SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 Number)
Parkway 109 Office Center, 328 Newman Springs Rd., Red Bank, NJ 07701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 842-4700
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
APPLICABLE ONLY TO CORPORATE ISSUERS:
-------------------------------------
8,945,484 Common Shares, no par value, were outstanding as of November 14,
2003.
Page 1 of 23
02
FIRST MONTAUK FINANCIAL CORP
FORM 10-Q
SEPTEMBER 30, 2003
INDEX
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of September 30, 2003 and December 31, 2002 ......... 3
Consolidated Statements of Loss for the
Nine Months ended September 30, 2003 and 2002 and
Three Months ended September 30, 2003 and 2002 ........... 4
Consolidated Statements of Cash Flows for
the Nine Months ended September 30, 2003 and 2002 ....... 5
Notes to Consolidated Financial Statements ................ 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .........10-15
Item 3. Market Risk ...................................... 15
Item 4. Controls and Procedures .......................... 16
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings ............................... 17
Item 2. Changes in Securities ........................... 17
Item 5. Other Information................................ 17
Item 6. Exhibits and Reports on Form 8-K................. 18
Signatures ............................................... 19
Officers' Certifications .................................20-23
03
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
2003 2002
(unaudited)
ASSETS
Cash and cash equivalents $ 1,012,156 $ 2,638,819
Due from clearing firm 4,616,451 4,591,701
Trading and investment account securities 782,861 183,944
Employee and broker receivables 888,036 1,070,087
Loans receivable - officers 159,415 178,936
Property and equipment - net 1,144,164 1,396,892
Income tax refund receivable - 212,300
Deferred income taxes - net 460,000 460,000
Other assets 1,359,368 692,827
-------------- --------------
Total assets $ 10,422,451 $ 11,425,506
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Deferred income $ 4,933,995 $ 5,456,323
Securities sold, not yet purchased, at market 112,359 -
Notes payable - 48,057
Commissions payable 4,145,168 2,681,128
Accounts payable 857,329 577,225
Accrued expenses 1,652,826 1,987,871
Capital leases payable 180,212 343,682
6% convertible debentures 1,240,000 1,030,000
Other liabilities 34,846 78,910
-------------- --------------
Total liabilities 13,156,735 12,203,196
--------------- --------------
Commitments and contingencies (See Notes)
Stockholders' deficit
Preferred Stock, 4,375,000 shares authorized, $.10 par
value, no shares issued and outstanding - -
Series A Convertible Preferred Stock, 625,000 shares
authorized, $.10 par value, 330,250 shares issued
and outstanding; liquidation preference: $1,651,250 33,025 33,025
Common Stock, no par value, 30,000,000 shares
authorized, 9,027,164 and 8,527,164 shares issued
and outstanding, respectively 3,576,220 3,416,220
Additional paid-in capital 3,939,110 3,918,930
Accumulated deficit (10,259,969) (8,135,777)
Less: Deferred compensation (22,670) (10,088)
-------------- ---------------
Total stockholders' deficit (2,734,284) (777,690)
-------------- ---------------
Total liabilities and stockholders' deficit $ 10,422,451 $ 11,425,506
============== ===============
See notes to financial statements.
04
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
Nine months ended September 30, Three months ended September 30,
2003 2002 2003 2002
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Commissions $ 30,193,458 $ 28,185,933 $ 11,302,047 $ 8,071,624
Principal transactions 8,136,465 5,196,757 2,633,039 1,566,174
Investment banking 617,506 110,594 254,091 7,574
Interest and other income 3,082,756 2,870,655 982,371 1,093,370
--------------- --------------- --------------- ---------------
42,030,185 36,363,939 15,171,548 10,738,742
--------------- --------------- --------------- ---------------
Expenses:
Commissions, employee compensation and benefits 33,204,961 29,963,056 11,723,412 8,606,612
Clearing and floor brokerage 2,102,721 2,010,368 744,839 643,283
Communications and occupancy 2,021,361 2,340,744 647,213 786,546
Legal matters and related costs 4,385,437 755,973 1,540,317 116,032
Other operating expenses 2,291,296 2,985,406 758,103 1,063,728
Interest 123,762 81,712 46,205 27,067
--------------- --------------- --------------- ---------------
44,129,538 38,137,259 15,460,089 11,243,268
--------------- --------------- --------------- ---------------
Net loss (2,099,353) (1,773,320) (288,541) (504,526)
=============== =============== =============== ===============
Net loss applicable to common stockholders $ (2,124,192) $ (1,847,838) $ (288,541) $ (529,365)
=============== =============== =============== ===============
Per share of Common Stock:
Basic and diluted $ (0.25) $ (0.22) $ (0.03) $ (0.06)
=============== =============== =============== ===============
Number of common shares used in
basic and diluted loss per share 8,666,358 8,560,946 8,940,207 8,525,284
=============== =============== =============== ===============
See notes to financial statements.
05
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30,
2003 2002
(unaudited) (unaudited)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net loss $ (2,099,353) $ (1,773,320)
--------------- ---------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 379,274 380,457
Amortization 15,486 11,580
Common stock issued in legal settlement 160,000 -
Increase (decrease) in cash attributable to
changes in assets and liabilities
Due from clearing firm (24,750) (502,860)
Trading and investment account securities (598,917) 614,903
Loans receivable - officers 19,521 (24,119)
Employee and broker receivables 182,051 770,519
Other assets (674,429) 259,983
Income tax refund receivable 212,300 1,069,442
Deferred income (522,328) (416,822)
Securities sold, not yet purchased 112,359 (141,729)
Commissions payable 1,464,040 (885,350)
Accounts payable 280,104 141,433
Accrued expenses (335,045) 1,700
Other liabilities (44,064) (457,508)
--------------- ---------------
Total adjustments 625,602 821,629
--------------- ---------------
Net cash used in operating activities (1,473,751) (951,691)
--------------- ---------------
Cash flows from investing activities:
Additions to property and equipment (126,546) (171,881)
--------------- ---------------
Cash flows from financing activities:
Payment of notes payable (48,057) (185,558)
Payments of capital leases (163,470) (146,891)
Proceeds from issuance of 6% convertible debentures 210,000 -
Payment toward purchase of treasury stock - (25,016)
Payments of preferred stock dividends (24,839) (74,518)
--------------- ---------------
Net cash used in financing activities (26,366) (431,983)
--------------- ---------------
Net decrease in cash and cash equivalents (1,626,663) (1,555,555)
Cash and cash equivalents at beginning of period 2,638,819 1,779,554
--------------- ---------------
Cash and cash equivalents at end of period 1,012,156 223,999
=============== ===============
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 120,658 $ 69,712
=============== ===============
Income taxes $ (188,205) $ (1,113,646)
=============== ===============
Noncash financing activity:
Value of warrants charged to deferred financing costs
in connection with debenture offering $ 2,178 $ -
=============== ===============
See notes to financial statements.
06
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE 1 - MANAGEMENT REPRESENTATION
The accompanying financial statements are unaudited for the interim periods, but
include all adjustments (consisting only of normal recurring accruals) which
management considers necessary for the fair presentation of results at September
30, 2003 and 2002. The preparation of financial statements in conformity with
GAAP requires the Company to make estimates and assumptions that affect the
reported amounts of revenues and expenses during the reporting period. Actual
results could vary from these estimates. These financial statements should be
read in conjunction with the Company's Annual Report at, and for the year ended
December 31, 2002, as filed with the Securities and Exchange Commission on Form
10-K.
The results reflected for the three-month and nine-month periods ended September
30, 2003, are not necessarily indicative of the results for the entire fiscal
year to end on December 31, 2003.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the year. Actual results could differ from those estimates.
NOTE 2 - NET LOSS PER SHARE
Basic loss per share is computed by dividing net loss by the weighted-average
number of common shares outstanding for the period. Diluted loss per share
reflects the potential dilution from the exercise or conversion of other
securities into common stock, but only if dilutive. The following securities
have been excluded from the dilutive per share computation as they are
antidilutive:
Nine months ended September 30,
2003 2002
---- ----
Stock options 3,724,498 3,612,998
Warrants 3,971,446 9,242,338
Convertible debt 2,480,000 66,404
Convertible preferred stock 660,500 662,380
NOTE 3 - OTHER INCOME
Advances received under the Company's financial agreement with its clearing firm
are deferred and amortized to income over the remaining term of the agreement on
a straight-line basis. Other income for the nine and three months ended
September 30, 2003 and 2002 included amortization of $522,328, $174,109,
$428,822, and $135,047, respectively.
NOTE 4 - OTHER ASSETS
Other assets consist of the following:
September 30, December 31,
2003 2002
---- ----
Prepaid insurance $ 544,818 $256,215
Other assets 814,550 436,612
------- -------
$1,359,368 $692,827
========= =======
Prepaid insurance includes unamortized premiums for various corporate insurance
policies. The Company has incurred significant premium increases in 2003 over
the prior year for errors and omissions (E&O) coverage for the annual policy
period that commenced January 31, 2003.
NOTE 5 - 6% CONVERTIBLE DEBENTURES
In December 2002 and January 2003, the Company raised gross proceeds of
$1,240,000 in a private placement of 6% convertible debentures. The debentures
are convertible into 2,480,000 shares of common stock at $.50 per share, subject
to adjustment for stock dividends and stock splits, and mature five years from
the date of issuance unless previously converted. Interest is payable in cash on
a semi-annual basis until maturity or conversion, commencing on April 1, 2003.
In the event that the closing bid price of the Company's common stock is 200% of
the conversion price for the twenty (20) consecutive trading days prior to the
07
date of notice of conversion or prepayment, the Company, at its option, may upon
thirty (30) days written notice to the holders, demand the conversion of some or
all of the debentures, or prepay some or all of the debentures at the following
prepayment prices: 130% of the principal amount if prepaid from the date of
issuance until the first anniversary of the date of issuance; 120% of the
principal amount if prepaid anytime thereafter. The debentures contain certain
covenants which, among other things, prevent the sale of all or substantially
all of the Company's assets without provision for the payment of the debentures
from such sales proceeds, and making loans to any executive officers or 5%
stockholders.
Offering costs of approximately $64,000 have been capitalized and are being
amortized on a straight-line basis over the term of the debentures.
NOTE 6 - STOCK OPTIONS
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure"
("FAS 148"), which (i) amends FAS Statement No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee compensation; (ii) amends the disclosure provisions of, FAS 123 to
require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation; and iii) amends APB opinion No. 28, "Interim Financial Reporting,"
to require disclosure about those effects in interim financial information.
Items (ii) and (iii) of the new requirements in FAS 148 are effective for
financial statements for fiscal years ending after December 15, 2002. The
Company has adopted FAS 148 for the fiscal year ended December 31, 2002 and
continues to account for stock-based compensation utilizing the intrinsic value
method. The additional disclosures required by FAS 148 are as follows:
Nine months ended September 30, Three months ended September 30,
2003 2002 2003 2002
---- ---- ---- ----
Net loss applicable to common
stockholders, as reported $(2,124,192) $(1,847,838) $ (288,541) $ (529,365)
Deduct: Total stock based
compensation expense determined
under the fair value based method
for all awards, net of tax (65,798) (110,830) (25,127) (33,531)
---------- ----------- ---------- --------
Pro forma net loss $(2,189,990) $(1,958,668) $ (313,668) $ (562,896)
========== ========== ========== =========
Loss per share:
Basic and diluted - as reported (0.25) (0.22) (0.03) (0.06)
Basic and diluted - pro forma (0.25) (0.23) (0.04) (0.06)
Pro forma net loss and loss per share information, as required by SFAS No. 123,
have been determined as if the Company had accounted for employee stock options
under the fair value method.
NOTE 7 - LEGAL MATTERS
On July 17, 2003, the Company and its broker-dealer subsidiary, First Montauk
Securities Corp. ("FMSC") entered into an agreement with certain claimants in
order to settle pending arbitration proceedings. The litigation arose out of
customer purchases of certain high-yield corporate bonds that declined in market
value or defaulted. The settlement agreement covers eleven separate claims which
sought an aggregate of approximately $12.3 million in damages. In exchange for
the consideration provided by the Company, each claimant granted a general
release of claims in favor of the Company and all individual respondents, with
the exception of the former registered representative who had handled the
claimants' accounts. The Company paid an aggregate of $1,000,000 cash, and
issued to the claimants 500,000 shares of the Company's common stock valued at
$160,000 based on the stock's quoted market price.
The Company also issued to the claimants five-year warrants to purchase an
aggregate of 750,000 common shares. The warrants have been issued in three
classes of 250,000 warrants each. The first class has an exercise price of $.40
per share; the other two classes have exercise prices of $.25 per share. The
settlement agreement provides that the Company may be obligated to make
additional payments of up to $600,000, in the event that claimants elect to
exercise the warrants on certain dates. Specifically, upon the election of the
08
majority of then existing warrant holders to exercise up to a maximum of 250,000
warrants of a particular class, respectively, during the months of June 2004,
June 2005 and June 2006 (the "Required Exercise Event"), the claimants, upon
exercising their warrants, will be required to sell the shares in the open
market. If the warrants are exercised and the shares sold, the Company will pay
to the claimants up to an aggregate amount of $200,000 less the amount received
by the claimants from the sale of their shares, net of commissions. In the
alternative, the Company may elect or be required to redeem the warrants
depending upon the then prevailing market price of the Company's Common Stock on
or about the date of the Required Exercise Event for up to $.80 per warrant, or
a maximum of $200,000 per class. In the event that warrant holders of a
particular class elect not to declare a Required Exercise Event, the Company's
guarantee will be canceled for that year.
In July 2003, the Company valued the warrants at $441,000 using the discounted
cash flow method. In accordance with the provisions of FAS 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity," the Company is required to re-measure the fair value of the warrants as
of the end of each reporting period until the Company's obligations with respect
to the warrants are resolved. The warrant value increased to $460,000 as of
September 30, 2003. Changes in fair value are being recognized in earnings. The
Company has agreed to register all shares of common stock underlying the
warrants and fifty percent of the shares of common stock issued outright.
There are currently fifteen other related arbitrations pending representing in
excess of $4.1 million in asserted damages plus interest. The Company is
vigorously defending these actions and believes that there are meritorious
defenses in each case. There is no remaining insurance coverage available for
the payment of settlements and/or judgments that may result from these claims.
In August 2003, an NASD arbitration panel rendered an award of $616,000 plus
interest against FMSC and FMSC's former broker. FMSC has filed an appeal of this
award in the U.S. District Court for the Eastern District of Pennsylvania,
alleging that the panel made material mistakes of fact and law in awarding
damages to the claimants. FMSC has filed a notice of claim with its fidelity
bond carrier, seeking coverage for the loss incurred on account of the former
broker's conduct. FMSC cannot give assurance that coverage will be approved, or
if it is approved, that the loss will be fully insured.
FMSC is also a respondent or co-respondent in other legal proceedings related to
its securities business. FMSC is contesting these claims and believes there are
meritorious defenses in each case. The availability of insurance coverage in any
particular case is determined on a case by case basis by the insurance carrier,
and is limited to the coverage limits within the policy for any individual claim
and in the aggregate.
As of September 30, 2003, the Company has accrued approximately $1,416,000,
including the value of the settlement warrants, for litigation costs that are
probable and can be reasonably estimated based on a review of existing claims,
arbitrations and unpaid settlements. Management cannot give any assurance that
this accrual will be adequate to cover actual costs that may be subsequently
incurred. It is not possible to predict the outcome of other matters pending
against FMSC. All such cases are, and will continue to be, vigorously defended.
However, litigation is subject to many uncertainties, and some of these actions
and proceedings may result in adverse judgments. After considering all relevant
facts, available insurance coverage and the advice of litigation counsel, it is
possible that the Company's consolidated financial condition, results of
operations, or cash flows could be materially affected by unfavorable outcomes
or settlements of certain pending litigation.
09
NOTE 8 - INCOME TAXES
The Company has reported an effective tax rate of 0% for all periods presented
due to net operating losses. The tax benefits of these losses and other
temporary differences have been offset by increases in the Company's tax
valuation allowance due to management's uncertainty as to the ultimate
realization of such benefits.
NOTE 9 - WARRANTS
The Company's 3,072,446 Class A warrants and 3,072,446 Class B warrants expired
on February 17, 2003. In connection with the convertible debenture offering, the
Company issued 124,000 common stock purchase warrants as compensation to
registered representatives. The Company valued the warrants at approximately
$13,500 using the Black-Scholes option pricing method, and included the warrant
value in deferred financing costs. In July 2003, the Company issued 750,000
warrants to various individuals in connection with a settlement of litigation
(see note 7).
NOTE 10 - SUSPENSION OF PREFERRED STOCK DIVIDENDS
The Company has suspended the payment of cash dividends on its Series A
Preferred stock. New Jersey Business Corporation Act prohibits the payment of
any distribution by a corporation to, or for the benefit of its shareholders, if
the corporation's total assets would be less than its total liabilities. Unpaid
preferred dividends will continue to accumulate at 6% per annum. Arrearages must
be fully paid before any distribution can be declared or paid on the Company's
common stock. Cumulative dividends in arrears at September 30, 2003 were
approximately $50,000.
NOTE 11 - SUBSEQUENT EVENTS
In October 2003, FMSC negotiated a settlement of its raiding claim against a
competitor for raiding, unfair competition and use of proprietary and
confidential information.
In October 2003, the Company closed on an additional $1,005,000 principal amount
of 6% convertible debentures. The debentures have the same terms as those
previously issued, as described in Note 5.
In November 2003, the Company received its fourth and final advance of
$1,250,000 under the financing agreement with its clearing firm.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Factors Affecting "Forward-Looking Statements"
From time to time, the Company may publish "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended, or make oral
statements that constitute forward-looking statements. These forward-looking
statements may relate to such matters as anticipated financial performance,
future revenues or earnings, business prospects, projected ventures, new
products, anticipated market performance, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company cautions readers that a variety of factors could cause the
Company's actual results to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements. These
risks and uncertainties, many of which are beyond the Company's control,
include, but are not limited to: (i) transaction volume in the securities
markets, (ii) the volatility of the securities markets, (iii) fluctuations in
interest rates, (iv) changes in regulatory requirements which could affect the
cost of doing business, (v) fluctuations in currency rates, (vi) general
economic conditions, both domestic and international, (vii) changes in the rate
of inflation and related impact on securities markets, (viii) competition from
existing financial institutions and other participants in competition from
existing financial institutions and other 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. The reader is referred to the Company's previous filings on Form
10-Q for the periods ended March 31, 2003 and June 30, 2003 and Form 10-K for
the year ended December 31, 2002.
Overview
First Montauk Financial Corp. ("FMFC" or the "Company") is a New
Jersey-based financial services holding company whose principal subsidiary,
First Montauk Securities Corp. ("FMSC"), has operated as a full service retail
and institutional securities brokerage firm since 1987. FMSC provides a broad
range of securities brokerage and investment services to a diverse retail and
institutional clientele, as well as corporate finance and investment banking
services to corporations and businesses. In 1997, FMSC established Century
Discount Investments, a discount brokerage division. FMFC also sells insurance
products through its subsidiary Montauk Insurance Services, Inc.
FMSC has approximately 470 registered representatives and services over
60,000 retail and institutional customer accounts. With the exception of two
Company-leased branch offices, all of FMSC's 131 other branch office and
satellite locations in 34 states are owned and operated by affiliates,
independent owners who maintain all appropriate licenses and are responsible for
all office overhead and expenses. FMSC also employs registered representatives
directly at its corporate office and the Company-leased branch offices.
FMSC is registered as a broker-dealer with the Securities and Exchange
Commission, the National Association of Securities Dealers Regulation, Inc., the
Municipal Securities Rule Making Board, and the Securities Investor Protection
Corporation and is licensed to conduct its brokerage activities in all 50
states, the District of Columbia, and the Commonwealth of Puerto Rico. All
securities transactions are cleared through Fiserv Securities, Inc. of
Philadelphia, PA. and various floor brokerage and specialist firms provide
execution services. These arrangements provide FMSC with back office support,
transaction processing services on all principal, national and international
securities exchanges, and access to many other financial services and products
which allows FMSC to offer products and services comparable to large brokerage
firms.
11
RESULTS OF OPERATIONS
The results of operations for the nine months and three months ended
September 30, 2003 (the "2003 period" and the "2003 quarter," respectively)
showed a significant increase in revenues of 16% and 41%, over the same periods
in the prior year (the "2002 period" and the "2002 quarter," respectively).
The Company's primary source of revenue is derived from commissions
generated on agency transactions, including the sales of listed and
over-the-counter stocks and options. For the 2003 quarter, revenues from agency
transactions increased $2,960,000, or 61%, from $4,881,000 to $7,841,000 over
the 2002 quarter. For the 2003 period, these same revenues also increased, from
$17,793,000 in the 2002 period, to $20,128,000 in the 2003 period, an increase
of $2,335,000, or 13%.
Revenues from mutual fund commissions decreased for the 2003 period and
were nearly flat for the 2003 quarter, when compared to the prior year. Mutual
fund revenues decreased $449,000, from $4,563,000 in the 2002 period to
$4,114,000, in the 2003 period, a decrease of 10%.
Revenues from insurance commissions decreased $342,000, from $3,579,000 in
the 2002 period, to $3,237,000 in the 2003 period, a decrease of 10%. For the
2003 quarter, the decrease was $41,000, from $1,170,000 in the 2002 quarter to
$1,129,000.
Total revenues from principal transactions, which include
mark-ups/mark-downs on transactions in which the company acts as principal,
proprietary trading, syndicate revenues and fixed income securities, showed
increases during both periods in 2003. For the 2003 quarter, gross revenue from
mark-ups/mark-downs on principal transactions increased $689,000, from $311,000
to $1,000,000, an increase of 222% over the 2002 quarter. For the nine month
2003 period, the increase was $1,378,000 when compared with the same period in
2002. The increase in syndicate revenues of $131,000 for the 2003 quarter and
$724,000 for the 2003 period, as compared to the comparable periods in 2002,
reflects continued interest in new offerings, particularly closed-end mutual
funds.
Revenues from proprietary equity trading also increased for 2003 when
compared with the same periods in the previous year. For the 2003 quarter, the
increase was $241,000 and for the 2003 period it was $76,000. The firm's
continued efforts to reduce its exposure to trading risk by more closely
monitoring proprietary trading and improving risk management, has succeeded in
increasing revenues while limiting potential market losses. Revenues from all
fixed income sources, which include municipal, government, corporate bonds and
unit investment trusts increased to $1,161,000, from $887,000 for the 2003
quarter and $3,362,000, from $2,456,000 for the 2003 period. Unrealized losses
in securities inventory were $38,000 and $27,000 for the 2003 quarter and
period, respectively, as compared to unrealized gains of $230,000 and $117,000
for the 2002 quarter and period, respectively.
Investment banking revenues for the 2003 quarter were $254,000, an increase
of $246,000, over the 2002 quarter. During the 2003 period, revenues increased
to $618,000, from $111,000 during the first nine months of 2002, an increase of
$507,000. FMSC served as the placement agent in two private offerings for public
companies during the 2003 quarter, which accounted for the increase.
Interest and other income for the 2003 quarter totalled $982,000, as
compared to $1,093,000 for the 2002 quarter, a decrease of $111,000. Other
income for the 2002 quarter included a recovery of $230,000 related to payments
previously made to a vendor for the development of applications software. For
the 2003 period, interest and other income increased to $3,083,000 from
$2,871,000. While interest income remained relatively constant, the increase is
primarily attributable to a recovery of bad debt write-offs and increases in
charges to customers during the 2003 quarter.
Compensation and benefits expense increased by $3,116,000, or 36%, to
$11,723,000 for the 2003 quarter, from $8,607,000 for the 2002 quarter.
Commission expense, which is directly related to commission revenues, increased
46%, or $3,205,000, from $6,932,000 in the 2002 quarter, to $10,137,000 in the
2003 quarter. Salaries and benefits expense decreased $88,000, or 5%, from
$1,675,000 in the 2002 quarter, to $1,587,000 in the 2003 quarter due to staff
reductions implemented in 2002 and 2003.
12
Compensation and benefits expense increased $3,242,000, or 11%, to
$33,205,000 in the 2003 period, from $29,963,000 in the 2002 period. Commission
expense increased 14%, or $3,565,000, from $24,781,000 for the 2002 period to
$28,346,000 for the 2003 period. Salaries and benefits expense decreased
$323,000, or 6%, from $5,182,000 in the 2002 period, to $4,859,000 in the 2003
period for the reasons described above.
Communications and occupancy expenses decreased $140,000, or 18%, from
$787,000 for the 2002 quarter to $647,000 for the 2003 quarter. The decrease is
attributable to the elimination of three company leased branch offices and their
related costs and equipment rental expenses. Communications and occupancy
expenses also decreased by $320,000, to $2,021,000 for the 2003 period, from
$2,341,000 in the 2002 period.
Legal matters and related costs increased $1,424,000, to $1,540,000 during
the 2003 quarter, as compared to $116,000 in the 2002 quarter. In August 2003,
an NASD arbitration panel rendered an award of $616,000, plus interest, against
FMSC, the Company's broker-dealer subsidiary. FMSC has filed an appeal of this
award in the U.S. District Court for the Eastern District of Pennsylvania. FMSC
has reserved for, but not yet paid, the amount of the award, plus accrued
interest, totaling $667,000. FMSC has filed a notice of claim with its fidelity
bond carrier, seeking coverage for the loss incurred. FMSC cannot give assurance
that coverage will be approved, or if it is approved, that the loss will be
fully insured.
Most of the remaining expense for the 2003 quarter relate to the ongoing
costs to defend and settle unresolved claims relating to customer purchases of
high-yield corporate bonds. On July 17, 2003, the Company entered into an
agreement with certain claimants in order to settle arbitration proceedings
arising out of customer purchases of high-yield corporate bonds that declined in
market value or defaulted. (See Note 7 to the financial statements for more
discussion). There are currently fifteen other related arbitrations pending
representing in excess of $4.1 million in asserted damages plus interest. The
Company is vigorously defending these actions and believes that there are
meritorious defenses in each case. There is no remaining insurance coverage
available for the payment of settlements and/or judgments that may result from
these claims. It is not possible to predict the outcome of other matters pending
against FMSC. All such cases are, and will continue to be, vigorously defended.
However, litigation is subject to many uncertainties, and some of these actions
and proceedings may result in adverse judgments. After considering all relevant
facts, available insurance coverage and the advice of litigation counsel, it is
possible that the Company's consolidated financial condition, results of
operations, or cash flows could be materially affected by unfavorable outcomes
or settlements of certain pending litigation.
In October 2003, FMSC negotiated a settlement of its raiding claim against
a competitor for raiding, unfair competition and use of proprietary and
confidential information.
Other operating expenses decreased to $758,000 in the 2003 quarter, from
$1,064,000 in the 2002 quarter, a decrease of 29%. For the 2003 period, these
expenses decreased to $2,291,000 from $2,985,000, a decrease of 23%. Bad debts
decreased from $280,000 in the 2002 quarter to $5,000 in the 2003 quarter, and
from $641,000 for the 2002 period to $6,000 for the 2003 period. The cost for
errors and omission insurance increased by $113,000 for the 2003 quarter and
$267,000 for the 2003 period, resulting from the substantial increase in
premiums from the Company's policy renewal in January 2003. Other expenses in
this category, including marketing, consulting, office expense and supplies all
decreased during the 2003 quarter and period when compared to the same periods
in 2002.
The Company has reported an effective tax rate of 0% for all periods
presented due to net operating losses. The tax benefits of these losses and
other temporary differences have been offset by increases in the tax valuation
allowance due to management's uncertainty as to the ultimate realization of such
benefits.
13
For the three months ended September 30, 2003, the Company reported a net
loss applicable to common stockholders of $289,000, or $.03 per basic and
diluted share, as compared to a net loss applicable to common stockholders of
$529,000, or $.06 per basic and diluted share for the third quarter of 2002. For
the nine month period ended September 30, 2003, the Company reported a net loss
available to common stockholders of $2,124,000 or $.25 per basic and diluted
share, as compared to a net loss available to common stockholders reported for
the same period in 2002 of $1,848,000, or $.22 per basic and diluted share.
LIQUIDITY AND CAPITAL RESOURCES
As with most financial firms, the Company maintains a highly liquid balance
sheet with 62% of the Company's assets consisting of cash, securities owned, and
receivables from the Company's clearing firm and other broker-dealers. 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.
Cash and cash equivalents decreased during the first nine months of 2003 by
$1,627,000, to $1,012,000. Net cash used in operating activities was $1,474,000
for the 2003 period. The primary components of the decrease are the operating
loss of $2,099,000, an increase in prepaid insurance of $289,000 and trading and
investment securities of $599,000, offset by an increase in commissions payable
of $1,464,000.
As of September 30, 2003, the Company has accrued approximately $1,416,000,
including the value of settlement warrants discussed in Note 7 of the
consolidated financial statements, for litigation costs that are probable and
can be reasonably estimated based on a review of existing claims, arbitrations
and unpaid settlements. Management cannot give any assurance that this accrual
will be adequate to cover actual costs that may be subsequently incurred.
In November 2003, the Company received its fourth and final advance of
$1,250,000 under the financing agreement with its clearing firm. Advances are
subject to income taxes in the year of receipt.
Additions to capital expenditures accounted for the entire use of cash from
investing activities of $127,000 during the first nine months of 2003.
Financing activities used cash of $26,000 during the 2003 period. The
Company received gross proceeds of $210,000 from the second closing of its
private offering of 6% convertible debentures. This was offset by payments of
notes payable, capital leases and preferred stock dividends of $48,000, $163,000
and $25,000, respectively. During fiscal 2001, the Company entered into two
capital leases under a sale-leaseback financing with a leasing company. The sale
of the fixed assets resulted in a gain of approximately $45,000, which has been
deferred and is being amortized over the related lease terms. The leases,
totaling $662,000, are together payable in 36 monthly installments of $21,000
with an additional 12 installments of $3,900.
Consolidated Contractual Obligations and Lease Commitments
The tables below summarize information about the consolidated contractual
obligations as of September 30, 2003 and the effects these obligations are
expected to have on the Company's consolidated liquidity and cash flows in
future years. These tables do not include any projected payment amounts related
to the Company's potential exposure to arbitrations and other legal matters.
14
Future minimum operating lease payments as of September 30, 2003 are as
follows:
Operating
Leases
------
2003 $237,362
2004 1,103,126
2005 296,302
2006 169,500
----------
Total minimum lease payments $1,806,289
==========
Future minimum lease payments as of September 30, 2003 are as follows:
Capital
Leases
------
2003 $62,229
2004 114,396
2005 15,711
2006 --
-------
Total minimum lease payments 192,336
Less: Amount representing interest (12,125)
$180,211
Future minimum contractual commitments as of September 30, 2003 are as
follows:
Employment
Agreements
----------
2003 $140,920
2004 620,048
2005 682,052
2006 --
----------
Total minimum contractual payments $1,443,020
In 1999, the Company completed a private offering of Series A Convertible
Preferred Stock in connection with the settlement with holders of leases of
Global Financial Corp. Under the terms of the offering, each Global lease
investor who participated in the offering received one share of Preferred Stock
in exchange for every $5 of lease investment value that the investor was
entitled to receive from Global after certain adjustments. Each leaseholder was
required to assign their interest in all lease payments to which they were
entitled. Each share of the Preferred Stock is convertible into two shares of
Common Stock and pays a quarterly dividend of 6%. Pursuant to the offering, the
Company issued an aggregate of 349,511 shares of Series A Preferred Stock. The
offering was exempt from registration pursuant to Sections 4(2) and 4(6) of the
Securities Act of 1933, as amended, and Regulation D, promulgated thereunder.
The Company has suspended the quarterly payments of its Series A Preferred Stock
dividend in accordance with applicable state law (See Note 10 to the
consolidated financial statements and Part II Item 5.)
15
In October 2002, the Company commenced a private offering of up to
$3,000,000 of 6% convertible debentures to accredited investors. Each debenture
is convertible at an initial conversion price of $0.50 per share, subject to
adjustment for stock dividends, combinations, splits, recapitalizations, and
like events. Interest on the debentures accrues at the rate of 6% per annum and
is payable in cash on a semi-annual basis on April 1st and October 1st of each
year until maturity or conversion. Each debenture is due and payable five (5)
years from issuance, unless previously converted into shares of Common Stock.
The offering expired on March 1, 2003. In the offering, the Company sold an
aggregate amount of $1,240,000 of debentures, $1,030,000 in fiscal 2002 and
$210,000 in fiscal 2003. The proceeds of the financing will be used to satisfy
general working capital needs. The debentures have not been registered for offer
or sale under the Securities Act; such securities are being issued on the basis
of the statutory exemption provided by Section 4(2) of the Securities Act, as
amended, and/or Rule 506 of Regulation D, promulgated thereunder relating to
transactions by an issuer not involving any public offering.
In July 2003, the Company commenced a new offering of up to $3,000,000 of
6% convertible debentures. The debentures contain terms and conditions
substantially similar to the debentures issued in the private offering described
above. In October 2003, the Company closed on $1,005,000 principal amount of 6%
convertible debentures.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Generally accepted accounting principles are complex and require management
to apply significant judgments to various accounting, reporting and disclosure
matters. Management of the Company must use assumptions and estimates to apply
these principles where actual measurement is not possible or practical.
For a complete discussion of the Corporation's significant accounting
policies, see "Management Discussion and Analysis" and "Notes to the
Consolidated Financial Statements" in the Company's 2002 Annual Report filed on
Form 10-K. Certain policies are considered critical because they are highly
dependent upon subjective or complex judgments, assumptions and estimates.
Changes in such estimates may have a significant impact on the financial
statements.
Item 3. Market Risk.
Certain of the Company's business activities expose it to market risk. This
market risk represents the potential for loss that may result from a change in
value of a financial instrument as a result of fluctuations in interest rates,
equity prices or changes in credit rating of issuers of debt securities. This
risk relates to financial instruments held by the company as investment and for
trading.
The Company's securities inventories are exposed to risk of loss in the
event of unfavorable price movements. The Company's securities inventories are
marked to market on a daily basis. At September 30, 2003 and December 31, 2002,
the balances of the Company's securities positions owned and sold not yet
purchased, were approximately $783,000 and $112,000 and $184,000 and $0,
respectively. In the opinion of management, the potential exposure to market
risk, trading volatility and the liquidity of securities held in the firm's
inventory accounts, could potentially have a material effect on the Company's
financial position.
The Company's activities involve the execution, settlement, and financing
of various transactions on behalf of its clients. Client activities are
transacted on either a cash or margin basis. The Company's client activities may
expose it to off-balance sheet credit risk. The Company may have to purchase or
sell financial instruments at the prevailing market price in the event of the
failure of a client to settle a trade on its original terms, or in the event
that cash and securities in the client margin accounts are not sufficient to
fully cover the client losses. The Company seeks to control the risks associated
with client activities by requiring clients to maintain collateral in compliance
with various regulations and Company policies.
16
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of the
chief executive officer and chief financial officer, conducted an evaluation of
our "disclosure controls and procedures" (as defined in Securities Exchange Act
of 1934 (the "Exchange Act") Rules 13a-14(c)) as of the end of the quarterly
period covered by this Quarterly Report on Form 10-Q. Based on their evaluation,
our chief executive officer and chief financial officer have concluded that as
of the date of their evaluation, our disclosure controls and procedures are
effective to ensure that all material information required to be filed in this
Quarterly Report on Form 10-Q has been made known to them in a timely fashion.
Changes in Internal Controls
There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the evaluation conducted by our Chief Executive Officer and Chief
Financial Officer as set forth above.
17
PART II
OTHER INFORMATION
Item 1. Legal proceedings
For a full description of new and resolved legal proceedings for the
reporting period, please see footnote 7 and the Management's Discussion and
Analysis.
Item 2. Changes in Securities
During the quarter, the Company issued an aggregate of 500,000 restricted
common shares and 750,000 warrants to purchase common shares; 250,000
exercisable at $.40 per share and 500,000 exercisable at $.25 per share all for
five years. These issuances were made pursuant to a settlement agreement of a
legal proceeding (see footnote 7 for additional information).
Item 5. Other Information.
1) The Company has declared and paid dividends on its Series A Preferred
Stock at the rate of 6% per annum on a quarterly basis since the third quarter
of 1999. Currently, the Company is unable to continue to pay such dividends
pursuant to the New Jersey Business Corporation Act. The New Jersey Business
Corporation Act prohibits a corporation from paying dividends if its total
assets would be less than its total liabilities. Dividends will continue to
accrue on the outstanding shares of Series A Preferred Stock and will be paid
when the Company is legally authorized to do so under the New Jersey Business
Corporation Act.
2) On October 8, 2003, the Company completed the first closing of a private
financing in the amount of $1,005,000 of the Company's securities to certain
accredited investors pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act") and Regulation D, promulgated thereunder (the
"Offering"). The Offering expires on December 31, 2003. The Company intends to
use the proceeds primarily for working capital and general corporate purposes.
The offering consists of up to $3,000,000 principal amount of 6%
convertible debentures. Each debenture earns interest at the rate of 6% per
annum, payable semi-annually, and is convertible at an initial conversion price
of $0.50 per share, subject to adjustment for stock dividends, combinations,
splits, recapitalizations, and like events. Each holder shall have the right to
convert his or her debentures, at the option of such holder, at any time, into
shares of the Company's common stock at the then applicable conversion price. In
addition, the Company may, at its option, demand that the holders convert some
or all of the debentures into shares of common stock in the event that the
closing bid price of its common stock is 200% of the conversion price for the
twenty consecutive trading days prior to the date of the notice of conversion.
Further, the Company may, at its option, prepay some or all of the debentures in
the event that the closing bid price of its common stock is 200% of the
conversion price for the twenty consecutive trading days prior to the date of
the notice of prepayment. Holders of debentures shall have the right to include
the shares of common stock issuable upon conversion of the debentures in a
registration statement filed by the Company (other than a registration statement
on Form S-4 or S-8, or a successor form). The placement agent's registered
representatives who participated in the Offering received commissions of 10% of
the principal amount of debentures sold, and warrants to purchase shares of
common stock equal to 10% of the principal amount of debentures sold. These
warrants are exercisable for a period of five years at an exercise price equal
to the conversion price of the debentures ($.50 per share).
The debentures have not been registered for offer or sale under the
Securities Act; such securities are being issued on the basis of the statutory
exemption provided by Section 4(2) of the Securities Act, as amended, and/or
Rule 506 of Regulation D, promulgated thereunder relating to transactions by an
issuer not involving any public offering; and the transaction has not been
reviewed by, passed on or submitted to any Federal or state agency or
self-regulatory organization where an exemption is being relied upon. The
securities may not be sold, assigned or transferred unless (i) the sale,
assignment or transfer of such securities is registered under the Securities
Act, or (ii) the securities are sold, assigned or transferred in accordance with
all the requirements and limitations of Rule 144 under the Securities Act.
18
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 31.1 - Section 302 Certification of Herbert Kurinsky,
Chief Executive Officer
Exhibit 31.2 - Section 302 Certification of William J. Kurinsky,
Chief Financial Officer
Exhibit 32.1 - Certification pursuant to Section 1350 pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
by Herbert Kurinsky
Exhibit 32.2 - Certification pursuant to Section 1350 pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 by
William J. Kurinsky
(b) Reports on Form 8-K
There were two reports on Form 8-K filed. 1) Form 8-K dated July 17, 2003
filed regarding the settlement agreement between First Montauk Financial Corp.
and First Montauk Securities Corp. and certain claimants; and 2) Form 8-K dated
August 22, 2003 filed regarding the Company's 2nd quarter press release.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST MONTAUK FINANCIAL CORP.
(Registrant)
Dated: November 14, 2003 /s/ William J. Kurinsky
----------------------------------
William J. Kurinsky
Secretary/Treasurer
Chief Financial Officer and
Principal Accounting Officer
/s/ Herbert Kurinsky
----------------------------------
Herbert Kurinsky
President
20 Exhibit 31.1
CERTIFICATION
I, Herbert Kurinsky, President, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Montauk
Financial Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) (Not applicable.)
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: November 14, 2003
/s/ Herbert Kurinsky
- ---------------------------------
HERBERT KURINSKY
PRESIDENT
21
Exhibit 31.2
CERTIFICATION
I, William J. Kurinsky, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Montauk
Financial Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) (Not applicable.)
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: November 14, 2003
/s/ William J. Kurinsky
- ---------------------------------
WILLIAM J. KURINSKY
CHIEF FINANCIAL OFFICER
22
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of FIRST MONTAUK FINANCIAL CORP.
(the "Company") on Form 10-Q for the period ending September 30, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Herbert Kurinsky, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Herbert Kurinsky
- -----------------------------------
Herbert Kurinsky
Chief Executive Officer
November 14, 2003
23
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of FIRST MONTAUK FINANCIAL CORP.
(the "Company") on Form 10-Q for the period ending September 30, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, William J. Kurinsky, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ William J. Kurinsky
- -----------------------------------
William J. Kurinsky
Chief Financial Officer
November 14, 2003