - $1.25           1,056,000            1.87           $.79                 907,800         $0.79

-------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE 20 -         FAIR VALUE OF FINANCIAL INSTRUMENTS

                  Financial instruments reported in the Company's consolidated
                  statement of financial condition consist of cash, due from
                  clearing firm, due form First Allied Securities, Inc.,
                  securities owned and sold, not yet purchased, loans
                  receivable, warrants subject to put options, 10% convertible
                  notes, accounts payable and accrued expenses, the carrying
                  value of which approximated fair value at December 31, 2008
                  and 2007. The fair value of the financial instruments
                  disclosed is not necessarily representative of the amount that
                  could be realized or settled nor does the fair value amount
                  consider the tax consequences of realization or settlement.

NOTE 21 -         NET CAPITAL REQUIREMENTS

                  First Montauk was subject to the SEC Uniform Net Capital Rule
                  (Rule 15c3-1), which required First Montauk to maintain
                  minimum net capital, as defined. At December 31, 2008, First
                  Montauk had net capital of $966,052, which was $800,990 in
                  excess of its required net capital of $165,062. First
                  Montauk's ratio of aggregate indebtedness to net capital was
                  2.56 to 1.

                                      F-32
<PAGE>

NOTE 22 -         FAIR VALUE MEASUREMENTS

                  The Company adopted SFAS 157 as of January 1, 2008. SFAS 157
                  defines fair value as the price that would be received to sell
                  an asset or paid to transfer a liability in an orderly
                  transaction between market participants at the measurement
                  date, not adjusted for transaction costs. SFAS 157 also
                  establishes a fair value hierarchy that prioritizes the inputs
                  to valuation techniques used to measure fair value into three
                  broad levels giving the highest priority to quoted prices in
                  active markets for identical assets or liabilities (Level 1)
                  and the lowest priority to unobservable inputs (Level 3). The
                  three levels are described below:

                Level 1 Inputs -     Unadjusted quoted prices in active markets
                                     for identical assets or liabilities that
                                     are accessible by the Company;

                Level 2 Inputs -     Quoted prices in markets that are not
                                     active or financial instruments for which
                                     all significant inputs are observable,
                                     either directly or indirectly;

                Level 3 Inputs -     Unobservable inputs for the asset or
                                     liability including significant
                                     assumptions of the Company and other
                                     market participants.

                  The Company determines fair values for its investment assets
                  as follows:

                  Investments, at fair value - The Company investments, at fair
                  value, consist of corporate stocks which are valued at market
                  and classified within Level 1 of the fair value hierarchy and
                  U.S. Government agency and Municipal obligations which are
                  valued at market and classified within Level 2.

                  The following tables present our assets and liabilities that
                  are measured at fair value on a recurring basis and are
                  categorized using the fair value hierarchy. The fair value
                  hierarchy has three levels based on the reliability of the
                  inputs used to determine fair value.
<TABLE>
                  <S>                               <C>            <C>              <C>               <C>

                  -------------------------------- ------------------------------------------------------------------
                                                            Fair Value Measurements as of December 31, 2008
                  -------------------------------- ------------------------------------------------------------------
                  -------------------------------- -------------- ----------------- ---------------- ----------------
                                                           Total           Level 1          Level 2          Level 3
                  -------------------------------- -------------- ----------------- ---------------- ----------------
                  -------------------------------- -------------- ----------------- ---------------- ----------------
                  Assets:
                  -------------------------------- -------------- ----------------- ---------------- ----------------
                  -------------------------------- -------------- ----------------- ---------------- ----------------
                  Corporate Stocks                       $38,847           $38,847
                  -------------------------------- -------------- ----------------- ---------------- ----------------
                  -------------------------------- -------------- ----------------- ---------------- ----------------
                  U.S. Government Agency and
                  Municipal Obligations                   $1,574                             $1,574
                  -------------------------------- -------------- ----------------- ---------------- ----------------
                  -------------------------------- -------------- ----------------- ---------------- ----------------
                                                         $40,421           $38,847           $1,574              $--
                  -------------------------------- -------------- ----------------- ---------------- ----------------
</TABLE>
NOTE 23 -         SUBSEQUENT EVENT

                  Court Order Restricting Use of Asset Sale Proceeds

                  The Company is subject to a court order issued by a New Jersey
                  Superior Court on January 14, 2009, requiring that the balance
                  of the sale proceeds of the asset sale to First Allied be held
                  in escrow for the benefit of the Company's creditors. The
                  court order was issued in conjunction with a lawsuit initiated
                  by a former customer of First Montauk who invested in a
                  private offering of a real estate Section 1031 like-kind
                  exchange program, captioned Dawn A. Dunbar, Zeneth Eidel, and
                  Doris Eidel v. First Montauk Financial Corp., First Montauk
                  Securities Corp., Kenneth R. Bolton, et al (Monmouth County
                  Docket No.L-4949-08). On April 14, 2009, the Court entered a
                  consent order permitting the Company to pay auditing fees of
                  $80,000 in connection with the filing of the Company's Form
                  10-K. On May 8, 2009, the Court entered a second consent order
                  permitting the Company to pay other expenses from the sale
                  proceeds totaling $452,065. The Company agreed that the
                  remaining balance of $381,348 would remain in escrow pending
                  further order of the Court.

                                      F-33