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 March 31, 2004
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:
- -------------------------------------
10,076,926 Common Shares, no par value, were outstanding as of May 17,
2004.
Page 1 of 24
2
FIRST MONTAUK FINANCIAL CORP
FORM 10-Q
MARCH 31, 2004
INDEX
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of March 31, 2004 and December 31, 2003 ......... 3
Consolidated Statements of Operations for the
Three Months ended March 31, 2004 and 2003 ........... 4
Consolidated Statements of Cash Flows for
the Three Months ended March 31, 2004 and 2003 ...... 5
Notes to Consolidated Financial Statements ............ 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ...... 11-16
Item 3. Market Risk ................................... 17
Item 4. Controls and Procedures ....................... 18
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings ............................ 19
Item 2. Changes in Securities ........................ 19
Item 5. Other Information............................. 19
Item 6. Exhibits and Reports on Form 8-K.............. 19
Signatures ............................................ 20
Officers' Certifications .............................. 21-24
3
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
2004 2003
(unaudited)
ASSETS
Cash and cash equivalents $ 3,771,231 $ 3,441,743
Due from clearing firm 4,920,126 5,219,267
Securities owned, at market value 322,858 169,534
Employee and broker receivables 929,889 1,052,317
Property and equipment - net 1,013,478 1,052,564
Other assets 2,447,719 1,661,351
---------- ----------
Total assets $13,405,301 $12,596,776
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Deferred income $ 5,761,372 $ 5,980,124
6% convertible debentures 3,135,000 3,135,000
Warrants subject to put options 497,701 479,066
Securities sold, not yet purchased, at market value 89,360 69,330
Commissions payable 3,670,083 4,077,803
Accounts payable 1,831,943 980,483
Accrued expenses 1,996,982 1,803,973
Capital leases payable 63,687 122,733
Other liabilities 103,572 35,703
---------- ----------
Total liabilities 17,149,700 16,684,215
---------- ----------
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, 305,369 and 311,089 shares issued and
outstanding, respectively; liquidation preference: $1,526,845 30,537 31,109
Common Stock, no par value, 30,000,000 shares authorized,
10,076,926 and 9,065,486 shares issued and outstanding,
respectively 3,928,708 3,578,136
Additional paid-in capital 4,082,724 4,097,309
Accumulated deficit (11,440,685) (11,678,659)
Less: Deferred compensation (345,683) (115,334)
---------- ----------
Total stockholders' deficit (3,744,399) (4,087,439)
---------- ----------
Total liabilities and stockholders' deficit $ 13,405,301 $12,596,776
========== ==========
See notes to financial statements.
4
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three months ended March 31,
2004 2003
(unaudited) (unaudited)
Revenues:
Commissions $13,512,378 $ 7,649,259
Principal transactions 2,975,811 2,261,330
Investment banking 1,271,888 195,328
Interest and other income 1,061,329 850,250
---------- ----------
18,821,406 10,956,167
---------- ----------
Expenses:
Commissions, employee compensation and benefits 14,887,865 9,097,622
Clearing and floor brokerage 789,193 568,270
Communications and occupancy 678,681 693,579
Legal matters and related costs 1,281,943 401,066
Other operating expenses 865,796 629,161
Interest 79,954 37,813
---------- ----------
18,583,432 11,427,511
---------- ----------
Net income (loss) $ 237,974 $ (471,344)
========== ==========
Net income (loss) applicable to common stockholders $ 237,974 $ (496,183)
========== ==========
Earnings (loss) per share:
Basic $.02 $(.06)
Diluted $.02 $(.06)
Weighted average number of shares of stock outstanding:
Basic 9,067,548 8,527,164
Diluted 15,631,311 8,527,164
See notes to financial statements.
5
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31,
2004 2003
(unaudited) (unaudited)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income (loss) $ 237,974 $ (471,344)
Adjustments to reconcile net income (loss) to net cash -------- ---------
provided by (used in) operating activities:
Depreciation 128,269 133,997
Amortization 113,273 3,563
Loss on disposition of property and equipment 4,689 --
Increase (decrease) in cash attributable to changes in assets
and liabilities:
Due from clearing firm 299,141 516,491
Securities owned (153,324) (258,877)
Loans receivable - officers -- 6,596
Employee and broker receivables 122,428 (20,916)
Other assets (794,575) (1,279,514)
Deferred income (218,752) (174,110)
Warrants subject to put options 18,635 --
Securities sold, not yet purchased 20,030 229,629
Commissions payable (407,720) 275,684
Accounts payable 851,460 1,009,456
Accrued expenses 193,009 (683,014)
Other liabilities 67,869 (16,711)
------- ---------
Total adjustments 244,432 (257,726)
------- ---------
Net cash provided by (used in) operating activities 482,406 (729,070)
------- ---------
Cash flows from investing activities:
Additions to property and equipment (93,872) (22,028)
------- ---------
Cash flows from financing activities:
Payment of notes payable -- (48,057)
Payments of capital leases (59,046) (53,037)
Proceeds from issuance of 6% convertible debentures -- 210,000
Payments of preferred stock dividends -- (24,839)
------- ---------
Net cash provided by (used in) financing activities (59,046) 84,067
------- ---------
Net increase (decrease) in cash and cash equivalents 329,488 (667,031)
Cash and cash equivalents at beginning of period 3,441,743 2,638,819
--------- ---------
Cash and cash equivalents at end of period $3,771,231 $1,971,788
========= =========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 13,278 $ 19,625
========= =========
Income taxes $ 65,324 $ 20,170
========= =========
Noncash financing activity:
Warrants charged to deferred financing costs in
connection with debenture offering $ -- $ 2,178
========= =========
See notes to financial statements.
6
NOTE 1 - MANAGEMENT REPRESENTATION
The accompanying financial statements are unaudited for the
interim period, but include all adjustments (consisting only
of normal recurring accruals) which management considers
necessary for the fair presentation of results at March 31,
2004 and 2003. 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, 2003, as filed with the
Securities and Exchange Commission on Form 10-K.
The results reflected for the three-month period ended March
31, 2004, are not necessarily indicative of the results for
the entire fiscal year to end on December 31, 2004.
NOTE 2 - STOCK-BASED COMPENSATION
The Company accounts for employee stock compensation plans in
accordance with the intrinsic value-based method permitted by
FAS No. 123, "Accounting for Stock-Based Compensation," which
does not result in compensation cost for stock options. The
market value at date of grant of shares of restricted stock is
recorded as compensation expense over the period of
restriction.
The following table illustrates the effect on net earnings and
EPS if the Company had applied the fair value recognition
provisions of FAS 123 to measure stock-based compensation
expense for outstanding stock option awards for the three
months ended March 31, 2004 and 2003:
Three months ended March 31,
2004 2003
Net income (loss) applicable to common
stockholders, as reported $237,974 $(496,183)
Deduct: Total stock based employee compensation
expense determined under the fair value based
method for all awards, net of tax (63,305) (22,312)
------- -------
Pro forma net income (loss) $174,669 $(518,495)
======= =======
Income (loss) per share:
Basic - as reported $ 0.02 $ (0.06)
Basic - pro forma $ 0.02 $ (0.06)
Diluted - as reported $ 0.02 $ (0.06)
Diluted - pro forma $ 0.01 $ (0.06)
The fair value of the options issued is estimated on the date
of grant using the Black-Scholes Option Pricing Model with the
following weighted-average assumptions used for grants for the
three months ended March 31, 2004 (there were no grants during
the March 2003 quarter): Dividend yield of 0%; expected
volatility of 105%, risk free interest rate of 3.29%, and an
expected life of 4 years. The weighted average fair value of
options granted during the three months ended March 31, 2004
was $.20.
NOTE 3 - ACCOUNTS PAYABLE
Accounts payable at March 31, 2004 includes two insurance
premium financing agreements with current balances of
approximately $991,000 and $107,000. The first
agreement is payable in seven remaining installments of
approximately $144,000; the other agreement is payable in nine
remaining installments of approximately $12,000. All
installments include interest at the rate of 4.4% per annum.
7
NOTE 4 - WARRANTS SUBJECT TO PUT OPTIONS
In July 2003, the Company issued 750,000 five-year warrants to
various plaintiffs as part of a legal settlement (See Note 7).
The warrants have been issued in three classes of 250,000
warrants each. Class A warrants have an exercise price of $.40
per share; Class B and Class C warrants have exercise prices
of $.25 per share. The settlement agreement provides that the
Company may be obligated to make additional cash payments of
up to $600,000 in the event that claimants elect to exercise
the warrants on certain dates. Specifically, if a majority of
then existing Class A warrant holders elect to exercise the
remaining warrants in their particular class during the month
of June 2004 (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. This process will be repeated for remaining Class
B and Class C warrant holders during the months of June 2005
and June 2006, respectively.
In the alternative, the Company may elect or be required to
redeem the unexercised warrants for up to $.80 per warrant, or
a maximum of $200,000 per class, depending upon the then
prevailing market price of the Company's common stock on or
about the date of the Required Exercise Event of a particular
class. The Company may call a warrant class for redemption if
the average market price of the underlying common shares
during the ten trading days immediately preceding the date
upon which the Company receives notice that the warrant
holders of a particular class have elected to declare a
Required Exercise Event is less than $1.20. The Company will
be required to redeem the warrants for $.80 per warrant in
cash if the average market price of the underlying common
shares during the ten trading days immediately preceding the
date upon which the Company receives notice that the warrant
holders of a particular class have elected to declare a
Required Exercise Event is less than or equal to the warrant
exercise price. 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 with respect
to that class.
In accordance with the provisions of FAS 150, "Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity," the Company has classified its
obligations under the warrants as liabilities in the Statement
of Financial Condition. The obligations embodied in the
warrants were initially valued at $441,000 using the
discounted cash flow method, and assuming that the Company
will be required to pay the full cash redemption cost of
$600,000. The Company will re-measure the value of the warrant
obligations as of the end of each reporting period using the
discounted cash flow method until the obligations are settled.
The recorded value at March 31, 2004 was $497,701. Changes in
value are recognized in earnings as interest expense. The
Company has agreed to register all shares of common stock
underlying the warrants.
NOTE 5 - SERIES A PREFERRED STOCK
During the quarter ended March 31, 2004, a total of 5,720
preferred shares were converted into 11,440 shares of common
stock.
During the quarter ended June 30, 2003, the Company 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 March 31, 2004 were approximately $98,000.
8
NOTE 6 - EMPLOYMENT AGREEMENTS
Effective in January 2004, the board named William Kurinsky
Chief Executive Officer, replacing Herb Kurinsky, who has
retained the office of Chairman. The board also named
Victor K. Kurylak President. In connection with these
management changes, the Company entered into new employment
agreements with the three executive officers. The agreements
provide for annual base salaries of $200,000, $300,000 and
$250,000, for the Chairman, CEO and President, respectively,
customary fringe benefits, severance, and participation in an
executive bonus pool and a corporate finance bonus pool. The
agreements have terms of two, five, and three years,
respectively, for the Chairman, CEO and President, with a
one-year extension provision.
The agreements also provide for restricted stock and option
grants for the three executives. The Chairman and CEO have
each been granted 375,000 restricted shares of common stock
with vesting provisions. The President has been granted
250,000 restricted shares of common stock and 500,000 stock
options, each with vesting provisions.
The Company is amortizing the unvested shares over the
respective vesting periods. Amortization of deferred
compensation related to these shares was $94,792 for the three
months ended March 31, 2004.
9
NOTE 7 - LEGAL MATTERS
On July 17, 2003, the Company and its broker-dealer
subsidiary, First Montauk Securities Corp., 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 (see Note 4).
The Company is currently defending seven additional claims
relating to the sale of the high-yield bonds. The claimants
seek compensatory damages in excess of $3.8 million plus
punitive damages and the recovery of various costs. The
Company is vigorously defending these actions and believes
that there are meritorious defenses in each case. There is no
insurance coverage available for the payment of settlements
and/or judgments that may result from these particular claims.
The Company is a respondent or co-respondent in various other
legal proceedings which are related to its securities
business. Management is contesting these claims and believes
that there are meritorious defenses in each case. However,
litigation is subject to many uncertainties, and some of these
actions and proceedings may result in adverse judgments.
Further, the availability of insurance coverage is determined
on a case-by-case basis by the insurance carrier, and is
limited to the coverage limits within the policy for any
individual claim and in the aggregate. After considering all
relevant facts, available insurance coverage and consultation
with litigation counsel, management believes that significant
judgments or other unfavorable outcomes from pending
litigation could have a material adverse impact on the
Company's consolidated financial condition, results of
operations, and cash flows in any particular quarterly or
annual period, or in the aggregate, and could impair the
Company's ability to meet the statutory net capital
requirements of its securities business.
As of March 31, 2004, the Company has accrued litigation costs
that are probable and can be reasonably estimated based on a
review of existing claims, arbitrations and unpaid
settlements. Management cannot give assurance that this amount
will be adequate to cover actual costs that may be
subsequently incurred. Further, it is not possible to predict
the outcome of other matters pending against the Company. All
such cases will continue to be vigorously defended.
NOTE 8 - EARNINGS PER SHARE
Basic earnings per share for the three months ended March 31,
2004 and 2003 is based on the weighted average number of
shares of common stock outstanding. Diluted earnings per share
for the three months ended March 31, 2004 is based on the
weighted average number of shares of common stock and dilutive
securities outstanding.
10
The following table sets forth the weighted average number of
shares of common stock and dilutive securities outstanding
used in the computation of basic and diluted earnings per
share:
Three months ended March 31,
2004 2003
Numerator - basic:
Net income (loss) $237,974 $(471,344)
Deduct: Preferred stock dividends (22,903) (24,839)
---------- ---------
Numerator for basic earnings per share $215,071 $(496,183)
========== =========
Numerator - diluted:
Numerator for basic earnings per share $215,071 $(496,183)
Add: Convertible debenture interest, net of tax 47,548 --
---------- ---------
Numerator for diluted earnings per share $262,619 $(496,183)
========== =========
Denominator:
Weighted average common shares outstanding 9,067,548 8,527,164
Effect of dilutive securities:
Stock options and warrants 214,816 --
Restricted shares 78,947 --
Convertible debentures 6,270,000 --
---------- ---------
Denominator for diluted earnings per share 15,631,311 8,527,164
========== =========
The following securities have been excluded from the dilutive
per share computation as they are antidilutive:
Three months ended
March 31,
2004 2003
Stock options 3,931,998 3,961,998
Warrants 3,660,946 3,221,446
Convertible debentures -- 2,480,000
Convertible preferred stock 610,738 660,500
Restricted shares 921,053 --
As required by FAS 128, "Earnings per Share", undeclared
cumulative preferred dividends for the quarter ended March 31,
2004 were deducted from net income to arrive at the numerator
for basic earnings per share.
NOTE 9 - SUBSEQUENT EVENT
In April 2004, the Company agreed to repurchase 54,195
unregistered shares of its common stock from various parties
who had received the shares in a legal settlement. The Company
paid $.35 per share, or $18,968 in total.
NOTE 10 - Income taxes
The effective tax rate was 0% for the quarter ended March 31,
2004 due to the availability of tax loss carryforwards to
offset pre-tax income. For the quarter ended March 31, 2003,
the effective tax rate was 0% due to an increase in the tax
valuation allowance.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Factors Affecting "Forward-Looking Statements"
From time to time, we 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, we caution readers that a variety of factors could cause our actual
results to differ materially from the anticipated results or other expectations
expressed in our forward-looking statements. These risks and uncertainties, many
of which are beyond our 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 us. We do not undertake any obligation to publicly update or revise any
forward-looking statements. The reader is referred to our previous filings with
the Commission, including our Form 10-K for the year ended December 31, 2003.
Overview
We are a New Jersey-based financial services holding company whose
principal subsidiary, First Montauk Securities Corp., has operated as a full
service retail and institutional securities brokerage firm since 1987. Since
July 2000, First Montauk Securities Corp. has operated under the trade name
"Montauk Financial Group" and 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, Montauk Financial Group established Century Discount
Investments, a discount brokerage division. We also sell insurance products
through our subsidiary, Montauk Insurance Services, Inc.
Montauk Financial Group has approximately 446 registered representatives
and services over 61,000 retail and institutional customers. With the exception
of two corporate-leased branch offices, all of our other 153 branch office and
satellite locations in 29 states are owned and operated by affiliates;
independent owners who maintain all appropriate licenses and are responsible for
all office overhead and expenses. Montauk Financial Group also employs
registered representatives directly at its corporate office and one of its two
company-leased branch offices.
Montauk Financial Group 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. with various floor brokerage and
specialist firms providing execution services. These arrangements provide
Montauk Financial Group with back office support, transaction processing
services on all principal, national and international securities exchanges, and
access to other financial services and products.
Results of Operations
Three Months Ended March 31, 2004 Compared to Three Months Ended
March 31, 2003
The results of operations for the three months ended March 31, 2004, (the
"2004 period"), showed a 72% increase in revenues over the same period in the
prior year (the "2003 period"), increasing to $18,821,000, from $10,956,000 in
the 2003 period. This is the highest quarterly revenue reported since the March
2000 quarter. For the 2004 period, we reported net income applicable to common
stockholders of $238,000, or $0.02 per basic and diluted share, as compared to a
net loss applicable to common stockholders reported in the 2003 period, of
$496,000, or $0.06 per basic and diluted share.
12
The primary source of our revenue is commissions generated from securities
transactions, mutual funds and insurance products. Total revenues from
commissions increased $5,863,000, or 77%, to $13,512,000 for the 2004 period,
from $7,649,000 for the 2003 period.
Revenues from agency transactions, which consist primarily of equity and
option transactions increased $4,643,000, or 96%, from $4,838,000 in the 2003
period to $9,481,000 in the 2004 period. Agency commissions increased from 44%
of total revenues in the 2003 period, to 50% of total revenues in the 2004
period. As investors returned to the equity markets, higher volume of
transaction business resulted in significant increases in commission revenue.
Mutual fund revenues increased $426,000, or 35%, to $1,637,000 for the 2004
period when compared to $1,211,000 for the 2003 period. Revenue from insurance
commissions also increased during this quarter, posting revenues of $1,188,000
in the 2004 period, up from $887,000 in the 2003 period, an increase of 34%.
Fees generated from managed accounts have continued to increase over the
years. Fee based revenues increased to $590,000 for the first quarter of 2004,
an increase of approximately 50% from the 2003 period. As the interest from
investors who prefer to pay a fee based on a percentage of asset value, rather
than commissions based on transactions, continue to find this type of fee
structure appealing, we anticipate this segment of our business to continue to
grow.
Total revenues from principal transactions, which include
mark-ups/mark-downs on transactions in which we act as principal, proprietary
trading, and the sale of fixed income securities, increased $715,000, or 32%,
from $2,261,000 for the 2003 period to $2,976,000 for the 2004 period.
Gains from proprietary equity trading increased slightly to $284,000 for
the 2004 period, from $271,000 for the same period in 2003. Revenues from
customer mark-ups and mark-downs were $1,658,000 for the 2004 period, compared
to $812,000 for the 2003 period, as both individual and institutional investors
have begun committing new funds to equity securities.
Revenue from all fixed income sources, which include municipal, government,
corporate bonds and unit investment trusts decreased to $962,000, from
$1,145,000 for the 2004 period. This decrease is attributable to an overall
decline in the fixed income market due to the anticipation of rising interest
rates, which has generally had the impact of attracting investors away from
fixed income products.
Investment banking revenues for the 2004 period increased significantly,
from $195,000 in the 2003 period, to $1,272,000 in the 2004 period, an increase
of $1,077,000. This category includes new issues of equity and preferred stock
offerings in which we participated as a selling group or syndicate member, and
private offerings of securities in which we acted as placement agent. We have
benefited by the resurgence of investment banking deals by completing several
private offerings during the quarter.
Interest and other income for the 2004 period totaled $1,061,000, as
compared to $850,000 for the 2003 period, an increase of $211,000. Interest
income, increased 23%, or $135,000, in 2004, when compared to the 2003 period.
Other income increased $76,000 and was primarily related to the recognition of
deferred income and recovery of bad debt write-offs. For financial reporting
purposes, the cash advances that were received from our clearing firm, Fiserv
Securities, Inc., are deferred and amortized on a straight-line basis over the
remaining contract term. Other income included amortization of approximately
$219,000 and $174,000 in the 2004 period and the 2003 period, respectively.
Total expenses increased by $7,156,000, or 63%, to $18,583,000 in the 2004
period. Compensation and benefits expense for management, operations and
clerical personnel, increased in 2004, from $1,626,000 (15% of revenues) to
$1,916,000 (10% of revenues), an increase of $290,000 over the 2003 period.
Included in this category are salaries, option compensation, health insurance
premiums, payroll taxes and 401(k) contribution accruals. For the 2004 period,
amortization of deferred stock compensation was $95,000. This, in addition to
the net change in the 401(k) contribution accrual from the 2003 period to the
2004 period, accounted for about two-thirds of the increase. Commission expense,
consistently the largest expense category, which is directly related to
commission revenue, increased 75%, or $5,605,000, from $7,472,000 for the 2003
period to $13,077,000 for the 2004 period. Commissions as a percentage of total
revenues remained relatively constant at 69% for the 2004 period.
13
Clearing and floor brokerage costs, which are determined by the volume and
type of transactions, increased $221,000, to $789,000 in 2004, from $568,000 in
2003. As a percent of revenues, clearing costs decreased to 4% for the 2004
period, from 5% in the 2003 period. The percentage of clearing costs to gross
revenues can fluctuate on an interim basis depending upon the product mix.
Certain transactions, such as options and bonds, have a higher execution and
clearing cost than other securities.
Communications and occupancy costs decreased slightly during the 2004
period, from $694,000 in the 2003 period to $679,000 in 2004. As a percentage of
revenue, communications and occupancy decreased to 4%, from 6.3% for the 2003
period. The decrease in communication and occupancy costs was primarily related
to the elimination and consolidation of telephone services.
Legal matters and related settlement costs increased by $881,000, to
$1,282,000 during the 2004 period, from $401,000 for the same period in 2003. We
are currently defending claims relating to the sale of high-yield bonds. The
claimants seek compensatory damages in excess of $3.8 million plus punitive
damages and the recovery of various costs. We are vigorously defending these
actions and believe that there are meritorious defenses in each case. There is
no insurance coverage available for the payment of settlements and/or judgments
that may result from these particular claims.
Additionally, we are a respondent or co-respondent in various other legal
proceedings that are related to our securities business. We are contesting these
claims and believe that there are meritorious defenses in each case. However,
litigation is subject to many uncertainties, and some of these actions and
proceedings may result in adverse judgments. Further, the availability of
insurance coverage is determined on a case-by-case basis by the insurance
carrier, and is limited to the coverage limits within the policy for any
individual claim and in the aggregate. After considering all relevant facts,
available insurance coverage and consultation with litigation counsel, we
believe that significant judgments or other unfavorable outcomes from pending
litigation could have a material adverse impact on our consolidated financial
condition, results of operations, and cash flows in any particular quarterly or
annual period, or in the aggregate, and could impair our ability to meet the
statutory net capital requirements of our securities business.
In 2004, under the direction of our new president, we have taken a more
aggressive approach toward the analysis, management and resolution of our
outstanding claims and control over outside legal costs. As of March 31, 2004,
we have accrued litigation costs that are probable and can be reasonably
estimated based on a review with outside counsel of existing claims,
arbitrations and unpaid settlements. We cannot give assurance that this amount
will be adequate to cover actual costs that may be subsequently incurred.
Further, it is not possible to predict the outcome of other matters pending
against us.
Other operating costs increased $237,000, to $866,000 in the 2004 period,
from $629,000 in the 2003 period. Most of this was attributable to a substantial
increase in our errors and omission insurance premiums under our renewal policy
that became effective in February 2003. While our marketing and promotion
expense, delivery costs and recruiting fees increased by about 115%, to
$127,000, from $59,000, for the 2004 period, we experienced reductions in our
outside professional fees and business travel and entertainment expense of about
31%, from $184,000 in the 2003 period, to $127,000 for the 2004 period.
The effective tax rate was 0% for the quarter ended March 31, 2004 due to
the availability of tax loss carry forwards to offset pre-tax income. For the
quarter ended March 31, 2003, the effective tax rate was 0% due to an increase
in the tax valuation allowance.
14
Liquidity and Capital Resources
We maintain a highly liquid balance sheet with approximately 67% of our
assets consisting of cash, securities owned, and receivables from our clearing
firm and other broker-dealers. The balances in these accounts can and do
fluctuate significantly from day to day, depending on general economic and
market conditions, volume of activity, and investment opportunities. These
accounts are monitored on a daily basis in order to ensure compliance with
regulatory capital requirements and to preserve liquidity.
Overall, cash and cash equivalents increased during the quarter by
$329,000. Net cash provided by operating activities during the 2004 period was
$482,000, as a result of the net income of $238,000, adjusted by non-cash
charges including depreciation and amortization of $246,000, increases in
accounts payable, accrued expenses and other liabilities of $1,112,000 and a
decrease of $299,000 in the amount due from clearing firm. These increases were
partially offset by increases in other assets of $794,000 and decreases in
commissions' payable and deferred income of $408,000 and $219,000, respectively.
As of March 31, 2004, we have accrued litigation costs that are probable
and can be reasonably estimated based on a review of existing claims,
arbitrations and unpaid settlements. Management cannot give assurance that this
amount will be adequate to cover actual costs that may be subsequently incurred.
Further, it is not possible to predict the outcome of other matters pending
against us. We will continue to vigorously defend against these matters.
Additions to capital expenditures accounted for the entire use of cash from
investing activities of $94,000 during the first quarter of 2004.
Financing activities required cash of $59,000 solely from the payment of
capital leases.
In connection with a settlement agreement, we issued 750,000 five-year
warrants in three classes of 250,000 warrants each, with varying exercise
prices. The settlement agreement provides that we may be obligated to make
additional cash payments of up to $600,000 in the event that claimants elect to
exercise the warrants on certain dates. The first class of warrants is
exercisable during June 2004 upon election by a majority of then existing Class
A warrant holders. Our maximum obligation under this election can be up to an
aggregate amount of $200,000 for the first year. This same financial obligation
will continue for the remaining Class B and Class C warrant holders during the
months of June 2005 and June 2006, respectively.
Premium financing agreements for the renewal of two of our insurance
policies had balances at March 31, 2004 of approximately $991,000 and $107,000.
The first agreement is payable in seven remaining installments of approximately
$144,000; the other agreement is payable in nine remaining installments of
approximately $12,000. All installments include interest at the rate of 4.4% per
annum.
Consolidated Contractual Obligations and Lease Commitments
The tables below summarize information about the consolidated contractual
obligations as of March 31, 2004 and the effects these obligations are expected
to have on our consolidated liquidity and cash flows in future years. These
tables do not include any projected payment amounts related to our potential
exposure to arbitrations and other legal matters.
15
Expected Maturity Date
As of March 31, 2004
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
Category 2004 2005 2006 2007 2008 After Total
2008
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
Debt Obligations 0 0 0 $1,030,000 $2,105,000 0 $3,135,000
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
Capital Lease Obligations $ 98,141 $45,624 0 0 0 0 $143,765
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
Operating Lease $798,000 $296,302 $169,500 0 0 0 $1,263,802
Obligations
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
Purchase Obligations 0 0 0 0 0 0 0
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
Other Long-Term $200,000(1) $200,000(1) $200,000(1) $875,000(2) $875,000(2) $1,605,116(2) $600,000(1)
Obligations Reflected on $656,256(2) $875,000(2) $875,000(2) $5,761,372(2)
Balance Sheet under GAAP
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
Total $1,752,397 $1,416,926 $1,244,500 $1,905,000 $2,980,000 $1,605,116 $10,903,939
- --------------------------- --------------- ----------------- ---------------- ----------- -------------- ----- ----------------
(1) Expected payment obligations embodied in the warrants subject to put
options. For more detailed information please refer to Note 4 of the
consolidated financial statements.
(2) We are obligated to repay any unearned portion of payments received
from our clearing firm in connection with the financing agreement entered into
in November 2000, in the event we fail to achieve certain minimum performance
criteria by the end of the agreement, or terminate the agreement under certain
circumstances prior to expiration.
Net Capital
At March 31, 2004, Montauk Financial Group had net capital of $1,206,660,
which was $748,064 in excess of its required net capital of $458,596, and the
ratio of aggregate indebtedness to net capital was 5.7 to 1.
Series A Preferred Stock
In 1999, we issued 349,511 shares of Series A Convertible Preferred Stock
in an exchange offering related to a settlement with holders of certain leases.
Each share of the Preferred Stock is convertible into two shares of Common Stock
and pays a quarterly dividend of 6%. Quarterly dividends were paid through the
first quarter of 2003, at which time we suspended the dividend payments in
accordance with applicable state law. (See Note 5 to the consolidated financial
statements).
During the quarter ended March 31, 2004, a total of 5,720 preferred
shares were converted into 11,440 shares of common stock. As of March 31, 2004,
we have 305,369 Series A Preferred shares issued and outstanding.
16
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. Our management must use assumptions and estimates to apply
these principles where actual measurement is not possible or practical.
For a complete discussion of our significant accounting policies, see
"Management Discussion and Analysis" and "Notes to the Consolidated Financial
Statements" in our 2003 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.
Off-Balance Sheet Arrangements
We execute securities transactions on behalf of our customers. If
either the customer or a counter-party fail to perform, we, by agreement with
our clearing broker may be required to discharge the obligations of the
non-performing party. In such circumstances, we may sustain a loss if the market
value of the security is different from the contract value of the transaction.
We seek 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, our clearing firm requires
additional collateral or reduction of positions, when necessary. We also
complete credit evaluations where there is thought to be credit risk.
17
Item 3. Risk Management
Risk is an inherent part of our business and activities. The extent to
which we properly and effectively identify, assess, monitor and manage the
various types of risk involved in our activities is critical to our soundness
and profitability. We seek to identify, assess, monitor and manage the following
principal risks involved in its business activities: market, credit, operational
and legal. Senior management takes an active role in the risk management process
and requires specific administrative and business functions to assist in the
identification, assessment and control of various risks. Our risk management
policies and procedures are subject to ongoing review and modification.
Market Risk. Certain of our business activities expose us 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 we hold as investment and for
trading. Securities inventories are exposed to risk of loss in the event of
unfavorable price movements. Securities positions are marked to market on a
daily basis. Market-making activities are client-driven, with the objective of
meeting clients' needs while earning a positive spread. At March 31, 2004 and
December 31, 2003, the balances of our securities positions owned and sold, not
yet purchased were approximately $323,000 and $89,000, and $169,500 and $69,000,
respectively. In our view, the potential exposure to market risk, trading
volatility and the liquidity of securities held in the firm's inventory accounts
could potentially have a material effect on its financial position.
Credit Risk. Credit risk represents the loss that we would incur if a
client, counterparty or issuer of securities or other instruments that we hold
fails to perform its contractual obligations. Client activities involve the
execution, settlement, and financial of various transactions on behalf of its
clients. Client activities are transacted on either a cash or margin basis.
Client activities may expose us to off-balance sheet credit risk. We 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. We seek to control the risks
associated with client activities by requiring clients to maintain collateral in
compliance with various regulations and company policies.
Operational Risk. Operational risk generally refers to the risk of loss
resulting from our operations, including, but not limited to, improper or
unauthorized execution and processing of transactions, deficiencies in our
operating systems, business disruptions and inadequacies or breaches in our
internal control processes. We operate in diverse markets and rely on the
ability of our employees and systems to process high numbers of transactions
often within short time frames. In the event of a breakdown or improper
operation of systems, human error or improper action by employees, we could
suffer financial loss, regulatory sanctions or damage to our reputation. In
order to mitigate and control operational risk, we have developed and continue
to enhance policies and procedures that are designed to identify and manage
operational risk at appropriate levels. Included in our operational risk
management practice is disaster recovery for our critical systems. We believe
that our disaster recovery program, including off-site back-up technology and
operational facilities, is adequate to handle a reasonable business disruption.
However, there can be no assurances that a disaster directly affecting our
headquarters or operations center would not have a material adverse impact.
Insurance and other safeguards might only partially reimburse us for our losses.
Legal Risk. Legal risk includes the risk of non-compliance with applicable
legal and regulatory requirements. We are subject to extensive regulation in the
different jurisdictions in which we conduct our business. We have various
procedures addressing issues such as regulatory capital requirements, sales and
trading practices, use of and safekeeping of customer funds, credit granting,
collection activities, anti money-laundering and record keeping.
18
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our chief executive
officer and chief financial officer, we conducted an evaluation of our Company's
"disclosure controls and procedures" (as defined in Securities Exchange Act of
1934 (the "Exchange Act") Rules 13a-14(c)) within 90 days of the filing date of
this Quarterly Report on Form 10-Q (the "Evaluation Date"). Based on their
evaluation, the chief executive officer and chief financial officer have
concluded that as of the Evaluation Date, our disclosure controls and procedures
are effective to ensure that all material information required to be filed in
this Quarterly Report on Form 10-Q has been made known to him in a timely
fashion.
Changes in Internal Controls
There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the Evaluation Date set forth above.
19
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, we issued an aggregate of 1,000,000 restricted common
shares to our three top executives in conjunction with their new Employment
Agreements. The Chairman and CEO have each been granted 375,000 restricted
shares of common stock with vesting provisions. The President has been granted
250,000 restricted shares of common stock with vesting provisions.
Item 5. Other Information.
Suspension of Preferred Stock Dividend
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
accumulate 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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 31.1 - Section 302 Certification of Victor K. Kurylak,
President and Chief Operating 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 Victor K. Kurylak
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.
Date of Report: January 5, 2004
Items Reported: Item 5 Other Events and Required FD Disclosure and
Item 7 Financial Statements, Pro Forma Financial Statements and
Exhibits.
20
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: May 17, 2004 /s/ William J. Kurinsky
----------------------------------
William J. Kurinsky
Secretary/Treasurer
Chief Financial Officer and
Principal Accounting Officer
/s/ Victor K. Kurylak
----------------------------------
Victor K. Kurylak
President and Chief Operating Officer
21
Exhibit 31.1
CERTIFICATION
I, Victor K. Kurylak, 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'
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: May 17, 2004
/s/ Victor K. Kurylak
- ----------------------------
VICTOR K. KURYLAK
PRESIDENT
22
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: May 17, 2004
- ------------------------------
/s/ William J. Kurinsky
WILLIAM J. KURINSKY
CHIEF FINANCIAL OFFICER
23
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 March 31, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Victor K. Kurylak, President and Chief Operating 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/ Victor K. Kurylak
Victor K. Kurylak
President and Chief Operating Officer
May 17, 2004
24
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 March 31, 2004 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
May 17, 2004