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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended March 31, 2003

Commission file number 0-14140

First Albany Companies Inc.______________________________________________

(Exact name of registrant as specified in its charter)

New York                                                                                                        22 - 2655804

(State or other jurisdiction of                                                                     (I.R.S. Employer

incorporation or organization)                                                                   Identification No.)

30 South Pearl St., Albany, NY                                                                                12207

(Address of principal executive offices)                                                                (Zip Code)

(518) 447-8500

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 (1)  No         

Indicate by check mark whether the registrant is an accelerated filer (as defined by rule12b-2 of the Act)

Yes   No    X    

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

  10,837,595 shares of Common Stock were outstanding as of the close of business on April 23, 2003.

FIRST ALBANY COMPANIES INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

Page

Part I - Financial Information

Item 1.Financial Statements

Condensed Consolidated Statements of Financial

    Condition at March 31, 2003 (unaudited) and

    December 31, 2002                                                                                3

Condensed Consolidated Statements of Operations

    for the Three Months Ended March 31, 2003 and

    March 31, 2002 (unaudited)                                                                   4

Condensed Consolidated Statements of Cash Flows

    for the Three Months Ended March 31, 2003

    and March 31, 2002 (unaudited)                                                            5

Notes to Condensed Consolidated Financial

    Statements (unaudited)                                                                        6-15

Item 2.Management's Discussion and Analysis of Financial

Condition and Results of Operations                                                                  16-20

Item 3. Quantitative and Qualitative Disclosure About Market Risk                     21-22

Item 4. Controls and Procedures                                                                          23

Part II - Other Information

Item 1.Legal Proceedings                                                                                        24

Item 6.Exhibits and Reports on Form 8-K                                                          25-30

See notes to the condensed consolidated financial statements

1.  Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements contain all normal, recurring adjustments necessary for a fair presentation of results for such periods. The results for any interim period are not necessarily indicative of those for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2002.

2.  Reclassification

Certain 2002 amounts have been reclassified to conform to the 2003 presentation.

3.  Comprehensive Income

The Company has no components of other comprehensive income, therefore comprehensive income equals net income.

4.  Earnings Per Common Share

Basic earnings per share have been computed based upon the weighted average number of common shares outstanding. Dilutive earnings per share has been computed based upon the weighted average number of common shares outstanding plus the effect of all potentially dilutive common stock equivalents outstanding during the reporting period.

For the three months ended March 31, 2002, the Company excluded approximately 0.1 million common stock equivalents, in its computation of dilutive earnings per share because they were anti-dilutive.

5.  Investments

The Company's investment portfolio includes interests in publicly and privately held companies. Information regarding these investments has been aggregated and is presented below.

Publicly held investments include 853,924 shares of META Group Inc. ("META") with a market value of $3.2 million. The Company is restricted in the sales of these shares under Securities and Exchange Commission Rule 144. Under Rule 144 the Company's sales of META for a three month period may not exceed the greater of one percent of the outstanding shares of META or the average weekly volume of trading in META during the four calendar weeks preceding the sale. META currently has 13.2 million shares outstanding and had an average weekly volume for the four calendar weeks ended March 28, 2003 of approximately 90,000 shares. Also included in publicly held investments are 2,721,088 shares of Plug Power ("PLUG") with a market value of $13.8 million which can not be sold until after December 23, 2003 and 2,991,040 shares of Mechanical Technology Incorporated ("MKTY") with a market value of $5.7 million which can not be sold until after December 23, 2004. PLUG and MKTY are also subject to Rule 144 restrictions after the expiration of the time during which they can not be sold.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities". Under FIN No. 46, the Company is required to consolidate one of its Employee Investment Funds (EIF).  The EIF is a limited liability company, established by the Company for the purpose of having select employees invest in private equity placements. The EIF is managed by FAC Management Corp., which has contracted with FA Technology Ventures Corporation, a subsidiary of the Company, to act as an investment advisor with respect to funds invested. The carrying value on the Company's books related to this EIF is $1.6 million excluding the effects of consolidation. The Company is also committed to loan approximately $1.7 million to the EIF of which $1.1 million was provided in April 2003. The Company's maximum exposure to loss from the EIF is the carrying value of $1.6 million and the loan commitment of $1.7 million. The effect of consolidation, as of March 31, 2003, is to increase Investments by $2.2 million, decrease Receivable from Others by $1.0 million and increase Payable to Others by $1.2 million. The Payable to Others amounts relates to the value of the EIF owned by employees.

6.  Receivables from Customers

Receivables from customers include amounts due on cash and margin transactions. Securities owned by customers are held as collateral for receivables. Such collateral is not reflected in the financial statements. Included in receivables from customers are accounts of officers, directors, employees and related individuals mainly under margin loans which as of March 31, 2003, approximated $1.6 million and as of December 31, 2002 approximated $3.4 million.

7.  Receivables from Others

Amounts receivable from others consisted of the following at:

Proprietary securities transactions are recorded on trade date, as if they had settled. The related amounts receivable and payable for unsettled securities transactions are recorded net in Receivables or Payables to Others on the Statement of Financial Condition.

8.  Securities Owned And Sold But Not Yet Purchased

Securities owned and sold but not yet purchased consisted of the following at:

Securities not readily marketable include investment securities (a) for which there is no market on a securities exchange or no independent publicly quoted market, (b) that cannot be publicly offered or sold unless registration has been effected under the Securities Act of 1933, or (c) that cannot be offered or sold because of other arrangements, restrictions or conditions applicable to the securities or to the Company.

9.  Payables to Others

Amounts payable to others consisted of the following at:

Proprietary securities transactions are recorded on trade date, as if they had settled. The related amounts receivable and payable for unsettled securities transactions are recorded net in Receivables or Payables to Others on the Statement of Financial Condition.

10.   Intangible Assets

Aggregate amortization expense for the three month period ending March 31,2003 and 2002 was $22,000 and 0 , respectively.

Customer related intangible assets are being amortized over 10 years.

The changes in the carrying amount of goodwill for the period ended March 31, 2003, are as follows:

The intangible assets are related to the First Albany Asset Management Segment and will be tested annually for impairment in the quarter ending December 31 of each fiscal year.

11.  Notes Payable

Notes payable consist of a note for $1.0 million which is payable in monthly principal payments of $73,333 plus interest. The interest rate is 1.5% over the 30-day London InterBank Offered Rate ("LIBOR") (1.30% plus 1.50% at March 31, 2003) This note matures on April 1, 2004.

A note for $6.6 million collateralized by 2,991,040 shares of Mechanical Technology Inc. (MKTY), 2,000,000 shares of Plug Power Inc. (PLUG) and 853,924 shares of META Group Inc. (METG) is payable in quarterly principal payments of $525,000 plus interest. The interest rate is fixed at 7% for the term of the loan. This loan matures September 1, 2006.

12.  Commitments and Contingencies

Commitments: As of March 31, 2003, the Company had a commitment through July 2006 to invest up to $16.3 million in FA Technology Ventures, L.P. (the "Partnership"). The Company intends to fund this commitment from the sale of other investments and operating cash flow. The Partnership's primary purpose is to provide a source of venture capital to enable privately owned businesses to expand, while providing market-rate investment returns consistent with risks of investing in venture capital. In addition to the Company, certain other limited partners of the Partnership are officers or directors of the Company. The majority of the commitments to the Partnership are from non-affiliates of the Company.

The General Partner for the Partnership is FATV GP LLC. The General Partner is responsible for the management of the Partnership, including among other things, making investments for the Partnership. The members of the General Partnership are George McNamee, Chairman of the Company, First Albany Enterprise Funding, Inc., a wholly owned subsidiary of the Company, and other employees of the Company or its subsidiaries. Mr. McNamee is required under the Partnership agreement to devote a majority of his business time to the conduct of the affairs of the Partnership and any parallel funds. Subject to the terms of the Partnership Agreement, under certain conditions, the General Partnership is entitled to share in the gains received by the Partnership in respect of its investment in a portfolio company. The General Partner will receive a carried interest on customary terms. The General Partner has contracted with FA Technology Ventures Corporation (FATV), a wholly owned subsidiary of the Company, to act as an investment advisor to the General Partner.

As of March 31, 2003, the Company had an additional commitment through July 2006 to invest up to $12.2 million in funds that invest in parallel with the Partnership, which it intends to fund through current and future Employee Investment Funds (EIF). EIF are limited liability companies, established by the Company for the purpose of having select employees invest in private equity placements. The EIF are managed by FAC Management Corp., which has contracted with FATV to act as an investment advisor with respect to funds invested in parallel with the Partnership. The Company anticipates that the commitment related to EIF will be funded primarily by employees; however, the Company must fund any amount, which is not. Some individuals who are members of the General Partnership have established their own fund to invest at least $2.6 million in parallel with the Partnership. This fund is managed by FATV GP LLC. The fund is not charged a management fee by FATV GP LLC.

Litigation: In mid-2002, First Albany Corporation received a subpoena from the Attorney General's Office of the State of New York in connection with the industry-wide probe of research analyst activities. Management does not believe that this proceeding will have a material adverse effect on the Company's liquidity or financial position. There can be no assurance, however, that such proceeding will not have a material adverse effect on quarterly or annual operating results in the period in which it is resolved. An industry-wide settlement of these matters has been announced and could result in structural changes in certain aspects of our business. The outcome of these negotiations and the impact of such possible changes on the business of the Company or its results of operations remain uncertain.

In 1998 the Company was named in lawsuits by Lawrence Group, Inc. and certain related entities (the" Lawrence Parties") in connection with a private sale of Mechanical Technology Incorporated stock from the Lawrence Parties that was previously approved by the United States Bankruptcy Court for the Northern District of New York (the "Bankruptcy Court"). The Company acted as placement agent in that sale, and a number of employees and officers of the Company, who have also been named as defendants, purchased shares in the sale. The complaints alleged that the defendants did not disclose certain information to the sellers and that the price approved by the court was therefore not proper. The cases were initially filed in the Bankruptcy Court and the United States District Court for the Northern District of New York (the "District Court"), and were subsequently consolidated in the District Court. The District Court dismissed the cases, and that decision was subsequently vacated by the United States Court of Appeals for the Second Circuit, which remanded the cases for consideration of the plaintiffs' claims as motions to modify the Bankruptcy Court sale order. The plaintiffs' claims have now been referred back to the Bankruptcy Court for such consideration.

The Company believes that it has strong defenses to and intends to vigorously defend itself against the plaintiffs' claims, and believes that the claims lack merit.

In 1999, the Company acted as a placement agent for a $7.5 million bond issue. In July 2002, as a result of a dispute between the Company and the buyer of the bonds, the Company entered into an agreement, which expires on January 4, 2004, that indemnified the buyer for up to $3.7 million of potential realized losses which might be incurred on the outstanding principal amount of the bonds and up to $0.5 million for related legal fees and $0.5 million for unpaid debt service. These bonds are collateralized by a first security interest in certain rights, titles and interests of the company for whom the bonds were issued. As of March 31, 2003, management has estimated the probable amount of the loss expected to be incurred based upon current conditions and has accordingly accrued a $2.4 million expense related to this agreement of which $0.9 million of this liability has been paid. In entering into this agreement, the Company and the buyer of the bonds did not admit or concede to any liability, wrongdoing, misconduct or damages of any kind.

In the normal course of business, the Company has been named a defendant, or otherwise has possible exposure, in several claims. Certain of these are class actions, which seek unspecified damages, which could be substantial. Although there can be no assurance as to the eventual outcome of litigation in which the Company has been named as a defendant or otherwise has possible exposure, the Company has provided for those actions most likely of adverse dispositions.  Although further losses are possible, the opinion of management, based upon the advice of its attorneys and General Counsel, is that such litigation will not, in the aggregate, have a material adverse effect on the Company's liquidity or financial position, although it could have a material effect on quarterly or annual operating results in the period in which it is resolved.

Contingent Consideration:

Under the terms of the Noddings purchase agreement, the Company may be required to pay up to $750,000 of additional cash consideration contingent upon the amount of assets under management on various dates through 2004.

Other: The Company enters into underwriting commitments to purchase securities, as part of its investment banking business. Also, the Company may purchase and sell securities on a when-issued basis. As of March 31, 2003, the Company had no outstanding underwriting commitments and had purchased securities on a when-issued basis with a market value of $1.8 million.

13.  Stockholders' Equity

In April 2003, the Board of Directors declared the regular quarterly dividend of $0.05 per share for the first quarter ended March 31, 2003, payable on May 28, 2003 to stockholders of record on May 14, 2003.

14.  Benefit Plans

First Albany Companies Inc. has established several stock incentive plans through which eligible employees of the Company may be awarded stock options, stock appreciation rights and restricted common stock of the Company. The purpose of these stock incentive plans are to promote the interests of the Company, its subsidiaries and its shareholders by enabling the Company and its subsidiaries to attract, retain and motivate employees and officers or those who will become employees or officers of the Company and/or its subsidiaries, and to align the interest of those individuals with the Company's stockholders. To do this, these plans offer performance-based incentive awards and equity-based opportunities to provide such persons with a proprietary interest in maximizing the growth, profitability and overall success of the Company.

The Company has elected to follow Accounting Principals Board No. 25 "Accounting for Stock Issued to Employees" ("APB 25") in accounting for the stock incentive plans. The Company, under APB 25, has not recognized any compensation cost for the quarters ended March 31, 2003 and 2002.

The following table reflects pro forma results as if the Company had elected and recognized compensation costs for the stock incentive plans to follow Financial Accounting Standard No. 123 (FAS 123) "Accounting for Stock-Based Compensation".

15.  Net Capital Requirements

The Company's broker-dealer subsidiary, First Albany Corporation (the "Corporation"), is subject to the Securities and Exchange Commission's Uniform Net Capital Rule, which requires the maintenance of a minimum net capital. The Corporation has elected to use the alternative method permitted by the rule, which requires the Corporation to maintain a minimum net capital of 2% of

aggregate debit balances arising from customer transactions as defined or $1 million, whichever is greater. As of March 31, 2003, the Corporation had aggregate net capital, as defined, of $22.7 million, which equaled 76.7% of aggregate debit balances and $21.7 million in excess of required minimum net capital.

16.  Segment Analysis

Due to the acquisition of Noddings on December 31, 2002 the Company has expanded its segments to break out First Albany Asset Management from Parent and Affiliates. The Company's reportable segments include Taxable Fixed Income, Municipal Capital Markets, Equity Capital Markets, Fixed Income-Other and Corporate-Other which collectively comprise First Albany Corporation, the Company's brokerage operations; Parent and Affiliates, First Albany Asset Management and Investments. The Company evaluates the performance of its segments and allocates resources to them based on various factors, including prospects for growth, return on investment, and return on revenue.

The Taxable Fixed Income segment includes institutional sales and trading of corporate, federal government and agency securities. The Municipal Capital Markets segment includes underwriting and institutional sales and trading of municipal securities. The Equity Capital Markets segment includes institutional sales and trading of equity securities, corporate finance advisory services and underwritings. The Fixed Income-Other segment includes institutional sales and trading of fixed income middle markets and taxable municipal securities. The Corporate-Other segment includes stock loan/borrow operations and other unallocated revenues and expenses.

The Parent and Affiliates segment, includes the Parent company, excluding its investment portfolio, and the asset management services of FA Technology. The First Albany Asset Management segment includes Noddings Investments. The Investment segment includes realized gains and losses, unrealized gains and losses and the equity in income and loss of affiliate from the Company's investment portfolio including gains on sale of equity holdings.

Intersegment revenue has been eliminated for purposes of presenting net revenue so that all net revenue presented is from external sources. Interest revenue is allocated to the operating segments and is presented net of interest expense for purposes of assessing the performance of the business segment. Depreciation and amortization is allocated to the business segments. Total Net Revenue presented below differs from that presented in the financial statements as a result of the inclusion of the equity in income and loss of affiliate and sale of equity holdings as a component of the segment financial information.

Information concerning operations in these segments is as follows for the three months ending March 31: