-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AFtiYJrsPolzIh6hlJhVpiJpecpX0P0bYNXU/LPhInab5qERkXrFzveErjJqEfYQ KXWu2Pb90vGeyEaGI4dDkg== 0000083125-02-000015.txt : 20020814 0000083125-02-000015.hdr.sgml : 20020814 20020814182437 ACCESSION NUMBER: 0000083125-02-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST MONTAUK FINANCIAL CORP CENTRAL INDEX KEY: 0000083125 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 221737915 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06729 FILM NUMBER: 02738451 BUSINESS ADDRESS: STREET 1: 328 NEWMAN SPRINGS RD STREET 2: PKWY 109 OFFICE CTR CITY: RED BANK STATE: NJ ZIP: 07701 BUSINESS PHONE: 7328424700 MAIL ADDRESS: STREET 1: 328 NEWMAN SPRINGS RD STREET 2: PKWY 109 OFFICE CTR CITY: RED BANK STATE: NJ ZIP: 07701 FORMER COMPANY: FORMER CONFORMED NAME: RENAULT WINERY INC DATE OF NAME CHANGE: 19740725 FORMER COMPANY: FORMER CONFORMED NAME: PRESIDENTIAL APARTMENTS INC DATE OF NAME CHANGE: 19740327 FORMER COMPANY: FORMER CONFORMED NAME: MCC PRESIDENTIAL INC DATE OF NAME CHANGE: 19871203 10-Q 1 newe10q6302002.txt FOR QUARTER ENDED 6/30/02 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 June 30, 2002 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 (1) 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 --- --- 8,525,284 Common Shares, no par value, were outstanding as of August 14, 2002. Page 1 of 13 FIRST MONTAUK FINANCIAL CORP. FORM 10-Q JUNE 30, 2002 INDEX Page PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Statements of Financial Condition as of June 30, 2002 and December 31, 2001.................. 3 Consolidated Statements of Loss for the Three months and Six Months Ended June 30, 2002 and 2001.................... 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001 ................... 5 Notes to Financial Statements ............................. 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................. 8-10 Item 3. Market Risk ...........................................11 PART II. OTHER INFORMATION: Item 4. Submission of Matters to a Vote of Security-Holders ...12 Item 5. Other Information..................................... 12 Item 6. Exhibits and Reports on Form 8-K...................... 12 Signatures .................................................... 13 FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION June 30, December 31, 2002 2001 ASSETS Cash and cash equivalents $ 940,714 $ 1,779,554 Due from clearing firm 5,051,896 4,146,410 Trading and investment account securities 977,346 1,199,102 Employee and broker receivables 1,680,978 2,105,620 Due from officers 233,031 202,964 Property and equipment - net 1,497,237 1,631,801 Income tax refund receivable 72,761 1,069,442 Deferred income taxes - net 930,000 930,000 Other assets 1,018,663 1,162,669 ------------------------ ------------------------ Total assets $ 12,402,626 $ 14,227,562 ======================== ======================== LIABILITIES AND STOCKHOLDERS' EQUITY Deferred income $ 4,501,558 $ 4,783,333 Securities sold, but not yet purchased, at market 82,172 245,078 Notes payable 132,481 277,376 Commissions payable 3,810,174 3,647,170 Accounts payable 729,473 490,842 Accrued expenses 1,507,370 1,434,885 Capital leases payable 445,594 542,210 Other liabilities 236,883 513,987 ------------------------ ------------------------ Total liabilities 11,445,705 11,934,881 ------------------------ ------------------------ Temporary equity - stock subject to redemption 6,500 6,500 Commitments and contingencies (See Notes) Stockholders' equity Preferred Stock, 4,375,000 shares authorized, $.10 par value, no shares issued and outstanding respectively; stated at liquidation value - - Series A Convertible Preferred Stock, 625,000 shares authorized, $.10 par value, 331,190 and 331,190 shares issued and outstanding, respectively; liquidation preference: $1,655,590 33,119 33,119 Common Stock, no par value, 30,000,000 shares authorized, 8,522,284 shares issued and outstanding, 3,434,642 3,434,642 Additional paid-in capital 3,950,544 3,950,542 Accumulated deficit (6,394,529) (5,076,055) Less: Deferred compensation (48,339) (56,067) Less: Treasury stock, at cost (100,000 and -0- shares, respectively) (25,016) - ------------------------- ------------------------- Total stockholders' equity 950,421 2,286,181 ------------------------- ------------------------ Total liabilities and stockholders' equity $ 12,402,626 $ 14,227,562 ========================= ======================== See notes to financial statements.
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF LOSS Six months ended June 30, Three months ended June 30, 2002 2001 2002 2001 Revenues: Commissions $ 20,114,309 $ 19,883,033 $ 10,430,603 $ 11,113,406 Principal transactions 3,630,583 4,002,077 1,510,044 2,200,622 Investment banking 103,020 357,509 39,985 322,262 Interest and other income 1,777,285 2,078,465 896,097 972,247 -------------- ------------- ------------- -------------- 25,625,197 26,321,084 12,876,729 14,608,537 -------------- ------------- ------------- -------------- Expenses: Commissions, employee compensation and benefits 21,309,105 21,532,140 10,831,326 12,012,905 Clearing and floor brokerage 1,367,085 1,704,312 686,171 846,481 Communications and occupancy 1,554,198 1,456,014 877,913 778,114 Legal matters and related costs 639,941 776,943 372,785 428,318 Other operating expenses 1,969,017 2,887,129 1,059,927 1,662,845 Interest 54,645 74,909 21,739 33,169 -------------- ------------- ------------- -------------- 26,893,991 28,431,447 13,849,861 15,761,832 -------------- ------------- ------------- -------------- Loss before income tax benefit (1,268,794) (2,110,363) (973,132) (1,153,295) Income tax benefit - (707,790) - (370,174) -------------- ------------- ------------- -------------- Net loss $ (1,268,794) $ (1,402,573) $ (973,132) $ (783,121) ============== ============= ============= ============== Net loss applicable to common stockholders $ (1,318,473) $ (1,450,878) $ (997,971) $ (807,961) ============== ============= ============= ============== Per share of Common Stock: Basic and diluted $ (0.15) $ (0.17) $ (0.12) $ (0.09) ============== ============= ============= ============== Number of common shares used in basic and diluted loss per share 8,579,173 8,775,042 8,534,075 8,770,064 ============== ============= ============= ============== See notes to financial statements.
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended June 30, 2002 2001 NCREASE (DECREASE) IN CASH Cash flows from operating activities: Net loss $ (1,268,794) $ (1,402,573) ------------- -------------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 259,290 313,727 Amortization 11,254 122,334 Reserves and allowances - 200,000 Increase (decrease) in cash attributable to changes in assets and liabilities Due from clearing firm (905,486) (871,053) Trading and investment account securities 221,756 437,531 Due from officers (30,067) (30,817) Employee and broker receivables 424,642 (358,192) Deferred income taxes - (718,996) Other assets 144,006 (135,525) Income tax refund receivable 996,681 - Deferred income (281,775) (200,000) Securities sold but not yet purchased (162,906) 546,456 Commissions payable 163,004 1,108,450 Accounts payable 238,632 (37,614) Accrued expenses 72,485 801 Income taxes payable - (868,675) Other liabilities (277,104) (214,871) ------------- -------------- Total adjustments 874,412 (706,444) ------------- -------------- Net cash used in operating activities (394,382) (2,109,017) ------------- -------------- Cash flows from investing activities: Collection of notes receivable - 18,000 Additions to property and equipment (124,726) (179,347) ------------- -------------- Net cash used in investing activities (124,726) (161,347) ------------- -------------- Cash flows from financing activities: Payment of notes payable (148,421) (181,415) Payments of capital lease (96,616) (94,176) Proceeds from capital lease financing - 606,195 Payment toward purchase of treasury stock (25,016) (88,584) Payments of preferred stock dividends (49,679) (48,305) -------------- -------------- Net cash provided by (used in) financing activities (319,732) 193,715 -------------- -------------- Net decrease in cash and cash equivalents (838,840) (2,076,649) Cash and cash equivalents at beginning of period 1,779,554 3,701,010 -------------- -------------- Cash and cash equivalents at end of period 940,714 1,624,361 ============== ============== Supplemental disclosures of cash flow information: Cash paid (received) during the period for: Interest $ 54,645 $ 74,909 ============== ============== Income taxes $ (1,047,257) $ 894,331 ============== ============== Noncash financing activity: Property and equipment financed under capital leases $ - $ 662,290 ============== ============== See notes to financial statements.
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 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 June 30, 2002 and 2001. 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 periods. 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, 2001, as filed with the Securities and Exchange Commission on Form 10-K. The results reflected for the six-month and three-month periods ended June 30, 2002, are not necessarily indicative of the results for the entire fiscal year to end on December 31, 2002. NOTE 2 - EARNINGS PER SHARE Basic and diluted EPS are computed by dividing net loss applicable to common stockholders by the weighted-average number of common shares outstanding for the period. NOTE 3 - LEASE In January 2002, the Company's broker-dealer subsidiary, First Montauk Securities Corp. ("FMSC"), entered into a sublease for a new branch office in New York City. Base rent is $17,700 per month through January 2004, increasing to $18,800 through September 2006. FMSC will also be responsible for certain operating expense and real estate tax escalations. NOTE 4 - LEGAL MATTERS FMSC is a respondent in two NASD arbitrations seeking rescissionary damages of approximately $9.5 million in one case, and unspecified damages in another. Both claims also seek statutory interest and punitive damages. Claimants in these cases have asserted substantially similar claims relating to alleged violations of various provisions of federal and state securities laws. FMSC believes that there are meritorious defenses in each case, and that actual damages, if any, will be substantially below the alleged amounts. FMSC is also a respondent in several arbitration claims arising from customer purchases of certain high yield corporate bonds which declined in market value and subsequently defaulted. The claims allege, among other charges, unsuitable recommendations and/or improper use of margin. Aggregate damages sought is in excess of $13,000,000. FMSC believes that there are meritorious defenses in each case, and that actual damages, if any, will be substantially below the alleged amounts. FMSC is also a respondent or co-respondent in various other legal proceedings which are incidental to its securities business. FMSC is contesting these claims and believes that there are meritorious defenses in each case. After considering all relevant facts, management believes that significant adverse judgments against FMSC from pending arbitration claims could have a material impact on the Company's financial condition, results of operations, and cash flows in any particular quarterly or annual period, or in the aggregate. As of June 30, 2002, the Company has established a $1,224,000 reserve for litigation costs that are probable and can be reasonably estimated. The reserve is included in accrued expenses. Management cannot give assurance that this reserve will be adequate to absorb actual costs that are subsequently incurred. In July 2002, the Company received $230,000 from the settlement of litigation with a former software vendor. The settlement will be recorded in the third quarter. NOTE 5 - INCOME TAXES For the six-month and three-month periods ended June 30, 2002, the Company increased its tax valuation allowance to offset the deferred tax benefits of net operating losses and other temporary differences because management is uncertain as to their ultimate realization. For the six-month and three-month periods ended June 30, 2001, the income tax benefit of 33.5% and 32% of pre-tax losses, respectively, included a tax valuation allowance against deferred tax benefits relating to each period's option compensation charges. The tax benefits of net operating losses generated in 2001 were subsequently utilized to offset taxable income from the receipt of a $1.25 million installment under the Company's financing agreement with its clearing firm in November 2001, and to obtain refunds of prior years' federal taxes. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The results of operations for the six months and three months ended June 30, 2002 (the "2002 period" and the "2002 quarter," respectively) showed a decrease in revenues over the same periods in the prior year (the "2001 period" and the "2001 quarter," respectively). The continued lack of investor confidence in the U.S. equity markets and the gloomy economic data have continued to negatively impact revenues, thus reducing the net cash available to cover fixed costs and overhead. However, the net loss in the 2002 period was less than the net loss in the comparable 2001 period. For the six month period ended June 30, 2002, the Company reported a net loss available to common stockholders of $1,318,000 or $.15 per basic and diluted share, as compared to the net loss available to common stockholders reported in the same period of 2001 of $1,451,000 or $.17 per basic and diluted share. For the three months ended June 30, 2002, the Company reported a net loss applicable to common stockholders of $998,000, or $.12 per basic and diluted share, as compared to a net loss applicable to common stockholders of $808,000, or $.09 per basic and diluted share for the second quarter of 2001. The Company's primary source of revenue is derived from commissions generated on agency transactions, including the sales of listed and over-the-counter securities, mutual funds and variable insurance. Overall revenues from commissions increased 1% from the 2001 period to the 2002 period. The business mix, however, was substantially different between the two periods with increases in agency and mutual fund commissions, offsetting a decrease in the insurance business, as detailed below. Revenues from agency transactions increased $2,118,000, or 20%, from $10,795,000 in the 2001 period, to $12,912,000 in the 2002 period. As a percent of total revenues, agency revenues increased from 41% in the 2001 period, to 50% in the 2002 period. Comparing the 2002 quarter to the 2001 quarter, agency commissions increased $1,279,000, from $5,443,000 to $6,722,000. Revenues from mutual fund commissions also posted significant increases over 2001. Mutual fund revenues increased $918,000, from $2,357,000 in the 2001 period to $3,275,000, in the 2002 period, an increase of 39%, and $209,000 from $1,602,000 to $1,811,000 in the 2001 and 2002 quarters, respectively, an increase of 13%. The increase in mutual fund commissions is primarily related to an increase in sales of three products, the 529 College Savings Plan created through new legislation in October 1999, the principal protection plans, which guarantee a return of principal if invested for five years, and bond funds which have seen large increases due to the tenuous state of the equity markets. Revenues from insurance commissions decreased $3,052,000 from $5,461,000 in the 2001 period, to $2,409,000 in the 2002 period. The 2001 period included commissions from the sale of certain variable annuities by one of the Company's brokers. The large commissions generated from the sale of these annuities were a one-time occurrence and did not occur again in the 2002 period. Insurance sales subsequently returned to historic levels. Revenues from principal transactions decreased $371,000, from $4,002,000 in the 2001 period, to $3,631,000 in the 2002 period. Principal transaction revenue includes gains or losses from proprietary trading riskless principal commissions and unrealized gains or losses on inventory held in the firm's proprietary accounts. Trading in firm's proprietary accounts improved by approximately $700,000 in the 2002 period when compared with the 2002 period as the Company eliminated much of its market-making and trading activities in order to help reduce the related market/exposure and risk inherent in such types of activities. Revenues from principal transactions in the fixed income sector were down from 2001 levels by approximately $243,000. Revenues from corporate bonds and unit investment trusts ("UITs") were down due to the reduced confidence in the corporate and equity sector. On the other hand, revenues from municipal and government agency bonds increased as investors are seeking more stable investments. Interest income decreased $301,000, from $2,078,000 in the 2001 period to $1,777,000 in the 2002 period, and $76,000 from $972,000 in the 2001 quarter, to $896,000 in the 2002 quarter. The decline in market value in many of the margined security positions held in customer accounts, combined with the substantial transfer of funds out of the equity markets and into safer instruments, impacted the amount of margin loan balances customers could carry. The reduction in margin debit balances adversely affected the amount of interest sharing the Company received from the clearing firm. Compensation expense decreased $223,000, or 1%, to $21,309,000 in the 2002 period, from $21,532,000 in the 2001 period. Salaries and benefits expense decreased $770,000, or 17%, from $4,456,000 in the 2001 period, to $3,686,000 in the 2002 period, due to staff and salary reductions implemented during the second half of 2001, and to the 2002 reversal of the 401(k) company matching accrual made in 2001. Commission expense increased 3%, or $547,000, from $17,076,000 in the 2001 period to $17,623,000 in the 2002 period. Compensation expense decreased $1,182,000, or 10%, to $10,831,000 in the 2002 quarter, from $12,013,000 in the 2001 quarter. Salaries and benefits expense decreased $388,000, or 17%, from $2,263,000 in the 2001 quarter, to $1,875,000 in the 2002 quarter. Commission expense decreased 8%, or $794,000, from $9,750,000 in the 2001 quarter, to $8,956,000 in the 2002 quarter. The same factors affecting the compensation costs for the 2002 period impacted the 2002 quarter. Communication and occupancy expenses increased $98,000, to $1,554,000 in the 2002 period, from $1,456,000 in the 2001 period. The increase is primarily attributable to the Company entering into two new sub-lease agreements for corporate branch offices located in New York City. Postage expense also increased for both the 2002 period and 2002 quarter due to costs related to processing of client year end statements. Legal matters and related costs decreased $137,000, from $777,000 in the 2001 period, to $640,000 in the 2002 period, an 18% decrease. The 2002 expense includes approximately $262,500 of reserves for legal settlements, with the balance related to the cost of counsel fees and other defense costs. FMSC is a respondent in two NASD arbitrations seeking rescissionary damages of approximately $9.5 million in one case, and unspecified damages in the other. Both claims also seek statutory interest and punitive damages. Claimants in these cases have asserted substantially similar claims relating to alleged violations of various provisions of federal and state securities laws. FMSC believes that there are meritorious defenses in each case, and that actual damages, if any, will be substantially below the alleged amounts. FMSC is also a respondent in several arbitration claims arising from customer purchases of certain high yield corporate bonds which declined in market value and subsequently defaulted. The claims allege, among other charges, unsuitable recommendations and/or improper use of margin. Aggregate damages sought is in excess of $13 million. FMSC believes that there are meritorious defenses in each case, and that actual damages, if any, will be substantially below the alleged amounts. After considering all relevant facts, management believes that significant adverse judgments against FMSC from pending arbitration claims could have a material impact on the Company's financial condition, results of operations, and cash flows in any particular quarterly or annual period, or in the aggregate. As of June 30, 2002, the Company has established a $1,224,000 reserve for litigation costs that are probable and can be reasonably estimated. The reserve is included in accrued expenses. Management cannot give assurance that this reserve will be adequate to absorb actual costs that are subsequently incurred. Other operating expenses decreased $918,000, from $2,887,000 in the 2001 period, to $1,969,000 in the 2002 period and $603,000 from $1,663,000 in the 2001 quarter to $1,060,000 in the 2002 quarter. Bad debt expense decreased 62%, or $587,000, from $948,000 in the 2001 period to $361,000 in the 2002 period and for the quarter, bad debt expense decreased 69%, or $484,000, from $703,000 in the 2001 quarter to $219,000 in the 2002 quarter. The 2001 bad debt expense included a write-off of $200,000 related to payments previously made to a vendor for the development of applications software. In July 2002, the Company settled its lawsuit against the vendor by agreeing to accept $230,000, which was received in July 2002 and will be recorded in the third quarter. Costs related to the conversion to Fiserv as the Company's clearing agent decreased $168,000 due to the completion of the conversion in 2001. For the 2002 period, the effective tax rate of 0% was lower than the expected tax rate of approximately 37% due to an increase in the tax valuation allowance to offset the benefits of the current period's operating losses and other temporary differences because management is uncertain as to their ultimate realization. For the 2001 period, the income tax benefit of 34% included a tax valuation allowance against deferred tax benefits relating to that period's option compensation charges. Liquidity and Capital Resources As with most financial firms, the Company maintains a highly liquid balance sheet with 56% of the Company's assets consisting of cash, securities owned, and receivables from the Company's clearing firm and other broker-dealers. Market-making and other securities dealer activities require the Company to carry significant levels of securities inventory in order to meet customer and internal trading needs. The balances in the Company's cash, inventory and clearing firm accounts can and do fluctuate significantly from day to day, depending on market conditions, daily trading activity, and investment opportunities. The Company monitors these accounts on a daily basis in order to ensure compliance with regulatory capital requirements and to preserve liquidity. Cash and cash equivalents decreased during the first six months of 2002 by $839,000, to $941,000. Net cash used by operating activities was $394,000 for the 2002 period. The primary components of the decrease are the loss of $1,269,000 offset by an income tax refund of $997,000. This refund is a one-time source of cash. An increase in operating payables of $474,000 was also a source of cash. Payables increased due to an increase in legal settlem*ent accrual and due to timing of payables. During the first quarter of 2002, the Company filed claims for federal income tax refunds of approximately $1,000,000. These refunds were received in April 2002. Under a financial agreement with its clearing firm, the Company expects to receive a cash advance of $1,250,000 in November 2002, provided it is in compliance with the terms of the financial agreement, as defined. For financial reporting purposes, such advance will be deferred and amortized on a straight-line basis over the remaining term of the clearing agreement; however, the advance will be subject to federal and state income taxes in 2002. The Company received advances totaling $5,250,000 in 2000 and 2001 under the financing agreement Additions to capital expenditures accounted for the entire use of cash for investing activities of $125,000 during the first quarter of 2002. The Company projects $400,000 in capital expenditures over the next twelve months. Financing activities used cash of $320,000 in fiscal 2002. Payments of notes payable, capital leases and preferred stock dividends used $148,000, $97,000 and $50,000, respectively. A treasury stock repurchase also used $25,000. 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 will be amortized over the related lease terms. The leases, totaling $662,000, are together payable in 36 monthly installments of $21,000 and an additional 12 installments of $3,900. 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. The Company's market-making activities are client-driven, with the objective of meeting clients' needs while earning a positive spread. At June 30, 2002 and December 31, 2001, the balances of the Company's equity securities positions owned and sold but not yet purchased were approximately $977,000 and $82,000 and $1,199,000 and $245,000, 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 financial 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. PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security-Holders. At the Company's Annual Meeting of Shareholders on June 21, 2002, shareholders holding a majority of the voting shares approved the following: 1) A majority of votes entitled to vote elected the following Class I Directors to serve for a term of 3 years to the Board of Directors: Class II Votes Cast For Withhold Authority to Vote -------- -------------- -------------------------- Herbert Kurinsky 6,596,998 1,100 William Kurinsky 6,597,298 1,100 2) A majority of votes entitled to vote adopted the 2002 Incentive Stock Option Plan: Votes Cast for Votes Cast Against -------------- ------------------ 1,511,911 577,007 3) A majority of votes entitled to vote adopted the 2002 Non-Executive Director Stock Option Plan: Votes Cast for Votes Cast Against -------------- ------------------ 1,545,412 543,836 Item 5. Other Information. During the quarter ended June 30, 2002, the Company repurchased 100,000 shares of its common stock for $25,000 under a share repurchase program authorized in 1999. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 99.1 - Certification of Herbert Kurinsky Exhibit 99.2 - Certification of William J. Kurinsky (b) Reports on Form 8-K There were no reports on Form 8-K filed. 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: August 14, 2002 /s/ William J. Kurinsky ------------------------------- William J. Kurinsky Secretary/Treasurer Chief Financial Officer and Principal Accounting Officer /s/ Herbert Kurinsky ------------------------------- Herbert Kurinsky President Exhibit 99.1 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 June 30, 2002 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 August 14, 2002 Exhibit 99.2 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 June 30, 2002 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 August 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----