SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

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

For the fiscal year ended December 31, 1999               -----------------
                                       OR

     |_|  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

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

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

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

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

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

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

                                                    Name of each exchange on
       Title of each class                               which registered

             None

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

                           Common Stock, no par value

-------------------------------------------------------------------------------
                                (Title of class)

                            [Cover Page 1 of 2 Pages]

<PAGE>



Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(D) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ___

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]

The issuer's revenues for its most recent fiscal year:  $57,585,000

The aggregate market value of the voting stock held by  non-affiliates  computed
by  reference  to the price at which the stock was sold,  or the average bid and
asked  prices of such stock,  as of bid and asked  prices of such  stock,  as of
March 30, 2000 was $16,002,591.

The number of shares of Common Stock outstanding, as of March 30, 2000 was
9,594,043.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                 Not Applicable

                            [Cover Page 2 of 2 Pages]

<PAGE>
01
                                     PART I

Item 1.   Business

Introduction

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

         FMSC has approximately 383 registered representatives and services over
46,000  retail and  institutional  customer  accounts.  All of FMSC's 142 branch
offices,  located  in 28 states  and Saudi  Arabia,  are owned and  operated  by
affiliates; independent  owners who maintain all  appropriate  licenses and are
responsible for all office overhead and expenses.  FMSC also employs  registered
representatives directly at its corporate office.

         FMSC is registered as a broker-dealer  with the Securities and Exchange
Commission ("SEC"),  the National  Association of Securities Dealers Regulation,
Inc.  ("NASDR"),  the Municipal  Securities Rule Making Board  ("MSRB"), and the
Securities Investor Protection  Corporation  ("SIPC") and is licensed to conduct
its  brokerage  activities  in 49 states,  the  District  of  Columbia,  and the
Commonwealth  of Puerto Rico. All securities  transactions  are cleared  through
Schroder  &  Co.,  Inc,  and  execution  services  are  provided  by E D & F Man
International Securities,  Inc. and others. These arrangements provide FMSC with
back office support, transaction  processing services on all principal, national
and  international  securities  exchanges,  and access to many  other  financial
services  and  products  which  allows  FMSC  to  offer  products  and  services
comparable to large brokerage firms.

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

Equities:
  Listed                        30%
  Over-The-Counter              37%
Municipal, Government            2%
Corporate Bonds                  3%
Unit Investment Trusts           2%
Mutual Funds                    13%
Options                          6%
Insurance                        6%
Corporate Finance                1%
                                --
Total                          100%

     The following  table reflects  FMSC's  various  sources of revenues and the
percentage of total revenues for fiscal 1999.  Revenues from agency transactions
in  securities  for  individual  customers  of FMSC are  shown  as  commissions.
Revenues from  transactions  in securities for individual  customers  where FMSC
acted in a principal  capacity are  reflected in  principal  transactions.  Also
reflected in principal  transactions  are trading profits from market making and
other trading activities.

                                             Year Ended December 31, 1999
                                             ----------------------------
                                             Amount               Percent
                                             ------               -------
         Agency commissions from
          Equity Securities,
          Options and Mutual Funds         $40,516,625              70%

         Principal Transactions in
          Equity Securities, Municipal,
          Government and Corporate Bonds   $14,000,680              24%

         Interest and other Income(1)      $ 2,628,246               5%

         Investment Banking(2)             $   439,065               1%
                                            ----------              ---
         Total Revenues                    $57,584,616             100%

(1)  "Other Income" consists primarily of handling fees and order flow
     remunerations.

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

<PAGE>
02


The Affiliate Program

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

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

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

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

Century Discount Investments

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

     Century,  through its clearing  firm, has developed the capability to offer
online,  discount brokerage and related investment services. The online services
provide customers with automated securities order placement,  market information
and research capabilities through the Internet.  In the future,  Century intends
to  offer  a  broader  range  of  investment   services  to  the  self-directed,
sophisticated retail customer.

Montauk Insurance Services

         In 1991, FMFC formed Montauk Insurance  Services,  Inc ("MISI") for the
purpose of  offering  and selling  variable  annuity,  variable  life as well as
traditional life and health insurance products.  Currently,  MISI is licensed in
39 states.  MISI derives  revenue from  insurance-related  products and services
from the existing  customer base of FMSC's registered  representatives,  who are
also  licensed to sell  certain  insurance  products.  In fiscal year 1999,  the
Company earned gross  commissions  of $2,938,000  from the sale of insurance and
annuity policies.
<PAGE>
03


Asset Management and Portfolio Advisory Service Fees

         FMSC  is a SEC  Registered  Investment  Adviser,  providing  investment
advisory services to clients through independent, third-party sponsored advisory
programs offered to individual and institutional  clients. FMSC is registered as
an investment adviser in 16 states requiring registration.

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

Investment Banking

     FMSC  participates in private and public offerings of equity securities and
provides general investment  banking  consulting  services to various public and
private corporations. Historically, FMSC has not derived a significant amount of
its revenues from investment banking. However, the Company did complete a public
offering of Common  Stock of Jeremy's  MicroBatch  Ice Creams,  Inc. in February
2000 in which FMSC acted as the managing underwriter.  The offering consisted of
1,200,000  shares of Common Stock at an offering price of $6.00 per share.  FMSC
received gross  commissions of $720,000 as well as warrants to purchase  120,000
shares of Jeremy's  Common  Stock at an exercise  price of $9.00 per share.  The
Company continues to review other  underwriting  candidates and anticipates that
it will engage in additional public and private offerings in the future.

Strategic Relationships

         During the year, the Company formulated several strategic relationships
with financial product vendors and other companies.  These relationships provide
cross-marketing opportunities as well as new product offerings to our customers.
One such  relationship  is with a  nationally  recognized  residential  mortgage
provider.  Another,  involves a relationship  with an  Internet-based  financial
planning firm. The Company expects to expand these  relationships in the current
fiscal year to provide for additional sources of revenue and lead generation for
its registered representatives.

Recent Developments

         Preferred Stock Exchange Offering

     During the period 1996 and 1997, FMFC,  through a wholly owned  subsidiary,
acted as agent for Global Financial Corp. ("Global") to offer business leases to
its  customers.  Due to the  financial  condition of Global,  and an  affiliated
entity,  FMFC made  loans  exceeding  $2,300,000  to  enable  Global to meet its
continuing  obligations to leaseholders.  During the third quarter of 1999, FMFC
elected to  discontinue  its  financial  assistance to Global and offered to the
customers who purchased Global leases, 349,511 shares of a new issue of Series A
Preferred  Stock.   The  Company  also  issued  $690,526   principal  amount  of
convertible promissory notes, made cash payments of $235,000 and issued warrants
to purchase 25,000 shares of FMFC Common Stock exercisable at $1.75 per share to
certain investors holding Global leases.

     Under the terms of the offering, one share of Preferred Stock was exchanged
for every $5.00 of remaining lease payments, as adjusted,  that were assigned to
the Company by Global  investors.  Each preferred share is convertible  into two
shares of the Company's common stock at the rate of $2.50 per share.  Conversion
will occur  automatically,  provided the Company has  registered  the underlying
common  shares,  in the event the closing  stock price of the Common Stock is at
least $3.50 per share for twenty  consecutive  trading days. The Preferred Stock
will pay a quarterly dividend of $.075 per share. Dividend payments were made to
Preferred shareholders in October 1999 and January 2000.

         The  convertible  notes issued by the Company are payable in thirty-six
monthly non-interest  bearing installments of $16,404,  plus balloon payments of
$112,000, including interest calculated on the basis of 8% of the balloon amount
beginning in month nineteen of the note term.

         The Company  received  assignments of gross lease payments in the above
settlement transactions totaling approximately $1,279,000.
<PAGE>
04


         Competition

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

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

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

         FMSC  competes  through its  advertising  and  recruiting  programs for
registered  representatives  interested in joining its affiliate  program.  FMSC
often offers  incentives  to qualified  registered  representatives  to join the
Company.  These  incentives  can include cash loans,  both  forgivable  based on
duration of association  and/or production  levels,  as well as  non-forgivable,
incentive stock options and a higher payout during a transitional  period.  FMSC
is  currently  implementing  new  computer  programs  developed  by the Clearing
Broker,  Schroder & Co.,  Inc., to better  service its affiliates and to attract
new brokers.  The system will enable  brokers at any office to instantly  access
customer accounts,  determine cash positions,  send and receive electronic mail,
and receive  research reports and compliance  memoranda  through a computer work
station.

         Government Regulation

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

        Employees

         The Company currently has approximately 383 registered  representatives
of which 307 are associated  with affiliate  offices.  In addition,  the Company
employs 78 support personnel in the areas of operations, compliance, accounting,
and   administration.  FMFC   believes its   relationship  with its employees is
satisfactory.

        Fidelity Bond

         As required by the NASDR and certain other authorities,  FMSC carries a
fidelity bond covering loss or theft of securities,  as well as embezzlement and
forgery.  The  bond  provides  total  coverage  of  $5,000,000  (with a  $10,000
deductible provision per incident).  In addition,  the accounts of its customers
are protected by the Securities Investor Protection  Corporation ("SIPC") for up
to $500,000 for each  customer,  subject to a limitation  of $100,000 for claims
for cash balances,  with an additional  $50,000,000 of protection  provided by a
private  insurance  company  for the  benefit of each  customer.  SIPC is funded
through assessments on registered broker-dealers. SIPC charges a flat annual fee
of $150.


<PAGE>
05


Item 2.   Properties

Offices and Facilities

         In March  1997,  the Company  entered  into a new seven year lease (the
"Master  Lease"),  commencing  February 1, 1998 for 22,762  square feet of gross
rentable area at its  executive  offices which are located at Parkway 109 Office
Center, 328 Newman Springs Road, Red Bank, New Jersey. The rent for the premises
is $35,850  per month,  and in addition  to the base rent,  the Company  pays as
additional  rent,  a  proportional  share of any  increases in real estate taxes
above the amount paid during the 1999 calendar year, insurance premiums relating
to the premises, and all utility charges relating to the use of the premises. In
March  1998,  the  Company  signed  a  First   Amendment  to  the  Master  Lease
incorporating  all of the other rented space in the Red Bank  facility  into the
March 1997 Master Lease. The First Amendment to the Lease covers an aggregate of
32,442 gross rentable square feet at a monthly rental payment of $52,000 through
January  2005.  The Master  Lease and First  Amendment  also  contain a six-year
option to renew providing for a base rental payment of approximately $65,000 per
month.

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

Item 3.   Legal Proceedings

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

         FMSC is a respondent  in various  customer  arbitrations  and law suits
relating  to its  securities  business.  These  claims are in various  stages of
progress and are being  vigorously  contested.  Management is unable to derive a
meaningful  estimate of the amount or range of possible loss relating to pending
litigation, including litigation costs.

     In December 1999, the Company agreed to accept a $500,000 cash payment from
another  broker-dealer  in settlement of an arbitration  brought by FMSC arising
from the activities of certain former affiliated FMSC brokers.

     As required by SEC Order,  and in an effort to reduce  future  legal claims
and  liabilities,  the Company  retained an independent  consultant to conduct a
review of, and to report and make  recommendations  as to FMSC's supervisory and
compliance  policies and  procedures,  particularly as they relate to the firm's
affiliate  program and the  supervision of the firm's branch offices by the main
office.  FMSC developed and implemented  substantial  changes to its supervisory
and  compliance  policies  and  procedures,   including  the  development  of  a
hierarchical regional supervisory structure. As part of this restructuring, FMSC
appointed six regional  supervisors and designated  other branch office managers
and compliance  personnel to act as divisional  supervisors.  In addition,  FMSC
revised its recruiting  procedures,  developed supervisory  compliance materials
and held several regional/divisional supervisory training programs.

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

          Not Applicable.
<PAGE>
06


                                   PART II

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

A.      Principal Market

         The Company's  Common Stock is traded in the  over-the-counter  market.
Trading in the  Company's Common Stock is reported on the NASDR  Bulletin  Board
system and by the National  Daily  Quotation  Service  published by the National
Quotation Bureau,  Inc. The Company believes that there is an established public
trading market for the Company's  Common Stock based on the volume of trading in
the  Company's  Common Stock and the  existence of market  makers who  regularly
publish  quotations for the Company's Common Stock. The Company's Class A, Class
B and Class C Warrants  commenced  trading in the  over-the-counter  market upon
their issuance in March 1998.

B.      Market Information

         The Company's  Common Stock commenced  trading in the  over-the-counter
market in 1987. On March 30, 2000, the Company's common stock had a high and low
bid price of $2.03125 and $1.875, respectively.

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

Common Stock

Fiscal Year 1999                High $         Low $

     1st Quarter                3.75           1.4375
     2nd Quarter                3.00           1.5938
     3rd Quarter                2.7188         1.5313
     4th Quarter                1.9375         1.1250

Fiscal Year 1998                High $         Low $

     1st Quarter                2.875          2.00
     2nd Quarter                3.28           2.41
     3rd Quarter                2.53           1.01
     4th Quarter                1.875          1.125

<PAGE>
07


Item 6.  Selected Financial Data
<TABLE>

                                            Year ended December 31,
<S>                         <C>             <C>             <C>             <C>               <C>

                                1999           1998              1997            1996             1995

Operating results:

Revenues:
Commissions                 $40,516,625     $30,741,404     $ 27,018,244     $ 25,749,690     $ 17,113,296
Principal transactions       14,000,680       8,795,599        7,257,576        7,660,700        9,763,940
Investment banking              439,065         767,312        1,433,100          634,329          388,249
Insurance recovery                 --              --            650,000             --               --
Interest and other income     2,628,246       1,572,063        1,383,713        1,044,969        1,076,718
                              ---------       ---------        ---------        ---------       ----------
Total revenues               57,584,616      41,876,378       37,742,633       35,089,688       28,342,203
                             ----------      ----------       ----------       ----------       ----------
Expenses:
Commissions, employee
 compensation and
 benefits                    42,137,968      31,766,060       26,785,205       25,428,184       19,542,578

Clearing and floor
 brokerage                    4,109,961       3,674,859        3,021,709        3,139,142        3,112,474
Communications and
 occupancy                    2,697,433       2,557,313        1,860,350        1,662,936        1,260,209

Legal matters and
 related costs                1,395,008       2,377,336        1,452,001        2,731,997        1,542,328

Write-down of Note
 Receivable - Global
 Financial Corp.                100,000       1,775,000            --                --              --
Loss on Global lease
 settlements                    600,416           3,524            --                --               --

Other operating expenses      3,545,308       2,958,450        2,093,670        2,006,615        1,439,926

Interest                        166,104         131,215           84,695          105,772          192,752
                             ----------      ----------       ----------        ---------       ----------
Total expenses               54,752,198      45,243,757       35,297,630       35,074,646       27,090,267
                             ----------      ----------       ----------       ----------       ----------
Income (loss) before
 income taxes                 2,832,418      (3,367,379)       2,445,003           15,042        1,251,936

Provision for income taxes
 (income tax benefit)           549,140        (604,532)         968,178          (17,747)         483,848
                              ---------       ---------       ----------       ----------       ----------
Net income (loss)           $ 2,283,278     $(2,762,847)     $ 1,476,825      $    32,789      $   768,088
                             ==========      ==========       ==========       ==========       ==========
Net income (loss)
 available to
 common stockholders        $ 2,215,528     $(2,762,847)     $ 1,476,825      $    32,789      $   768,088
                             ==========      ===========      ==========       ==========       ==========
Per share of Common Stock:
    Basic                   $       .22     $      (.28)     $       .17      $       .01      $       .10
    Diluted                 $       .21     $      (.28)     $       .14      $       .01      $       .09
Weighted average
common shares outstanding -
    Basic                     9,878,129       9,725,116        8,788,734        7,767,224        8,044,622
                              =========       =========        =========        =========        =========
Weighted average common and
 common equivalent shares
 outstanding -
    Diluted                  11,262,708       9,725,116       10,351,032        8,623,538        8,380,906
                             ==========       =========       ==========        =========        =========
Financial condition:
Total assets                $17,059,184     $11,543,734      $11,971,934       $8,742,039      $10,486,967
Total liabilities           $ 7,429,046     $ 5,320,107      $ 4,732,467       $4,625,260      $ 6,886,021
Common Stock issued
 with guaranteed
  selling price             $    36,500     $    36,500      $   346,500       $  421,500      $      -
Stockholders' equity        $ 9,593,638     $ 6,187,127      $ 6,892,967       $3,695,279      $ 3,600,946
</TABLE>


<PAGE>
08


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

Results of Operations - Three Years Ended December 31, 1999

         Fiscal  1999 was the  Company's  eleventh  consecutive  year of  record
revenues,  posting  a 38%  increase  over 1998  record  levels.  Total  revenues
exceeded  $57,585,000,  a milestone for the Company. The Company benefited along
with the rest of the brokerage  industry as fiscal 1999  continued the extremely
favorable market trends,  particularly rising transaction volume, liquidity, and
investor demand for technology  related stocks.  Every revenue category realized
higher  revenues when compared with the prior two years,  except for  investment
banking.

                                           Year Ended December 31,
                            1999                 1998                 1997
                            (000's) % Change      (000's)    % Change  (000's)

Revenues:
Commissions                 $ 40,517   32      $ 30,741         14    $ 27,018
Principal transactions        14,001   59         8,796         21       7,258
Investment banking               439 ( 43)          767        (46)      1,433
Insurance recovery               --    --           --        (100)        650
Legal settlement recovery        500   --           --          --          --
Interest and other income      2,128   35         1,572         14       1,384
                               -----   --         -----         --       -----

                            $ 57,585   38      $ 41,876         11    $ 37,743
                              ======   ==        ======         ==      ======


         The rise in  revenues  in  fiscal  years  1999 and 1998  resulted  from
increased commissions from general securities  transactions  (stocks,  bonds and
options).  The  increase  is  primarily  attributable  to  the  addition  of new
affiliated  representatives,  as  well as an  increase  in the  production  from
existing affiliated representatives on a year-to-year comparative basis.

          The largest  increase as a percentage  of revenues  over 1998 resulted
from increased principal  transactions and trading profits in equity securities.
Revenues from these areas increased 59% in 1999 when compared with 1998. Several
of  the  firm's  proprietary  equity  traders  achieved  significantly  improved
profitability in 1999.

         Investment  banking  revenues  declined in 1999 as compared to the last
two years,  particularly 1997, when FMSC earned fees from the underwriting of an
initial  public  offering for Pacific  Health  Laboratories,  Inc.  Underwriting
activity  resumed in 2000 with the completion of the initial public offering for
Jeremy's MicroBatch Ice Cream, Inc. (See Business-"Recent Developments").

                            Year Ended December 31,
                           1999                  1998                 1997
                          (000's)   % Change    (000's)   % Change    (000's)


Expenses:
Commissions, employee
 compensation and
 benefits                $ 42,138      33      $  31,766     19       $26,785
Clearing and floor
 brokerage                  4,110      12          3,675     22         3,022
Communications and
 occupancy                  2,697       5          2,557     37         1,860

Legal matters and
 related costs              1,395     (41)         2,377     64         1,452
Write-down of Note
 receivable - Global

 Financial Corp.              100     (94)         1,775     --         --
Loss on lease
 settlements                  600      50            100     --         --
Other operating expenses    3,546      24          2,862     41         2,094
Interest                      166      27            131     54            85
                           ------      --         ------     --        ------

Total expenses           $ 54,752      21       $ 45,243     28     $  35,298
                           ======      ==        =======     ==      ========
<PAGE>
09


        During 1999, the Company paid  commissions,  employee  compensation and
employee  benefits  of  $42,138,000  (73% of  total  revenues)  as  compared  to
$31,766,000  (76% of total revenues) in 1998. This category  includes  salaries,
commission  expense,  and benefits for salaried  employees.  Commissions paid to
registered  representatives  for fiscal 1999 totaled  $35,698,000  (62% of total
revenues) compared to $26,622,000 (64% of total revenues) in 1998, and accounted
for more than $9,000,000,  or 34% of the total increase in this expense category
over fiscal  1998.  The dollar  increase  is  primarily  due to the  increase in
commission revenues. The decrease in the percentage of total revenues,  from 64%
to 62%,  reflects the higher trading profits,  which are typically paid out at a
lower rate than sales commissions.

         For 1999,  the Company paid  salaries and  benefits of  $6,440,000  for
management, operations and clerical personnel, as compared to $5,144,000 in 1998
and  $4,428,000  in 1997.  During the second  half of 1999,  the  Company  hired
additional management and support staff for various departments including sales,
compliance and operations.

         Clearing costs  increased by $435,000 from 1998 to 1999 and by $653,000
from 1997 to 1998. The dollar increase in 1999 reflects the increased  volume in
securities  transactions,  which carry  clearance and floor  brokerage  charges.
Clearing  costs as a percentage of revenues have  decreased over the period from
1997 to 1999,  due in part to volume  discounts  negotiated  with the  Company's
clearing firm.

         Communications  and  occupancy  costs  rose by  $140,000  in  1999,  an
increase of 5% from 1998.  The largest  increase in this category is in the area
of  technology  support and  software  enhancements.  In  addition,  the Company
contracted  with a data management  consultant to upgrade the existing  database
and provide management with better  information  retrieval systems and reporting
capabilities.

         Rent expense for 1999 remained relatively  constant,  as the first full
annual effect of the headquarters lease was realized in 1999, with no additional
leasehold  obligations  incurred during the year. A new seven-year  master lease
agreement that became effective February 1998 expanded the Company's  facilities
to 32,442  gross  rentable  square feet at a monthly  rental of $52,000  through
January 2005. The lease also contains a six-year  renewal option providing for a
base rental payment of approximately $65,000 per month.

         Legal matters and related  costs include  payments to defend and settle
customer  claims,  provisions  for  pending  litigation  and  general  corporate
matters.  These costs totaled $1,395,000 in 1999, down 41% from 1998 and 4% from
1997.  Settlement  of  pending  matters  and a  reduction  in new legal  matters
contributed to the decline, as did enhancements to the Company's  compliance and
supervisory systems.

         In December  1999, the Company agreed to accept a $500,000 cash payment
in settlement of an arbitration with another  broker-dealer against which it had
filed a claim arising out of the trading activities of a former affiliate of the
Company. The settlement was received in February 2000.

         The Company has also filed suit  against one of its  insurers to compel
coverage of several settled  claims.  There can be no assurance that the Company
will be successful in its efforts to recover  additional funds from its insurers
on  settled  claims,  or that  monetary  losses,  if any,  from  future  claims,
settlements or adverse  judgments  will be covered under the Company's  existing
insurance policies.

         During 1997 and 1998, the Company,  through its wholly-owned subsidiary
Montauk  Advisors Inc.,  ("MAI"),  made various loans to Global  Financial Corp.
("Global").  These  loans have a balance as of December  31, 1999 of  $2,207,891
before  reserves.  Global is a lease servicing  company that sold leases through
MAI.  These loans were made for the purpose of assisting  Global in meeting cash
flow deficiencies  arising from the nonpayment of scheduled monthly installments
on certain  delinquent,  canceled and non-performing  leases. The loans, some of
which bear  interest at 8% per annum and were due at various  times during 1998,
are currently in default.  The notes are guaranteed by Global,  FemCom  Systems,
Inc.,  ("FCS"),  Biblio,  Inc. ("Biblio") and the shareholder of FCS and Biblio.
The notes are partially collateralized by mortgage liens on real estate owned by
the principal  shareholder  of FCS and Biblio,  a pledge of the shares of Global
and FCS, and various liens on the assets of FCS.
<PAGE>
10


         During 1998, the Company undertook a full review of the Global loans to
evaluate their collectability,  and determined that, based on various events and
circumstances,  including  the default  status of the loans,  the  insolvency of
Global  and FCS,  and  steadily  declining  collections  on the lease  portfolio
serviced by Global,  the loans to Global have been  impaired.  Accordingly,  the
Company  recorded an impairment  loss of $1,775,000 in its financial  statements
for 1998,  and increased  the reserve by $100,000 in 1999 after further  review.
The loan reserve reflects  management's  best estimate of the extent of the loan
impairment  based on available  current  information,  including  the amount and
value of the  collateral.  Eventual  outcomes  could  differ from the  estimated
amount.

         Other  operating   expenses   increased  from  $2,862,000  in  1998  to
$3,546,000  in  1999.  The  increase  is due  primarily  to  higher  bad  debts,
depreciation expense increased sales and marketing initiatives.

         The  Company's  effective tax rate in 1999 was 19% as compared to (18)%
in 1998 and 40% in 1997. The rate in 1999 was lower than expected because income
tax expense was offset by the  reversal  of a  valuation  allowance  established
against deferred tax assets  (principally  reserves and net operating losses) in
1998.  The rate in 1998  was  lower  than  expected  because  the  existence  of
uncertainties  regarding  the  resolution  of  various  pending  claims  and the
previously  discussed  Global  matter  led  management  to  record  a  valuation
allowance of $731,000 to offset  deferred  tax  benefits.  In 1999,  based on an
assessment of all available  evidence,  including  improved  operating  results,
management  concluded  that it was more likely than not that deferred tax assets
as of  December  31,  1999 would be  realized.  Accordingly,  the balance of the
valuation allowance at December 31, 1999 ($542,000) was reversed.

Liquidity and Capital Resources

         The Company  maintains a highly liquid balance sheet with more than 64%
of the  Company's  assets  consisting of cash and cash  equivalents,  securities
owned,   and   receivables   from  the   Company's   clearing   firm  and  other
broker-dealers. Market making and other securities dealer activities require the
Company to carry significant  levels of securities  inventories in order to meet
customer  and  internal  trading  needs.  The  balances in the  Company's  cash,
inventory and clearing firm accounts can and do fluctuate significantly from day
to day, depending on market conditions,  daily trading activity,  and investment
opportunities.  The Company monitors these accounts on a daily basis in order to
ensure  compliance  with  regulatory   capital   requirements  and  to  preserve
liquidity.

         Net cash from  operating  activities  during the current year  provided
cash of $923,000.  Cash was generated  primarily  from net income of $2,283,000,
the  increase  in  commissions  owed  to  brokers  of  $1,179,000  and  non-cash
adjustments  of  $1,224,000.  Non-cash  adjustments  consisted  of  depreciation
charges,  amortization  of stock option  compensation,  non-cash losses and loan
reserves.  These  increases were  partially  offset by an increase in the amount
owed from the clearing firm of $3,586,000.

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

         Investing  activities required cash of $180,000 during 1999.  Additions
to fixed assets  consumed  $658,000,  primarily  for the purchase of  computers,
office  furniture  and  equipment.  Issuance of notes  receivable to brokers and
affiliates  required  $207,000 while the collection of Global leases  receivable
provided  cash of $619,000.  The Global  leases were  assigned to the Company in
various settlement transactions with Global customers during 1999.

         MAI made loans to Global, net of repayments, of $1,497,000 in 1998, and
additional  net loans to Global of $111,000 in 1999.  During  1999,  the Company
discontinued  its  financial  support  of  Global  through  loan  advances,  and
formulated  a final  resolution  of the Global  lease issue in order to minimize
further  economic losses.  In 1999, the Company  completed a private offering of
Series A  Convertible  Preferred  Stock with the  majority  of the Global  lease
investors.  Under the terms of the  offering,  each Global  lease  investor  who
participated  in the offering  received one share of Preferred Stock in exchange
for every $5 of lease investment value that the investor was entitled to receive
from Global after  certain  adjustments.  Each share of the  Preferred  Stock is
convertible  into two shares of the Company's  Common Stock and pays a quarterly
dividend of $.75 per Preferred Share.

         The Company also  exchanged  $235,282 in cash  payments,  25,000 Common
Stock purchase  warrants valued at $27,382,  and  convertible  note principal of
$690,526 for the  assignment of Global  leases.  (See Notes to the  consolidated
financial statements).

<PAGE>
11


         Financing activities used cash of $670,000 in 1999. A total of $223,000
was used to  repurchase  180,500  shares  of the  Company's  outstanding  shares
pursuant to a stock repurchase  program  authorized by the board of directors in
August 1999. In addition, the Company made notes and capital lease repayments of
$340,000 and dividend payments to preferred  stockholders of $68,000. A total of
$205,000 was  received  from the  exercise of 234,450  stock  options by various
individuals during the year.

    At December  31,  1999,  the  Company's  broker-dealer  subsidiary  had net
capital  of  $3,992,000,  which was  $3,577,000  in excess of its  required  net
capital of $415,000,  and the ratio of aggregate indebtedness to net capital was
1.74 to 1.

         The Company has various bank notes totaling $149,000.  These notes bear
interest at the prime rate (8.5% at December 31, 1999),  and are  collateralized
by equipment owned by the Company. The loans are payable in monthly installments
of $8,000.

     The  Company has both  convertible  and  subordinated  debt.  In 1998,  the
Company issued convertible  promissory notes in the aggregate amount of $570,000
to a private  investor and his affiliated  entities in connection  with a Global
lease settlement.  Interest is payable semiannually at 10% per annum.  Principal
is due in October 2003.  One note for $300,000 will be paid from the proceeds of
a sinking  fund into which the  Company is  required  to  contribute  20% of the
note's original  outstanding  principal  ($60,000) on or before each annual note
anniversary  date.  The sinking  fund  balance at December 31, 1999 was $60,000,
which is included in Other  Assets in the  accompanying  Statement  of Financial
Condition.  The notes are  callable at the  Company's  option upon thirty  days'
written  notice at a  redemption  price of 105% of  outstanding  principal  plus
accrued  interest.  The noteholder has the right to convert the notes into up to
380,000  shares of the  Company's  common stock based on a  conversion  price of
$1.50 per share.

     In 1999, the Company issued  additional  convertible  notes in the original
aggregate  amount of $690,526 to several private  investors in connection with a
Global  lease   settlement.   The  notes  are  payable  in  thirty-six   monthly
non-interest bearing installments of $16,404, plus balloon payments of $112,000,
which include  interest of $12,000  calculated on the basis of 8% of the balloon
amount  beginning in month nineteen of the note term. The Company has recorded a
loan discount on the notes of $64,609,  which is being  amortized  over the note
terms using the interest  method.  The notes are convertible into 345,263 common
shares of the Company's common stock based on a conversion price of $2.00.  Once
the  underlying  shares  are  registered,  the  Company  can  request  that  the
noteholders  convert their shares.  Proceeds from the sale of the shares must be
applied towards the unpaid principal of the notes. Any excess proceeds or unsold
shares will be returned to the Company.

     As of  December  31,  1999,  the Company  had an  aggregate  of $150,000 of
subordinated notes outstanding.  The notes are payable in annual installments of
$50,000 plus interest at 8% per annum.  The notes are subordinated to the claims
of FMSC's general  creditors  under a  subordination  agreement  approved by the
NASDR.

Year 2000 Issue

         In 1999 the Company completed its Year 2000 ("Y2K") compliance efforts.
The Y2K issue was the result of computer  programming  designs  which could have
caused  computer  programs to  malfunction  after the turn of the  millennium by
misidentifying the year "2000" as "1900".

         Through the date of this report there have been no material failures or
disruptions of systems or services at the Company, (or at the Company's clearing
firm upon which the Company is  substantially  reliant to process its securities
transactions), attributable to the Y2K issue.

Impact of Inflation

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

<PAGE>
12


Factors Affecting "Forward-Looking Statements"

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

Effects of Recently Issued Accounting Pronouncement

         In June 1998, the Financial  Accounting Standards Board issued SFAS No.
133  "Accounting  for  Derivative  Instruments  and Hedging  Activities",  which
requires the recognition of derivatives on the statement of financial  condition
at fair  value.  SFAS No. 133 must be  adopted  effective  January 1, 2001.  The
Company  does  not  currently  engage  in  significant   derivative  or  hedging
activities;  accordingly, the adoption of SFAS No. 133 is not expected to have a
material impact on the Company's financial position or results of operations.

Market Risk

         During fiscal 1997 the Securities and Exchange Commission issued market
risk disclosure  requirements to enhance  disclosures of accounting policies for
derivatives and other  financial  instruments  and to provide  quantitative  and
qualitative  disclosures  about market risk  inherent in  derivatives  and other
financial  instruments.  The Company  manages risk  exposure  involving  various
levels of  management.  Position  limits in trading and  inventory  accounts are
established   and   monitored  on  an  ongoing   basis.   Current  and  proposed
underwriting,  corporate  development  and other  commitments are subject to due
diligence  reviews  by  senior  management,  as  well  as  professionals  in the
appropriate business and support units involved.

         The  Company  maintains  inventories  as  detailed  in  Note  3 to  the
Consolidated  Financial  Statements.  The  fair  value of  these  securities  at
December  31,  1999,  was  $3,476,000  in long  positions  and $180,000 in short
positions.  The  Company  performed  an  analysis  of  the  Company's  financial
instruments and assessed the related risk and materiality in accordance with the
rules.  Based on this analysis,  in the opinion of  management,  the market risk
associated with the Company's financial  instruments at December 31, 1999 is not
expected  to  have a  material  adverse  impact  on the  consolidated  financial
position or results of operation of the Company.


Item 8.    Financial Statements

                  See Financial Statements attached hereto.

Item 9.    Disagreements on Accounting and Financial Disclosure

         Not Applicable.


<PAGE>
13


                                   PART III

Item 10.   Directors and Executive Officers

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

         Name                 Age   Position

Herbert Kurinsky              68    Director,  President and Chief  Executive
                                    Officer of FMFC and of FMSC and Registered
                                    Options Principal of FMSC

William J. Kurinsky           39    Director, Vice   President,   Chief
                                    Operating and Chief Financial  Officer
                                    and  Secretary  of FMFC  and of  FMSC  and
                                    Financial/Operations Principal of FMSC

Robert I. Rabinowitz, Esq.    42    General Counsel,  FMFC,  Chief
                                    Administrative  Officer,  Vice President
                                    and General Securities Principal of FMSC

Norma Doxey                   60    Director, Vice President of Operations, FMSC

Ward R. Jones, Jr.            69    Director

David I. Portman              59    Director


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

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

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

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

     Robert I. Rabinowitz, Esq. is General Counsel of the Company since 1987. He
concurrently  served as General  Counsel of First Montauk  Securities  from 1986
until 1998 when a new general counsel was named. Thereafter, he became the Chief
Administrative  Officer of FMSC as well as a General Securities Principal.  From
January 1986 until  November  1986,  he was an  associate  attorney for Brodsky,
Greenblatt & Renahan,  a private practice law firm in Rockville,  Maryland.  Mr.
Rabinowitz  is an attorney at law  licensed to practice in New Jersey,  Maryland
and the District of Columbia,  and is a member of the Board of  Arbitrators  for
the National Association of Securities Dealers,  Department of Arbitration.  Mr.
Rabinowitz's wife is a niece of Mr. Herbert Kurinsky and a sister of Mr. William
Kurinsky.
<PAGE>
14


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

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

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

Significant Employees

     Mark D. Lowe, 41, has been President of Montauk  Insurance  Services,  Inc.
since  October  1998.  From 1982 to 1998 Mr. Lowe was a Senior  Consultant  with
Congilose & Associates,  a financial services firm specializing in insurance and
estate  planning.  Mr. Lowe became a Certified  Financial  Planner (CFP) in July
1991. Mr. Lowe attended Ocean County College in Toms River,  NJ. Mr. Lowe is the
Treasurer of the Estate and Financial Planning Council of Central New Jersey.

    Seth Rosen,  47,  has  been   President  of  Century   Discount  Investments
since  September  1998.  From December 1997 to June 1998, Mr. Rosen served as an
executive  consultant  with Cowen & Co. From 1994 to 1997, Mr. Rosen served as a
Managing  Director  of  National  Discount  Brokers,   a  division  of  Sherwood
Securities.

Certain Reports

     No person who,   during  the   fiscal year ended  December 31, 1999,  was a
Director,  officer or beneficial owner of more than ten percent of the Company's
Common Stock (which is the only class of  securities  of the Company  registered
under  Section  12 of  the  Securities  Exchange  Act of  1934  (the  "Act")  (a
"Reporting  Person")  failed  to file on a timely  basis,  reports  required  by
Section 16 of the Act during the most  recent  fiscal year or prior  years.  The
foregoing  is based  solely upon a review by the Company of Forms 3 and 4 during
the most recent  fiscal year as  furnished  to the Company  under Rule  16a-3(d)
under the Act, and Forms 5 and amendments  thereto furnished to the Company with
respect to its most recent fiscal year, and any  representation  received by the
Company from any reporting person that no Form 5 is required.


<PAGE>
15


Item 11. Executive Compensation

Summary of Cash and Certain Other Compensation

         The following  provides  certain  information  concerning  all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-K) compensation awarded
to,  earned by, paid or accrued by the Company  during the years ended  December
31, 1999, 1998 and 1997 to each of the named executive officers of the Company.
<TABLE>

                           SUMMARY COMPENSATION TABLE
<S>                           <C>       <C>         <C>          <C>              <C>

                            Annual Compensation                   Long Term
                                                                  Compensation

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

Herbert Kurinsky              1999      $232,925    $100,000     $   925(2)          0
 Chairman, Chief              1998      $175,000    $0           $10,096(2)       100,000
 Executive Officer (3)        1997      $168,269    $0           $ 2,724(2)        50,000

William J. Kurinsky           1999      $232,925    $100,000     $ 1,925(4)          0
Vice President,               1998      $175,000    $0           $10,221(4)       100,000
 Chief Operating and          1997      $158,173    $0           $ 1,534(4)        75,000
 Financial Officer
 and Secretary (5)

Robert I. Rabinowitz          1999      $125,000    $ 25,000     $ 1,200(6)          0
General Counsel, FMFC,        1998      $125,000    $ 15,000     $   295(6)       100,000
 Chief Administrative         1997      $111,154    $ 10,000     $ 5,676(6)        75,000
 Officer, FMSC (7)
</TABLE>

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

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

2)   Includes (i) for 1999,  automobile  allowance of $925;  (ii) for 1998,
     vacation pay of $10,096; (iii) for 1997, commissions of $2,724.

3)   Mr.  Herbert  Kurinsky is the  beneficial  owner  of  11,518  shares of the
     Company's  Common Stock as of December 31, 1999, which  shares had a market
     value of $14,628 as of that date,  without  giving effect to the diminution
     in value attributable to the restriction on said shares.

4)   Includes:  (i) for 1999,  automobile allowance of $1,925;  (ii)  for  1998,
     commissions of $125 and vacation pay of $10,096; (iii) for 1997,
     commissions of $1,534.

5)   Mr.  William  Kurinsky is the beneficial  owner of 1,085,823 shares of the
     Company's  Common Stock as of December 31, 1999,  which shares had a market
     value  of  $1,378,995  as of  that  date,  without  giving  effect  to  the
     diminution in value attributable to the restriction on said shares.

6)   Includes (i) automobile  allowance of $1,200 for 1999; (ii) commissions of
     $295 in 1998; (iii)  commissions of $5,676 in 1997.

7)   Mr. Robert I.  Rabinowitz is the  beneficial  owner of 29,500 shares of the
     Company's  Common Stock as of December 31, 1999,  which shares had a market
     value of $37,465 as of that date,  without  giving effect to the diminution
     in value attributable to the restriction on said shares.

<PAGE>
16


Compensation of Directors

     The  Company  pays  directors,  who are not  employees  of the  Company,  a
retainer of $250 per  meeting of the Board of  Directors  attended  and for each
meeting of a committee of the Board of Directors not held in conjunction  with a
Board of Directors  meeting.  Directors employed by the Company are not entitled
to any additional  compensation  as such.  During fiscal year 1999, the Board of
Directors met on three occasions and all directors were present.

Committees of the Board of Directors

              The  Board  of  Directors  has   established  an  Audit  Committee
comprised of Ward R. Jones and David  Portman.  The Audit  Committee  met on one
occasion during fiscal year 1999. The Audit Committee  reviews (i) the Company's
audit functions,  (ii) the finances,  financial condition, and interim financial
statements  of the Company with  management,  and (iii),  the year end financial
statements of the Company with the Company's  independent  auditors.  Members of
the Audit Committee do not receive additional compensation for such service.


                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

        There  were no  option  grants to the  executive  officers named below
during the fiscal year ended December 31, 1999.
<TABLE>

                   AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                              AND FY-END OPTION/SAR VALUES
<S>                   <C>          <C>              <C>                      <C>

                                                                          Value of
                      Shares                   Number of                  Unexercised
                      Acquired                 Unexercised                In-the-money
                      on          Value        Options as of              Options at
Name                  Exercise    Realized(1)  December 31,1999           December 31,1999(2)

                                               Exercisable/Unexercisable  Exercisable/Unexercisable

Herbert Kurinsky      40,000       $ 18,000          350,000/0                $139,500  /$0
William J. Kurinsky   40,000       $ 18,000          375,000/0                $104,000  /$0
Robert I. Rabinowitz  20,000       $  9,000          210,000/0                $25,013   /$0

</TABLE>

 (1) Based   upon   the   closing  bid  price  of  the Company's Common Stock on
     December 17, 1999 ($1.20 per share),  the date  that each of  the options
     was exercised, less the  exercise  price  for the  aggregate  number  of
     shares subject to the options.

 (2) Based upon the closing bid price of the Company's  Common Stock on December
     31, 1999  ($1.27 per  share),  less the  exercise  price for the  aggregate
     number of shares subject to the options.

Employment Agreements

         In January 1996,  the Company  entered into new  three-year  employment
contracts  with Herbert  Kurinsky,  as  President  and William J.  Kurinsky,  as
Executive Vice  President.  The contracts  provide for base salaries of $175,000
for the first year of the  agreement  for each,  increasing  in each case at the
rate of 10% per year. Each will also be entitled to receive a portion of a bonus
pool consisting of 10% of the pre-tax  profits of the Company,  to be determined
by the executive management (e.g. Herbert Kurinsky and William J. Kurinsky). The
bonus pool would  require a minimum of $500,000  pretax profit per year in order
to become  effective.  The agreements have been renewed for an additional  year.
Each is also entitled to receive  commissions  at the same rate as paid to other
non-affiliate registered  representatives of the Company. They are also entitled
to purchase  from FMSC, up to 20% of all  underwriters  and/or  placement  agent
warrants or options  which are  granted to FMSC upon the same  price,  terms and
conditions afforded to FMSC as the underwriter or placement agent. Each employee
also receives  health  insurance  benefits and life  insurance as generally made
available to regular full-time  employees of the Company,  and reimbursement for
expenses  incurred on behalf of the Company and the use of an automobile,  or in
the  alternative,  an  automobile  allowance.  The  contracts  also  provide for
severance  benefits equal to three times the previous year's salary in the event
either of the  employees is  terminated  or their duties  significantly  changed
after a change in management of the Company as defined in the agreement.

     During the 1999 fiscal  year,  the Board of  Directors  passed a resolution
authorizing the continuation of the employment  agreements with Herbert Kurinsky
and William J. Kurinsky for one (1) year through the end of 1999.

<PAGE>
17


Incentive Stock Option Plan

         In 1992, the Company  adopted the 1992 Incentive Stock Option Plan (the
"1992 Plan") which provides for the grant of options to purchase up to 6,000,000
shares  of  the  Company's   Common  Stock  by  employees  of  the  Company  and
consultants.  Under the terms of the Plan,  options  granted  thereunder  may be
designated  as options  which  qualify  for  incentive  stock  option  treatment
("ISOs")  under  Section  422A of the Code,  or options  which do not so qualify
("Non-ISOs").

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

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

         The Board may, in its sole discretion, grant bonuses or authorize loans
to or guarantee loans obtained by an optionee to enable such optionee to pay any
taxes that may arise in  connection  with the  exercise  or  cancellation  of an
option. Unless sooner terminated, the Plan will expire in 2002. To date, options
to purchase a total of 5,157,500  shares of the Company's Common Stock have been
issued under the 1992 Plan.

Director Plan

         In September 1992, the Company adopted the Non-Executive Director Stock
Option Plan (the "Director Plan").  The Director Plan provides for issuance of a
maximum of 1,000,000  shares of Common Stock upon the exercise of stock  options
granted  under the Director  Plan.  Options are granted  under the Director Plan
until 2002 to  non-executive  directors  who are not full time  employees of the
Company  or any of its  subsidiaries.  The  Director  Plan  provides  that  each
non-executive  director  will  automatically  be granted  an option to  purchase
20,000  shares each  September 1,  provided such person has served as a director
for the 12 months immediately prior to such September 1st.

         The exercise price for options granted under the Director Plan shall be
100% of the fair market  value of the Common  Stock on the date of grant.  Until
otherwise  provided  in the Stock  Option  Plan the  exercise  price of  options
granted under the Director Plan must be paid at the time of exercise,  either in
cash, by delivery of shares of Common Stock of the Company or a  combination  of
both.  The term of each  option  commenced  on the date it is granted and unless
terminated sooner as provided in the Director Plan,  expires five years from the
date of grant.  The Director Plan is administered by a committee of the board of
directors  composed  of not fewer than three  persons  who are  officers  of the
Company (the  "Committee").  The Committee has no discretion to determine  which
non-executive  director will receive  options or the number of shares subject to
the option, the term of the option or the exercisability of the option. However,
the Committee will make all determinations of the interpretation of the Director
Plan.  Options  granted  under the Director Plan are not qualified for incentive
stock option treatment. To date, a total of 340,000 options have been granted to
the Company's Non-Executive members of the Board of Directors.

Senior Management Plan

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

<PAGE>
18


includes  the  purchase by any person of 25% or more of the voting  power of the
Company's  outstanding  securities,  or a change in the majority of the Board of
Directors.

         Awards granted under the  Management  Plan are also entitled to certain
acceleration  provisions that cause awards granted under the Plan to immediately
vest in the event of a change of control or sale of the  Company.  Awards  under
the  Management  Plan may be made until 2006.  To date the Company has granted a
total of 1,745,000 options under the Senior Management Plan.

Item 12. Security Ownership of Certain
         Beneficial Owners and Management

         The following  table sets forth,  as of March 30, 2000,  the number and
percentage  of  outstanding  shares of Common Stock  beneficially  owned by each
person known by the Company to own  beneficially  more than 5% of the  Company's
outstanding  shares of Common Stock and Common Stock Warrants,  by each director
of the Company, and by all directors and officers of the Company as a group.

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

Herbert Kurinsky                                486,518(2)      5%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701

William J. Kurinsky                           1,945,823(3)     18%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701

Robert I. Rabinowitz, Esq.                      366,999(4)      4%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701

Ward R. Jones                                   110,000(5)      1%
7 Leda Lane
Guilderland, NY 12084

Norma Doxey                                      72,400(6)      1%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701


David I. Portman                                199,800(7)      2%
300 Ocean Avenue, Apt. 6A
Long Branch, NJ 07740

All Directors and                             3,181,540        27%
Officers as a group
(7 persons in number)

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

(2)      Includes  vested  and  presently  exercisable  options  of  Mr. Herbert
         Kurinsky to purchase 475,000 shares of Common Stock.
<PAGE>
19



(3)      Includes  vested and presently  exercisable  options of Mr.  William J.
         Kurinsky to purchase  500,000 shares of Common Stock, and 120,000 Class
         A Warrants, 120,000 Class B Warrants and 120,000 Class C Warrants.

(4)      Includes  270,000 shares of Common Stock reserved for issuance upon the
         exercise of vested and presently  exercisable stock options,  50,000 of
         which  are  owned by Mr.  Rabinowitz's  wife,  of  which  he  disclaims
         beneficial ownership,  and 2,000 shares are owned by his children.  Mr.
         Rabinowitz also owns 5,833 Class A Warrants, 5,833 Class B Warrants and
         5,833 Class C Warrants.

(5)      Includes  110,000 shares of Common Stock reserved for issuance upon the
         exercise of vested and presently exercisable stock options.

(6)      Includes  60,000 shares of Common Stock  reserved for issuance upon the
         exercise of 32,000 vested and presently  exercisable  stock options and
         28,000 non-vested stock options.

(7)      Includes  100,000 shares of Common Stock reserved for issuance upon the
         exercise of vested and  presently  exercisable  stock  options,  16,600
         Class A Warrants, 16,600 Class B Warrants and 16,600 Class C Warrants.

NOTE:             All Class A Warrants are  exercisable at $3.00 per share for a
                  period of three (3) years from February 17, 1998.

                  All Class B Warrants  are  exercisable  at $5.00 per share for
                  a period of five (5) years from February 17, 1998.

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

Item 13.   Certain Relationships and Related Transactions

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


<PAGE>
20

                                     PART IV

Item 14.          Exhibits, Financial Statements

                           and Reports on Form 8-K

(A) 1.   Financial Statements

         See Financial Statements Attached Hereto.

    2.   Exhibits

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

(B)      Reports on Form 8-K

         During the last  quarter of the period  covered by this  Report,  there
were no reports filed on Form 8-K.


<PAGE>
21


                                   SIGNATURES

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

                                               FIRST MONTAUK FINANCIAL CORP.


                                               By  /s/ Herbert Kurinsky

                                               ----------------------------
                                               Herbert Kurinsky, President

Dated:   March 30, 2000

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

/s/ Herbert Kurinsky                                          March 30, 2000
------------------------------------
Herbert Kurinsky
President, Chief Executive
Officer and Director

/s/ William J. Kurinsky                                       March 30, 2000
------------------------------------
William J. Kurinsky
Vice-President, Chief Operating
and Chief Financial Officer, and
Principal Accounting Officer,
Secretary and Director

/s/ Norma Doxey                                               March 30, 2000
------------------------------------
Norma Doxey, Director

/s/ Ward R. Jones, Jr.                                        March 30, 2000
------------------------------------
Ward R. Jones, Jr., Director

/s/ David I. Portman                                          March 30, 2000
------------------------------------
David I. Portman, Director


<PAGE>
22

                                 EXHIBITS INDEX

         The exhibits designated with an asterisk (*) have previously been filed
with the Commission in connection with the Company's  Registration  Statement on
Form S-l,  File No.  33-24696,  those  designated  (**) have been filed with the
Company's  Form  10-KSB  for the fiscal  year ended  December  31,  1993,  those
designated  (***) have been  previously  filed with the  Company's  Registration
Statement on Form S-3,  File No.  33-65770,  and pursuant to 17 C.F.R.  Sections
201.24 and 240.12b-32,  are incorporated by reference to the document referenced
in brackets following the description of such exhibits.  Those designated (****)
denotes  exhibits  which have been filed with the Company's  Form 10-KSB for the
fiscal year ended December 31, 1994. Those designated  (******) denotes exhibits
which have been filed with the  Company's  Proxy  Statement  dated May 30, 1996.
Those  designated  (*******)  denotes  exhibits  which  have been filed with the
Company's  Form  10-KSB  for the fiscal  year ended  December  31,  1996.  Those
designated  (*******)  denotes exhibits which have been filed with the Company's
Form  10-KSB for the fiscal  year ended  December  31,  1997,  (++)  denotes
exhibits  filed with the Company's  Form 10-K for the fiscal year ended December
31, 1998, and (+++) denotes exhibits filed with herewith.

Exhibit No.                                 Description

   3.1*           Amended and Restated  Certificate  of  Incorporation  adopted
                  at 1989 Special  Meeting in lieu of Annual Meeting of
                  Shareholders.

   3.2*           Amended and Restated By-Laws.

  10.8*           Clearing  Agreement  between the  Registrant  and  Wertheim
                  Schroder & Co.,  Incorporated  dated January 21, 1991.

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

  10.17.1++       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 under
                  28.8 in Form 10-K for the fiscal year ended December 31,
                  1998).

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

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

  11+++           Computation of Earnings Per Share.

  27+++           Financial Data Schedule.

  28.1*           1992 Incentive Stock Option Plan.

  28.2*           1992 Non-Executive Director Stock Option Plan.

  28.3******      Amended and Restated 1992 Incentive Stock Option Plan.

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

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

 <PAGE>
23


                       REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
First Montauk Financial Corp.

         We have audited the accompanying  consolidated  statements of financial
condition of First Montauk  Financial Corp. and  subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of income (loss), changes
in  stockholders'  equity,  and cash  flows for each of the  three  years in the
period ended December 31, 1999. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all  material  respects,  the  financial  position of First
Montauk  Financial Corp. and  subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended  December 31, 1999 in  conformity  with  generally  accepted
accounting principles.

                                          Schneider Ehrlich & Associates LLP

Jericho, New York
March 3, 2000

<PAGE>
24


                              FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>

<S>                                                                             <C>               <C>


                                                                                          December 31,
                                                                                    1999               1998

ASSETS

Cash                                                                          $   686,980         $   613,513
Due from clearing firm                                                          6,462,346           2,876,202
Commissions receivable                                                            345,996             250,803
Trading and investment account securities                                       3,475,891           2,733,260
Employee and broker receivables                                                   452,285             598,212
Global leases receivable                                                          824,313             170,101
Notes receivable                                                                  482,531             477,729
Due from officers                                                                 132,754             131,501
Property and equipment - net                                                    2,193,506           2,074,470
Other assets                                                                    1,338,326             917,188
Deferred tax assets - net                                                         664,256             700,755
                                                                                  -------             -------

     Total assets                                                             $17,059,184         $11,543,734
                                                                              ===========         ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Securities sold, but not yet purchased, at market                             $   180,280         $   327,047
Notes payable                                                                   1,477,428           1,014,844
Commissions payable                                                             2,710,736           1,531,644
Accounts payable                                                                  525,809             802,497
Accrued expenses                                                                1,072,552             905,154
Income taxes payable                                                              510,226                  --
Other liabilities                                                                 952,015             738,921
                                                                                  -------             -------

     Total liabilities                                                          7,429,046           5,320,107
                                                                                ---------           ---------

Common stock issued with  guaranteed  selling  price - no par value,
  18,000 and 18,000 shares issued and outstanding, respectively                    36,500              36,500

Commitments and contingencies (See Notes)

STOCKHOLDERS' EQUITY
Preferred Stock, 4,375,000 shares authorized, $.10 par
     value, no shares issued and outstanding                                           --                  --
Series A Convertible Preferred Stock, 625,000 shares authorized, $.10 par value,
     349,511 and -0- shares issued and outstanding, respectively; liquidation
     preference:  $1,747,555                                                       34,951                  --
Common Stock, no par value, 30,000,000 shares
     authorized, 10,035,943 and 9,801,493 shares issued
     and outstanding, respectively                                              5,185,818           4,980,977
Additional paid-in capital                                                      4,080,730           2,979,831
Retained earnings (Accumulated deficit)                                         1,023,057          (1,192,471)
Less:  Deferred compensation                                                     (508,294)           (581,210)
Less:  Treasury stock, at cost (180,500 shares)                                  (222,624)                 --
                                                                                ---------           ---------
        Total stockholders' equity                                              9,593,638           6,187,127
                                                                                ---------           ---------
     Total liabilities and stockholders' equity                               $17,059,184         $11,543,734
                                                                               ==========          ==========




                                 See notes to consolidated financial statements.

</TABLE>

<PAGE>
25
                             FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                                CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>

<S>                                                             <C>               <C>               <C>
                                                                            Years ended December 31,
                                                                     1999             1998             1997
Revenues:

Commissions                                                      $40,516,625      $30,741,404      $27,018,244
Principal transactions                                            14,000,680        8,795,599        7,257,576
Investment banking                                                   439,065          767,312        1,433,100
Insurance recovery                                                        --               --          650,000
Interest and other income                                          2,628,246        1,572,063        1,383,713
                                                                   ---------        ---------        ---------

                                                                  57,584,616       41,876,378       37,742,633
                                                                  ----------       ----------       ----------

Expenses:

Commissions, employee compensation
     and benefits                                                 42,137,968       31,766,060       26,785,205
Clearing and floor brokerage                                       4,109,961        3,674,859        3,021,709
Communications and occupancy                                       2,697,433        2,557,313        1,860,350
Legal matters and related costs                                    1,395,008        2,377,336        1,452,001
Write-down of Notes Receivable - Global
 Financial Corp.                                                     100,000        1,775,000               --
Loss on Global lease settlements                                     600,416           99,899               --
Other operating expenses                                           3,545,308        2,862,075        2,093,670
Interest                                                             166,104          131,215           84,695
                                                                     -------          -------           ------
                                                                  54,752,198       45,243,757       35,297,630
                                                                  ----------       ----------       ----------

Income (loss) before income taxes                                  2,832,418       (3,367,379)       2,445,003

Provision for income taxes (income tax benefit)                      549,140         (604,532)         968,178
                                                                     -------         --------          -------

Net income (loss)                                                $ 2,283,278      $(2,762,847)     $ 1,476,825
                                                                   =========        =========        =========
Net income (loss) available to common stockholders               $ 2,215,528      $(2,762,847)     $ 1,476,825
                                                                   =========        =========        =========
Per share of Common Stock:

     Basic                                                       $       .22      $     (0.28)     $       .17
                                                                   =========       ==========       ==========

     Diluted                                                     $       .21      $     (0.28)     $       .14
                                                                   =========       ==========       ==========

Weighted average common shares
     outstanding - basic                                           9,878,129        9,725,116        8,788,734
                                                                   =========        =========        =========

Weighted average common and common
     equivalent shares outstanding - diluted                      11,262,708        9,725,116       10,351,032
                                                                  ==========        =========       ==========


                          See notes to consolidated financial statements.


</TABLE>

<PAGE>
26

<TABLE>

                                  FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
                             CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                             FOR THE PERIOD FROM JANUARY 1, 1997 TO DECEMBER 31, 1999

<CAPTION>



                                                        Series A                   Retained
                                                       Convertible   Additional    Earnings   Deferred     Treasury
                                 Common Stock        Preferred Stock Paid-in     (Accumulated Compensa-     Stock    Stockholders'
                              Shares     Amount  Shares  Amount      Capital       Deficit)   tion      Shares Amount    Equity
<S>                         <C>       <C>        <C>      <C>      <C>          <C>          <C>     <C>       <C>       <C>

Balances at January 1, 1997 8,222,481 $3,588,273  --       --      $    243,961 $    93,551  --        (196,802)$(230,506)$3,695,279

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

Proceeds from rights
 offering                   --         --         --       --         1,382,751   --         --        --        --       1,382,751
Registration costs          --         --         --       --          (236,317)  --         --        --        --        (236,317)
Exercise of stock options     432,050    342,419  --       --         --          --         --        --        --         342,419
Exercise of common stock
 purchase warrants                999      4,995  --       --         --          --         --        --        --           4,995
Deferred compensation       --         --         --       --           544,179   --         (544,179) --        --         --
Amortization of deferred
  compensation              --         --         --       --         --          --          147,988  --        --         147,988
Transfer from temporary
 equity                       170,000    299,390  --       --         --          --          --       --        --         299,390
Tax benefit related to
 exercise of stock options  --         --         --       --           115,781   --          --       --        --         115,781
Net loss for the year       --         --         --       --         --         (2,762,847)  --       --        --      (2,762,847)
                            ---------  ---------  -------- ---------- ---------   ---------  --------- -------- --------- ---------
Balances at
 December 31, 1998          9,801,493  4,980,977  --       --         2,979,831  (1,192,471) (581,210) --        --       6,187,127
Exercise of stock options     234,450    204,841  --       --         --          --         --        --        --         204,841
Deferred compensation       --         --         --       --           122,925   --         (122,925) --        --         --
Amortization of deferred
  compensation              --         --         --       --         --          --          195,841  --        --         195,841
Repurchase of common stock  --         --         --       --         --          --         --        (180,500) (222,624) (222,624)
Issuance of common stock
  purchase warrants         --         --         --       --            27,382   --         --        --        --          27,382
Issuance of preferred stock --         --         349,511     34,951    950,592   --         --        --        --         985,543
Payment of dividends        --         --         --       --         --            (67,750) --        --        --         (67,750)
Net income for the year     --         --         --       --         --          2,283,278  --        --        --       2,283,278
                           ----------  ---------  -------  ---------  ---------   ---------  -------   -------  --------- ---------
Balances at
 December 31, 1999         10,035,943 $5,185,818  349,511 $   34,951 $4,080,730 $ 1,023,057 $(508,294) (180,500)$(222,624)$9,593,638
                           ==========  =========  =======  =========  =========   =========   =======   =======   =======  =========


                                                See notes to consolidated financial statements.

</TABLE>

<PAGE>
27

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

<TABLE>
<CAPTION>

<S>                                                             <C>               <C>              <C>
                                                                              Years ended December 31,
                                                                     1999              1998            1997

INCREASE (DECREASE) IN CASH

Cash flows from operating activities:

     Net income (loss)                                           $ 2,283,278      $(2,762,847)      $1,476,825
                                                                  ----------       ----------        ---------
Adjustments to reconcile net income (loss) to
     net cash provided by (used in) operating activities:
     Common stock issued with guaranteed
      selling price                                                       --           30,000           28,125
     Tax benefit related to exercise of stock options                     --          115,781          722,605
     Depreciation and amortization                                   539,306          357,831          348,508
     Amortization of deferred compensation                           195,841          147,988           21,852
     Loan reserves                                                   100,000        1,775,000           69,000
     Payment of common stock guarantees                                   --          (40,610)              --
     Loss on Global lease settlements                                388,655               --               --
     Other                                                                --           25,524               --
     Increase (decrease) in cash attributable to
      changes in assets and liabilities:
     Due from clearing firm                                       (3,586,144)        (168,420)        (842,357)
     Trading and investment account securities                      (742,631)         924,244       (1,528,069)
     Commissions receivable                                          (95,193)          (4,553)         (89,837)
     Due from officers                                                (1,253)          15,190           25,287
     Employee and broker receivables                                 145,927          328,983         (185,592)
     Other assets                                                   (152,692)          22,224         (532,728)
     Deferred income taxes                                            36,499         (664,787)         516,200
     Securities sold but not yet purchased                          (146,767)        (482,476)         681,896
     Commissions payable                                           1,179,092          (92,672)          72,098
     Income taxes payable                                            510,226               --               --
     Accounts payable                                               (276,689)         301,229           12,570
     Accrued expenses                                                167,398           70,564         (749,307)
     Other liabilities                                               378,631           67,715          213,486
                                                                     -------           ------          -------
         Total adjustments                                        (1,359,794)       2,728,755       (1,216,263)
                                                                  ----------        ---------       ----------
         Net cash provided by (used in)
          operating activities                                       923,484          (34,092)         260,562
                                                                     -------          -------          -------
Cash flows from investing activities:

     Issuance of notes receivable                                   (207,000)      (2,091,704)        (788,414)
     Collection of notes receivable                                  102,197          777,029           11,360
     Payment for Global leases receivable                            (12,532)              --               --
     Collection of Global leases receivable                          619,497               --               --
     Additions to property and equipment                            (658,342)        (986,315)        (534,005)
     Other assets                                                    (23,867)         109,344           15,087
                                                                     -------          -------           ------
         Net cash used in investing activities                      (180,047)      (2,191,646)      (1,295,972)
                                                                     -------        ---------        ---------

Cash flows from financing activities:

     Proceeds from notes payable                                          --          300,000               --
     Payments of notes payable                                      (227,943)        (145,925)        (117,536)
     Proceeds from capital lease financing                                --          304,068               --
     Issuance of common stock                                             --               --           23,027
     Repurchase of common stock                                     (222,624)              --               --
     Payments of capital lease                                      (111,915)         (18,621)              --


<PAGE>
28

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



     Payment of preferred stock dividend                             (67,750)              --               --
     Proceeds from rights offering                                        --        1,382,751               --
     Registration costs                                                   --         (120,320)              --
     Proceeds from exercise of common stock
      options and warrants                                           204,841          347,415          850,254
     Other assets                                                   (244,579)              --               --
                                                                    --------        ---------        ---------
         Net cash provided by (used in)
         financing activities                                       (669,970)       2,049,368          755,745
                                                                    --------        ---------          -------
Net increase (decrease) in cash                                       73,467         (176,370)        (279,665)
Cash at beginning of year                                            613,513          789,883        1,069,548
                                                                     -------        ---------        ---------
Cash at end of year                                               $  686,980      $   613,513       $  789,883
                                                                     =======        =========        =========

Supplemental disclosures of cash flow information:

     Cash paid (refunded) during the period for:

         Interest                                               $    166,104    $     131,215      $    84,695
         Income taxes                                           $      5,232    $    (223,871)     $  (203,480)

Debt issued in exchange for Global leases
     receivable                                                 $    266,054    $     170,101      $        --

Preferred stock issued in exchange for
     Global leases receivable                                   $    985,543    $          --      $        --

Common stock purchase warrants issued in
     exchange for Global leases receivable                      $     27,382    $          --      $        --

Equipment financed under capital lease                          $         --    $      88,132      $        --

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



                               See notes to consolidated financial statements.


</TABLE>

<PAGE>
29


NOTE 1 -        NATURE OF BUSINESS

                FirstMontauk  Financial Corp. (the Company) is a holding company
                whose  principal  subsidiary,  First  Montauk  Securities  Corp.
                (FMSC), is primarily engaged in securities brokerage, investment
                banking and trading. FMSC is a broker-dealer registered with the
                Securities and Exchange Commission and the National  Association
                of Securities  Dealers,  Inc. Through FMSC, the Company executes
                principal   and   agency   transactions,    makes   markets   in
                over-the-counter   securities,  and  performs  underwriting  and
                investment  banking services.  Customers are located  throughout
                the United States. Montauk Insurance Services, Inc. (MISI) sells
                a range of insurance  products.  Montauk  Advisors,  Inc.  (MAI)
                previously sold investments in equipment leases.

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

NOTE 2 -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                Basis of Presentation

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

                Reclassification

                Certain  items in the 1998 and 1997  financial  statements  have
                been   reclassified   to  conform   with  the   current   year's
                presentation.  These  reclassifications were not material to the
                consolidated financial statements.

                Revenue Recognition

                Securities   transactions,   investment  banking  revenues,  and
                commission  income and related  expenses are recorded on a trade
                date basis.  Securities  owned and  securities  sold but not yet
                repurchased  are stated at quoted market values with  unrealized
                gains and  losses  reflected  in  earnings.  Investment  account
                securities not readily  marketable are carried at estimated fair
                value as  determined  by management  with  unrealized  gains and
                losses included in earnings.

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

                Depreciation and Amortization

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

                Statement of Cash Flows

                For  purposes  of the  Statement  of  Cash  Flows,  the  Company
                considers all highly liquid debt  instruments  purchased with an
                original   maturity   of  three   months  or  less  to  be  cash
                equivalents.
<PAGE>
30


                Net Income (Loss) per Share

                Basic EPS is computed by dividing  net income or net loss by the
                weighted-average  number of common  shares  outstanding  for the
                period.  Diluted EPS reflects the  potential  dilution  from the
                exercise or  conversion of other  securities  into common stock,
                but only if dilutive. Other securities include stock options and
                warrants,  convertible  debt and  convertible  preferred  stock.
                Outstanding warrants to purchase 9,218,338 common shares are
                anti-dilutive and,  accordingly,  not included in the 1999
                diluted EPS computation.

                Use of Estimates

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

                Long-lived assets

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

                Income Taxes

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

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

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

                Accounting Developments

                In  January  1998,  the  Company  adopted  SFAS No.  130,  which
                establishes  requirements  for  the  reporting  and  display  of
                comprehensive income and its components in a full set of general
                purpose financial statements.  Comprehensive income is the total
                of net income  and all other  nonowner  changes  in equity.  The
                Company has no comprehensive income components to report for any
                period presented.

                In June 1998,  the FASB issued SFAS No. 133,  which requires the
                recognition  of all  derivatives  on the  statement of financial
                condition at fair value.  SFAS No. 133 must be adopted effective
                January  1,  2001.  The  Company  does not  currently  engage in
                significant derivative or hedging activities;  accordingly,  the
                adoption of SFAS is not  expected  to have a material  impact on
                its earnings or financial position.
<PAGE>
31


NOTE 3 -        TRADING AND INVESTMENT SECURITIES
<TABLE>
<CAPTION>

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

                                                      December 31,
                                       1999                              1998
                                              Sold but                          Sold but
                                              not yet                           not yet
                               Owned          Purchased            Owned        Purchased

Marketable:
   Municipal obligations     $   73,310     $       --         $   62,315        $      --
   Stocks                     2,922,437         97,204          2,353,286          243,119
   Corporate obligations        346,420         80,952            270,278           50,738
   Other                          8,500          2,124                 --           33,190
Non-marketable securities       125,224             --             47,381               --
                                -------        -------          ---------          -------
                             $3,475,891       $180,280         $2,733,260         $327,047
                             ==========       ========         ==========         ========
</TABLE>

NOTE 4 -        EMPLOYEE AND BROKER RECEIVABLES

                                                           December 31,
                                                     1999             1998

                Commission advances               $ 28,880          $ 79,317
                Loans to brokers and
                 non-executive employees           423,405           518,895
                                                   -------           -------
                                                  $452,285          $598,212
                                                  ========          ========

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


NOTE 5 -        PROPERTY AND EQUIPMENT

                                                           December 31,
                                                     1999             1998

                Computer and office equipment    $ 2,359,275      $ 2,033,729
                Furniture and fixtures               929,373          812,360
                Leasehold improvements               728,797          513,014
                                                     -------          -------
                                                   4,017,445        3,359,103
                Less:  Accumulated depreciation

                and amortization                  (1,823,939)      (1,284,633)
                                                  ----------       ----------
                                                 $ 2,193,506      $ 2,074,470
                                                 ===========      ===========

                Depreciation  expense was  $539,306,  $357,831,  and $348,508 in
                1999, 1998 and 1997, respectively.

NOTE 6 -        NOTES RECEIVABLE

                                                     1999             1998

                a) Environmental Coupon

                    Marketing, Inc. (ECM)          $149,640         $149,640
                b) Global Financial Corp. (Global)  332,891          322,237
                c) Fem-Com Copy Systems, Inc. (FCS    --               5,852
                                                    -------          -------
                                                   $482,531         $477,729
                                                   ========         ========

     a) ECM is a closely-held  marketer of recycling programs to retailers.  The
loan is currently in default and stated at estimated net realizable value.

     b) From 1997 through 1999, the Company  provided  working  capital loans of
approximately  $2.3 million to Global, an independent  company that packaged and
sold lease investments through MAI. Global's need for financial assistance arose
from the nonpayment of scheduled monthly  installments on certain delinquent and
non-performing  leases.  The resulting cash flow deficits had impaired  Global's
ability to pay lease investors on a timely basis. The MAI loans are evidenced by
notes guaranteed by Global,  FCS,  Global's  affiliated  equipment  vendor,  and
Biblio,  Inc.,  an  affiliate of FCS.  The notes are further  collateralized  by
mortgage  liens on real estate  owned by the  shareholder  of FCS and Biblio,  a
pledge of all of the outstanding shares in Global, and various recorded liens on
the assets of FCS and Biblio.


<PAGE>
32


     During  1998,  the Company  undertook a full review of the Global  loans to
evaluate their collectability,  and determined that, based on various events and
circumstances,  including  the  insolvency  of  Global  and  FCS,  and  steadily
declining  collections on the lease portfolio  serviced by Global,  the loans to
Global were impaired.  Accordingly,  the Company  recorded an impairment loss of
$1,775,000 in its financial  statements  for 1998,  and increased the reserve by
$100,000 in 1999 after further review.  The loan reserve  reflects  management's
best  estimate  of the  extent of loan  impairment  based on  available  current
information. Eventual outcomes could differ from estimated amounts.

     c) MAI provided FCS with working  capital  financing to purchase  equipment
for resale to FCS customers.

NOTE 7 -        DUE FROM OFFICERS

                Advances to officers are unsecured  and currently  bear interest
                at the rate of 6% per annum. These loans are due on demand.

NOTE 8 -        NOTES PAYABLE

                                                        1999             1998

a)    Notes payable - bank                          $  148,919       $  244,844
b)    10% convertible promissory notes payable         570,000          570,000
c)    Convertible promissory notes, net of discount    608,509              --
d)    Subordinated notes payable                       150,000          200,000
                                                       -------          -------
                                                    $1,477,428       $1,014,844
                                                     =========       ==========

     a) Term loans  bearing  interest  at the prime rate (8.5% at  December  31,
1999); payable in monthly installments of $7,994, plus interest;  collateralized
by equipment.

     b) Notes in the aggregate  amount of $570,000 issued to a private  investor
and his affiliated  entities in connection  with a Global lease  settlement (see
Note 10); interest is payable semiannually at 10% per annum. Principal is due in
October 2003.  One note for $300,000 will be paid from the proceeds of a sinking
fund into which the Company is required to contribute 20% of the note's original
outstanding  principal ($60,000) on or before each annual note anniversary date.
The sinking fund balance at December 31, 1999 was $60,000,  which is included in
Other Assets in the accompanying Statement of Financial Condition. The notes are
callable  at  the  Company's  option  upon  thirty  days'  written  notice  at a
redemption  price of 105% of outstanding  principal plus accrued  interest.  The
noteholder  has the right to convert the notes into up to 380,000  shares of the
Company's common stock based on a conversion price of $1.50 per share.

     c) Notes in the  original  aggregate  amount of $690,526  issued to private
investors in connection with a Global lease  settlement (see Note 10). The notes
are payable in thirty-six monthly  non-interest bearing installments of $16,404,
plus balloon payments of $112,000,  which include interest of $12,000 calculated
on the basis of 8% of the balloon amount beginning in month nineteen of the note
term. The Company has recorded a loan discount on the notes of $64,609, which is
being  amortized  over the note terms using the interest  method.  The notes are
convertible  into 345,263 common shares of the Company's common stock based on a
conversion  price of $2.00.  Once the  underlying  shares  are  registered,  the
Company can request that the noteholders convert their shares. Proceeds from the
sale of the shares must be applied  towards the unpaid  principal  of the notes.
Any excess proceeds or unsold shares will be returned to the Company.

     d) Notes payable in annual  installments of $50,000 plus interest at 8% per
annum.  The notes are  subordinated  to the claims of FMSC's  general  creditors
under a subordination agreement approved by the NASDR.

     Aggregate annual maturities of notes payable are as follows:

                             2000        $  326,364
                             2001           299,836
                             2002           281,228
                             2003           570,000
                                          ---------
                                         $1,477,428

                                          =========
<PAGE>
33


NOTE 9 -        ACCRUED EXPENSES

                Accrued expenses consist of the following:

                                                              December 31,
                                                        1999           1998
                Reserves for legal matters           $ 595,476         $661,531
                Other                                  477,076          243,623
                                                     ---------          -------
                                                    $1,072,552         $905,154
                                                    ==========         ========

                The Company maintains  allowances to absorb losses from customer
                claims that are probable and can be reasonably estimated.

NOTE 10 -       GLOBAL LEASE SETTLEMENTS

                During  1998 and  1999,  the  Company   entered  into settlement
                agreements  with various  Global lease  investors.  In 1998, the
                Company  issued  a  series  of  convertible   promissory   notes
                aggregating  $570,000 to a lease  investor in  consideration  of
                $300,000  in  cash  and  the  assignment  of  his  Global  lease
                investments  (see  Note  8).  In  1999,  the  Company  exchanged
                $235,282 in cash payments, 25,000 common stock purchase warrants
                valued at $27,382,  and  convertible  note principal of $690,526
                (see Note 8) for the assignment of Global leases. The difference
                between the cash, debt and warrant  consideration  issued by the
                Company, and the present value of the lease receivables assigned
                in the exchange was  accounted  for as a charge to operations of
                $600,416 and $99,899 in 1999 and 1998, respectively.

                Also in 1999,  the Company  completed a private  offering of its
                Series A Convertible Preferred Stock (see Note 17 for rights and
                privileges  of  the  preferred  shares).   Under  terms  of  the
                offering,  each  Global  lease  investor  that subscribed to the
                offering received  one share of Preferred Stock in  exchange for
                every $5.00 of  lease  investment  value that the  investor  was
                entitled  to receive  from Global after certain adjustments. The
                Company  issued  a  total of  349,511  preferred  shares,  which
                have  been  valued at  $985,543,  the present value of the lease
                receivables assigned in the offering.

NOTE 11 -       INCOME TAXES
<TABLE>
<CAPTION>
                The  provision  for income  taxes  (income  tax  benefit)
                consists of the following:

                <S>                                             <C>           <C>                 <C>
                                                                                 December 31,
                                                                      1999           1998                1997

                Currently payable:
                      Federal                                    $ 301,058    $          --        $ 299,584
                      State                                        211,583           60,255          161,134
                                                                   -------           ------          -------
                                                                   512,641           60,255          460,718
                                                                   -------           ------          -------

                Deferred:
                      Federal                                       505,540      (1,008,591)         470,277
                      State                                          72,799        (387,665)          37,183
                      Valuation allowance                          (541,840)        731,469               --
                                                                   --------         -------          -------
                                                                     36,499        (664,787)         507,460
                                                                   --------         -------          -------
                                                                  $ 549,140     $  (604,532)       $ 968,178
                                                                  =========     ===========        =========

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

                                                                                 December 31,
                                                                    1999            1998               1997

                Expected federal tax at statutory rate            $ 963,421     $(1,144,909)        $831,301
                Non-taxable income                                       --              --          (12,080)
                Non-deductible expenses                              20,998          11,456           10,200
                State taxes, net of federal tax benefit             172,956        (200,021)         146,700
                Other                                               (66,395)         (2,527)          (7,943)
                Change in valuation allowance                      (541,840)        731,469               --
                                                                   --------         -------          -------
                                                                  $ 549,140     $  (604,532)        $968,178
                                                                  =========     ===========         ========

</TABLE>
<PAGE>
34


                The tax effects of the temporary  differences  that give rise to
                significant  portions of the deferred tax assets and liabilities
                as of December 31, 1999 and 1998 are:

                                                             December 31,
                                                        1999            1998

                Deferred tax assets:
                      Accrued expenses              $ 500,936       $1,205,632
                      Tax loss carryforwards          189,629          160,190
                      Stock option compensation       146,272           67,936
                      Other                            33,993           78,761
                                                       ------           ------
                                                      870,830        1,512,519
                                                      -------        ---------

         Deferred tax liabilities:
                      Property and equipment           14,855           54,176
                      Other                             2,090           26,119
                                                        -----           ------
                                                       16,945           80,295
                                                       ------           ------
                                                      853,885        1,432,224
                Valuation allowance                  (189,629)        (731,469)
                                                     --------         --------
                Net deferred tax asset              $ 664,256       $  700,755
                                                    =========       ==========

                In 1999,  the Company  generated  sufficient  taxable  income to
                recognize  the  benefit  of tax  loss  carryforwards  and  other
                deferred  tax  benefits  that became tax  deductions  during the
                year.  The balance of the valuation  allowance  relates to state
                tax loss carryforwards whose realization is uncertain.

NOTE 12 -       COMMITMENTS AND CONTINGENT LIABILITIES

                Leases

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

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

                Future minimum lease payments as of December 31, 1999 were:

                                                    Capital        Operating
                                                    Lease           Leases

                             2000                 $142,704       $  826,301
                             2001                  146,986          748,910
                             2002                       --          712,083
                             2003                       --          652,930
                             2004                       --          641,071
                             Thereafter                 --           53,333
                                                   -------        ---------

                      Total minimum lease payments 289,690       $3,634,628
                                                                 ==========
                      Less: Amount representing
                       interest on capital leases   28,026
                                                    ------
                                                  $261,664

                                                  ========

                Operating   lease  expense  for  1999,  1998  and  1997  totaled
                $947,732, $857,715 and $498,815, respectively.

                Waiver of bonus

                In connection with their  employment  agreements,  the Company's
                president and executive vice-president were together entitled to
                a bonus equal to 10% of the Company's 1999 pre-tax profits.  The
                officers  each  received  $100,000  towards  their  bonuses  and
                irrevocably  waived their rights to the balance.  The employment
                agreements  expired in December  1999,  and new  agreements  are
                being negotiated.
<PAGE>
35


                Legal matters

                The Company  is  currently  a  respondent  in  certain   pending
                customer arbitrations and  other matters relating to its securi-
                ties business.  In  connection  with certain claims, the Company
                established an accounting reserve  of  $595,000 and $662,000, in
                1999 and 1998, respectively,  for losses   that   are considered
                probable and can  be  reasonably  estimated.  Other  claims  are
                in   various   stages  of   progress  and  are  being vigorously
                contested.  With respect to those  claims,  management is unable
                to  derive a  meaningful  estimate  of  the  amount or  range of
                possible loss that may arise out of pending litigation.

                In January 1997,  the Company  negotiated a $650,000  settlement
                with one of its insurance carriers in consideration of a general
                release  from  coverage  on various  matters.  The Company has a
                pending   lawsuit   against   another   insurance   carrier  for
                reimbursement of customer settlements. There can be no assurance
                that the Company will succeed in its efforts at recovery.

                In December  1999, the Company  agreed to accept a $500,000 cash
                payment  in  settlement of  an   arbitration   against   another
                securities  firm.  The Company commenced the  arbitration  in an
                effort to recover  customer settlements  that it had  previously
                paid on claims arising from the activities of a former affiliate
                office.

                Income tax audits

                The Internal  Revenue  Service is  currently  conducting a field
                audit of the Company's  federal income tax returns for the years
                1995   through   1998.    Based   on   discussions    with   its
                representatives, management does not expect the outcome of these
                audits  to have a  material  impact on the  Company's  financial
                statements.

NOTE 13 -       FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK and
                CONCENTRATION OF CREDIT RISK

                The Company  executes  securities  transactions on behalf of its
                customers.  If either the  customer or a  counter-party  fail to
                perform,  the Company by agreement with its clearing  broker may
                be required to discharge the  obligations of the  non-performing
                party. In such circumstances,  the Company may sustain a loss if
                the market value of the security is different  from the contract
                value  of the  transaction.  As  part  of its  normal  brokerage
                activities,  the Company  also  assumes  short  positions in its
                inventory.  The  establishment  of short  positions  exposes the
                Company to off-balance-sheet  risk in the event prices increase,
                as the Company may be  obligated  to acquire the  securities  at
                prevailing market prices.

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

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

<PAGE>
36


NOTE 14 -       DEFINED CONTRIBUTION PLAN

                The  Company  sponsors  a  defined   contribution  pension  plan
                [401(k)] covering all participating  employees.  The Company may
                elect  to  contribute  up to 100% of each  participant's  annual
                contribution to the plan. Employer  contributions for 1999, 1998
                and 1997 amounted to $74,132, $38,077 and $33,060, respectively.

NOTE 15 -       COMMON STOCK ISSUED WITH GUARANTEED SELLING PRICE

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

                The Company has established a temporary equity account to record
                its  maximum  liability  from  the  guarantees.  Payment  of any
                shortfall is charged to this account.  Any balance  remaining at
                the  end  of the  respective  holding  periods  is  credited  to
                permanent  capital.  Following is a schedule of activity in this
                account for 1999 and 1998:

                                                      Shares            Amount

                Balances, January 1, 1998             173,000         $346,500

                Issuance of additional shares          15,000           30,000

                Payment of guarantee                     --            (40,610)

                Reclassification of shares to
                 permanent capital                   (170,000)        (299,390)
                                                     --------         --------

                Balances, December 31, 1998
                 and 1999                              18,000        $  36,500
                                                     ========        =========

NOTE 16 -       STOCK OPTION PLANS

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

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

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

                The Company has  reserved  2,000,000  shares for issuance to key
                management  employees under its 1996 Plan. Awards can be granted
                through the issuance of incentive  stock rights,  stock options,
                stock appreciation  rights,  limited stock appreciation  rights,
                and shares of restricted  Common Stock. The exercise price of an
                option  designated as an ISO may  in no  event be less than 100%
                of the then fair market price of the stock (110% with respect to
                ten  percent  stockholders),  and not less  than 85% of the fair
                market  price in the case of other  options.  The 1996 Plan will
                terminate in June 2006.

<PAGE>
37


                A summary of the  activity in the  Company's  stock option plans
                for the  three-year  period ended December 31, 1999 is presented
                below:

                                                                       Weighted
                                                                       Average
                                                                       Exercise
                                                           Shares      Prices

                Options outstanding,  December 31, 1996   2,136,125    $ .76
                      Granted                             1,517,500     1.72
                      Canceled                              (56,500)     .71
                      Exercised                            (973,025)     .68


                Options outstanding,  December 31, 1997   2,624,100    $1.34
                      Granted                             1,442,500     1.99
                      Canceled                             (381,250)    2.17
                      Exercised                            (432,050)     .79


                Options outstanding,  December 31, 1998   3,253,300     1.61
                      Granted                               710,000     2.01
                      Canceled                             (209,150)    2.45
                      Exercised                            (234,450)     .91


                                                          3,519,700    $1.68


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

                Shares of common stock available
                 for future grant                                    3,629,700
                Weighted-average grant date fair value of options
                 granted during each year using the Black-Scholes
                 option pricing model

                                       1997   $.73
                                       1998   $.71
                                       1999   $.70

               The Company applies APB No.25 in accounting  for  employee  stock
               options. Accordingly, compensation is recognized in the financial
               statements   only  for  the  fair  value  of  options  issued  to
               consultants and affiliate brokers. Such compensation is amortized
               to  expense   over  the   related   options'   vesting   periods.
               Compensation  expense  recognized in 1999,  1998 and 1997 totaled
               $195,840, $147,988 and $21,652, respectively.

<PAGE>
38
                Pro forma net income (loss) and EPS information,  as
                required by SFAS No. 123, have been determined as if the Company
                had  accounted  for employee  stock options under the fair value
                method.  The fair value of these  options was estimated at grant
                date  using  a  Black-Scholes  option  pricing  model  with  the
                following weighted-average assumptions for 1999, 1998 and 1997:

<TABLE>
<CAPTION>

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

                                                                       1999           1998               1997

                Risk free interest rates                              5.76%          5.03%              6.23%
                Expected option lives                             2.5 years      2.4 years         3.75 years
                Expected volatilities                                 48.5%          46.5%              46.5%
                Expected dividend yields                                 0%             0%                 0%

                The Company's pro forma information follows:

                Net income (loss)                                   1999            1998               1997

                As reported                                      $2,283,278   $(2,762,847)         $1,476,825
                Proforma                                          2,109,706    (3,292,291)          1,246,276

                Basic income (loss) per share
                      As reported                                      $.22         $(.28)               $.17
                      Proforma                                         $.21         $(.34)                .14

                Diluted income (loss) per share
                      As reported                                      $.21         $(.28)               $.14
                      Proforma                                         $.19         $(.34)                .12
</TABLE>

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

                Additional  information  as of December 31, 1999 with respect to
                all outstanding options is as follows:

<TABLE>
<CAPTION>

<S>          <C>                  <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           Price           Exercisable        Price

             $.75 -  1.06            983,600          1.38             $.91             871,000          $.90
              1.20 - 1.80            922,100          3.21             1.54             401,693          1.47
              1.94 - 2.75          1,614,000          3.55             2.23             656,867          2.27


                                   3,519,700          2.85            $1.68           1,929,560         $1.48

</TABLE>

<PAGE>
39



NOTE 17 -       STOCKHOLDERS' EQUITY

                Sale of Restricted Stock

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

                Rights offering

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

                                   Exercise Price          Exercise Period
                 Warrant              Per Share         from Date of Issuance

                 Class A               $3.00                 Three years
                 Class B                5.00                 Five years
                 Class C                7.00                 Seven years

                Each  shareholder  of record as of December  15,  1997  received
                three  rights  for each  share of  Common  Stock  held as of the
                record  date,  with three  rights  required to  subscribe  for a
                single  Unit at a price of $.45 per Unit.  The  offering  raised
                gross proceeds of $1,382,750 before deducting registration costs
                of approximately  $236,000.  There are currently 3,072,446 Class
                A, Class B and Class C warrants outstanding, respectively.

                Preferred Stock

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

                Par value:                   $.10 per share
                Dividends:                   6%  payable  quarterly  at the rate
                                             of $.075  per  share  until
                                             conversion

                Voting rights:               None
                Liquidation preference:      $5.00 per share
                Conversion:                  Automatic   conversion   into   two
                                             shares of Common Stock at $2.50 per
                                             share  once the  closing  price for
                                             the Common  Stock is $3.50 or above
                                             for 20  consecutive  trading  days,
                                             and the shares are  registered  for
                                             public sale.

                During 1999,  the Company  issued  349,511  Series A shares in a
                private  exchange  offering to Global lease  investors (see Note
                10).  The shares were valued at $985,543,  the present  value of
                the lease payments assigned to the Company in the exchange.

                The Company is presently authorized to issue 4,375,000 shares of
                Preferred  Stock,  none of which has been issued at December 31,
                1999.  The  rights  and  preferences,  if any,  to be  given  to
                preferred shares will be determined at the time of issuance.

                Stock Repurchase Program

                On August 5, 1999, the Company's  board of directors  authorized
                the  repurchase  of  an  unspecified  number  of  the  Company's
                outstanding common shares.  During 1999, the Company repurchased
                180,500 shares for $222,624.

                Warrants

                During 1999,  the Company  issued 25,000  common stock  purchase
                warrants  in  connection  with a Global  lease  settlement.  The
                warrants  are  exercisable  at $1.75 per  share for a  five-year
                period.  The Company  valued the  warrants at $27,382  using the
                Black-Scholes option pricing model.
<PAGE>
40



NOTE 18 -       FAIR VALUE OF FINANCIAL INSTRUMENTS

                Statement of Financial Accounting Standards No. 107, Disclosures
                About Fair Value of  Financial  Instruments,  requires  that all
                entities  disclose the fair value of financial  instruments,  as
                defined, for both  assets and  liabilities  recognized   and not
                recognized in  the  statement  of financial condition.  Substan-
                tially   all   of  the   Company's    financial  instruments  at
                December 31, 1999,   consisting   primarily of marketable equity
                ecurities,  amounts  due  from  FMSC's  clearing firm,  accounts
                payable and  accrued   expenses,  and notes  payable are carried
                at, or approximate  fair  value due to their  short-term nature,
                the use of mark-to-market  accounting for marketable securities,
                or because they carry market rates of interest.

NOTE 19 -       NET CAPITAL REQUIREMENTS

                FMSC  is  subject  to the  Securities  and  Exchange  Commission
                Uniform Net Capital Rule (Rule  15c3-1),  which requires FMSC to
                maintain minimum net capital,  as defined. At December 31, 1999,
                FMSC had net  capital of  $3,991,872,  which was  $3,576,619  in
                excess of its required net capital of $415,253.  FMSC's ratio of
                aggregate indebtedness to net capital was 1.74 to 1.

NOTE 20 -       RELATED PARTY TRANSACTION

                In 1997,  FMSC  served  as  underwriter  for an  initial  public
                offering of PacificHealth Laboratories ("PHL") common stock. One
                of the directors of the Company is a director, officer and major
                stockholder of PHL.