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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

|   |  |   |  |                                                                                         
|-- |  | - |  | ----------------------------------------------------------------------------------------
|   |  | x |  | Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934    
|   |  |   |  |                                                                                         
|   |  |   |  | For the fiscal year ended December 31, 2002                                             
|   |  |   |  |                                                                                         
|or
|   |  |   |  |                                                                                         
|   |  | o |  | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from ____________ to ____________

Commission file number: 0-31049

TradeStation Group, Inc.

(Exact name of registrant as specified in its charter)

|                                                                       |  |                                                
|---------------------------------------------------------------------- |  | -----------------------------------------------
|Florida
(State or other jurisdiction of incorporation or organization) |  | 65-0977576
(I.R.S. Employer Identification No.)

|                                                                                                |  |                 
|----------------------------------------------------------------------------------------------- |  | ----------------
|8050 S.W. 10th Street, Suite 4000, Plantation, Florida
(Address of principal executive offices) |  | 33324
(Zip Code)

954-652-7000
(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock, par value $.01 per share
(Title of class)

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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (17 CFR 229.405) is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K x

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes o No x

The aggregate market value of the registrants common stock held by
non-affiliates of the registrant on June 28, 2002, based upon the closing
market price of the registrants common stock on The Nasdaq National Market on
such date, was approximately $27,329,000.

The registrant had 39,590,042 shares of common stock, $.01 par value,
outstanding as of March 10, 2003.

DOCUMENTS INCORPORATED BY REFERENCE
NONE.



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|                                                                                                    |                                                                                                         |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                                             
|                                                                                                    | ITEM 1. BUSINESS                                                                                       
|                                                                                                    | Overview and Recent Developments                                                                       
|                                                                                                    | Industry Background                                                                                    
|                                                                                                    | Products and Services                                                                                  
|                                                                                                    | Sales and Marketing                                                                                    
|                                                                                                    | Strategic Relationships                                                                                
|                                                                                                    | Technology Development                                                                                 
|                                                                                                    | Client Services and Support and Training                                                               
|                                                                                                    | Competition                                                                                            
|                                                                                                    | Intellectual Property                                                                                  
|                                                                                                    | Government Regulation                                                                                  
|                                                                                                    | Employees                                                                                              
|                                                                                                    | ITEM 2. PROPERTIES                                                                                     
|                                                                                                    | ITEM 3. LEGAL PROCEEDINGS                                                                              
|                                                                                                    | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            
|PART II                                                                                            
|                                                                                                    | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                          
|                                                                                                    | Common Stock Information                                                                               
|                                                                                                    | Dividend Policy                                                                                        
|                                                                                                    | Recent Sales of Unregistered Securities                                                                
|                                                                                                    | ITEM 6. SELECTED FINANCIAL DATA                                                                        
|                                                                                                    | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          
|                                                                                                    | Overview                                                                                               
|                                                                                                    | Results of Operations                                                                                  
|                                                                                                    | Critical Accounting Policies and Estimates                                                             
|                                                                                                    | Years Ended December 31, 2002 and 2001                                                                 
|                                                                                                    | Years Ended December 31, 2001 and 2000                                                                 
|                                                                                                    | Income Taxes                                                                                           
|                                                                                                    | Variability of Results                                                                                 
|                                                                                                    | Liquidity and Capital Resources                                                                        
|                                                                                                    | Off-Balance-Sheet Arrangements                                                                         
|                                                                                                    | Recently Issued Accounting Standards                                                                   
|                                                                                                    | Issues, Uncertainties and Risk Factors                                                                 
|                                                                                                    | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                    
|                                                                                                    | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    
|                                                                                                    | ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE            
|PART III                                                                                           
|                                                                                                    | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                            
|                                                                                                    | Directors and Executive Officers                                                                       
|                                                                                                    | Independent Directors; Committees of the Board of Directors                                            
|                                                                                                    | Audit Committee Financial Experts                                                                      
|                                                                                                    | Section 16(a) Beneficial Ownership Reporting Compliance                                                
|                                                                                                    | ITEM 11. EXECUTIVE COMPENSATION                                                                        
|                                                                                                    | Executive Compensation Tables                                                                          
|                                                                                                    | Other Compensation Arrangements                                                                        
|                                                                                                    | Non-Competition Agreements                                                                             
|                                                                                                    | Compensation Committee Interlocks And Insider Participation                                            
|                                                                                                    | Director Compensation                                                                                  
|                                                                                                    | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|                                                                                                    | Equity Compensation Plan Information                                                                   
|                                                                                                    | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                
|                                                                                                    | ITEM 14. CONTROLS AND PROCEDURES                                                                       
|PART IV                                                                                            
|                                                                                                    | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                              
|SIGNATURES                                                                                         
|CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CO-CHIEF EXECUTIVE OFFICER
|CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CO-CHIEF EXECUTIVE OFFICER
|CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CHIEF FINANCIAL OFFICER   
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                                                 
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS *                                               
|CONSOLIDATED BALANCE SHEETS                                                                        
|CONSOLIDATED STATEMENTS OF OPERATIONS                                                              
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY                                                    
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                              
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                         
|INDEX TO CONSOLIDATED FINANCIAL SCHEDULE                                                           
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE                                     
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE*                                    
|SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS                                                    
|EXHIBIT INDEX                                                                                      
|EX-10.14 Modification and Ratification of Lease                                                    
|EX-10.16 Lease Termination and Surrender Agreement                                                 
|EX-10.21 Sublease Agreement                                                                        
|EX-10.23 Stock Purchase Agreement dated 8/18/02                                                    
|EX-10.24 Stock Purchase Agreement dated 10/18/02                                                   
|EX-10.25 Stock Purchase Agreement dated 11/26/02                                                   
|EX-23.1 Consent of Ernst & Young LLP                                                               
|EX-99.1 Certification Co-Chief Executive Officers                                                  
|EX-99.2 Certification of Chief Financial Officer                                                   



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TABLE OF CONTENTS

|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                       |  | Page
|         |  |                                                                                       |  |     
|PART I   |  |                                                                                       |  |     
|         |  |                                                                                       |  |     
|ITEM 1.  |  | BUSINESS                                                                              |  | 1   
|         |  |                                                                                       |  |     
|         |  | Overview and Recent Developments                                                      |  | 1   
|         |  | Industry Background                                                                   |  | 3   
|         |  | Products and Services                                                                 |  | 5   
|         |  | Sales and Marketing                                                                   |  | 7   
|         |  | Strategic Relationships                                                               |  | 8   
|         |  | Technology Development                                                                |  | 8   
|         |  | Client Services and Support and Training                                              |  | 9   
|         |  | Competition                                                                           |  | 9   
|         |  | Intellectual Property                                                                 |  | 11  
|         |  | Government Regulation                                                                 |  | 12  
|         |  | Employees                                                                             |  | 14  
|         |  |                                                                                       |  |     
|ITEM 2.  |  | PROPERTIES                                                                            |  | 14  
|         |  |                                                                                       |  |     
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                     |  | 15  
|         |  |                                                                                       |  |     
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 15  
|         |  |                                                                                       |  |     
|         |  |                                                                                       |  |     
|PART II  |  |                                                                                       |  |     
|         |  |                                                                                       |  |     
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS                 |  | 16  
|         |  | Common Stock Information                                                              |  | 16  
|         |  | Dividend Policy                                                                       |  | 16  
|         |  | Recent Sales of Unregistered Securities                                               |  | 16  
|         |  |                                                                                       |  |     
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                               |  | 17  
|         |  |                                                                                       |  |     
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS |  | 18  
|         |  | Overview                                                                              |  | 18  
|         |  | Results of Operations                                                                 |  | 20  
|         |  | Critical Accounting Policies and Estimates                                            |  | 21  
|         |  | Years Ended December 31, 2002 and 2001                                                |  | 22  
|         |  | Years Ended December 31, 2001 and 2000                                                |  | 27  
|         |  | Income Taxes                                                                          |  | 30  
|         |  | Variability of Results                                                                |  | 31  
|         |  | Liquidity and Capital Resources                                                       |  | 31  
|         |  | Off-Balance-Sheet Arrangements                                                        |  | 33  
|         |  | Recently Issued Accounting Standards                                                  |  | 33  
|         |  | Issues, Uncertainties And Risk Factors                                                |  | 34  
|         |  |                                                                                       |  |     
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 42  
|         |  |                                                                                       |  |     
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           |  | 42  
|         |  |                                                                                       |  |     
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 42  





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|               |  |                                                                                                |  |     
|-------------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|               |  |                                                                                                |  | Page
|               |  |                                                                                                |  |     
|PART III       |  |                                                                                                |  |     
|               |  |                                                                                                |  |     
|ITEM 10.       |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                             |  | 43  
|               |  |                                                                                                |  |     
|ITEM 11.       |  | EXECUTIVE COMPENSATION                                                                         |  | 46  
|               |  |                                                                                                |  |     
|ITEM 12.       |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS |  | 52  
|               |  |                                                                                                |  |     
|ITEM 13.       |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                 |  | 53  
|               |  |                                                                                                |  |     
|ITEM 14.       |  | CONTROLS AND PROCEDURES                                                                        |  | 54  
|               |  |                                                                                                |  |     
|               |  |                                                                                                |  |     
|PART IV        |  |                                                                                                |  |     
|               |  |                                                                                                |  |     
|ITEM 15.       |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                               |  | 55  
|               |  |                                                                                                |  |     
|SIGNATURES     |  | 59                                                                                            
|               |  |                                                                                                |  |     
|CERTIFICATIONS |  | 60                                                                                            





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PART I




ITEM 1. BUSINESS




Overview and Recent Developments

TradeStation Group, Inc., a Florida corporation formed in 2000, is the
successor company to Omega Research, Inc., a Florida corporation that was
formed in 1982. TradeStation Group is listed on The Nasdaq National Market
under the symbol TRAD. TradeStation Securities, Inc. and TradeStation
Technologies, Inc. are TradeStation Groups two operating subsidiaries. See
Note 3 of Notes to Consolidated Financial Statements  BUSINESS COMBINATIONS.

TradeStation Securities, a leading direct-access brokerage firm serving
the active trader and certain institutional trader markets, is the companys
principal operating subsidiary. By the end of 2002, TradeStation Securities
had nearly 8,000 equities and futures accounts. The average equities account
made more than 600 revenue trades during 2002, and the average futures account
traded just under 500 round-turn contracts. During the 2002 fourth quarter,
TradeStation Securities equities account base averaged just under 13,000
revenue trades per trading day, and its future accounts base traded, on
average, more than 4,250 round-turn contracts per trading day. The average
account asset balance of an equities account was more than $100,000 during the
2002 fourth quarter.

In March 2003, we launched the latest version of our electronic trading
platform: TradeStation 7. TradeStation 7contains significant enhancements to
TradeStation 6, including our award-winning RadarScreenand OptionStation
technologies for equities and options traders, list/basket trading and multiple
account allocation features for institutional traders, improved seamless
direct-access order execution for electronic futures trades, and 10 years of
historical one-minute-and-above intra-day equities data and 20 years of
historical one-minute-and-above futures data.

In the March 10, 2003 issue of Barronsmagazine, TradeStation Securities,
based principally on the magazines review of the TradeStation 7electronic
trading platform, was named the Best Broker for the Active Trader.
TradeStation Securities also won the Technical Analysis of Stocks and
CommoditiesReaders Choice Awards for best Direct Access Stock Brokerage, best
Direct Access Futures Brokerage, best Institutional Platform, and best
Professional Platformin February 2003. TradeStation Securities has won
similar first-place awards and ratings since the 2001 launch of the
TradeStationelectronic trading platform.

The TradeStationelectronic trading platform seamlessly integrates
powerful strategy trading software tools, historical and streaming real-time
market data, and intelligent direct-access order-routing and execution.
Direct-access trading means, with respect to equity security and futures
transactions, direct Internet connections to electronic marketplaces, such as
electronic communication networks (ECNs) or E-Mini exchanges, where anonymous
buyers and sellers participating on the network are matched. A formal patent
application covering the TradeStationelectronic trading platform has been
filed with the United States Patent and Trademark Office.

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We seek recurring revenues mainly by offering, through the TradeStation
electronic trading platform, commission-based brokerage services. We have
leveraged our historical success providing strategy trading software tools, and
the unique quality and functionality of those tools, to build a high-quality
brokerage customer base of institutional, professional and serious, active
individual traders.

We also continue to provide via our technologies subsidiary, TradeStation
Technologies, subscription services for TradeStation.The subscription version
of TradeStationis an institutional-quality service that offers strategy
trading software tools that generate real-time buy and sell alerts based upon
the subscribers programmed strategies, but does not include order execution.
Subscribers are charged a monthly subscription fee. Domestically, we no longer
offer our traditional software products, i.e., client software products
delivered on disks.

TradeStation Technologies also owns and operates TradeStationWorld.com,
which was launched July 2002. TradeStationWorld.comis an interactive
community for active traders who engage or have interest in the development,
testing and use of objective trading strategies. The community provides
numerous discussion forums on a variety of topics related to strategy
development and technical trading as well as TradeStationproduct and service
features, articles about trading from industry leaders, and a library of
strategy indicators, rules and components written in our proprietary
EasyLanguage, many of which are donated by third parties. The company believes
that TradeStationWorld.comhas generated and will continue to generate renewed
and intensified interest in strategy traders who use TradeStationtrading
software, as well as a new generation of traders who wish to embrace strategy
trading through a state-of-the-art trading platform.

Our principal executive offices are located in The TradeStation Building,
8050 S.W. 10th Street, Suite 4000, Plantation, Florida 33324, and our telephone
number is (954) 652-7000.

THIS REPORT (PARTICULARLY ITEM 1. BUSINESS AND ITEM 7. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. SEE ITEM 7. MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  ISSUES,
UNCERTAINTIES AND RISK FACTORS.

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Industry Background

Active Trader Market

The active trader market is usually defined as retail individuals, which
include intra-day or day traders, semi-professionals, active self-directed
traders, people who trade for themselves as a full-time or part-time business
endeavor, or any other individual that trades much more actively than the
typical online trading account. An active trader has historically been defined
as one who trades a minimum of 10 times per month.

The vast majority of active traders are believed to be with traditional
online brokerage firms (e.g., Schwab, E*Trade, Ameritrade, T.D. Waterhouse,
Fidelity, etc.). It has been estimated that 5% (or more) of each traditional
online brokerage firms client base consists of active traders. All of the
large online brokerage firms have tried over the past two to three years to
acquire direct-access firms or technology, and more sophisticated trading
analysis platforms, in order to retain and grow this most valuable segment of
their client bases. There are estimated to be approximately 20 million online
accounts today, and direct-access accounts (many of which are active trader
accounts) have grown dramatically over the last few years and account for a
higher percentage of trading activity of both Nasdaq and listed securities.
According to a Q1 2002 report by JPMorgan H&Q, during the 2001 fourth quarter
ECNs gained market share for the eighth consecutive quarter and accounted for
51.2% of Nasdaq trades. ECNs, of course, are one of the avenues of electronic
order placement and execution used by direct-access online traders. According
to an April 2002 article in Tradersmagazine, 40% of all order flow  both
listed and Nasdaq  [is] handled electronically today, [and] it could rise to
as much as 75 percent in two years. The article states that such electronic
order flow was placed mostly by self-directed and active traders. Active
traders are believed to account for more than half of online daily trades
(approximately 1 million daily trades), and have larger account asset balances
(under current regulations, a minimum account balance of $25,000 is required
for day trading). In the 2002 fourth quarter, the average account asset
balance of a TradeStation Securities equities account was more than $100,000.

We believe an online brokerage focused on active traders, in order to
maximize its potential for successful market penetration, needs to deliver:



| |  |  | Strategy testing and automation, and advanced charting and analysis, software                                                                                                                                                                  
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Streaming, real-time quotes, including Level II                                                                                                                                                                                                
|
| |  |  | Direct-access order placement and execution                                                                                                                                                                                                    
|
| |  |  | Access to most, if not all, electronic execution agents (ECNs,
SuperSOES, SuperDOT, etc.)                                                                                                                                                      
|
| |  |  | Intelligent/smart order routing                                                                                                                                                                                                                
|
| |  |  | State-of-the-art advanced orders capabilities  the ability to use
various order-placement features (limits, trailing stops, simultaneous
orders, contingency orders, reserve orders, hidden orders, pegged
orders, discretionary orders, etc.)
|
| |  |  | Client training services                                                                                                                                                                                                                       
|
| |  |  | Trade desk, brokerage client and technical support services                                                                                                                                                                                    
|
| |  |  | A commission pricing structure that is suitable for active traders                                                                                                                                                                             

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TradeStation Securities offers each of the above-mentioned features,
including an attractive per share (as opposed to per ticket) pricing structure.

Institutional Trader Market

We see the institutional trader market, as it relates to potential client
relationships for direct-access brokerage firms like TradeStation Securities,
as hedge fund and money managers, registered investment advisers and commodity
trading advisors who use short-term trading strategies, and institutional
service bureau arrangements.

There are approximately 6,000 hedge funds today (approximately 2,000 of
which manage assets under $100 million), 1,680 commodity pool operators, 13,000
registered investment advisors, 800 registered commodity trading advisors and
8,000 unregistered commodity trading advisors. A service bureau arrangement is
one in which the direct-access broker  the service bureau  provides mainly
its technology and systems, and perhaps technical support and minor trade desk
support services, to the institutional clients of the broker-dealer it serves,
but no other brokerage or financial services. The firm-client relationship
remains mostly (or solely) between the end-user institutional client and its
prime broker-dealer (who is, in effect, the service bureaus customer). We do
not currently act as a service bureau. However, it is possible we may be
offered, or pursue, such opportunities as we continue to add features
attractive to institutional traders to the TradeStationelectronic trading
platform, as discussed in more detail in the next two paragraphs. We believe
it is worth noting that without even taking into account the new institutional
features that TradeStation 7offers, TradeStation Securities electronic
trading platform was rated the best Institutional Platform and the best
Professional Platform in Technical Analysis of Stocks & Commoditiesmagazines
2003 Readers Choice Awards.

Many believe that buy side institutional traders have become less and less
pleased with Wall Street (traditional sell side brokerage firms) and are
moving, to one degree or another, towards using direct-access execution of
their trading decisions. The biggest concern institutional traders are said to
have today is that the cost of their trades  not just commissions, but mainly
the costs that result from adverse market movement caused by large block trades
 is no longer acceptable, particularly given the market conditions of the past
three years. Accordingly, these institutional traders are looking for systems
that provide the fastest execution at the best prices possible. The fastest
execution is provided by robust direct-access technology, and the best prices
possible means an exhaustive list of execution venues to ensure maximum access
to liquidity through intelligent order routing. It also means that the
direct-access platform offers stealthy execution of large block orders
(anonymity) through advanced reserve order, hidden order, discretionary order
and order pegging technology  technology that enables the trade to be
completed with minimal market disturbance. These basics: (1) effective, robust
speedy execution; (2) full liquidity (all avenues available); (3) advanced
order capabilities; and (4) intelligent order routing, must be in place before
an institutional fund manager or other institutional buy side trader will
consider using a direct-access brokerage firm. These are all strengths of the
TradeStationelectronic trading platform.

Other features and services that are important to many buy side
institutional traders include sophisticated decision-support front ends,
automated trading functionality, list/basket trading, multiple account trade
allocation, and a broad scope of assets (stocks, options and futures).
TradeStation 7contains, arguably, the best decision-support and automated
trading functionality

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on the market, list/basket trading, multiple account trade allocation, and
state-of-the-art direct-access execution services for both stocks and futures.
It also includes award-winning options trading research and analysis
functionality.




Products and Services

Overview  TradeStation

Our main product/service offering is the TradeStationelectronic trading
platform, complete with direct-access order execution services, for
institutional, professional and serious, active individual traders. A formal
patent application covering what we believe to be the unique, powerful
technology of TradeStationis pending. TradeStationdoes not provide
investment or trading advice or recommendations, or recommend the use of any
particular strategy, but rather enables the trader to design, test and automate
his own, custom trading strategies. TradeStationis a registered trademark in
the United States, Australia, Canada, the European Community, Indonesia, Korea,
Singapore, South Africa and Taiwan.

In addition to offering the TradeStationelectronic trading platform to
the brokerage customers of our TradeStation Securities subsidiary, we offer,
through our TradeStation Technologies subsidiary, TradeStationsubscriptions.
The difference between the TradeStationelectronic trading platform and the
TradeStationsubscription service is that the subscription service does not
include order execution or account management capabilities.

TradeStationhas, since its initial release as a strategy trading software
program in 1991, been our flagship product. From 1996 until October 2001 it
was marketed worldwide to institutional traders on a monthly subscription basis
by Telerate, Inc. as a premium tool for the Telerate data feed service. It has
also served, and continues to serve, as a strategy trading platform for
numerous third-party software applications. Its state-of-the-art technology
empowers the trader to design and develop a trading strategy based upon the
traders objective rules and criteria, test the potential profitability of that
trading strategy against historical data, and then computer-automate it to
monitor the applicable market and alert the trader in real-time when the
criteria of the trading strategy have been met and an order should, therefore,
be placed. The principal features of TradeStationwhich enable the trader to
design and develop trading strategies are EasyLanguageand the PowerEditor.
EasyLanguageis a proprietary computer language we developed consisting of
English-like statements and trading terms which can be input by the trader to
describe particular objective rules and criteria. The PowerEditoris a
compiler of EasyLanguagestatements that provides the trader with considerable
flexibility to modify and combine different trading rules and criteria, which
ultimately result in the design of the traders trading strategies.
EasyLanguageand PowerEditorare also registered trademarks.

Brokerage Services

TradeStation Securities principal offering today is online brokerage
services, covering both equity security and futures transactions, through the
TradeStationelectronic trading platform. TradeStation Securities targeted
customer base for equity securities and futures brokerage services includes
active individual, professional and institutional traders, including hedge fund
and money managers and investment advisors who use short-term trading
strategies. In addition to providing direct-access online services through the
TradeStationelectronic trading platform,

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the brokerage firm offers personal services by its registered representatives
who execute customers orders through direct-access order execution systems.
Having a direct-access order execution system, whether accessed directly by
the brokerage client through the TradeStationelectronic trading platform or by
a TradeStation Securities broker on behalf of the brokerage client, means that
both the online services and the firms trading desks are directly connected to
stock and futures exchanges and ECNs. ECNs, such as Archipelago, BRUT and
Island, directly match anonymous buyers and sellers participating on the
network. This system often results in the simplest, most direct and speediest
execution of orders for equity securities at the best available price. With
respect to futures, the TradeStationelectronic trading platform is directly
connected to the futures clearing firms online execution system which,
depending on the type of futures contract, either sends the order directly to
the trading pit or, for electronic futures markets, implements an electronic
order placement and execution. In the case of telephone orders, the
brokerages registered representatives are committed to using the firms
trading desks and direct-access technology to obtain the fastest execution and
best possible price at the time the clients equity securities orders are
taken. The TradeStationelectronic trading platform offers brokerage clients a
new level of online trading empowerment by enabling them to design, test and
automate simple or complex trading strategies that instantaneously produce
direct-access buy or sell orders when the strategies buy or sell conditions
are triggered in the markets.

Client accounts for equity securities and futures are carried on a fully
disclosed basis by the brokerages clearing firms, Bear, Stearns Securities
Corp. and Refco, LLC, respectively. TradeStation Securities executes its
clients transactions on an agency basis only, as opposed to a principal basis.
That is, it acts as the agent for its clients directly in the market. When
brokerage firms perform transactions on a principal basis, they are permitted
to accept a clients order to purchase, purchase the securities in the market
for the brokerage firm, and then sell the securities to the client.
TradeStation Securities does not mark-up its clients equities or futures
transactions. It always charges only an agreed-upon commission and never earns
income from marking up or marking down its clients equities or futures
transactions.

For financial information concerning the brokerage services segment of our
operations, see MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS and Note 17 of Notes to Consolidated Financial Statements
 SEGMENT AND RELATED INFORMATION.

Software Products and Services

In December 2000, we launched the TradeStationelectronic subscription
service. The TradeStationelectronic subscription service includes our
award-winning strategy trading features and functions, streaming real-time
charts and quotes, streaming news, state-of-the-art analytical charting, Level
II data, time and sales data, quote lists, option chains, market leaders data,
Internet SmartSearch (a feature that enables the trader to access relevant
Internet research services), live ticker, portfolio management, profit/loss
tracking, and wireless access. During 2002, the TradeStationelectronic
subscription service was offered to new subscribers at monthly rates of $49.95
for an end-of-day version and $199.95 for a real-time version, and to legacy
customers who upgraded at monthly rates ranging from $79.95 to $99.95. We
evaluate our approach to subscription fee pricing on an ongoing basis, which
has resulted and will likely continue to result in different price offerings
during 2003. The 2003 version of TradeStation

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released in March 2003 (TradeStation 7) also offers our OptionStationand
RadarScreenfunctions and features, which are described below, as optional
services for an increased monthly fee.

From our formation in 1982 until the end of 1999, our business consisted
mainly of the licensing of strategy trading software products produced and
distributed to end-user customers on disks. Our most recent version of those
client software products, the 2000iline, which includes TradeStation 2000i,
OptionStation 2000i, RadarScreen 2000iand ProSuite 2000i(a combination of the
three), was released in February 1999. We discontinued active marketing
efforts of the 2000iline in May 2000 as we focused on the marketing of our
then-new Internet-based services, and the completion of our change in business
model to a direct-access online brokerage founded on our award-winning
TradeStationtechnology. The 2000iline is no longer available in the United
States. OptionStation 2000i, also an award-winning technology, is an options
trading analysis product for equities, index and futures options that enables
traders to explore options trading strategies. RadarScreen 2000ienables
traders to scan up to hundreds or thousands, depending upon the data service
and computer hardware used, of equities or other securities to identify
potential buying or selling opportunities based upon the traders own trading
strategies. Internet-based versions of both the RadarScreenand OptionStation
technology have been incorporated into the recently-launched TradeStation 7.
For our 2000 and 2001 fiscal years, our software products and services
operations have been responsible for the majority of our revenues. In
particular, client software products accounted for approximately 12% and 35% of
our total revenues in 2001 and 2000, respectively. However, in 2002, and, we
expect, for the foreseeable future, our brokerage operations produced and
should continue to produce the majority of our revenues. In 2002, brokerage
revenues accounted for approximately 80% of our total revenues, and
subscription fee revenues accounted for approximately 14% of our total
revenues.

For financial information concerning the software products and services
segment of our operations, see MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS and Note 17 of Notes to
Consolidated Financial Statements  SEGMENT AND RELATED INFORMATION.




Sales and Marketing

No significant marketing of the TradeStationelectronic trading platform
was commenced until February 2002, when we began daily television advertising
of our brokerage services. We also use print advertising in Investors
Business Daily, Technical Analysis of Stocks & Commoditiesand Active Trader,
direct mail and e-mail, sales seminars, and our Web sites. The mix and use
frequency of television, print, Web-site, direct-mail and in-person marketing
methods we use to try to achieve results will likely be continually modified as
we test such methods and mixtures and analyze and interpret the results.

Also, TradeStationWorld.com, a Web site owned and operated by TradeStation
Technologies, is an interactive community for active traders who engage or have
interest in the development, testing and use of objective trading strategies.
The community provides numerous discussion forums on a variety of topics
related to strategy development and technical trading as well as TradeStation
product and service features, articles about trading from industry leaders, and
a library of strategy indicators, rules and components written in our
proprietary

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EasyLanguage, many of which are donated by third parties. The company believes
that TradeStationWorld.comhas generated and will continue to generate renewed
and intensified interest in strategy traders who use TradeStationtrading
software, as well as a new generation of traders who wish to embrace strategy
trading through state-of-the-art trading software.

Less than 10% of our revenues were derived from customers outside of the
United States for the years ended December 31, 2002, 2001 and 2000.
International revenues are collected in U.S. dollars.




Strategic Relationships

Clearing Services. Our brokerages clearing services for equities and
equities options, and for futures and futures options, are currently provided
by Bear, Stearns Securities Corp. and Refco, LLC, respectively, pursuant to
industry-standard clearing agreements.

Market Data Services. The real-time market data included in TradeStation
are licensed from S&P Comstock, Inc.




Technology Development

We believe that our success depends, in large part, on our ability to
offer unique, Internet-based strategy trading technologies with
state-of-the-art, intelligent direct-access order execution technologies, and
continuously enhance those technologies, as well as develop and implement
well-designed and user-friendly Web sites. To date, we have relied primarily
on internal development of our products and services. We currently perform all
quality assurance and develop user education and other training materials
internally. In 2002, 2001 and 2000, technology development expenses were
approximately $8.9 million, $9.3 million and $8.1 million, respectively. As of
December 31, 2002, our technology development team was comprised of 79 persons,
as compared to 98 as of December 31, 2001, a 20% decrease.

We view our technology development cycle as a four-step process to achieve
technical feasibility. The first step is to conceptualize in detail the
defining features and functions that we believe our targeted market requires
from the product or service, and to undertake a cost-benefit analysis to
determine the proper scope and integration of such features and functions.
Once the functional requirements of the product or service have been
determined, the second step is to technically design the product or service.
The third step is the detailed implementation, or engineering, of this
technical design. The fourth step is rigorous quality assurance testing to
ensure that the final product or service generally meets the functional
requirements determined in the first step. Several refinements are typically
added and tested in the quality assurance phase of development. Once this
process is completed, technological feasibility has been achieved and the
working model is available for release to our customers.

The market for strategy trading software tools, streaming real-time market
data and news services, and online order execution services is characterized
by: rapidly changing technology; evolving industry standards in computer
hardware, programming tools and languages, operating systems, database
technology and information delivery systems; changes in customer requirements;
and frequent new product and service introductions and enhancements. Our
success will depend in part upon our ability to develop and maintain
competitive technologies

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and to develop and introduce new products, services and enhancements in a
timely and cost-effective manner that meets changing conditions such as
evolving customer needs, existing and new competitive product and service
offerings, emerging industry standards and changing technology. There can be
no assurance that we will be able to develop and market, on a timely basis, if
at all, products, services or enhancements that respond to changing market
conditions or that will be accepted by customers. Any failure by us to
anticipate or to respond quickly to changing market conditions, or any
significant delays in the introduction of new products and services or
enhancements, could cause customers to delay using, or decide against the use
of, our products and services and could have a material adverse effect on our
business, financial condition and results of operations.




Client Services and Support and Training

We provide client services and support and product-use training in the
following ways:

Client Services and Support. TradeStation Securities provides telephone
client services to its brokerage customers through a trained client services
team. Technical support to subscription and brokerage customers who use the
TradeStationelectronic platform is provided by TradeStation Technologies
technical support team. Customers of the 2000iline of products may also
receive technical support from TradeStation Technologies technical support
team. Advanced EasyLanguageconsulting services (services that technically
assist customers in the use of EasyLanguageto write the customers own trading
strategies) are also available from internal resources and unaffiliated,
independent EasyLanguage consultants. A substantial amount of technical
support information is also provided on our Web sites, TradeStationWorld.com
and the TradeStation Securities client support Web site. We try to closely
coordinate our brokerage client and technical support services for our
brokerage customers who use the TradeStationelectronic trading platform.

Product-use Training. We consider user education important to try to help
our customers increase their ability to use our products and services fully and
effectively. The majority of our training materials consist of extensive
online documentation and technical assistance information on our Web sites,
including online tutorials, and in-person training seminars, so that our
customers may learn to use and take full advantage of the sophisticated
technology of the TradeStationelectronic trading platform.




Competition

The market for online brokerage services is intensely competitive and
rapidly evolving, and there appears to be substantial consolidation in the
industry of online brokerage services, Internet-based real-time market data
services, and trading analysis software tools. With the TradeStation
electronic trading platform, we have embraced this evolution and consolidation.
However, we believe that due to the current and anticipated rapid growth of
the market for integrated trading tools, real-time market data and online
brokerage services, competition, as well as consolidation, will substantially
increase and intensify in the future. We believe our ability to compete will
depend upon many factors both within and outside our control, including:
pricing and price pressure; the timing and market acceptance of new products
and services and enhancements developed by us and our competitors; our ability
to design and support efficient, materially error-free Internet-based systems;
market conditions, such as recession; the size of the

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active trader market today and in the future; the extent to which institutional
traders are willing to use direct-access brokerage services offered by firms
that have traditionally served mostly retail clients; product and service
functionality; data availability and cost; clearing costs; ease of use;
reliability; customer service and support; and sales and marketing decisions
and efforts.

We face direct competition from several publicly-traded and privately-held
companies, principally online brokerages, including providers of direct-access
order execution services. Our competitors include the many online brokerages
currently active in the United States, including Ameritrade, Inc. (which
recently acquired Datek Online Financial Services LLC), Charles Schwab & Co.,
Inc. (including the CyberTrader and StreetSmartPro direct-access services),
CSFBdirect (formerly DLJdirect), E*Trade Securities, Incorporated, Fidelity
Brokerage Services, Inc., Instinet Corporation (a Reuters subsidiary, and an
ECN that also provides direct-access brokerage service), Interactive Brokers,
JPMorgan, Merrill Lynch Direct, Morgan Stanley Online, Quick & Reilly, Inc.,
Redi Products, a division of Spear, Leeds & Kellogg (which is owned by Goldman
Sachs), Scottrade, TD Waterhouse Investor Services, Inc., and Terra Nova.
Those brokers currently serve, in the aggregate, more than 90% of existing
online accounts, and many are focusing on attracting and retaining active
traders to and who use their services. Many online brokerages currently claim
to offer direct-access service. Even though we are rated as one of the best,
if not the best, direct-access brokerage firm in the United States, there can
be no assurance that we will be able to maintain such ratings, be rated that
highly in the future, compete effectively with our competitors, adequately
educate potential customers about the benefits our products and services
provide, or continue to offer such products and services.

Many of our existing and potential competitors, which include large,
online discount and traditional national brokerages, and financial institutions
that are focusing more closely on online services, including direct-access
services for active traders, have longer operating histories, significantly
greater financial, technical and marketing resources, greater name recognition
and a larger installed customer base than do we. Further, there is the risk
that larger financial institutions which offer online brokerage services as
only one of many financial services may decide to use extremely low commission
pricing as a loss leader to acquire and accumulate customer accounts and
assets to derive interest income and income from their other financial
services. We do not offer other financial services, and have no plans to do
so; therefore, such pricing techniques, should they become common in our
industry, could have a material, adverse effect on our results of operations,
financial condition and business model.

Generally, competitors may be able to respond more quickly to new or
emerging technologies or changes in customer requirements or to devote greater
resources to the development, promotion and sale of their products and services
than do we. There can be no assurance that our existing or potential
competitors will not develop products and services comparable or superior to
those developed and offered by us or adapt more quickly than us to new
technologies, evolving industry trends or changing customer requirements, or
that we will be able to timely and adequately complete the implementation, and
appropriately maintain and enhance the operation, of our new business model.
Increased competition could result in price reductions, reduced margins,
failure to obtain any significant market share, or loss of market share, any of
which could materially adversely affect our business, financial condition and
results of operations. There can be no assurance that we will be able to
compete successfully against current or future competitors, or that competitive
pressures faced by us will not have a material adverse effect on our business,
financial condition and results of operations.

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Intellectual Property

Our success is and will be heavily dependent on proprietary software
technology, including certain technology currently in development. We view our
software technology as proprietary, and rely, and will be relying, on a
combination of copyright, trade secret and trademark laws, nondisclosure
agreements and other contractual provisions and technical measures to establish
and protect our proprietary rights. We have a formal patent application
pending for the TradeStationtrading platform, but software patents,
particularly Internet-related software patents, are increasingly difficult to
obtain, and there can be no assurance that we will obtain a patent or patents
broad enough in scope to have value, or obtain a patent at all. We have
registered copyright rights in our EasyLanguagedictionary and documentation
and TradeStationsoftware.

We have obtained trademark registrations for the TradeStationmark in the
United States, Australia, Canada, the European Community, Indonesia, Korea,
Singapore, South Africa and Taiwan. We have obtained registrations for the
OptionStationmark in the United States, Canada and the European Community. We
have obtained registrations in the United States for the marks ActivityBar,
EasyLanguage, PositionGraphs, PowerEditor, ProbabilityMap, ProSuite,
RadarScreen, Test Before You Tradeand other marks.

We use an online subscription agreement for our Internet trading software
and data services between TradeStation Technologies and each of the users
(whether the users are brokerage customers or monthly subscribers) in order to
protect our copyrights and trade secrets and to prevent such users from
commercially exploiting such copyrights and trade secrets for their own gain.
Since these licenses are not physically signed by the licensees, it is possible
their enforceability is limited under certain state laws and the laws of many
foreign jurisdictions.

Despite our efforts to protect our proprietary rights, unauthorized
parties copy or otherwise obtain, use or exploit our software or technology
independently. Policing unauthorized use of our software technology is
difficult, and we are unable to determine the extent to which piracy of our
software technology exists. Piracy can be expected to be a persistent problem,
particularly in international markets and as a result of the growing use of the
Internet. In addition, effective protection of intellectual property rights
may be unavailable or limited in certain countries, including some in which we
may attempt to expand sales efforts. There can be no assurance that the steps
taken by us to protect our proprietary rights will be adequate or that our
competitors will not independently develop technologies that are substantially
equivalent or superior to ours.

There has been substantial litigation in the software industry involving
intellectual property rights. We do not believe that we are infringing, or
that any technology in development will infringe, the intellectual property
rights of others. The risk of infringement by us is heightened with respect to
our TradeStation 6and TradeStation 7technology, as that technology has not
stood any significant test of time as has our legacy client software
technology. There can be no assurance that infringement claims would not have
a material adverse effect on our business, financial condition and results of
operations. In addition, to the extent that we acquire or license a portion of
the software or data included in our products or services from third parties
(all data is licensed from third parties), or market products licensed from
others generally, our exposure to infringement actions may increase because we
must rely upon such third parties for information

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as to the origin and ownership of such acquired or licensed software or data
technology. In the future, litigation may be necessary to establish, define,
enforce and protect trade secrets, copyrights, trademarks and other
intellectual property rights. We may also be subject to litigation to defend
against claimed infringement of the rights of others or to determine the scope
and validity of the intellectual property rights of others. Any such
litigation could be costly and divert managements attention, which could have
a material adverse effect on our business, financial condition and results of
operations. Adverse determinations in such litigation could result in the loss
of proprietary rights, subject us to significant liabilities, require us to
seek licenses from third parties, which could be expensive, or prevent us from
selling our products or services or using our trademarks, any one of which
could have a material adverse effect on our business, financial condition and
results of operations.




Government Regulation

Our brokerage subsidiary, TradeStation Securities, is subject to extensive
securities and futures industry regulation under both federal and state laws as
a broker-dealer with respect to its equities business and as an introducing
broker with respect to its futures business. Broker-dealers and introducing
brokers are subject to regulations covering all aspects of those businesses,
including: sales methods; trade practices; use and safe-keeping of customers
funds and securities; arrangements with clearing houses; capital structure;
record keeping; conduct of directors, officers and employees; and supervision.
To the extent TradeStation Securities solicits orders from customers or makes
investment recommendations, it is subject to additional rules and regulations
governing, among other things, sales practices and the suitability of
recommendations to its customers.

TradeStation Securities mode of operation and profitability may be
directly affected by: additional legislation; changes in rules promulgated by
the Securities and Exchange Commission (SEC), the National Association of
Securities Dealers (NASD), the Commodity Futures Trading Commission (CFTC),
the National Futures Association (NFA), the Board of Governors of the Federal
Reserve System, the various stock and futures exchanges and other
self-regulatory organizations; and changes in the interpretation or enforcement
of existing rules and laws, particularly any changes focused on online
brokerages that target an active trader customer base.

With respect to active trading, the NASD has adopted rules that require
firms to provide customers with a risk disclosure statement about active
trading. Further, the NASD and NYSEs margin rules impose more restrictive
requirements for pattern active traders. Governmental concern is focused in
two basic areas: that the customer has sufficient trading experience and has
sufficient risk capital to engage in active trading. A minimum equities
account balance of $25,000 is required. TradeStation Securities customer
account documentation specifies that being a brokerage customer of TradeStation
Securities is only for traders who have experience in active trading, are
willing to risk considerable amounts of capital (at least $50,000), and are
interested in engaging in high-risk, speculative trading activity. We believe
our brokerage firms minimum suitability requirements, as well as the extensive
user education documentation and tutorials offered on our Web site, are
consistent with both the letter and the spirit of NASD rules and regulations
concerning active trading.

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The SEC, the NASD, the CFTC, the NFA and other self-regulatory
organizations and state securities commissions can censure, fine, enjoin,
suspend, expel or issue cease-and-desist orders to a broker-dealer or
introducing broker or any of its officers or employees.

Marketing campaigns by TradeStation Securities to bring brand name
recognition to it and to promote the benefit of its services, such as the
TradeStationelectronic trading platform and its direct-access electronic order
execution, are regulated by the NASD and NFA, and all marketing materials must
be reviewed by an appropriately-licensed TradeStation Securities principal
prior to release, and must conform to standards articulated by the SEC, NASD
and NFA. The NASD or NFA may request that revisions be made to marketing
materials, and can impose certain penalties for violations of its advertising
regulations, including censures or fines, a requirement of advance regulatory
approval of all advertising, the issuance of cease-and-desist orders, and the
suspension or expulsion of a broker-dealer or introducing broker or any of its
officers or employees.

The SEC, the NASD, the CFTC and the NFA and various other regulatory
agencies have stringent rules with respect to the maintenance of specific
levels of net capital by securities broker-dealers and introducing brokers.
Net capital is the net worth of a broker or dealer (assets minus liabilities),
less deductions for certain types of assets as well as other charges. If a
firm fails to maintain the required net capital it must cease conducting
business and, if it does not do so, it may be subject to suspension or
revocation of registration by the SEC or the CFTC and suspension or expulsion
by the NASD or NFA, and it could ultimately lead to the firms liquidation.

TradeStation Securities is registered as a broker-dealer in every U.S.
state and the District of Columbia, and is subject to regulation under the laws
of those jurisdictions, including registration requirements and being subject
to sanctions if a determination of misconduct is made.

TradeStation Securities is a member of the Securities Investor Protection
Corporation (SIPC). SIPC provides protection of up to $500,000 for each
equities account brokerage customer, subject to a limitation of $100,000 for
cash balances, in the event of the financial failure of a broker-dealer. In
addition, TradeStation Securities clears all of its custody and clearing issues
associated with equities brokerage transactions through Bear, Stearns
Securities Corp. Bear, Stearns has obtained an excess securities bond issued
by Travelers Casualty and Surety Company which provides protection for any loss
of securities and/or cash in excess of the primary SIPC protection up to the
amount of the covered accounts net equity.

It is possible that other federal or state agencies will attempt to
regulate our current and planned online and other electronic service activities
with rules that may include compliance requirements relating to record keeping,
data processing, other operation methods, privacy, pricing, content and quality
of goods and services as the market for online commerce evolves. Because of
the growth in the electronic commerce market, Congress had held hearings on
whether to regulate providers of services and transactions in the electronic
commerce market. As a result, federal or state authorities could enact laws,
rules or regulations, not only with respect to online brokerage services, but
other online services we provide or may in the future provide. Such laws,
rules and regulations, if and when enacted, could have a material adverse
effect on our business, financial condition, results of operations and
prospects.

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Employees

As of December 31, 2002, we had 230 full-time equivalent employees
consisting of 79 in technology development, including software engineering,
product management, user education and quality assurance, 114 in sales and
marketing relating to brokerage services, subscriptions and software products
(including 31 in sales, 20 on the trading desk, 50 in client services and
software support and 13 in marketing and fulfillment), and 37 in general and
administrative, including executive management, finance, information technology
services and human resources. Our employees are not represented by any
collective bargaining organization, and we have never experienced a work
stoppage and consider our relations with our employees to be good.

Our future success depends, in significant part, upon the continued
service of our key senior management, technology and sales and marketing
personnel. The loss of the services of one or more of these key employees
could have a material adverse effect on us. There can be no assurance that we
will be able to retain our key personnel. Departures and additions of
personnel, to the extent disruptive, could have a material adverse effect on
our business, financial condition and results of operations.




ITEM 2. PROPERTIES

In November 2001, we signed a ten-year lease (with two 5-year renewal
options) that commenced in the summer of 2002 for an approximately 70,000
square-foot corporate headquarters in Plantation, Florida. Plantation is just
west of Ft. Lauderdale, Florida (Broward County). This headquarters
consolidated personnel and operations of the Miami and Boca Raton offices.

Our former corporate headquarters was located in Miami, Florida, in a
leased facility consisting of approximately 60,500 square feet of office space
that expired in August 2002. Our brokerage operations were formerly conducted
chiefly from 11,800 square feet of office facilities in Boca Raton, Florida
pursuant to a lease that expires in 2007 (part of which is now being
subleased). We also had leased a second facility in Boca Raton, Florida,
consisting of approximately 6,000 square feet of space, for additional
technology development and data services operations. That lease was terminated
as of December 31, 2002.

The brokerage had small branch offices in Osterville, Massachusetts,
Pittsburgh, Pennsylvania, and Hudson and Cincinnati, Ohio, all of which have
been, or are in the process of being, closed.

The technologies subsidiary has an approximately 13,500 square foot leased
facility in Richardson, Texas from which certain data services development and
technical operations are conducted. Commencing January 2003, a portion of
those facilities serve as a branch office for TradeStation Securities. That
lease expires July 31, 2007. We also lease space for our data server farms at
two sites, one in Richardson, Texas, and one in Miami, Florida. None of the
facilities described in this paragraph were affected by the consolidation of
the south Florida operations in Plantation last summer.

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We believe that our existing facilities are adequate to support our
existing operations and that, if needed, we will be able to obtain suitable
additional facilities on commercially reasonable terms.




ITEM 3. LEGAL PROCEEDINGS

In October 2002, we received information about alleged fraudulent conduct
by an executive of a company that referred individual accounts to TradeStation
Securities. The executive of the referral company was authorized to trade on
behalf of such individuals and allegedly issued fraudulent account statements
to them. The referred account holders incurred several million dollars of
trading losses, in the aggregate, during the time the executive of the referral
company traded on their behalves. On February 2, 2003, the referral company
communicated to TradeStation Securities in writing that it believes
TradeStation Securities shares responsibility for some or all of the alleged
losses incurred by the referred account holders and/or the referral company and
wishes to make an amicable settlement. The referral company further stated
that if an amicable settlement is not reached it intends to initiate legal
action of some kind against TradeStation Securities in the United States. We
believe the referral companys claims are without merit and, to date, no legal
action has been commenced against TradeStation Securities by any of the
referred account holders or the referral company.

During January 2003, the bankruptcy estate of Bridge Information Systems,
Inc. demanded that we return payments made to us by a Bridge subsidiary in
December 2000 and January 2001 totaling approximately $1.0 million, claiming
such payments were preferential under the Bankruptcy Code. We have refused the
demands on various grounds, and believe the demands are without merit.

We are also engaged in routine litigation or other dispute resolution
proceedings, such as arbitration, incidental to, and part of the ordinary
course of, our business (two arbitrations are currently pending, one claiming
$250,000 in actual damages and $250,000 in punitive damages, and one claiming
$560,000 in damages).

We decided, as of June 1, 2002, to no longer carry errors or omissions
insurance that covers third-party claims made by brokerage clients or software
subscribers as a result of alleged human or system errors, failures, acts or
omissions. This decision was made based upon our assessment of the potential
risks and benefits, including significant increases in premium rates,
deductibles and coinsurance amounts, reductions in available per occurrence and
aggregate coverage amounts, and the unavailability of policies that
sufficiently cover the types of risks that relate to our business.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 2002.

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PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS




Common Stock Information

Since January 2, 2001, our common stock, par value $.01 per share, has
been listed on The Nasdaq National Market under the symbol TRAD. Prior to
that time, the predecessor companys common stock was listed under the symbol
OMGA.

The high and low closing sales prices based on actual transactions on The
Nasdaq National Market during each of the quarters presented are as follows:

| |       |                                        |  |                     |      |     |  |   |      | 
| | ----- | -------------------------------------- |  | ------------------- | ---- | --- |  | - | ---- | 
| |       |                                        |  | Closing Sales Price
| |       |                                        |  |                    
| |       |                                        |  | High                |      | Low
| |       |                                        |  |                     |      |    
| | 2001: |                                        |  |                     |      |     |  |   |     
| |       | First Quarter                          |  | $                   | 3.13 |     |  | $ | 1.88 | 
| |       | Second Quarter                         |  |                     | 5.30 |     |  |   | 1.75 | 
| |       | Third Quarter                          |  |                     | 5.37 |     |  |   | 1.92 | 
| |       | Fourth Quarter                         |  |                     | 2.38 |     |  |   | 1.35 | 
| |       |                                        |  |                     |      |     |  |  
| | 2002: |                                        |  |                     |      |     |  |   |     
| |       | First Quarter                          |  | $                   | 1.72 |     |  | $ | 1.10 | 
| |       | Second Quarter                         |  |                     | 1.55 |     |  |   | 0.99 | 
| |       | Third Quarter                          |  |                     | 1.49 |     |  |   | 1.14 | 
| |       | Fourth Quarter                         |  |                     | 1.44 |     |  |   | 1.15 | 
| |       |                                        |  |                     |      |     |  |  
| | 2003: |                                        |  |                     |      |     |  |   |     
| |       | First Quarter (through March 10, 2003) |  | $                   | 2.57 |     |  | $ | 1.40 | 

As of March 10, 2003, there were 128 holders of record of our common
stock, and, based upon information previously provided to us by depositories
and brokers, we believe there are more than 4,000 beneficial owners.




Dividend Policy

We intend to retain future earnings to finance our growth and development
and therefore do not anticipate paying any cash dividends in the foreseeable
future. Payment of any future dividends will depend upon our future earnings
and capital requirements and other factors we consider appropriate. We did not
distribute any dividends during the years ended December 31, 2002, 2001, or
2000.




Recent Sales of Unregistered Securities

During the three months ended December 31, 2002, we issued to 211
employees (including 3 executive officers) options to purchase an aggregate of
approximately 647,000 shares of common stock. Such options vest ratably in
annual increments over a five-year period and are exercisable at prices ranging
from $1.34 to $1.39 per share, which was the fair market value (as defined in
our Incentive Stock Plan) of our common stock on the date the options were
granted. All of the options were granted under our Incentive Stock Plan in the
ordinary course, and expire, if they remain unexercised, on the tenth
anniversary of the date on which they were granted.

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All the foregoing options were issued by us in reliance upon the exemption
from registration available under Section 4(2) of the Securities Act of 1933,
as amended. Other than as described above, we did not issue or sell any
unregistered securities during the fourth quarter of 2002.




ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data is qualified by
reference to, and should be read in conjunction with, MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, and the
Consolidated Financial Statements and Notes thereto included in this report.
The Consolidated Statement of Operations Data presented below for the year
ended December 31, 2002, and the Consolidated Balance Sheet Data as of December
31, 2002, have been derived from our Consolidated Financial Statements included
on pages F-1 through F-29 of this report, which have been audited by Ernst &
Young LLP, independent certified public accountants. The Consolidated
Statement of Operations Data presented below for each of the years in the
two-year period ended December 31, 2001, and the Consolidated Balance Sheet
Data as of December 31, 2001 have been derived from our Consolidated Financial
Statements included on pages F-1 through F-29 of this report, which were
audited by Arthur Andersen LLP, independent certified public accountants. The
Consolidated Statement of Operations Data presented below for each of the years
in the two-year period ended December 31, 1999, and the Consolidated Balance
Sheet Data as of December 31, 2000, 1999, and 1998, have been derived from
audited financial statements not included in this report. See also Note 18 of
Notes to Consolidated Financial Statements  UNAUDITED QUARTERLY FINANCIAL
INFORMATION for quarterly financial information for fiscal years 2002 and 2001.

|                                               |                                              |                |                                   |        |                                      |        |       |        |        |         |       |        |        |         |        |        |        |        |       |        |        |        | 
|---------------------------------------------- | -------------------------------------------- | -------------- | --------------------------------- | ------ | ------------------------------------ | ------ | ----- | ------ | ------ | ------- | ----- | ------ | ------ | ------- | ------ | ------ | ------ | ------ | ----- | ------ | ------ | ------ | 
|                                               |                                              |                |                                   |        | YEAR ENDED DECEMBER 31,             
|                                               |                                              |                |                                   |        |                                     
|                                               |                                              |                |                                   |        | 2002                                 |        | 2001  |        | 2000   |         | 1999  |        | 1998  
|                                               |                                              |                |                                   |        |                                      |        |       |        |        |         |       |        |       
|                                               |                                              |                |                                   |        | (In thousands except per share data)
|CONSOLIDATED STATEMENT OF OPERATIONS DATA (1): |                                              |                |                                   |        |                                      |        |       |        |        |         |       |        |        |         |        |        |        |        |       |       
|Revenues:                                      |                                              |                |                                   |        |                                      |        |       |        |        |         |       |        |        |         |        |        |        |        |       |       
|                                               | Brokerage revenues                           |                | $                                 | 38,494 |                                      |        | $     | 18,602 |        |         | $     | 17,934 |        |         | $      | 9,783  |        |        | $     | 5,628  |       
|                                               | Subscription fees                            |                |                                   | 6,639  |                                      |        |       | 9,566  |        |         |       | 8,170  |        |         |        | 304    |        |        |       |       |       
|                                               | Licensing fees                               |                |                                   | 1,131  |                                      |        |       | 5,029  |        |         |       | 18,343 |        |         |        | 16,218 |        |        |       | 22,005 |       
|                                               | Other                                        |                |                                   | 2,127  |                                      |        |       | 7,790  |        |         |       | 8,479  |        |         |        | 7,214  |        |        |       | 6,211  |       
|                                               |                                              |                |                                   |        |                                      |        |       |        |        |         |       |        |        |         |        |        |        |        |       |       
|                                               |                                              | Total revenues |                                   |        | 48,391                               |        |       |        | 40,987 |         |       |        | 52,926 |         |        |        | 33,519 |        |       |        | 33,844 |       
|                                               |                                              |                |                                   |        |                                      |        |       |        |        |         |       |        |        |         |        |        |        |        |       |       
|                                               |                                              |                |                                   |        |                                      |        |       |        |        |         |       |        |        |         |        |        |        |        |       |       
|Operating expenses:                            |                                              |                |                                   |        |                                      |        |       |        |        |         |       |        |        |         |        |        |        |        |       |       
|                                               | Clearing and execution costs                 |                |                                   | 11,312 |                                      |        |       | 5,772  |        |         |       | 4,787  |        |         |        | 2,708  |        |        |       | 1,840  |       
|                                               | Data center costs                            |                |                                   | 4,891  |                                      |        |       | 5,302  |        |         |       | 4,002  |        |         |        | 81     |        |        |       |       |       
|                                               | Technology development                       |                |                                   | 8,851  |                                      |        |       | 9,309  |        |         |       | 8,128  |        |         |        | 4,932  |        |        |       | 3,319  |       
|                                               | Sales and marketing                          |                |                                   | 12,473 |                                      |        |       | 11,325 |        |         |       | 27,680 |        |         |        | 23,909 |        |        |       | 17,690 |       
|                                               | General and administrative                   |                |                                   | 9,882  |                                      |        |       | 12,925 |        |         |       | 11,915 |        |         |        | 6,785  |        |        |       | 8,578  |       
|                                               | Amortization of intangible assets            |                |                                   | 891    |                                      |        |       | 6,198  |        |         |       | 5,979  |        |         |        | 1,033  |        |        |       | 2      |       
|                                               | (Recovery of) provision for insurance loss   |                |                                   | (1,250 | )                                    |        |       | 2,707  |        |         |       |       |        |         |        |       |        |        |       |       |       
|                                               | Impairment of goodwill and intangible assets |                |                                   |       |                                      |        |       | 5,285  |        |         |       |       |        |         |        |       |        |        |       |       |       
|                                               | Merger related costs                         |                |                                   |       |                                      |        |       |       |        |         |       | 3,800  |        |         |        |       |        |        |       |       |       
|                                               |                                              |                |                                   |        |                                      |        |       |        |        |         |       |        |        |         |        |        |        |        |       |       
|                                               |                                              |                | Total operating expenses          |        |                                      | 47,050 |       |        |        | 58,823  |       |        |        | 66,291  |        |        |        | 39,448 |       |        |        | 31,429 | 
|                                               |                                              |                |                                   |        |                                      |        |       |        |        |         |       |        |        |         |        |        |        |        |       |       
|                                               |                                              |                | Income (loss) from operations     |        |                                      | 1,341  |       |        |        | (17,836 | )     |        |        | (13,365 | )      |        |        | (5,929 | )     |        |        | 2,415  | 
|Other income, net                              |                                              |                | 427                               |        |                                      |        | 599   |        |        |         | 1,293 |        |        |         | 1,653  |        |        |        | 752   |       
|                                               |                                              |                |                                   |        |                                      |        |       |        |        |         |       |        |        |         |        |        |        |        |       |       
|                                               |                                              |                | Income (loss) before income taxes |        |                                      | 1,768  |       |        |        | (17,237 | )     |        |        | (12,072 | )      |        |        | (4,276 | )     |        |        | 3,167  | 
|Income tax provision (benefit)                 |                                              |                | 4                                 |        |                                      |        | 4,668 |        |        |         | 1,403 |        |        |         | (1,634 | )      |        |        | 1,104 |       
|                                               |                                              |                |                                   |        |                                      |        |       |        |        |         |       |        |        |         |        |        |        |        |       |       
|                                               |                                              |                | Net income (loss)                 |        | $                                    | 1,764  |       |        | $      | (21,905 | )     |        | $      | (13,475 | )      |        | $      | (2,642 | )     |        | $      | 2,063  | 
|                                               |                                              |                |                                   |        |                                      |        |       |        |        |         |       |        |        |         |        |        |        |        |       |       

(Continued)

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##### Table of Contents



CONSOLIDATED STATEMENT OF OPERATIONS DATA (1):

(Continued)

|                                     |         |  |                                      |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        | 
|------------------------------------ | ------- |  | ------------------------------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | - |  | - | ------ | 
|                                     |         |  | YEAR ENDED DECEMBER 31,             
|                                     |         |  |                                     
|                                     |         |  | 2002                                 |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                                     |         |  |                                      |        |      |  |      |        |      |  |     
|                                     |         |  | (In thousands except per share data)
|Earnings (loss) per share:           |         |  |                                      |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       
|                                     | Basic   |  | $                                    | 0.04   |      |  | $    | (0.49  | )    |  | $    | (0.31  | ) |  | $ | (0.07  | ) |  | $ | 0.06   | 
|                                     | Diluted |  |                                      | 0.04   |      |  |      | (0.49  | )    |  |      | (0.31  | ) |  |   | (0.07  | ) |  |   | 0.05   | 
|Dividends declared per share         |         |  |                                     |        |      |  |     |        |      |  |     |        |   |  |  |        |   |  |  |       
|                                     |         |  |                                      |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       
|Weighted average shares outstanding: |         |  |                                      |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       
|                                     | Basic   |  |                                      | 43,328 |      |  |      | 44,459 |      |  |      | 43,956 |   |  |   | 40,065 |   |  |   | 36,756 | 
|                                     | Diluted |  |                                      | 43,386 |      |  |      | 44,459 |      |  |      | 43,956 |   |  |   | 40,065 |   |  |   | 37,968 | 

|                                     |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|------------------------------------ |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                     |  | DECEMBER 31,  
|                                     |  |               
|                                     |  | 2002           |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                                     |  |                |        |      |  |      |        |      |  |     
|                                     |  | (In thousands)
|CONSOLIDATED BALANCE SHEET DATA (1): |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Cash and cash equivalents (2)        |  | $              | 16,410 |      |  | $    | 19,982 |      |  | $    | 18,395 |  |  | $ | 17,304 |  |  | $ | 8,443  | 
|Total assets                         |  |                | 22,618 |      |  |      | 26,821 |      |  |      | 50,354 |  |  |   | 58,920 |  |  |   | 31,797 | 
|Capital lease obligations            |  |                | 1,382  |      |  |      | 1,407  |      |  |      | 214    |  |  |   | 112    |  |  |   |       | 
|Subordinated loans                   |  |                |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   | 525    | 
|Shareholders equity                 |  |                | 12,393 |      |  |      | 17,458 |      |  |      | 39,025 |  |  |   | 51,740 |  |  |   | 28,120 | 



---

|(1) |  | The selected financial data as of and for the three years ended
December 31, 2000 were restated to reflect the December 29, 2000 merger
of TradeStation Technologies and TradeStation Securities under the
pooling-of-interests method of accounting. See Note 3 of Notes to
Consolidated Financial Statements  BUSINESS COMBINATIONS.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes restricted cash of $3.4 million, $3.6 million and $510,000
at December 31, 2002, 2001 and 2000, respectively. There was no
restricted cash at December 31, 1999 or 1998. See Note 16 of Notes to
Consolidated Financial Statements  COMMITMENTS AND CONTINGENCIES 
Restricted Cash.                                         




ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with Selected Financial Data and
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements contained in this report.




Overview

TradeStation Group, Inc., a Florida corporation formed in 2000, is the
successor company to Omega Research, Inc., a Florida corporation that was
formed in 1982. TradeStation Group is listed on The Nasdaq National Market
under the symbol TRAD. TradeStation Securities, Inc. and TradeStation
Technologies, Inc. are TradeStation Groups two operating subsidiaries. See
Note 3 of Notes to Consolidated Financial Statements  BUSINESS COMBINATIONS.

TradeStation Securities, a leading direct-access brokerage firm serving
the active trader and certain institutional trader markets, is the companys
principal operating subsidiary. By the end of 2002, TradeStation Securities
had nearly 8,000 equities and futures accounts. The average equities account
made more than 600 revenue trades during 2002, and the average futures account
traded just under 500 round-turn contracts. During the 2002 fourth quarter,
TradeStation Securities equities account base averaged just under 13,000
revenue trades per trading day, and its futures accounts base traded, on
average, more than 4,250 round-turn contracts per trading day. The average
account asset balance of an equities account was more than $100,000 during the
2002 fourth quarter.

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##### Table of Contents



In March 2003, we launched the next version of our electronic trading
platform: TradeStation 7. TradeStation 7contains significant enhancements to
TradeStation 6, including our award-winning RadarScreenand OptionStation
technologies for equities and options traders, list/basket trading and multiple
account allocation features for institutional traders, improved seamless
direct-access order execution for electronic futures trades, and 10 years of
historical one-minute-and-above intra-day equities data and 20 years of
historical one-minute-and-above futures data.

In the March 10, 2003 issue of Barronsmagazine, TradeStation Securities,
based principally on the magazines review of the TradeStation 7electronic
trading platform, was named the Best Broker for the Active Trader.
TradeStation Securities also won the Technical Analysis of Stocks and
CommoditiesReaders Choice Awards for best Direct Access Stock Brokerage, best
Direct Access Futures Brokerage, best Institutional Platform, and best
Professional Platformin February 2003. TradeStation Securities has won
similar first-place awards and ratings since the 2001 launch of the
TradeStationelectronic trading platform.

The TradeStationelectronic trading platform seamlessly integrates
powerful strategy trading software tools, historical and streaming real-time
market data, and intelligent direct-access order-routing and execution.
Direct-access trading means, with respect to equity security and futures
transactions, direct Internet connections to electronic marketplaces, such as
electronic communication networks (ECNs) or E-Mini exchanges, where anonymous
buyers and sellers participating on the network are matched. A formal patent
application covering the TradeStationelectronic trading platform has been
filed with the United States Patent and Trademark Office.

We seek recurring revenues mainly by offering, through the TradeStation
electronic trading platform, commission-based brokerage services. We have
leveraged our historical success providing strategy trading software tools, and
the unique quality and functionality of those tools, to build a high-quality
brokerage customer base of institutional, professional and serious, active
individual traders.

We also continue to provide via our technologies subsidiary, TradeStation
Technologies, subscription services for TradeStation.The subscription version
of TradeStationis an institutional-quality service that offers strategy
trading software tools that generate real-time buy and sell alerts based upon
the subscribers programmed strategies, but does not include order execution.
Subscribers are charged a monthly subscription fee. Domestically, we no longer
offer our traditional software products, i.e., client software products
delivered on disks.

TradeStation Technologies also owns and operates TradeStationWorld.com,
which was launched July 2002. TradeStationWorld.comis an interactive
community for active traders who engage or have interest in the development,
testing and use of objective trading strategies. The community provides
numerous discussion forums on a variety of topics related to strategy
development and technical trading as well as TradeStationproduct and service
features, articles about trading from industry leaders, and a library of
strategy indicators, rules and components written in our proprietary
EasyLanguage, many of which are donated by third parties. The company believes
that TradeStationWorld.comhas generated and will continue to generate renewed
and intensified interest in strategy traders who use TradeStationtrading
software, as well as a new generation of traders who wish to embrace strategy
trading through a state-of-the-art trading platform.

19



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##### Table of Contents






Results of Operations

For the three years ended December 31, 2002, we operated in two principal
business segments: (i) brokerage services and (ii) software products and
services. The brokerage services segment represents the operations of
TradeStation Securities and the software products and services segment
represents the operations of TradeStation Technologies. For the periods
indicated, the following table presents certain items in our consolidated
statements of operations broken down by segment:

|                    |                                              |                               |   |                   |        |                   |   |                |        |       |   |          |        |           |   |        |        |                |   |        |        |          |   |       |         |   |   |   |   |  |   |        |         |  
|------------------- | -------------------------------------------- | ----------------------------- | - | ----------------- | ------ | ----------------- | - | -------------- | ------ | ----- | - | -------- | ------ | --------- | - | ------ | ------ | -------------- | - | ------ | ------ | -------- | - | ----- | ------- | - | - | - | - |  | - | ------ | ------- | -
|                    |                                              |                               |   | YEAR ENDED        |        | YEAR ENDED       
|                    |                                              |                               |   | DECEMBER 31, 2002 |        | DECEMBER 31, 2001
|                    |                                              |                               |   |                   |        |                  
|                    |                                              |                               |   |                   |        |                   |   | Software       |        |       |   |          |        |           |   |        |        |                |   |        |        | Software |   |       |         |   |   |   |   | 
|                    |                                              |                               |   |                   |        |                   |   | Products       |        |       |   |          |        |           |   |        |        |                |   |        |        | Products |   |       |         |   |   |   |   | 
|                    |                                              |                               |   | Brokerage         |        | and               |   | Elimin-        |        |       |   |          |        | Brokerage |   | and    |        | Elimin-        |   |        |        |         
|                    |                                              |                               |   | Services          |        | Services          |   | ations         |        | Total |   | Services |        | Services  |   | ations |        | Total         
|                    |                                              |                               |   |                   |        |                   |   |                |        |       |   |          |        |           |   |        |        |               
|                    |                                              |                               |   |                   |        |                   |   | (In thousands) |        |       |   |          |        |           |   |        |        | (In thousands) |   |        |        |          |   |       |         |  
|Revenues:           |                                              |                               |   |                   |        |                   |   |                |        |       |   |          |        |           |   |        |        |                |   |        |        |          |   |       |         |   |   |   |   |  |   |       
|                    | Brokerage revenues                           |                               | $ | 38,494            |        |                   | $ |               |        |       | $ |         |        |           | $ | 38,494 |        |                | $ | 18,602 |        |          | $ |      |         |   | $ |  |   |  | $ | 18,602 |        
|                    | Subscription fees                            |                               |   |                  |        |                   |   | 16,352         |        |       |   | (9,713   | )      |           |   | 6,639  |        |                |   |       |        |          |   | 9,566 |         |   |   |  |   |  |   | 9,566  |        
|                    | Licensing fees                               |                               |   |                  |        |                   |   | 1,131          |        |       |   |         |        |           |   | 1,131  |        |                |   |       |        |          |   | 5,029 |         |   |   |  |   |  |   | 5,029  |        
|                    | Other                                        |                               |   |                  |        |                   |   | 2,127          |        |       |   |         |        |           |   | 2,127  |        |                |   |       |        |          |   | 7,790 |         |   |   |  |   |  |   | 7,790  |        
|                    |                                              |                               |   |                   |        |                   |   |                |        |       |   |          |        |           |   |        |        |                |   |        |        |          |   |       |         |   |   |   |   |  |   |       
|                    |                                              | Total revenues                |   |                   | 38,494 |                   |   |                | 19,610 |       |   |          | (9,713 | )         |   |        | 48,391 |                |   |        | 18,602 |          |   |       | 22,385  |   |   |   |  |  |   |        | 40,987  |  
|                    |                                              |                               |   |                   |        |                   |   |                |        |       |   |          |        |           |   |        |        |                |   |        |        |          |   |       |         |   |   |   |   |  |   |       
|                    |                                              |                               |   |                   |        |                   |   |                |        |       |   |          |        |           |   |        |        |                |   |        |        |          |   |       |         |   |   |   |   |  |   |       
|Operating expenses: |                                              |                               |   |                   |        |                   |   |                |        |       |   |          |        |           |   |        |        |                |   |        |        |          |   |       |         |   |   |   |   |  |   |       
|                    | Clearing and execution costs                 |                               |   | 11,312            |        |                   |   |               |        |       |   |         |        |           |   | 11,312 |        |                |   | 5,772  |        |          |   |      |         |   |   |  |   |  |   | 5,772  |        
|                    | Data center costs                            |                               |   | 9,809             |        |                   |   | 4,795          |        |       |   | (9,713   | )      |           |   | 4,891  |        |                |   |       |        |          |   | 5,302 |         |   |   |  |   |  |   | 5,302  |        
|                    | Technology development                       |                               |   | 644               |        |                   |   | 8,207          |        |       |   |         |        |           |   | 8,851  |        |                |   | 224    |        |          |   | 9,085 |         |   |   |  |   |  |   | 9,309  |        
|                    | Sales and marketing                          |                               |   | 11,179            |        |                   |   | 1,294          |        |       |   |         |        |           |   | 12,473 |        |                |   | 7,776  |        |          |   | 3,549 |         |   |   |  |   |  |   | 11,325 |        
|                    | General and administrative                   |                               |   | 5,576             |        |                   |   | 4,306          |        |       |   |         |        |           |   | 9,882  |        |                |   | 3,829  |        |          |   | 9,096 |         |   |   |  |   |  |   | 12,925 |        
|                    | Amortization of intangible assets            |                               |   |                  |        |                   |   | 891            |        |       |   |         |        |           |   | 891    |        |                |   | 661    |        |          |   | 5,537 |         |   |   |  |   |  |   | 6,198  |        
|                    | (Recovery of) provision for
insurance loss   |                               |   |                  |        |                   |   | (1,250         | )      |       |   |         |        |           |   | (1,250 | )      |                |   |       |        |          |   | 2,707 |         |   |   |  |   |  |   | 2,707  |        
|                    | Impairment of goodwill and
intangible assets |                               |   |                  |        |                   |   |               |        |       |   |         |        |           |   |       |        |                |   | 1,043  |        |          |   | 4,242 |         |   |   |  |   |  |   | 5,285  |        
|                    | Merger related costs                         |                               |   |                  |        |                   |   |               |        |       |   |         |        |           |   |       |        |                |   |       |        |          |   |      |         |   |   |  |   |  |   |       |        
|                    |                                              |                               |   |                   |        |                   |   |                |        |       |   |          |        |           |   |        |        |                |   |        |        |          |   |       |         |   |   |   |   |  |   |       
|                    |                                              | Total operating expenses      |   |                   | 38,520 |                   |   |                | 18,243 |       |   |          | (9,713 | )         |   |        | 47,050 |                |   |        | 19,305 |          |   |       | 39,518  |   |   |   |  |  |   |        | 58,823  |  
|                    |                                              |                               |   |                   |        |                   |   |                |        |       |   |          |        |           |   |        |        |                |   |        |        |          |   |       |         |   |   |   |   |  |   |       
|                    |                                              | (Loss) income from operations |   | $                 | (26    | )                 |   | $              | 1,367  |       |   | $        |       |           |   | $      | 1,341  |                |   | $      | (703   | )        |   | $     | (17,133 | ) |   | $ |  |  |   | $      | (17,836 | )
|                    |                                              |                               |   |                   |        |                   |   |                |        |       |   |          |        |           |   |        |        |                |   |        |        |          |   |       |         |   |   |   |   |  |   |       

|                    |                                              |                               |   |                   |        |          |   |                |         |       |   |   |   |  |   |        |         |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|------------------- | -------------------------------------------- | ----------------------------- | - | ----------------- | ------ | -------- | - | -------------- | ------- | ----- | - | - | - |  | - | ------ | ------- | - |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|                    |                                              |                               |   | YEAR ENDED       
|                    |                                              |                               |   | DECEMBER 31, 2000
|                    |                                              |                               |   |                  
|                    |                                              |                               |   |                   |        |          |   | Software       |         |       |   |   |   |  |   |       
|                    |                                              |                               |   |                   |        |          |   | Products       |         |       |   |   |   |  |   |       
|                    |                                              |                               |   | Brokerage         |        | and      |   | Elimin-        |         |       |   |  
|                    |                                              |                               |   | Services          |        | Services |   | ations         |         | Total
|                    |                                              |                               |   |                   |        |          |   |                |         |      
|                    |                                              |                               |   |                   |        |          |   | (In thousands) |         |       |   |   |   |  |   |       
|Revenues:           |                                              |                               |   |                   |        |          |   |                |         |       |   |   |   |  |   |       
|                    | Brokerage revenues                           |                               | $ | 17,934            |        |          | $ |               |         |       | $ |  |   |  | $ | 17,934 |        
|                    | Subscription fees                            |                               |   |                  |        |          |   | 8,170          |         |       |   |  |   |  |   | 8,170  |        
|                    | Licensing fees                               |                               |   |                  |        |          |   | 18,343         |         |       |   |  |   |  |   | 18,343 |        
|                    | Other                                        |                               |   |                  |        |          |   | 8,479          |         |       |   |  |   |  |   | 8,479  |        
|                    |                                              |                               |   |                   |        |          |   |                |         |       |   |   |   |  |   |       
|                    |                                              | Total revenues                |   |                   | 17,934 |          |   |                | 34,992  |       |   |   |  |  |   |        | 52,926  |  
|                    |                                              |                               |   |                   |        |          |   |                |         |       |   |   |   |  |   |       
|                    |                                              |                               |   |                   |        |          |   |                |         |       |   |   |   |  |   |       
|Operating expenses: |                                              |                               |   |                   |        |          |   |                |         |       |   |   |   |  |   |       
|                    | Clearing and execution costs                 |                               |   | 4,787             |        |          |   |               |         |       |   |  |   |  |   | 4,787  |        
|                    | Data center costs                            |                               |   |                  |        |          |   | 4,002          |         |       |   |  |   |  |   | 4,002  |        
|                    | Technology development                       |                               |   | 701               |        |          |   | 7,427          |         |       |   |  |   |  |   | 8,128  |        
|                    | Sales and marketing                          |                               |   | 6,006             |        |          |   | 21,674         |         |       |   |  |   |  |   | 27,680 |        
|                    | General and administrative                   |                               |   | 3,456             |        |          |   | 8,459          |         |       |   |  |   |  |   | 11,915 |        
|                    | Amortization of intangible assets            |                               |   | 541               |        |          |   | 5,438          |         |       |   |  |   |  |   | 5,979  |        
|                    | (Recovery of) provision for
insurance loss   |                               |   |                  |        |          |   |               |         |       |   |  |   |  |   |       |        
|                    | Impairment of goodwill and
intangible assets |                               |   |                  |        |          |   |               |         |       |   |  |   |  |   |       |        
|                    | Merger related costs                         |                               |   | 1,290             |        |          |   | 2,510          |         |       |   |  |   |  |   | 3,800  |        
|                    |                                              |                               |   |                   |        |          |   |                |         |       |   |   |   |  |   |       
|                    |                                              | Total operating expenses      |   |                   | 16,781 |          |   |                | 49,510  |       |   |   |  |  |   |        | 66,291  |  
|                    |                                              |                               |   |                   |        |          |   |                |         |       |   |   |   |  |   |       
|                    |                                              | Income (loss) from operations |   | $                 | 1,153  |          |   | $              | (14,518 | )     |   | $ |  |  |   | $      | (13,365 | )
|                    |                                              |                               |   |                   |        |          |   |                |         |       |   |   |   |  |   |       

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Critical Accounting Policies and Estimates

Our significant accounting policies are described in Note 1 of Notes to
Consolidated Financial Statements included in this report  DESCRIPTION OF
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ materially from those estimates.

Brokerage Revenues.Brokerage revenues are the key component of our
results of operations and are comprised primarily of brokerage commissions and
fees earned from our clients brokerage transactions and, to a lesser extent,
platform fees earned from brokerage customers using the TradeStationelectronic
trading platform and interest earned from interest revenue sharing arrangements
with the brokerages clearing firms. Brokerage commissions and fees and their
related clearing costs are recorded on a trade date basis as transactions
occur. Platform fees and interest are recorded monthly, when earned.

Income Taxes.Management determines any valuation allowance recorded
against our net deferred income tax assets, which includes the benefit from net
operating loss carryforwards. For the years ended December 31, 2002 and 2001,
a valuation allowance was recorded to offset the tax benefit of all current
period changes in deferred income taxes. During the 2001 fourth quarter, we
recorded a $4.8 million charge establishing a full valuation allowance against
our previously recorded deferred income tax assets and we have continued to
apply a full valuation allowance against our deferred income tax assets in
2002. As of December 31, 2002, we have approximately $10.8 million of deferred
income tax assets that have been fully reserved, the benefit of which may be
recorded in future periods should realization become more likely than not. See
Income Taxes below, and Note 13 of Notes to Consolidated Financial Statements 
INCOME TAXES.

Insurance Claim. In June 2001, we made a claim of $2.7 million with our
insurance carrier relating to a trading error made with respect to a clients
account. In December 2001, the insurance company denied this claim and,
accordingly, the receivable recorded in our consolidated balance sheet was
fully reserved as of December 31, 2001. On July 25, 2002, we entered into an
agreement to settle this claim for $1.25 million, payment of which was received
in August 2002. The effect of this settlement was recorded in the third
quarter of 2002. See Software Products and Services Segment  Operating
Expenses  (Recovery of) Provision for Insurance Loss.

Uninsured Loss Reserves.We decided, as of June 1, 2002, to no longer
carry errors or omissions insurance that covers third-party claims made by
brokerage clients or software subscribers as a result of alleged human or
system errors, failures, acts or omissions. This decision was made based upon
our assessment of the potential risks and benefits, including significant
increases in premium rates, deductibles and coinsurance amounts, reductions in
available per occurrence and aggregate coverage amounts, and the unavailability
of policies that sufficiently cover the types of risks that relate to our
business. Each quarter, we continue to evaluate our accruals for settlements
related to claims and potential claims. Estimates of settlements for such
potential claims, including related legal fees, are accrued in the consolidated

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financial statements. The ultimate outcome of such potential claims may be
substantially different than our estimates. See Brokerage Services Segment 
Operating Expenses  General and Administrative.

Sublease of Facilities. During the second quarter of 2002, we completed
the consolidation of our Florida operations to one location. Based upon advice
from our outside real estate advisors, using current market factors, we
estimated the potential losses relating to the sublease of facilities that we
will no longer occupy. During the year ended December 31, 2002, we increased
our estimated loss accrual by $733,000 while net payments of $380,000 were
applied against this accrual, resulting in a balance of $733,000 as of December
31, 2002.

Impairment of Goodwill and Intangible Assets.In December 2001, we
recorded a non-cash charge of $5.3 million for impairment of goodwill and
certain intangible assets due to certain operational decisions made by
management which resulted in the reduction of the fair value of such assets.
The fair value was determined by a qualified independent appraiser,
representing the price at which the assets would change hands between a willing
buyer and seller. This charge was recorded in accordance with Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed of, the effective
guidance at that time. See Years Ended December 31, 2001 and 2000  Brokerage
Services Segment Operating Expenses  Impairment of Goodwill and Intangible
Assets and Years Ended December 31, 2001 and 2000  Software Products and
Services Segment  Operating Expenses  Impairment of Goodwill and Intangible
Assetsbelow, and Note 6 of Notes to Consolidated Financial Statements 
INTANGIBLE ASSETS, NET.




Years Ended December 31, 2002 and 2001

Overall

Total revenues were $48.4 million for the year ended December 31, 2002, as
compared to $41.0 million for the year ended December 31, 2001, an increase of
$7.4 million, or 18%, due primarily to an increase in brokerage revenues,
partially offset by decreases in other revenues, licensing fees and
subscription fees.

Income from operations was $1.3 million for the year ended December 31,
2002, as compared to a loss from operations of $17.8 million for the year ended
December 31, 2001, an improvement of $19.1 million, or 107%. This improvement
related primarily to higher revenues, lower amortization of intangible assets
which resulted from the 2001 fourth quarter impairment charge of $5.3 million
that reduced certain intangible assets to their estimated fair value, lower
general and administrative expense, and a $1.25 million insurance settlement in
the 2002 third quarter relating to a $2.7 million loss that had been fully
reserved during the prior year. See Software Products and Services Segment -
Operating Expenses  (Recovery of) Provision for Insurance Loss.This
improvement was partially offset by the higher clearing and execution costs
associated with higher brokerage revenues.

Other income, net was $427,000 for the year ended December 31, 2002, as
compared to $599,000 for the year ended December 31, 2001, a decrease of
$172,000, or 29%, due primarily to a decrease in interest income as a result of
lower interest rates, partially offset by a gain of $287,500 recorded on the
sale of legacy customer accounts during the second quarter of 2002.

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Brokerage Services Segment

Revenues

Brokerage Revenues. Brokerage revenues are comprised primarily of
brokerage commissions and fees earned from our clients brokerage transactions
and, to a lesser extent, platform fees earned from brokerage customers using
the TradeStationelectronic trading platform and interest earned from interest
revenue sharing arrangements with the brokerages clearing firms. For the year
ended December 31, 2002, brokerage revenues were $38.5 million (which included
brokerage commissions and fees of $34.4 million) as compared to brokerage
revenues of $18.6 million (which included brokerage commissions and fees of
$17.3 million) for the year ended December 31, 2001. This increase of $19.9
million, or 107%, was due primarily to increased trading volume related to
customer account growth fueled by our June 27, 2001 launch of the TradeStation
electronic trading platform. During the year ended December 31, 2002, 82% of
total brokerage revenues were generated from clients using the TradeStation
electronic trading platform as compared to 26% during the year ended December
31, 2001. As of December 31, 2002, substantially all of our brokerage
customers have their trades executed through the TradeStation electronic
trading platform.

In April 2002, our new brokerage commission plan  one that charges
traders fees based solely upon the share volume of client trades as opposed to
per ticket charges  became effective. The new plan, as expected,
significantly reduced our commissions per trade. This reduction was partially
offset by charging brokerage clients monthly platform fees. In August 2002, we
modified our price per share plan by reducing the price per share.
Additionally, as compared to the first half of 2002, media advertising
expenditures were reduced during the second half of 2002. Continued price
pressure on online brokerage commissions and fees, as well as our ability to
maintain or improve revenue growth with reduced advertising expenditures, are
challenges we expect to face for the foreseeable future. In 2003, we reduced
our commission pricing for futures and options trades.

Operating Expenses

Clearing and Execution Costs.Clearing and execution costs are the costs
of executing and clearing customer trades, including commissions paid to
third-party broker-dealers. Clearing and execution costs were $11.3 million
for the year ended December 31, 2002, as compared to $5.8 million for the year
ended December 31, 2001, an increase of $5.5 million, or 96%, due primarily to
increased trading volume related to account growth. Clearing and execution
costs as a percentage of brokerage revenues decreased to 29% for the year ended
December 31, 2002, from 31% for the year ended December 31, 2001, due to
improved clearing cost rates provided by our clearing firms, partially offset
by the lower gross margins that resulted from our new per share pricing
structure. Clearing costs as a percentage of brokerage revenues are expected
to increase in 2003, as a greater percentage of our customers will be on our
per share pricing structure.

Data Center Costs. Data center costs are primarily intercompany
subscription fees paid to the software products and services segment for
providing streaming real-time, Internet-based trading analysis software and
data services to brokerage clients. See Technology Development below. Data
center costs for the year ended December 31, 2002 were $9.8 million. No data
center costs were charged to the brokerage segment during the year ended
December 31, 2001.

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See Software Products and Services Segment  Revenues  Subscription Fees"
and   Operating Expenses  Data Center Costs.

Technology Development. Technology development expenses consist primarily
of personnel costs associated with product management of the brokerage products
and services TradeStation Securities offers to its clients. Technology
development expenses for the year ended December 31, 2002 were $644,000, as
compared to $224,000 for the year ended December 31, 2001, an increase of
$420,000, or 187%. This increase is because the brokerage did not employ
product management personnel until the end of the 2001 second quarter. Most of
the technology costs required for our brokerage firm to offer and operate a
highly sophisticated electronic trading platform are borne by its technology
affiliate, which licenses that technology to the brokerage firm pursuant to an
intercompany agreement. See Software Products and Services Segment 
Operating Expenses  Technology Development.

Sales and Marketing. Sales and marketing expenses consist primarily of
personnel costs for sales, customer support centers, marketing and order desk,
as well as brokers commissions; marketing programs, including advertising,
brochures, direct mail programs and account opening kits; data and information
tools used by sales and brokerage personnel; and Web site maintenance and
administration costs. Sales and marketing expenses were $11.2 million for the
year ended December 31, 2002, as compared to $7.8 million for the year ended
December 31, 2001, an increase of $3.4 million, or 44%. This increase was due
primarily to increased advertising and promotional costs of $2.6 million and
increased personnel and related costs of $722,000. However, we have
significantly decreased our media advertising expenditures in the second half
of 2002 as compared to the first half of 2002, and expect to further reduce
these expenditures in 2003.

General and Administrative. General and administrative expenses consist
primarily of costs for administrative personnel such as executive, human
resources, finance, compliance and information technology employees;
professional fees; telecommunications; rent; insurance; and other facility
expenses. General and administrative expenses were $5.6 million for the year
ended December 31, 2002, as compared to $3.8 million for the year ended
December 31, 2001, an increase of $1.8 million, or 46%. This change is due
primarily to increases in personnel and related costs of $1.2 million and
increases in facility costs of $1.2 million (related mainly to an increase in
the estimated loss on the sublease of facilities that will no longer be
occupied), partially offset by a decrease in uninsured loss provisions of
$747,000. See Critical Accounting Policies and Estimates  Uninsured Loss
Reserves and  Sublease of Facilities.

Amortization of Intangible Assets.Historically, amortization of
intangible assets was related to the December 1999 acquisition of certain
customer accounts of Newport Discount Brokerage, Inc. (Newport), which was
accounted for under the purchase method of accounting. Based upon our decision
made in December 2001 to sell those accounts (as they did not meet the
requirements of our active and institutional trader business model), we
determined that these intangible assets were impaired and, therefore, they were
reduced to their estimated fair value, as determined by an independent
appraisal. There was no amortization during 2002, as these intangible assets
were held for sale, and then sold during the second quarter of 2002.
Amortization of intangible assets for the year ended December 31, 2001 was
$661,000. See Years Ended December 31, 2001 and 2000  Brokerage Services
Segment  Operating Expenses  Impairment of Goodwill and Intangible Assets
below.

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Software Products and Services Segment

Revenues

Total Revenues. Total revenues were approximately $19.6 million for the
year ended December 31, 2002, as compared to $22.4 million for the same period
in 2001, a decrease of $2.8 million, or 12%, due primarily to a decrease in
other revenues and licensing fees (both of which relate primarily to our legacy
software business, which is no longer a primary focus), partially offset by an
increase in subscription fees.

Subscription Fees. Subscription fees represent monthly fees earned for
providing streaming real-time, Internet-based trading analysis software and
data services. Subscription fees also include intercompany revenue for
licensing to TradeStation Securities the right to provide this software and
data service to the brokerage customers of TradeStation Securities
(Intercompany Subscription Fees). Subscription fees were $16.4 million for
the year ended December 31, 2002, as compared to $9.6 million for the year
ended December 31, 2001, an increase of $6.8 million, or 71%. This increase
was due primarily to $9.7 million of Intercompany Subscription Fees which
resulted from increased brokerage accounts at TradeStation Securities.
Excluding Intercompany Subscription Fees, subscription fees decreased $2.9
million, or 31%, due to our December 2000 decision not to actively market
subscription services, but rather to focus on the growth of our brokerage
business.

Licensing Fees. Licensing fees are derived from direct sales of our
legacy client software products and are recognized on a cash basis due to the
lack of predictability of return reserves and future collectibility of
receivables in accordance with the provisions of the American Institute of
Certified Public Accountants Statement of Position 97-2, Software Revenue
Recognition. Licensing fees were $1.1 million for the year ended December 31,
2002, as compared to $5.0 million for the year ended December 31, 2001, a
decrease of $3.9 million, or 78%. This expected decrease was due primarily to
the May 2000 termination of active marketing of client software products and,
as of September 2001, no longer offering these products domestically.
Accordingly, licensing fees are expected to continue to decrease in the future.

Other Revenues. Other revenues consist primarily of royalties and
commissions received from third parties whose customers use our legacy software
products. Other revenues were $2.1 million for the year ended December 31,
2002, as compared to $7.8 million for the year ended December 31, 2001, a
decrease of $5.7 million, or 73%. This expected decrease was due primarily to
a decrease in royalties resulting from the expiration of a minimum royalty
arrangement with a third party in 2001. Other revenues are expected to
continue to decrease in the future.

Operating Expenses

Data Center Costs. Data center costs represent expenses related to the
operation, maintenance and support of our data server farms. These expenses
consist primarily of rent for facilities, rent or depreciation for servers, and
data distribution and exchange fees. Data center costs for the year ended
December 31, 2002 were $4.8 million, as compared to $5.3 million for the year
ended December 31, 2001, a decrease of $507,000, or 10%. The decrease was due
primarily to lower lease costs associated with the conversion of certain
operating leases to capital

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leases, and lower data distribution fees resulting from more favorable rates
negotiated in the third quarter of 2001, partially offset by higher facility
costs and exchange fees.

Technology Development. Technology development expenses include expenses
associated with the development of new products, services and technology;
enhancements to existing products, services and technology; testing of products
and services; and the creation of documentation and other training and
educational materials. Technology development expenses consist primarily of
personnel costs, depreciation of computer and related equipment, facility
expenses, telecommunications costs and consulting fees. TradeStation
Technologies owns all intellectual property rights relating to our businesses,
including, but not limited to, all order execution technology. Technology
development expenses were $8.2 million for the year ended December 31, 2002, as
compared to $9.1 million for the year ended December 31, 2001, a decrease of
$878,000, or 10%, due primarily to lower personnel and related costs of
$662,000 and lower facility costs of $169,000.

Sales and Marketing. We no longer actively market software products and
services, the focus of our business being to continue to build an online
brokerage firm for active traders. Sales and marketing expenses have consisted
primarily of marketing programs, including advertising, brochures, and direct
mail programs; sales commissions; personnel costs for marketing and customer
support centers; Web site maintenance and administration costs; and inventory
and handling costs. Sales and marketing expenses were $1.3 million for the
year ended December 31, 2002, as compared to $3.6 million for the year ended
December 31, 2001, a decrease of $2.3 million, or 64%, due primarily to
decreases in advertising and promotional costs of $1.0 million, decreases in
personnel and related costs of $855,000 and decreases in facility costs of
$230,000.

General and Administrative. General and administrative expenses consist
primarily of costs for administrative personnel such as executive, human
resources, finance and information technology employees; professional fees;
telecommunications; rent; other facility expenses; insurance; and provision for
bad debts. General and administrative expenses were $4.3 million for the year
ended December 31, 2002, as compared to $9.1 million for the year ended
December 31, 2001, a decrease of $4.8 million, or 53%, due primarily to
decreases in personnel and related costs of $2.0 million, decreases in
professional fees of $803,000, decreases in facility costs of $794,000, and
decreases in provision for bad debts of $714,000. The entire 2001 provision
for bad debts relates to the portion of TradeStation Technologies 2001
Telerate royalty receivable that was part of a pre-petition estate in a
Chapter 11 bankruptcy filed in February 2001 and was not paid as a result of
the rejection of that agreement in those bankruptcy proceedings. See Note 16
of Notes to Consolidated Financial Statements  COMMITMENTS AND CONTINGENCIES
Telerate Royalty Agreement.

Amortization of Intangible Assets.Amortization of intangible assets
includes, primarily, amortization related to the October 1999 acquisition of
Window On WallStreet. which was accounted for under the purchase method of
accounting, its assets being amortized over their estimated useful lives, which
range from three to four years. Amortization of intangible assets also
includes amortization of data rights and other intangibles. Amortization of
intangible assets was $891,000 for the year ended December 31, 2002, as
compared to $5.5 million for the year ended December 31, 2001, a decrease of
$4.6 million, or 84%. The decrease is due to the December 2001 impairment that
reduced the value of all of the goodwill and certain intangible

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assets associated with the acquisition of Window On WallStreet to their
estimated fair value. This resulted from our decision, made and implemented in
the fourth quarter of 2001, to upgrade all WindowOnWallStreet.comsubscribers
to TradeStation 6. See "Years Ended December 31, 2001 and 2000  Software
Products and Services Segment  Operating Expenses  Impairment of Goodwill and
Intangible Assets below.

(Recovery of) Provision for Insurance Loss. In June 2001, we made a claim
of $2.7 million with our insurance carrier relating to a trading error made
with respect to a clients account. In December 2001, the insurance company
formally denied this claim and, accordingly, the receivable recorded in our
consolidated balance sheet was fully reserved. On July 25, 2002, we entered
into an agreement with the insurance company to settle this claim for $1.25
million, payment of which was received in August 2002. Accordingly, we
recorded a recovery of insurance loss of $1.25 million during the third quarter
of 2002.




Years Ended December 31, 2001 and 2000

Overall

Total revenues were $41.0 million for the year ended December 31, 2001, as
compared to $52.9 million for 2000, a decrease of $11.9 million, or 23%, due
primarily to a decrease in licensing fees.

Loss from operations was $17.8 million for the year ended December 31,
2001, as compared to $13.4 million for 2000, an increase of $4.4 million, or
33%. This increase related primarily to lower revenues, a 2001 non-cash charge
for the impairment of all goodwill and certain intangible assets totaling $5.3
million, a 2001 provision for insurance loss of $2.7 million, and, to a lesser
extent, higher data center costs, technology development expenses, general and
administrative expenses and clearing and execution costs, partially offset by
substantially lower sales and marketing expenses and no merger costs in 2001.

Brokerage Services Segment

Revenues

Brokerage Revenues. For the year ended December 31, 2001, brokerage
revenues were $18.6 million (which included $17.3 million of brokerage fees) as
compared to $17.9 million (which included $17.1 million of brokerage fees) for
the year ended 2000. This increase of $668,000, or 4%, is due to increased
trading volume and increased interest earned from the interest revenue sharing
arrangements with the brokerages clearing firms as a result of higher cash
balances having been maintained by the clearing firms.

Operating Expenses

Clearing and Execution Costs.Clearing and execution costs were $5.8
million for the year ended December 31, 2001, as compared to $4.8 million for
2000, an increase of $1.0 million, or 21%, primarily as a result of increased
trading volume. Clearing and execution costs as a percentage of brokerage
revenues increased from 27% for the year ended December 31, 2000 to

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31% for the year ended December 31, 2001 due to more lower-priced transactions
during the year ended December 31, 2001 as compared to 2000.

Technology Development. Technology development expenses for the year
ended December 31, 2001 consisted of personnel costs associated with product
management of the brokerage products and services of TradeStation Securities,
which totaled $224,000 for the year. Technology development expenses for the
year ended December 31, 2000 were $701,000, consisting of consulting and
professional fees and personnel costs for the pre-merger joint development of
our order execution technology. See Software Products and Services Segment 
Operating Expenses  Technology Development.

Sales and Marketing. Sales and marketing expenses were $7.8 million for
the year ended December 31, 2001, as compared to $6.0 million for the year
ended December 31, 2000, an increase of $1.8 million, or 29%. This increase
was due primarily to increased personnel and related costs of $1.1 million, and
increased advertising and promotion costs of $605,000.

General and Administrative. General and administrative expenses were $3.8
million for the year ended December 31, 2001, as compared to $3.5 million for
2000, an increase of $373,000, or 11%, due primarily to an increase in
uninsured loss reserves of $903,000 and an increase in insurance costs of
$227,000, partially offset by a decrease in personnel and related costs of
$830,000 as a result of post-merger consolidation and efficiencies.

Amortization of Intangible Assets. Amortization of intangible assets
includes amortization of intangible assets from the December 1999 acquisition
of the customer accounts of Newport, which was accounted for under the purchase
method of accounting. Through December 31, 2001, these intangible assets were
being amortized over their estimated useful lives over a period of five years.
Amortization of intangible assets was $661,000 and $541,000 for the years ended
December 31, 2001 and 2000, respectively. See Impairment of Goodwill and
Intangible Assetsbelow and Note 6 of Notes to Consolidated Financial
Statements  INTANGIBLE ASSETS, NET.

Impairment of Goodwill and Intangible Assets.In December of 2001, based
upon our decision to sell the Newport accounts, which did not meet the
requirements of our active and institutional trader business model, we recorded
a non-cash charge of $1.1 million for the impairment of certain intangible
assets associated with acquisition of those customer accounts. See Note 1 of
Notes to Consolidated Financial Statements  DESCRIPTION OF BUSINESS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Impairment of Long-Lived Assets
and Note 6 of Notes to Consolidated Financial Statements  INTANGIBLE ASSETS,
NET.

Merger Related Costs.During the fourth quarter of 2000, our brokerage
services segment recorded approximately $1.3 million of merger related costs
associated with the merger of TradeStation Technologies and TradeStation
Securities.

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Software Products and Services Segment

Revenues

Total Revenues. Total revenues were $22.4 million for the year ended
December 31, 2001, as compared to $35.0 million for the same period in 2000, a
decrease of $12.6 million, or 36%, due primarily to a decrease in licensing
fees.

Subscription Fees. Subscription fees were $9.6 million for the year ended
December 31, 2001, as compared to $8.2 million for the year ended December 31,
2000, an increase of $1.4 million, or 17%, due primarily to an increased
subscriber base following the December 2000 launch of TradeStation 6.

Licensing Fees. Licensing fees were $5.0 million for the year ended
December 31, 2001, as compared to $18.3 million for 2000, a decrease of $13.3
million, or 73%, due primarily to our termination in May 2000 of active
marketing of client software products and, as of September 2001, no longer
offering these products domestically.

Other Revenues. Other revenues were $7.8 million for the year ended
December 31, 2001, as compared to $8.5 million for 2000, a decrease of
$689,000, or 8%. The decrease was due primarily to the cancellation in 2001 of
our trading strategy conference.

Operating Expenses

Data Center Costs. Data center costs for the year ended December 31, 2001
were $5.3 million, as compared to $4.0 million for the year ended December 31,
2000, an increase of $1.3 million, or 32%. The increase was due primarily to
increased server farm infrastructure costs (rent and depreciation for
additional facilities and servers) as well as increased data distribution and
exchange fees.

Technology Development. Technology development expenses were $9.1 million
for the year ended December 31, 2001, as compared to $7.4 million for the year
ended December 31, 2000, an increase of $1.7 million, or 22%, due primarily to
increased personnel and related expenses of $1.3 million.

Sales and Marketing. Sales and marketing expenses were $3.6 million for
the year ended December 31, 2001, as compared to $21.7 million for 2000, a
decrease of $18.1 million, or 84%, due primarily to decreased advertising and
promotion costs of $11.3 million, personnel and related costs of $4.3 million,
inventory and handling costs of $1.1 million and travel costs of $850,000. The
decrease in personnel costs was the result of a restructuring of the sales and
marketing team at the end of the first quarter of 2000, and the transfer of
substantially all remaining sales personnel to the brokerage services segment
during the first quarter of 2001.

General and Administrative. General and administrative expenses were
approximately $9.1 million for the year ended December 31, 2001, as compared to
$8.5 million for 2000, an increase of $637,000, or 8%, due primarily to a
$714,000 provision for bad debts recognized in the first quarter of 2001. The
provision for bad debts relates to the portion of the 2001 Telerate royalty
receivable that was part of the pre-petition estate in Telerates Chapter 11
bankruptcy, which was filed in February 2001, and was not paid as a result of
the rejection of that agreement in

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those bankruptcy proceedings. See Note 16 of Notes to Consolidated Financial
Statements  COMMITMENTS AND CONTINGENCIES  Telerate Royalty Agreement.

Amortization of Intangible Assets.Amortization of intangible assets
includes, primarily, goodwill and other intangible amortization related to the
October 1999 acquisition of Window On WallStreet accounted for under the
purchase method of accounting (amortized over the assets estimated useful
lives, ranging from three to four years) and also amortization of data rights.
Amortization of intangible assets was $5.5 million and $5.4 million for the
years ended December 31, 2001 and 2000, respectively. See Impairment of
Goodwill and Intangible Assets below and Note 6 of Notes to Consolidated
Financial Statements  INTANGIBLE ASSETS, NET.

(Recovery of) Provision for Insurance Loss. In June 2001, we made a claim
of $2.7 million with our insurance carrier relating to a trading error made
with respect to a clients account. In December 2001, the insurance company
formally denied this claim and, accordingly, the receivable recorded in our
consolidated balance sheet was fully reserved and a provision for insurance
loss was recorded for $2.7 million for the year ended December 31, 2001. On
July 25, 2002, we entered into an agreement with the insurance company to
settle this claim for $1.25 million, payment of which was received in August
2002. Accordingly, we recorded a recovery of insurance loss of $1.25 million
during the third quarter of 2002.

Impairment of Goodwill and Intangible Assets.In December 2001, we
recorded a non-cash charge of $4.2 million for the impairment of all of the
goodwill and certain intangible assets associated with the acquisition of
Window On WallStreet. This was done as a result of our decision, made and
implemented in the fourth quarter of 2001, to upgrade all
WindowOnWallStreet.com subscribers to TradeStation 6. See Note 1 of Notes to
Consolidated Financial Statements  DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES  Impairment of Long-Lived Assetsand Note 6 of
Notes to Consolidated Financial Statements  INTANGIBLE ASSETS, NET.

Merger Related Costs.During the fourth quarter of 2000, our software
products and services segment recorded approximately $2.5 million of merger
related costs associated with the merger of TradeStation Technologies and
TradeStation Securities.




Income Taxes

During the year ended December 31, 2002, taxes were provided for certain
state and local income taxes where our net operating loss carryforwards could
not be utilized, resulting in a tax provision of $4,000.

During the year ended December 31, 2001, we recorded an income tax
provision of $4.7 million, which included a fourth quarter non-cash charge of
$4.8 million to establish a full valuation allowance against our deferred tax
assets, in accordance with the requirements of SFAS No. 109, Accounting for
Income Taxes. See Note 13 of Notes to Consolidated Financial Statements 
INCOME TAXES. A valuation allowance was recorded to offset the tax benefit of
all other net operating losses generated during the year.

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Prior to December 29, 2000, the effective time of the merger of
TradeStation Technologies and TradeStation Securities, TradeStation
Technologies and TradeStation Securities were separate tax-paying entities.
Accordingly, it is appropriate to look at each companys income taxes
separately for 2000. No taxes were provided for TradeStation Technologies
during 2000, as a valuation allowance was recorded to offset the tax benefit of
all net operating losses generated during the year. TradeStation Securities
recorded a tax provision of $1.4 million in 2000, with an effective tax rate of
60.7%. The effective tax rate for 2000 exceeded the statutory rate due to
nondeductible merger-related expenses.




Variability of Results

The operating results for any quarter are not necessarily indicative of
results for any future period or for the full year. Our quarterly revenues and
operating results have varied in the past, and are likely to vary in the
future. Such fluctuations may result in volatility in the price of our common
stock. See Issues, Uncertainties and Risk Factors below and Note 18 of Notes
to Consolidated Financial Statements  UNAUDITED QUARTERLY FINANCIAL
INFORMATION.




Liquidity and Capital Resources

As of December 31, 2002, we had cash and cash equivalents of approximately
$16.4 million, of which $3.4 million was restricted. Restricted cash supports
a facility lease, two stand-by letters of credit securing equipment leases,
certain customer agreements, and a credit card clearing agreement. See Note 16
of Notes to Consolidated Financial Statements  COMMITMENTS AND CONTINGENCIES 
Restricted Cash.

During 2002, equipment valued at $856,000 was acquired under various
capital lease obligations for use at our data server farms, replacing certain
operating leases. In connection with the relocation of our three Florida
offices to one Florida location, we acquired $497,000 of furniture and
equipment under two additional capital lease obligations. A summary of our
capital and operating leases (net of subleases) as of December 31, 2002 is as
follows:

|                        |  |               |           |           |  |       |            |  |  |   |            |  
|----------------------- |  | ------------- | --------- | --------- |  | ----- | ---------- |  |  | - | ---------- | -
|                        |  | Capital Lease |           | Operating |  |       |            | 
|Year                    |  | Obligations   |           | Leases    |  | Total
|                        |  |               |           |           |  |      
|2003                    |  |               | 1,326,109 |           |  |       | 2,978,474  |  |  |   | 4,304,583  |  
|2004                    |  |               | 205,357   |           |  |       | 2,655,028  |  |  |   | 2,860,385  |  
|2005                    |  |               | 8,213     |           |  |       | 2,304,957  |  |  |   | 2,313,170  |  
|2006                    |  |               |          |           |  |       | 2,201,036  |  |  |   | 2,201,036  |  
|2007                    |  |               |          |           |  |       | 1,923,974  |  |  |   | 1,923,974  |  
|Thereafter (cumulative) |  |               |          |           |  |       | 8,848,498  |  |  |   | 8,848,498  |  
|                        |  |               |           |           |  |       |            |  |  |   |            |  
|                        |  |               | 1,539,679 |           |  |       | 20,911,967 |  |  |   | 22,451,646 |  
|Less interest and taxes |  |               | (157,415  | )         |  |       |           |  |  |   | (157,415   | )
|                        |  |               |           |           |  |       |            |  |  |   |            |  
|Total                   |  | $             | 1,382,264 |           |  | $     | 20,911,967 |  |  | $ | 22,294,231 |  
|                        |  |               |           |           |  |       |            |  |  |   |            |  

We do not currently have any material purchase obligations. See Note 8 of
Notes to Consolidated Financial Statements  CAPITAL LEASE OBLIGATIONS and Note
16 of Notes to Consolidated Financial Statements  COMMITMENTS AND
CONTINGENCIES  Operating Leasesfor a further discussion of our outstanding
capital and operating lease obligations.

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We anticipate, in connection with the expected growth of our brokerage
business, capital expenditures of approximately $3.3 million through December
31, 2003. These expenditures are expected to be funded through operating cash
flows, capital leases, or a combination of the two.

We anticipate that our available cash resources and cash flows from
operations will be sufficient to meet our presently anticipated working capital
and capital expenditure requirements through at least the next twelve months.

Cash provided by operating activities totaled $5.2 million, $2.8 million
and $241,000 for the years ended December 31, 2002, 2001 and 2000,
respectively. Net cash provided by operating activities during 2002 was due
primarily to improved operating income (including $1.25 million received in an
insurance settlement), as adjusted for non-cash items, and an increase in
accounts payable and accrued expenses, partially offset by an increase in
receivables from clearing firms. Net cash provided by operating activities
during 2001 was due primarily to the receipt of income tax receivables of $8.5
million in April 2001 and a decrease in receivables from clearing firms,
partially offset by operating losses as adjusted for non-cash items and
decreases in merger and non-recurring accounts payable and in income taxes
payable.

Investing activities used cash of $331,000 and $4.0 million during 2002
and 2001, respectively, compared to cash provided of $33,000 in 2000. During
2002, net cash used in investing activities was comprised primarily of capital
expenditures of $1.7 million, partially offset by cash proceeds of $1.0 million
from the sale of the Newport accounts during the second quarter of 2002 (see
Note 6 of Notes to Consolidated Financial Statements  INTANGIBLE ASSETS, NET).
During 2001, cash used in investing activities was comprised mainly of an
increase in restricted cash of $3.1 million, supporting primarily a new
facility lease and an equipment lease, and $546,000 in capital expenditures.
During 2000, cash provided by investing activities was comprised of proceeds
from maturity of securities, net of related purchases, of $1.6 million,
partially offset by capital expenditures of $1.0 million and an increase of
restricted cash of $510,000 to support an equipment lease and credit card
clearing agreement.

Financing activities used cash of $8.2 million and $300,000 during 2002
and 2001, respectively, and provided cash of $307,000 during 2000. Net cash
used in financing activities during 2002 was due primarily to $6.9 million of
cash paid for the purchase and retirement of 5 million shares of our common
stock. In July 2002, we announced a stock repurchase program authorizing, at
the discretion of management, the use of available cash to purchase from time
to time up to 4 million shares of our common stock in the open market or
through privately-negotiated transactions. Through October 2002, we had
purchased and retired all 4 million shares at prices ranging from $1.35 to
$1.40 per share, for a total purchase price of $5.5 million. This included two
private transactions with a former principal shareholder of
onlinetradinginc.com corp. for the purchase of 1.5 million shares at a price of
$1.35 per share and 2.4 million shares at a price of $1.40 per share. In
November 2002, we purchased and retired an additional 1 million shares at a
price of $1.35 per share in a private transaction with another former principal
shareholder of onlinetradinginc.com corp., bringing the total shares of common
stock purchased and retired for the year to 5 million, for a total purchase
price of $6.9 million.

Proceeds from issuance of common stock from our incentive stock plans
provided cash of $43,000, $109,000 and $386,000 during 2002, 2001 and 2000,
respectively. Repayments of

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capital lease obligations were $1.4 million, $410,000 and $78,000 during 2002,
2001 and 2000, respectively.




Off-Balance-Sheet Arrangements

The brokerages client securities and futures activities are transacted on
either a cash or margin basis. In margin transactions, the brokerage may be
obligated for credit extended to its clients by the brokerages clearing firms,
subject to various regulatory and clearing firm margin requirements,
collateralized by cash and securities in the clients accounts. In connection
with these activities, the brokerage executes client transactions involving the
sale of securities not yet purchased, substantially all of which are transacted
on a margin basis subject to individual exchange regulations. Such
transactions may expose the brokerage to significant off-balance-sheet risk in
the event margin requirements are not sufficient to fully cover losses that
clients may incur. In the event the client fails to satisfy its obligations,
the brokerage may be required to purchase or sell financial instruments at
prevailing market prices to fulfill the clients obligations.

We seek to control the risks associated with brokerage client activities
by requiring clients to maintain margin collateral in compliance with the
brokerages clearing firms requirements as well as various regulatory
requirements. The brokerage as well as its clearing firms, monitor required
margin levels daily and require the clients to deposit additional collateral or
to reduce positions when necessary.

The brokerage client financing and securities settlement activities
require the clearing firms to pledge client securities as collateral in support
of various secured financing sources such as bank loans and securities loaned.
In the event the counterparty is unable to meet its contractual obligation to
return client securities pledged as collateral, the brokerage may be exposed to
the risk of acquiring the securities at prevailing market prices in order to
satisfy its clients obligations. We control this risk by monitoring the
market value of securities pledged on a daily basis and by requiring
adjustments of collateral levels in the event of excess market exposure. In
addition, we establish credit limits for such activities and monitor compliance
on a daily basis.




Recently Issued Accounting Standards

We adopted SFAS No. 142, Goodwill and Other Intangible Assets, effective
on January 1, 2002. SFAS No. 142 addresses financial accounting and reporting
for intangible assets acquired individually or with a group of other assets,
and for goodwill and other intangible assets subsequent to their acquisition.
Goodwill and intangible assets with indefinite useful lives will no longer be
subject to amortization, but will be subject to at least an annual assessment
for impairment by applying a fair value-based test. The impairment loss is the
amount, if any, by which the implied fair value of goodwill is less than the
carrying or book value. The adoption of SFAS No. 142 did not have any impact
on our consolidated financial position, results of operations or cash flows as
we did not have goodwill or intangible assets with indefinite useful lives at
the time of adoption.

We adopted SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, on January 1, 2002. SFAS No. 144, which supersedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed of, and Accounting Principles Board (APB) No. 30, Reporting
the Results of Operations  Reporting the Effects of

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Disposal of a Segment of Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, establishes a single accounting model, based
on the framework established in SFAS No. 121, for long-lived assets to be
disposed of by sale whether previously held and used or newly acquired. SFAS
No. 144 retains the provisions of APB No. 30 for presentation of discontinued
operations in the statement of operations, but broadens the presentation to
include a component of an entity. The adoption of SFAS No. 144 did not have
any impact on our consolidated financial position, results of operations or
cash flows.

In December 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure  an amendment of FASB Statement No. 123. SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. We have adopted the additional disclosure
requirements as of December 31, 2002. See Note 1 of Notes to Consolidated
Financial Statements  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES  Stock-Based Compensation.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS No. 146 nullifies Emerging Issues Task Force Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring).SFAS No.
146 is effective for exit or disposal activities initiated after December 31,
2002. We do not believe that the adoption of SFAS No. 146 will have a material
impact on our consolidated financial position, results of operations or cash
flows.




Issues, Uncertainties and Risk Factors

The Consolidated Financial Statements and Managements Discussion and
Analysis of Financial Condition and Results of Operations, as well as the
BUSINESS section of this report, should be read and evaluated together with
the issues, uncertainties and risk factors relating to our business described
below. While we have been and continue to be confident in our business and
business prospects, we believe it is very important that anyone who reads this
report consider these issues, uncertainties and risk factors, which include
business risks relevant both to our industry and to us in particular. These
issues, uncertainties and risk factors are not intended to be exclusive.
Issues, uncertainties and risk factors are also included in other sections of
this report when specifically relevant to a statement we have made about an
aspect of our business, or our financial condition or results of operations.

This report also contains statements that are forward-looking within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. When used in this report, the

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words believes, plans, estimates, expects, intends, designed,
anticipates, may, will, should, could, become, upcoming,
potential, pending, and similar expressions, if and to the extent used, are
intended to identify the forward-looking statements. All forward-looking
statements are based on current expectations and beliefs concerning future
events that are subject to risks and uncertainties, including the risks and
uncertainties described below and elsewhere in this report. Actual results may
differ materially from the results suggested in this report. Factors that may
cause or contribute to such differences, and our business risks and
uncertainties generally, include, but are not limited to, the items described
below, as well as those described in other sections of this report, our other
public filings and our press releases.

There Are Several Factors That May Cause Fluctuations In Our Quarterly
Operating Results, Which Could Result In Significant Volatility In Our Stock
Price.

Quarterly revenues and operating results of TradeStation Group and its
predecessor companies have fluctuated significantly in the past, and our
quarterly revenues and operating results are likely to fluctuate in the future.
Causes of such significant fluctuations may include, but are not limited to:



| |  |  | the effect of our new commission pricing structure (which was
implemented in the 2002 second quarter and significantly modified in
the 2002 third quarter), and of additional price reductions that are
implemented in 2003, such as our recent 2003 reductions in commission
pricing for futures and options trades;                                                                                                                 
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | market or competitive pressure to continue to lower commissions and
fees charged to customers;                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | increases in clearing costs (we recently received notice from our
futures clearing firm that our clearing costs will substantially
increase, and as a result, we are in the process of evaluating our
options);                                                                                                                                                                                                                       
|
| |  |  | the quality and success of, and potential continuous changes in,
sales or marketing strategies (which have undergone significant change
recently and are expected to continue to evolve) and the costs
allocated to marketing campaigns and the timing of those campaigns,
particularly our recent decision to reduce advertising expenditures
during the second half of 2002 and further reduce advertising
expenditures during 2003;
|
| |  |  | the appeal of our products and services to the institutional trader
market (given our limited experience selling to that market);                                                                                                                                                                                                                                                                                                     
|
| |  |  | variations from our expectations with respect to hiring and
retention of personnel, sales and marketing expenditures, product
development, customer account growth, customer trading activity and the
share volume of their trades, or other revenue or expense items;                                                                                                                                                                
|
| |  |  | if revenues are lower than budgeted expectations, our inability to
make in a timely fashion commensurate expense reductions (as a large
amount of our expenses do not vary with revenues in the short term);                                                                                                                                                                                                                          
|
| |  |  | the effect of enhancements to the TradeStation 6electronic trading
platform (i.e., TradeStation 7and other future versions);                                                                                                                                                                                                                                                                                                          

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| |  |  | changes in demand for our products and services due to the rapid
pace at which new technology is offered to customers in our industry;                                                                                                                                                          
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | general economic and market factors that affect active trading,
including market volume, market volatility, market direction, the level
of confidence and trust in the markets, and seasonality (summer months
and holiday seasons typically being slower periods);                             
|
| |  |  | pending or potential third-party claims that turn out to be
significantly more (or less) costly than we currently estimate;                                                                                                                                                                     
|
| |  |  | costs or adverse financial consequences that may occur with respect
to regulatory compliance or other regulatory issues, particularly
relating to laws, rules or regulations that may be enacted with a focus
on the active trader market; and                                                  
|
| |  |  | the size and frequency of any trading errors for which we
ultimately suffer the economic burden, in whole or in part (including
losses from third party claims that may arise from time to time  as of
June 1, 2002, we have not carried errors or omissions insurance for
third party claims).

Conditions In The Securities And Financial Markets May Affect Our Rates Of
Customer Acquisition, Retention And Trading Activity

Our products and services are, and will continue to be, designed for
customers who trade actively in the securities and financial markets. There
have been for the past 3 years, and continues to be, unfavorable conditions in
the securities and financial markets. To the extent that interest in active
trading has decreased or in the future decreases due to low trading volumes,
lack of volatility, or significant downward movement in the securities or
financial markets, such as has recently occurred, or future tax law changes,
recessions, depressions, wars, terrorism (including cyberterrorism), or
otherwise, our business, financial condition, results of operations and
prospects could be materially adversely affected. Also, unfavorable market
conditions may result in more losses for our clients, which could result in
increases in quantity and size of errors or omissions claims that may be made
against us by clients. We do not currently carry any errors or omissions
insurance that might cover, in part, some of those potential claims. See The
Nature Of Our Business Results In Potential Liability To Customersbelow.

Our Industry Is Intensely Competitive, Which Makes It Difficult To Attract
And Retain Customers

The markets for online brokerage services, trading software tools, and
real-time market data services are intensely competitive and rapidly evolving,
and there has been substantial consolidation of those three products and
services occurring in the industry. We believe that competition from large
online brokerage firms and smaller brokerage firms focused on active traders,
as well as consolidation, will substantially increase and intensify in the
future. Competition may be further intensified by the size of the active
trader market, which is generally thought to be comprised of less than 10% of
all online brokerage accounts. We believe our ability to compete will depend
upon many factors both within and outside our control. These include: pricing
and price pressure; the timing and market acceptance of new products and
services and enhancements developed by us and our competitors; our ability to
design and

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support efficient, materially error-free Internet-based systems; market
conditions, such as recession; the size of the active trader market today and
in the future; the extent to which institutional traders are willing to use
direct-access brokerage services from firms that have traditionally served
mostly retail clients; product and service functionality; data availability and
cost; clearing costs; ease of use; reliability; customer service and support;
and sales and marketing decisions and efforts.

Systems Failures May Result In Our Inability To Deliver Accurately, On
Time, Or At All, Important And Time-Sensitive Services To Our Customers

The online electronic trading platform we provide to our clients is based
upon the integration of our sophisticated front-end software technology with
our equally sophisticated Internet-based server farm technology. Our server
farm technology is the foundation upon which online trading clients receive
real-time market data and place buy and sell orders. However, in order for
this technology to provide a live, real-time trading platform, it requires
integration with real-time market data, which are currently provided by the
systems of independent third-party market data vendors (who obtain the data
directly from the exchanges), the electronic order book systems of ECNs and
electronic systems offered by the exchanges, and the clearing and back-office
systems of the clearing firms we currently use. Accordingly, our ability to
offer a platform that enables the development, testing and automation of
trading strategies and the placement and execution of buy and sell orders
depends heavily on the effectiveness, integrity, reliability and consistent
performance of all of these systems and technologies. In particular, the
stress that is placed on these systems during peak trading times could cause
one or more of these systems to operate too slowly or fail. We have
experienced several delays and outages since we launched our online trading
platform, many of which related to data vendor, exchange, clearing firm and ECN
outages or issues which are beyond our control. Also, a hardware or software
failure, software design limitations or errors, power or telecommunications
interruption or natural disaster could cause a systems failure or other
potentially damaging results.

When systems in the trading process slow down significantly or fail, even
for a short time, our brokerage customers could suffer delays in trading, or
unintended results or other problems, potentially causing losses and possibly
subjecting us to claims for such losses. Such failures or delays, depending
upon how often they occur and how serious they are, could also result in our
clients and client prospects losing or failing to gain confidence in our
trading platform. Additionally, as a general matter not applicable only to our
company, the integrity of these types of systems is increasingly being attacked
by persons sometimes referred to as hackers who intentionally introduce
viruses or other defects to cause damage, inaccuracies or complete failure.
Also, cyberterrorism, should it occur, may significantly affect peoples
willingness to use Internet-based services, particularly ones that involve
their personal or companys assets.

During a system outage, our brokerage may be able to take orders by
telephone; however, only associates with appropriate securities brokers
licenses can accept telephone orders, and an adequate number of associates
likely would not be available to take customer calls in the event of a systems
failure. System delays, errors, outages and failures, depending upon how
serious and how often they occur, could have a material adverse effect on our
business, financial condition, results of operations and prospects. See The
Nature Of Our Business Results In Potential Liability To Customersbelow.

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The Nature Of Our Business Results In Potential Liability To Customers

Many aspects of the securities brokerage business, including online
trading services, involve substantial risks of liability. In recent years
there has been an increasing incidence of litigation involving the securities
brokerage industry, including class action and other suits that generally seek
substantial damages, including in some cases punitive damages. Our proprietary
order routing technology is designed to automatically locate, with immediacy,
the best available price in the appropriate market in completing execution of a
trade triggered by programmed market entry and exit rules. There are risks
that the electronic communications and other systems upon which these products
and services rely, and will continue to rely, or our products and services
themselves, as a result of flaws or other imperfections or limitations in their
designs or performance, may operate too slowly, fail, cause confusion or
uncertainty to the user, or operate or produce results not understood or
intended by the user. An investor or trader using either the full electronic
trading platform or our subscription service might claim that investment or
trading losses or lost profits resulted from use of a flawed version of one of
our trading software tools or inaccurate assumptions made by the trading
software tools regarding data, or inaccurate data. Major failures of this kind
may affect all customers who are online simultaneously. Any such litigation
could have a material adverse effect on our business, financial condition,
results of operations and prospects. We do not currently carry any errors or
omissions insurance that might cover, in part, some of the above-described
risks. While our contracts with customers are, we believe, clear that
customers who do business with us must knowingly assume all of the risks
described above, there can be no assurance that a judge, arbitrator or
regulator would enforce or honor such contractual provisions. See Conditions
In The Securities And Financial Markets May Affect Our Rates Of Customer
Acquisition, Retention And Trading Activity, and Systems Failures May Result
In Our Inability To Deliver Accurately, On Time, Or At All, Important And
Time-Sensitive Services To Our Customers above.

Dependence Upon Outside Data Sources And Clearing Relationships Creates
Risks Outside Of Our Control Which May Affect Our Ability To Provide, And Our
Cost To Provide, Market Data And Clearing And Account Services

Our business is currently dependent upon our ability to maintain contracts
with private market and news data vendors and clearing firms in order to
provide market data and news and clearing and account services, respectively,
to our customers. We obtain the market data and news pursuant to non-exclusive
licenses from private data vendors who in turn obtain the data from exchanges
and news sources, and the clearing and back-office account services are
obtained from large brokerage firms. The data contracts typically provide for
royalties based on usage or minimums, and the clearing contracts provide for
transactional clearing fees and charges. While we are not aware of any
material data vendor or clearing services contracts that are in jeopardy of
being terminated or not renewed, there can be no assurance that we will be able
to renew or maintain our current contracts or acceptable price levels. In
fact, our futures clearing firm recently notified us of a substantial increase
in our clearing costs, and as a result, we are in the process of evaluating our
options.

If any of those relationships becomes unfavorable or is terminated, and we
decide to provide data services directly from the exchanges, or self-clear
client trades and carry client accounts, we would face significant
infrastructure expansion costs, and would be engaging in business operations in
which we have little or no prior experience. These risks and uncertainties
would need to be considered when evaluating the potential cost-benefit and
operational efficiency and

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quality that our direct performance of such services could provide. As a
general matter, termination of our relationship with one or more of these third
parties could have a material adverse effect on our business, financial
condition, results of operations and prospects.

We May Not Be Able To Adequately Protect Or Preserve Our Rights In
Intellectual Property

Our success is and will continue to be heavily dependent on proprietary
technology, including existing trading software, Internet, Web-site and
order-execution technology, and those types of technology currently in
development. We view our technology as proprietary, and rely, and will be
relying, on a combination of copyright, trade secret and trademark laws,
nondisclosure agreements and other contractual provisions and technical
measures to protect our proprietary rights. Policing unauthorized use of our
products and services is difficult, however, and we may be unable to prevent,
or unsuccessful in attempts to prevent, theft, copying or other unauthorized
use or exploitation of our product and service technologies. There can be no
assurance that the steps taken by us to protect (or defend) our proprietary
rights will be adequate or that our competitors will not independently develop
technologies that are substantially equivalent or superior to our technologies
or products and services.

We Do Not Have A Long Operating History As An Online Brokerage Firm And,
Until Very Recently, Have Not Operated Profitably.

We launched the TradeStationelectronic trading platform at the end of the
2001 second quarter. Prior to that, our brokerage operations consisted mainly
of brokers taking phone calls from clients and then placing those clients
orders via direct access order execution. Accordingly, the online brokerage
business, as currently conducted, has a relatively short operating history.
Further, the second, third and fourth quarters of 2002 were the first
profitable quarters we have had since the third quarter of 1999. This lack of
operating history, and our lack of historical profitable results over the last
three years, should be taken into account when evaluating our financial
condition and results of operations.

We May Need Cash In The Foreseeable Future

While we anticipate having sufficient cash to meet our needs over the next
12 months, our future liquidity and capital requirements will depend upon
numerous factors, including: the rate of customer acceptance of our products
and services, including the number of new brokerage accounts acquired and the
number and volume of trades made by our brokerage customers; price competition
that may result in us continuing to charge lower commissions and fees to
customers; significant, increased infrastructure costs as our business grows;
and competing technological and market developments. Funds may be raised
through debt financing and/or the issuance of equity securities, there being no
assurance that any such type of financing on terms satisfactory to us will be
available or otherwise occur. Any equity financing or debt financing which
requires issuance of equity securities or warrants to the lender would reduce
the percentage ownership of the shareholders of the company. Shareholders also
may, if issuance of equities occurs, experience additional dilution in net book
value per share, or the issued equities may have rights, preferences or
privileges senior to those of existing shareholders.

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Our Business Model Has No Significant Historical Record, Which Makes
Business Planning Difficult

Because our business model, i.e., a direct-access brokerage based upon a
sophisticated Internet-based strategy trading software platform, is one with no
significant historical record for our company, and, to our knowledge, one with
no significant historical record for any other company, our attempts to predict
the size of our market and our potential market share, to anticipate revenues
and costs, to prepare budgets, and to make decisions regarding obtaining
third-party financing that may be required will generally be based upon
theoretical assumptions. Future events and results may differ drastically from
those planned or anticipated, which, if negative, would result in a material
adverse effect on our business, financial condition, results of operations and
prospects. See We May Need Cash In The Foreseeable Futureabove.

The Internet, As It Grows, May Have Problems That Affect Our Business

There is the risk that, over time, the Internet may not prove to be a
viable commercial marketplace because of a failure to continue to develop the
necessary infrastructure. The Internet has experienced, and is expected to
continue to experience, significant growth in the number of users and amount of
traffic. There can be no assurance that the Internet infrastructure will
continue to be able to support the demands placed on it by this continued
growth.

Operation In A Highly-Regulated Industry And Compliance Failures May
Result In Severe Penalties And Other Harmful Governmental Actions Against Us

The securities industry is subject to extensive regulation covering all
aspects of the securities business. Regulatory authorities are currently
focusing intensely on the online trading industry, particularly the segment
that seeks the accounts of active traders. The various governmental
authorities and industry self-regulatory organizations that supervise and
regulate our brokerage firm have broad enforcement powers to censure, fine,
suspend, enjoin, expel or issue cease-and-desist orders to our brokerage firm
or any of its officers or employees who violate applicable laws or regulations.
Additionally, new rules relating to active traders have recently been enacted
and more may be enacted which severely limit the operations and potential
success of our business. Our ability to comply with all applicable laws and
rules is largely dependent on our brokerages maintenance of compliance and
reporting systems, as well as its ability to attract and retain qualified
compliance and other personnel. Our brokerage could be subject to disciplinary
or other regulatory or legal actions in the future due to noncompliance.

The Loss Of Key Employees Could Decrease The Quality Of Our Management And
Operations

Our success depends to a very significant extent on the continued
availability and performance of a number of senior management, technology and
sales and marketing personnel. The loss of one or more of these key employees
could have a material adverse effect on our company.

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There Are Risks Relating To Our Ability To Maintain Customer Privacy And
Security And That Increased Government Regulation Of Internet Business May
Occur

Customers may refuse to transact business over the Internet, particularly
business, such as ours, that involves the handling of significant amounts of
customers funds, due to privacy or security concerns. This risk will grow if,
as and to the extent cyberterrorism occurs or is perceived to be a viable,
prominent threat or likelihood to occur. We currently incorporate and plan to
continue to incorporate security measures into our privacy policies. However,
a major breach of customer privacy or security could have serious consequences
for our Internet-based operations. Use of the Internet, particularly for
commercial transactions, may not continue to increase as rapidly as it has
during the past few years as a result of privacy or security concerns, or for
other reasons. If this occurs, the growth of our operations would be
materially hindered. If Internet activity becomes heavily regulated in these
respects, that could also have significant negative consequences for the growth
of our current and planned operations.

We May Be Subject To Intellectual Property Litigation

There has been substantial litigation in the software industry involving
intellectual property rights. Although we do not believe that we are or will
be infringing upon the intellectual property rights of others, there can be no
assurance that infringement claims, if asserted, would not have a material
adverse effect on our business, financial condition, results of operations and
prospects, or result in our being unable to use intellectual property which is
integral to one or more of our products or services. The risk of infringement
claims is heightened with respect to some of the TradeStation 6 and 7
technology because that technology, as opposed to our historical client
software technology, has not stood any significant test of time.

Our Brokerage Must Meet Net Capital Requirements As A Broker-Dealer That,
If Not Complied With, Could Result In Severe Penalties, And Which At All Times
Limit Our Right To Use All Of The Brokerages Cash

The SEC, the NASD and various other regulatory agencies have stringent
rules with respect to the maintenance of specific levels of net capital by
securities broker-dealers. Net capital is the net worth of a broker or dealer
(assets minus liabilities), less deductions for certain types of assets as well
as other charges. If a firm fails to maintain the required net capital it may
be subject to suspension or revocation of registration by the SEC and
suspension or expulsion by the NASD, and it could ultimately lead to the firms
liquidation. If such net capital rules are changed or expanded, or if there is
an unusually large charge against net capital, operations that require the use
of capital would be limited. Also, our ability to withdraw capital from our
TradeStation Securities brokerage subsidiary is subject to SEC rules, which in
turn could materially impact our available working capital and materially
impact or limit our ability to repay debt as and when due, redeem or purchase
shares of our outstanding stock, if required or desirable, and pay dividends in
the future. A large operating loss or charge against net capital could
adversely affect our ability to expand or even maintain our then present levels
of business, which could have a material adverse effect on our business,
financial condition, results of operations and prospects. See We May Need
Cash In The Foreseeable Futureabove.

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Control Of TradeStation Group By The Cruzes Means That Important Decisions
Affecting The Company Are Concentrated In The Judgment Of Two Related
Individuals

Affiliates of William R. Cruz and Ralph L. Cruz (the Co-Chairmen and
Co-Chief Executive Officers of our company) own 21,720,306 shares of our common
stock, approximately 54.9% of the outstanding shares of our common stock.
Therefore, the Cruzes control TradeStation Group. Any and all decisions and
votes of our shareholders (including the election of our Board of Directors)
will be determined by the Cruzes. This control may limit the interest of third
parties who express interest in acquiring the company.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements and notes thereto and the reports of
the independent certified public accountants set forth on pages F-1 through
F-29 are filed as part of this report and incorporated herein by reference.

The Consolidated Financial Statement Schedule and the reports of the
independent certified public accountants set forth on pages S-1 through S-4 are
filed as part of this report and incorporated herein by reference.




ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

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PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT




Directors and Executive Officers

The executive officers and directors of TradeStation Group and their
respective ages and positions as of March 10, 2003 are as follows:

|                           |  |     |    |                           |  |                                                                       
|-------------------------- |  | --- | -- | ------------------------- |  | ----------------------------------------------------------------------
|NAME                       |  | AGE |    | POSITION WITH THE COMPANY
|                           |  |     |    |                          
|William R. Cruz            |  |     | 41 |                           |  | Co-Chairman of the Board and Co-Chief Executive Officer               
|Ralph L. Cruz              |  |     | 39 |                           |  | Co-Chairman of the Board and Co-Chief Executive Officer               
|Salomon Sredni             |  |     | 35 |                           |  | President and Chief Operating Officer and Director                    
|David H. Fleischman        |  |     | 57 |                           |  | Chief Financial Officer, Vice President of Finance and Treasurer      
|Marc J. Stone              |  |     | 42 |                           |  | Vice President of Corporate Development, General Counsel and Secretary
|Michael W. Fipps (1)       |  |     | 60 |                           |  | Director                                                              
|Stephen C. Richards (1)(2) |  |     | 49 |                           |  | Director                                                              
|Charles F. Wright (1)(2)   |  |     | 52 |                           |  | Director                                                              



---

|(1) |  | Member of the Audit Committee of the board of directors.       
|--- |  | ---------------------------------------------------------------
|   
|(2) |  | Member of the Compensation Committee of the board of directors.

The directors hold office until the next annual meeting of shareholders.
Executive officers serve at the discretion of the board of directors.

WILLIAM R. CRUZ co-founded the company with his brother, Ralph Cruz, in
1982 and has been a director since that time. He served as President from 1982
to September 1999. Mr. Cruz was appointed Co-Chairman of the Board and
Co-Chief Executive Officer of the company in 1996. Mr. Cruz studied classical
violin at the University of Miami, which he attended on a full scholarship, and
the Juilliard School of Music, during which time he won numerous classical
violin competitions. Mr. Cruz has been primarily responsible for the
conception and management of the companys products and product strategies.

RALPH L. CRUZ co-founded the company in 1982 and has been a director since
that time. Mr. Cruz was Vice President of the company from 1982 until 1996, at
which time he was appointed Co-Chairman of the Board and Co-Chief Executive
Officer. Mr. Cruz also serves as a director of the companys two operating
subsidiaries. Mr. Cruz studied classical violin at the University of Miami,
which he attended on a full scholarship, and Indiana University, during which
time he won numerous classical violin competitions. Mr. Cruz historically has
been responsible for the companys marketing strategies.

SALOMON SREDNI joined the company in December 1996 as its Vice President
of Operations and Chief Financial Officer and was named Treasurer and a
director of the company in July 1997. In August 1999, he was named President
and Chief Operating Officer. Mr. Sredni also serves as a director of the
companys two operating subsidiaries. Before joining the company, from August
1994 to November 1996, Mr. Sredni was Vice President of Accounting and
Corporate Controller at IVAX Corporation, a publicly-held pharmaceutical
company. Prior to that time, from January 1988 to August 1994, Mr. Sredni was
with Arthur Andersen LLP. Mr. Sredni is a Certified Public Accountant and a
member of the American Institute of Certified

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Public Accountants and the Florida Institute of Certified Public Accountants.
He has a bachelors degree in Accounting from The Pennsylvania State
University.

DAVID H. FLEISCHMAN joined the company as Chief Financial Officer, Vice
President of Finance and Treasurer in February 2001. Prior to joining the
company, Mr. Fleischman was engaged as a Director of Crossroads LLC, a firm
that provides financial and management expertise and services to companies
seeking to maximize the efficiencies and performance of their management teams.
From January 1997 until September 2000, Mr. Fleischman served as Senior Vice
President, Chief Financial Officer and member of the Board of Advisors of The
SeaSpecialties Group. From 1992 to 1996, he served as Senior Vice President
and Treasurer of The Kislak Organization  J.I. Kislak, Inc., an organization
that, during those years, included the largest privately-held mortgage-banking
company in the United States. From 1983 to 1992, Mr. Fleischman served as a
Director, Vice President and Chief Financial Officer of the U.S. group of
Berisford International plc, a publicly-held United Kingdom company. From 1969
to 1983, he held several positions with subsidiaries of Midland Bank plc,
including London American Finance Corporation and Drake America Corporation.
He began his career in 1967 in the audit division of a predecessor firm of
Ernst & Young LLP. Mr. Fleischman has a bachelors of science degree in
accounting from The New York Institute of Technology.

MARC J. STONE joined the company in May 1997 as its Vice President of
Corporate Development, General Counsel and Secretary. Mr. Stone also serves as
a director of the companys two operating subsidiaries. From January 1993 to
May 1997, Mr. Stone was a partner at a predecessor law firm of Bilzin Sumberg
Baena Price & Axelrod LLP, which currently serves as the companys regular
outside counsel. Prior to that time, from 1985 to 1992, Mr. Stone was an
associate with that predecessor law firm. Mr. Stone is of counsel to Bilzin
Sumberg. Mr. Stone has bachelors degrees in English and American Literature
and Theatre Arts and Dramatic Literature from Brown University, and received
his law degree from University of California (Boalt Hall) School of Law at
Berkeley. Mr. Stone is a member of the Bar of the State of New York, The
Florida Bar, the American Bar Association and the New York State Bar
Association.

MICHAEL W. FIPPS joined the Board, and became a member of the Audit
Committee, in March 2002. Since October 1997, he has been semi-retired,
working occasionally as an independent consultant, including associations with
Endeavor Pharmaceuticals, a specialty pharmaceutical start up company, since
April 2002, and Connally and Associates, a profit recovery firm, from December
1998 through April 2000. From June 1994 to October 1997, he served as Chief
Financial Officer and Senior Vice President of IVAX Corporation, a
publicly-held pharmaceutical company. Before going to IVAX, from 1973 to 1994,
Mr. Fipps served as Vice President-Finance and Treasurer of Bergen Brunswig
Corporation, a large wholesale distributor of prescription pharmaceuticals and
other health care products. Mr. Fipps is a Certified Public Accountant and a
member of the American Institute of Certified Public Accountants and the
California Society of Certified Public Accountants. He has a bachelor of arts
degree from University of North Carolina.

STEPHEN C. RICHARDS is Chief Operating Officer and Chief Financial Officer
of Network Associates, Inc. (NYSE:NET), a provider of network security and
availability solutions for e-business. He served as Chief Online Trading
Officer of E*TRADE Group, Inc., a position he held from March 1999 to June
2000. From 1998 to February 1999, Mr. Richards served as Senior Vice
President, Corporate Development and New Ventures at E*TRADE, following two
years as E*Trades Senior Vice President of Finance, Chief Financial Officer
and Treasurer.

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Prior to joining E*TRADE in April 1996, Mr. Richards was Managing Director and
Chief Financial Officer of Correspondent Clearing at Bear Stearns & Companies,
Inc., where he was employed for more than 11 years. He is also a former Vice
President/Deputy Controller of Becker Paribas, and former First Vice
President/Controller of Jefferies and Company, Inc. He received a Bachelor of
Arts in Statistics and Economics from the University of California at Davis and
an MBA in Finance from the University of California at Los Angeles. Mr.
Richards is a Certified Public Accountant. Mr. Richards became a director of
the company in August 1999, at which time he was also elected to the
Compensation Committee and the Audit Committee of the board of directors.

CHARLES F. WRIGHT is the Chairman of Fall River Group, Inc., which owns
and operates a group of foundries in Wisconsin. He has been Chairman since
1984, and has been associated with Fall River Group since 1973. He is also the
Chairman and a Principal of Fall River Capital, LLC, an investment advisory
firm that specializes in the trading of global financial and natural resource
futures. He has held these positions since 1999. Since 1997, Mr. Wright has
also been Chairman and a co-owner of Quaestus & Co., Inc., a merchant banking
firm located in Milwaukee, Wisconsin. Since 2001 he has been Chairman and
co-owner of Kilbourn Capital Management, Inc., which manages the Kilbourn
Diversified Strategy Fund, a hedge Fund of Funds. From 1992 until its
acquisition by Cumulus Media, Inc. in 1997, Mr. Wright served as Chairman of
Caribbean Communications Company Ltd., a developer and operator of a radio
network throughout the English-speaking Caribbean Islands. Mr. Wright serves
as Chairman of Goodwill Industries of Southeastern Wisconsin and Metropolitan
Chicago, President of Second Harvest Food Bank Foundation, member of Greater
Milwaukee Committee, and a director of the Private Industry Council of
Milwaukee County. Mr. Wright is registered with the CFTC and the NFA as a
Commodity Trading Advisor, and holds a Masters Degree in Business
Administration from Harvard University Graduate School of Business. Mr. Wright
became a director of the company in June 2001, at which time he was also
elected to the Compensation Committee and Audit Committee of the board of
directors. Mr. Wright occasionally performed consulting services for the
company under a 3-year agreement that expired in 2002. All compensation
payable under that agreement was paid in 1999, two years before he joined our
board.




Independent Directors; Committees of the Board of Directors

The companys board of directors currently includes three (3) nonemployee,
independent members, Michael W. Fipps, Stephen C. Richards and Charles F.
Wright, all of whom serve on the Audit Committee of the board of directors.
The Audit Committee monitors and oversees the companys financial reporting
process on behalf of the board of directors. It reviews the independence of
our auditors and is now responsible for authorizing or approving the engagement
of our auditors for both audit services and permitted non-auditing services,
the scope of audit and non-audit assignments, related fees, the accounting
principles used in financial reporting, internal financial auditing procedures,
the adequacy of the internal control procedures, critical accounting policies,
and the overall quality of our financial reporting. Mr. Richards and Mr.
Wright also serve on the Compensation Committee of the board of directors. The
Compensation Committee determines executive officers salaries and bonuses and
administers our Incentive Stock Plan and Employee Stock Purchase Plan.

The board of directors does not currently have a nominating committee or a
committee that performs similar functions.

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Audit Committee Financial Experts

The Audit Committee of the Board of Directors of TradeStation Group has
three members, two of whom, Michael W. Fipps and Stephen C. Richards, we
believe are financial experts. Each is a certified public accountant. Mr.
Fipps previously served as chief financial officer of an American Stock
Exchange listed company. Mr. Richards is currently the chief financial officer
of a NYSE listed company and formerly served as chief financial officer of a
Nasdaq National Market listed company that later became a NYSE listed company.
Mr. Fipps and Mr. Richards are both independent, as that term is used in Item
7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as
amended (the Exchange Act).




Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires officers (as defined under the
Exchange Act) and directors, and persons who own more than ten percent of a
registered class of a companys equity securities, to file reports of ownership
and changes in ownership with the SEC. Our officers, directors and greater
than ten percent shareholders are required by SEC regulations to furnish us
with copies of all Section 16(a) forms they file.

Based solely on review of the copies of such forms furnished to us and our
understanding that no Forms 5 were required, we believe that during the fiscal
year ended December 31, 2002 all Section 16(a) filing requirements applicable
to our officers, directors and greater than ten percent beneficial owners were
satisfied.




ITEM 11. EXECUTIVE COMPENSATION




Executive Compensation Tables

The following tables provide information about executive compensation.

SUMMARY COMPENSATION TABLE

The following table sets forth information with respect to all
compensation paid or earned for services rendered to us in the three years
ended December 31, 2002 by our Co-Chief Executive Officers and our three other
most highly compensated executive officers (who, as a group, comprise all of
the executive officers of the company) whose aggregate annual compensation for
2002 exceeded $100,000 (together, the Named Executive Officers). We did not
have a pension plan or a long-term incentive plan, had not issued any
restricted stock awards and had not granted any stock appreciation rights as of
December 31, 2002. The value of all perquisites and other personal benefits
received by each Named Executive Officer did not exceed 10% of the Named
Executive Officers total annual compensation.

|                            |                            |      |      |                     |  |              |         |               |  |              |   |   |  |            |   |              |  |           |       |   |  | 
|--------------------------- | -------------------------- | ---- | ---- | ------------------- |  | ------------ | ------- | ------------- |  | ------------ | - | - |  | ---------- | - | ------------ |  | --------- | ----- | - |  | 
|                            |                            |      |      |                     |  |              |         |               |  |              |   |   |  |            |   | Long-Term    |  |           |       |  
|                            |                            |      |      |                     |  |              |         |               |  |              |   |   |  |            |   | Compensation |  |           |       |  
|                            |                            |      |      | Annual Compensation |  | Awards       |         |               |  |             
|                            |                            |      |      |                     |  |              |         |               |  |             
|                            |                            |      |      |                     |  |              |         |               |  |              |   |   |  |            |   | Securities   |  | All Other
|                            |                            |      |      | Fiscal              |  |              |         |               |  |              |   |   |  | Underlying |   | Compen-     
|NAME AND PRINCIPAL POSITION |                            | Year |      | Salary ($)          |  | Bonus ($)(1) |         | Options(#)(2) |  | sation($)(3)
|                            |                            |      |      |                     |  |              |         |               |  |             
|William R. Cruz             |                            |      | 2002 |                     |  | $            | 150,000 |               |  | $            |  |   |  |            |  |              |  | $         | 5,400 |  
|                            | Co-Chief Executive Officer |      |      | 2001                |  |              |         | 150,000       |  |              |   |  |  |            |   |             |  |           |       |  | 
|                            |                            |      | 2000 |                     |  |              | 150,000 |               |  |              |  |   |  |            |  |              |  |           |      |  

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|                            |                               |                             |      |                     |      |              |         |               |         |              |        |        |   |            |         |              |        |           |       |   |   | 
|--------------------------- | ----------------------------- | --------------------------- | ---- | ------------------- | ---- | ------------ | ------- | ------------- | ------- | ------------ | ------ | ------ | - | ---------- | ------- | ------------ | ------ | --------- | ----- | - | - | 
|                            |                               |                             |      |                     |      |              |         |               |         |              |        |        |   |            |         | Long-Term    |        |           |       |  
|                            |                               |                             |      |                     |      |              |         |               |         |              |        |        |   |            |         | Compensation |        |           |       |  
|                            |                               |                             |      | Annual Compensation |      | Awards       |         |               |         |             
|                            |                               |                             |      |                     |      |              |         |               |         |             
|                            |                               |                             |      |                     |      |              |         |               |         |              |        |        |   |            |         | Securities   |        | All Other
|                            |                               |                             |      | Fiscal              |      |              |         |               |         |              |        |        |   | Underlying |         | Compen-     
|NAME AND PRINCIPAL POSITION |                               | Year                        |      | Salary ($)          |      | Bonus ($)(1) |         | Options(#)(2) |         | sation($)(3)
|                            |                               |                             |      |                     |      |              |         |               |         |             
|Ralph L. Cruz               |                               |                             | 2002 |                     |      | $            | 150,000 |               |         | $            |       |        |   |            |        |              |        | $         | 5,400 |  
|                            | Co-Chief Executive Officer    |                             |      | 2001                |      |              |         | 150,000       |         |              |        |       |   |            |         |             |        |           |       |  |  
|                            |                               |                             | 2000 |                     |      |              | 150,000 |               |         |              |       |        |   |            |        |              |        |           |      |  
|                            |                               |                             |      |                     |      |              |         |               |         |              |        |        |   |            |         |              |        |           |       |  
|Salomon Sredni              |                               |                             | 2002 |                     |      | $            | 268,750 |               |         | $            | 54,000 |        |   |            | 130,000 |              |        | $         | 6,600 |  
|                            | President and Chief Operating |                             |      | 2001                |      |              |         | 238,208       |         |              |        | 20,000 |   |            |         | 80,000       |        |           |       |  |  
|                            | Officer                       |                             |      | 2000                |      |              |         | 237,000       |         |              |        |       |   |            |         | 60,000       |        |           |       |  |  
|                            |                               |                             |      |                     |      |              |         |               |         |              |        |        |   |            |         |              |        |           |       |  
|David H. Fleischman         |                               |                             | 2002 |                     |      | $            | 208,562 |               |         | $            | 20,900 |        |   |            | 60,000  |              |        | $         | 6,600 |  
|                            | Chief Financial Officer,      |                             |      | 2001                | (4)  |              |         | 181,945       | (4)     |              |        | 20,000 |   |            |         | 75,000       |        |           |       |  |  
|                            | Vice President of Finance     |                             |      | 2000                |      |              |         |              |         |              |        |       |   |            |         |             |        |           |       |  |  
|                            | and Treasurer                 |                             |      |                     |      |              |         |               |         |              |        |        |   |            |         |              |        |           |       |   |  
|                            |                               |                             |      |                     |      |              |         |               |         |              |        |        |   |            |         |              |        |           |       |  
|Marc J. Stone               |                               |                             | 2002 |                     |      | $            | 198,485 |               |         | $            | 19,850 |        |   |            | 55,000  |              |        | $         | 6,600 |  
|                            |                               | Vice President of Corporate |      |                     | 2001 |              |         |               | 198,017 |              |        |        |  |            |         |              | 40,000 |           |       |   |  | 
|                            |                               | Development, General        |      |                     | 2000 |              |         |               | 197,250 |              |        |        |  |            |         |              | 40,000 |           |       |   |  | 
|                            |                               | Counsel and Secretary       |      |                     |      |              |         |               |         |              |        |        |   |            |         |              |        |           |       |   |   | 



---

|(1) |  | Represents bonus earned during the year but paid in subsequent year.                                                  
|--- |  | ----------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Represents shares of common stock issuable upon the exercise of options
granted under our Incentive Stock Plan.       
|   
|(3) |  | Represents 401(k) Plan company contributions on behalf of the Named
Executive Officer earned in 2002 but paid in 2003.
|   
|(4) |  | Mr. Fleischman began his employment with TradeStation Group on February
1, 2001.                                      

OPTION GRANTS IN 2002 FISCAL YEAR

The following table summarizes the options that were granted during the
fiscal year ended December 31, 2002 to the Named Executive Officers.

|                    |  |                   |         |            |  |            |      |                      |  |            |      |                |  |            |      |                  |  |  |          |  |  |                |        |                  |  |   |         |  |  |   |         | 
|------------------- |  | ----------------- | ------- | ---------- |  | ---------- | ---- | -------------------- |  | ---------- | ---- | -------------- |  | ---------- | ---- | ---------------- |  |  | -------- |  |  | -------------- | ------ | ---------------- |  | - | ------- |  |  | - | ------- | 
|                    |  | Individual Grants |         |            |  |            |      |                      |  |            |      |                |  |           
|                    |  |                   |         |            |  |            |      | Potential Realizable
|                    |  |                   |         |            |  | Percent of |      |                      |  |            |      |                |  |            |      |                  |  |  |          |  |  |                |        | Value at Assumed
|                    |  | Number            |         | Total      |  |            |      |                      |  |            |      |                |  |            |      |                  |  |  |          |  |  | Annual Rate of
|                    |  | of                |         | Options    |  |            |      |                      |  |            |      |                |  |            |      |                  |  |  |          |  |  | Stock Price   
|                    |  | Securities        |         | Granted to |  | Exercise   |      | Market               |  |            |      |                |  | Value at   |      | Appreciation for
|                    |  | Underlying        |         | Employees  |  | or Base    |      | Price                |  |            |      |                |  | Grant-Date |      | Option Term (1) 
|                    |  | Options           |         | In Fiscal  |  | Price      |      | on Grant             |  | Expiration |      | Market         |  |           
|Name                |  | Granted(#)(2)     |         | Year(%)    |  | ($/sh)(3)  |      | Date ($/sh)          |  | Date       |      | Price 0%($)(3) |  | 5%         |      | 10%             
|                    |  |                   |         |            |  |            |      |                      |  |            |      |                |  |            |      |                 
|William R. Cruz     |  |                   |        |            |  |            |     |                      |  | $          |     |                |  | $          |     |                  |  |  |         |  |  | $              |       |                  |  | $ |        |  |  | $ |        | 
|Ralph L. Cruz       |  |                   |        |            |  |            |     |                      |  |            |     |                |  |            |     |                  |  |  |         |  |  |                |       |                  |  |   |        |  |  |   |        | 
|Salomon Sredni      |  |                   | 100,000 |            |  |            | 5.35 | %                    |  |            | 1.47 |                |  |            | 1.60 |                  |  |  | 01-28-12 |  |  |                | 13,000 |                  |  |   | 113,623 |  |  |   | 267,999 | 
|Salomon Sredni      |  |                   | 30,000  |            |  |            | 1.60 | %                    |  |            | 1.39 |                |  |            | 1.37 |                  |  |  | 12-24-12 |  |  |                |       |                  |  |   | 25,248  |  |  |   | 64,903  | 
|David H. Fleischman |  |                   | 40,000  |            |  |            | 2.14 | %                    |  |            | 1.47 |                |  |            | 1.60 |                  |  |  | 01-28-12 |  |  |                | 5,200  |                  |  |   | 45,449  |  |  |   | 107,200 | 
|David H. Fleischman |  |                   | 20,000  |            |  |            | 1.07 | %                    |  |            | 1.39 |                |  |            | 1.37 |                  |  |  | 12-24-12 |  |  |                |       |                  |  |   | 16,832  |  |  |   | 43,269  | 
|Marc J. Stone       |  |                   | 40,000  |            |  |            | 2.14 | %                    |  |            | 1.47 |                |  |            | 1.60 |                  |  |  | 01-28-12 |  |  |                | 5,200  |                  |  |   | 45,449  |  |  |   | 107,200 | 
|Marc J. Stone       |  |                   | 15,000  |            |  |            | 0.80 | %                    |  |            | 1.39 |                |  |            | 1.37 |                  |  |  | 12-24-12 |  |  |                |       |                  |  |   | 12,624  |  |  |   | 32,451  | 



---

|(1) |  | Potential realizable value is based on the assumption that the common
stock price appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the option term. The amounts have
been calculated based on the requirements promulgated by the SEC. The
actual value, if any, a Named Executive Officer may realize will depend on
the excess, if any, of the stock price over the exercise price on the date
the option is exercised (if the executive officer were to sell the shares
on the date of exercise), so there is no assurance that the value realized
will be at or near the potential realizable value as calculated in this
table.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | These options vest and become exercisable ratably on an annual basis over
five years, beginning on the anniversary of the date of grant date, and
have a term of ten years from the date of grant, subject to acceleration
under certain circumstances.                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(3) |  | All options were granted at fair market value as defined under our
Incentive Stock Plan, which is the average of the high and low sales
prices of a share of common stock on The Nasdaq National Market on the
trading day immediately preceding                                                                                                                                                                                                                                                                                                                                                                                                                                    

47



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| |  | the date of grant. The Compensation Committee believes this calculation
more accurately reflects fair market value of our common stock on any
given day as compared to simply using the closing market price on the date
of grant. As a result, the closing market price on the date of grant may be
different than the exercise price per share.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

AGGREGATED OPTION EXERCISES IN 2002 FISCAL YEAR
AND 2002 FISCAL YEAR-END OPTION VALUES

The following table provides information regarding the value of all
options exercised during 2002 by the Named Executive Officers and of all
unexercised options held at December 31, 2002 by the Named Executive Officers
measured in terms of the closing market price of our common stock on December
31, 2002.

|                    |  |              |   |              |  |             |   |                       |  |                          |  |               |  |                        |         |  |  |  |         |  |  |  |  |                         |  |  |  |  |  |   |        |  |  |   |       |  |  |  |  | 
|------------------- |  | ------------ | - | ------------ |  | ----------- | - | --------------------- |  | ------------------------ |  | ------------- |  | ---------------------- | ------- |  |  |  | ------- |  |  |  |  | ----------------------- |  |  |  |  |  | - | ------ |  |  | - | ----- |  |  |  |  | 
|                    |  |              |   |              |  |             |   |                       |  |                          |  |               |  | Number of              |         |  |  |  |         |  |  |  |  |                         |  |  |  |  |  |   |        |  |  |  
|                    |  |              |   |              |  |             |   |                       |  |                          |  |               |  | Securities Underlying  |         |  |  |  |         |  |  |  |  | Value of Unexercised    |  |  |  | 
|                    |  |              |   |              |  |             |   |                       |  |                          |  |               |  | Unexercised Options At |         |  |  |  |         |  |  |  |  | In-the-Money Options At |  |  |  | 
|                    |  | Shares       |   |              |  |             |   | December 31, 2002 (#) |  | December 31, 2002 ($)(1)
|                    |  | Acquired On  |   | Value        |  |             |   |                      
|Name                |  | Exercise (#) |   | Realized ($) |  | Exercisable |   | Unexercisable         |  | Exercisable              |  | Unexercisable
|                    |  |              |   |              |  |             |   |                       |  |                          |  |              
|William R. Cruz     |  |              |  |              |  |             |  |                       |  |                          |  |               |  |                        |        |  |  |  |        |  |  |  |  |                         |  |  |  |  |  | $ |       |  |  | $ |      | 
|Ralph L. Cruz       |  |              |  |              |  |             |  |                       |  |                          |  |               |  |                        |        |  |  |  |        |  |  |  |  |                         |  |  |  |  |  |   |       |  |  |   |      | 
|Salomon Sredni      |  |              |  |              |  |             |  |                       |  |                          |  |               |  |                        | 340,000 |  |  |  | 300,000 |  |  |  |  |                         |  |  |  |  |  |   | 22,800 |  |  |   | 1,500 | 
|David H. Fleischman |  |              |  |              |  |             |  |                       |  |                          |  |               |  |                        | 15,000  |  |  |  | 120,000 |  |  |  |  |                         |  |  |  |  |  |   |       |  |  |   | 1,000 | 
|Marc J. Stone       |  |              |  |              |  |             |  |                       |  |                          |  |               |  |                        | 198,000 |  |  |  | 137,000 |  |  |  |  |                         |  |  |  |  |  |   |       |  |  |   | 750   | 



---

|(1) |  | Based on a per share price of $1.44 on December 31, 2002, which was the
closing market price of our common stock on the last day of the 2002
fiscal year.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------




Other Compensation Arrangements

Executive Officer Bonus Plan. The Compensation Committee of the company
put in place an incentive bonus compensation program for certain executive
officers of the company for the 2001 and 2002 fiscal years. Under the program,
an executive officer is eligible to earn an annual bonus of up to a certain
percentage of his base salary. To be awarded a bonus in the program, certain
numbers contained in the companys internal incentive budget need to be met, or
an amount may be paid as determined by, and in the discretion of, the
Compensation Committee. See SUMMARY COMPENSATION TABLE above.

Incentive Stock Plan. Pursuant to the TradeStation Group, Inc. Incentive
Stock Plan, officers, employees and nonemployee consultants may be granted
stock options, stock appreciation rights, stock awards, performance shares and
performance units. The authorized number of shares of common stock for
issuance under the Incentive Stock Plan is 7,500,000, subject to future
antidilution adjustments. As of December 31, 2002, options to purchase
5,919,635 shares were outstanding and 1,314,181 shares were available for
issuance under the TradeStation Group Incentive Stock Plan.

The Incentive Stock Plan is administered by the Compensation Committee of
the board of directors whose members must qualify as nonemployee directors
(as such term is defined in Rule 16b-3 under the Exchange Act). The
Compensation Committee is authorized to determine, among other things, the
employees to whom, and the times at which, options and other benefits are to be
granted, the number of shares subject to each option, the applicable vesting
schedule and the exercise price (provided that, for incentive stock options,
the exercise price shall not be less than 100% of the fair market value of the
common stock on the date of grant). The Compensation Committee also determines
the treatment to be afforded to a participant in the Incentive Stock Plan in
the event of termination of employment for any reason, including death,

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disability or retirement, or change in control. Under the Incentive Stock
Plan, the maximum term of an incentive stock option is ten years and the
maximum term of a nonqualified stock option is fifteen years.

The Compensation Committee may delegate to the companys Co-CEOs the
authority to grant options under the Incentive Stock Plan to employees (other
than officers) of the company identified by the Co-CEOs. The Compensation
Committee has historically delegated to the Co-CEOs the authority to grant
options covering up to 250,000 shares of common stock per annum, and retains
the ability to revoke the delegation at any time. No such authority is
currently delegated to the Co-CEOs.

The board of directors has the power to amend the Incentive Stock Plan
from time to time. Shareholder approval of any material amendment is generally
required.

TradeStation Securities Assumed Options. In connection with the December
29, 2000 merger acquisition of TradeStation Securities, we assumed the
outstanding options under TradeStation Securities 1999 incentive stock plan.
Each option issued under TradeStation Securities plan was assumed and
converted to 1.7172 options to purchase the companys common stock at the
original exercise price divided by 1.7172. As of December 31, 2002, options to
purchase 423,447 shares were outstanding.

Window On WallStreet Assumed Options. In October 1999, in connection with
our merger acquisition of Window On WallStreet, TradeStation Technologies
assumed all outstanding stock options to purchase Window On WallStreet common
stock (WOW Options), which, based on an exchange ratio of .210974 shares of
the TradeStation Technologies common stock for each share of Window On
WallStreet common stock, were exercisable at the time of assumption for an
aggregate of 182,529 shares of common stock (82,783 shares of common stock at
an exercise price of $.48 per share, and 99,746 shares of common stock at an
exercise price of $8.06 per share). The WOW Options generally vest ratably
over a four-year period and their terms are ten years. After giving effect to
the companys assumption of the WOW Options pursuant to the companys December
29, 2000 merger acquisition of TradeStation Securities, as of December 31, 2002
there were 152,376 WOW Options outstanding.

Nonemployee Director Stock Option Plan. Our Nonemployee Director Stock
Option Plan, pursuant to which initial and annual grants of nonqualified stock
options are made to each nonemployee director, became operative December 29,
2000 upon the closing of the merger by, on that date, assumption of the
TradeStation Technologies Nonemployee Director Stock Option Plan and all
options and option agreements issued thereunder. Upon initial election to the
board of directors, each nonemployee director may be granted options to
purchase up to 75,000 shares of common stock as determined by the board of
directors at such time. Upon each re-election to the board of directors at the
annual meeting of shareholders, each nonemployee director will be granted
additional options to purchase 7,000 shares of common stock. Each option will
be granted at an exercise price equal to the fair market value of the common
stock on the date of grant. We have reserved 350,000 shares of common stock
for issuance under the Nonemployee Director Stock Option Plan, subject to
antidilution adjustments. Options granted to date have a term of five years
and vest in equal installments over three years. As of December 31, 2002,
options to purchase 96,000 shares were outstanding and 179,000 shares were
available for issuance under the Nonemployee Director Stock Option Plan.

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The board of directors has the power to amend the Nonemployee Director
Stock Option Plan from time to time. Shareholder approval of any material
amendment is generally required.

Outstanding Options.As of December 31, 2002, options to purchase a total
of 6,591,458 shares were outstanding under all stock option plans (inclusive of
all options assumed under the plans discussed above), of which options to
purchase 1,110,000 shares had been granted to executive officers. During 2002,
options granted to executive officers totaled options to purchase 245,000
shares of common stock, which were granted at exercise prices ranging from
$1.39 to $1.47 per share. In general, options granted under the Incentive
Stock Plan and the other incentive stock plans described above vest at the rate
of 20% per year and have a total term of ten years (except for the WOW Options,
which vest ratably over 4 years). Options which have been granted under the
Incentive Stock Plan to certain executive officers may immediately vest and
become exercisable in certain circumstances. The options to purchase the
shares granted and assumed under all plans discussed above that were
outstanding as of December 31, 2002 have a weighted average exercise price of
$2.92 per share. See Note 9 of Notes to Consolidated Financial Statements 
SHAREHOLDERS EQUITY.

Employee Stock Purchase Plan. Our Employee Stock Purchase Plan provides
for the issuance of a maximum of 500,000 shares of common stock pursuant to the
exercise of nontransferable options granted to participating employees. The
Employee Stock Purchase Plan is administered by the Compensation Committee of
the board of directors.

All employees whose customary employment is more than 20 hours per week
and more than five months in any calendar year and who have completed at least
three months of employment are eligible to participate in the Employee Stock
Purchase Plan. Employees who would immediately after the grant own 5% or more
of the total combined voting power or value of our stock, and the nonemployee
directors, may not participate in the Employee Stock Purchase Plan. To
participate in the Employee Stock Purchase Plan, an employee must authorize us
to deduct an amount (not less than one percent nor more than ten percent of a
participants total cash compensation) from his or her pay during six-month
periods (each, a Plan Period). The maximum number of shares of common stock
an employee may purchase in any Plan Period is 500 shares. The exercise price
for the option for each Plan Period is 85% of the lower of the market price of
the common stock on the first and last business day of the Plan Period. If an
employee is not a participant on the last day of the Plan Period, such employee
is not entitled to exercise his or her option, and the amount of his or her
accumulated payroll deductions is refunded. An employees rights under the
Employee Stock Purchase Plan terminate upon his or her voluntary withdrawal
from the Employee Stock Purchase Plan or upon termination of employment. The
first Plan Period (giving effect to the assumption of the predecessor companys
plan) began January 1, 1998. During the years ended December 31, 2002, 2001
and 2000, 41,565, 50,470 and 30,209 shares, respectively, of common stock were
issued under the plan at average prices of $1.03, $1.49 and $2.07,
respectively. As of December 31, 2002, there were 342,000 shares available for
issuance under the Employee Stock Purchase Plan.

The board of directors has the power to amend or terminate the Employee
Stock Purchase Plan. Shareholder approval of an amendment is only required to
the extent that it is necessary to maintain the Employee Stock Purchase Plans
status as a protected plan under applicable securities laws or as a qualified
plan under applicable tax laws.

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401(k) Plan. We have a defined contribution retirement plan which
complies with Section 401(k) of the Internal Revenue Code. All employees with
at least three months of continuous service are eligible to participate and may
contribute up to 60% of their compensation subject to the annual limit set by
the Internal Revenue Service. Company contributions are vested 20% for each
year of service. For the year ended December 31, 2002, contributions accrued
under this plan were approximately $265,000. There were no matching
contributions accrued in 2001 or 2000.




Non-Competition Agreements

Virtually all employees, including the Named Executive Officers, have
entered into agreements with the company which contain certain non-competition,
non-disclosure and non-solicitation restrictions and covenants, including a
provision prohibiting such employees from competing with the company during
their employment with us and for a period of at least two years thereafter.




Compensation Committee Interlocks And Insider Participation

We formed the Compensation Committee of the board of directors in December
2000, at which time two independent directors were appointed as members.
During 2002, Stephen C. Richards and Charles F. Wright, both of whom are
independent directors, served on the Compensation Committee. The compensation
(including salaries, bonuses and stock options) of the companys executive
officers for 2002 was determined by the Compensation Committee. In 2002, no
member of the Compensation Committee of the board of directors of our company
had any relationship with the company requiring disclosure under Item 404 of
Regulation S-K.




Director Compensation

Our independent directors currently receive $750 for attendance at each
meeting of the board of directors and, if held on a separate date, committees
thereof, with an additional $150 paid to the chairman of the committee meeting.
Pursuant to the Nonemployee Director Stock Option Plan, each independent
director receives options to purchase up to 75,000 shares of common stock upon
initial election as a director, as determined by the board of directors at such
time, and options to purchase 7,000 shares of common stock upon each
re-election as an independent director at our annual meeting of shareholders.
See EXECUTIVE COMPENSATION  Other Compensation Arrangements- Nonemployee
Director Stock Option Plan. All directors may also be reimbursed for certain
expenses in connection with attendance at board of directors and committee
meetings. Other than with respect to reimbursement of expenses, directors who
are employees or officers did not in 2002 receive additional compensation for
service as a director.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding the
beneficial ownership of our common stock as of March 10, 2003 by (i) each
person who is known to us to own beneficially more than 5% of our common stock,
(ii) each director, (iii) each Named Executive Officer, and (iv) all directors
and executive officers as a group. Except as otherwise described in the
footnotes below, we believe that the beneficial owners of the common stock
listed below, based on information provided by such owners, have sole
investment and voting power with respect to such shares.

|                                                               |  |                               |            |         |  |  |      |  
|-------------------------------------------------------------- |  | ----------------------------- | ---------- | ------- |  |  | ---- | -
|                                                               |  | Shares Beneficially Owned (1)
|                                                               |  |                              
|Name of Beneficial Owner (1)                                   |  | Number                        |            | Percent
|                                                               |  |                               |            |        
|William R. Cruz (2)                                            |  |                               | 10,928,838 |         |  |  | 27.6 | %
|Ralph L. Cruz (3)                                              |  |                               | 10,791,468 |         |  |  | 27.3 | %
|Andrew Allen (4)                                               |  |                               | 2,520,960  |         |  |  | 6.4  | %
|Salomon Sredni                                                 |  |                               | 420,750    |         |  |  | 1.1  | %
|Charles F. Wright (5)                                          |  |                               | 285,413    |         |  |  | *    |  
|Marc J. Stone                                                  |  |                               | 230,000    |         |  |  | *    |  
|David H. Fleischman                                            |  |                               | 65,500     |         |  |  | *    |  
|Stephen C. Richards                                            |  |                               | 41,333     |         |  |  | *    |  
|Michael W. Fipps                                               |  |                               | 8,583      |         |  |  | *    |  
|All executive officers and
directors as a group (8 persons)(6) |  |                               | 22,771,885 |         |  |  | 56.4 | %



---

|*   |  | Less than 1%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | The address of: William R. Cruz and Ralph L. Cruz is TradeStation Group,
Inc., 8050 S.W. 10th Street, Suite 4000, Plantation, Florida 33324; and
Andrew A. Allen is 1115 Stonegate Court, Roswell, Georgia 30075.
Beneficial ownership is determined in accordance with the rules of the SEC
that deem shares to be beneficially owned by any person who has or shares
voting or investment power with respect to such shares. It includes
options held by executive officers and/or directors which are exercisable
within 60 days of March 10, 2003.                                                                                   
|   
|(2) |  | All but 100 shares are held by two Texas limited partnerships as to which
William R. Cruz possesses sole voting and dispositive powers through his
direct and/or indirect 100% ownership of the sole general partner of each
of such limited partnerships. In one limited partnership William R. Cruz
is the sole limited partner and in the other limited partnership William
R. Cruz and a grantor retained annuity trust for the benefit of William R.
Cruz and his family are the limited partners. Does not include 900 shares
owned by the spouse of William R. Cruz with respect to which Mr. Cruz
disclaims beneficial ownership.
|   
|(3) |  | The shares are held by two Texas limited partnerships as to which Ralph
L. Cruz possesses sole voting and dispositive powers through his direct
and/or indirect 100% ownership of the sole general partner of each of such
limited partnerships. In one limited partnership Ralph L. Cruz is the
sole limited partner and in the other Ralph L. Cruz and his spouse are the
limited partners.                                                                                                                                                                                                                                            
|   
|(4) |  | Based on Schedule 13D and amendments thereto filed with the SEC by Andrew
A. Allen. Includes 2,393,000 shares held by Andrew A. Allen Family
Limited Partnership as to which Andrew A. Allen possesses sole voting and
dispositive powers through his 100% ownership of the sole general partner
of such limited partnership.                                                                                                                                                                                                                                                                                                            
|   
|(5) |  | Includes 6,500 shares held as custodian for the benefit of the sons of
Charles F. Wright.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(6) |  | See other footnotes above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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Equity Compensation Plan Information

The following sets forth information as of December 31, 2002 with respect
to compensation plans under which the Companys Common Stock is authorized for
issuance:

|                                                           |  |                   |           |                   |  |                     |      |                     |  |                     |           | 
|---------------------------------------------------------- |  | ----------------- | --------- | ----------------- |  | ------------------- | ---- | ------------------- |  | ------------------- | --------- | 
|                                                           |  |                   |           |                   |  |                     |      |                     |  | Number of          
|                                                           |  |                   |           |                   |  |                     |      |                     |  | securities         
|                                                           |  |                   |           |                   |  |                     |      |                     |  | remaining available
|                                                           |  | Number of         |           |                   |  |                     |      | for future issuance
|                                                           |  | securities to be  |           |                   |  |                     |      | under equity       
|                                                           |  | issued upon       |           | Weighted-average  |  | compensation plans 
|                                                           |  | exercise of       |           | exercise price of |  | (excluding         
|                                                           |  | outstanding       |           | outstanding       |  | securities         
|                                                           |  | options, warrants |           | options, warrants |  | reflected in column
|Plan category                                              |  | and rights        |           | and rights        |  | (a))               
|                                                           |  |                   |           |                   |  |                    
|                                                           |  | (a)               |           | (b)               |  | (c)                
|Equity compensation
plans approved by
security holders(1)  |  |                   | 6,591,458 |                   |  | $                   | 2.92 |                     |  |                     | 1,834,845 | 
|                                                           |  |                   |           |                   |  |                     |      |                     |  |                     |           | 
|Equity compensation
plans not approved
by security holders |  |                   |          |                   |  |                     |     |                     |  |                     |          | 
|                                                           |  |                   |           |                   |  |                     |      |                     |  |                     |           | 
|Total (1)                                                  |  |                   | 6,591,458 |                   |  | $                   | 2.92 |                     |  |                     | 1,834,845 | 
|                                                           |  |                   |           |                   |  |                     |      |                     |  |                     |           | 



---

|(1) |  | Includes outstanding options to purchase 152,376 shares of common
stock at a weighted-average exercise price of $3.98 assumed in the 1999
acquisition of Window On Wall Street and options to purchase 423,447
shares of common stock at a weighted-average exercise price of $4.65
assumed in the 2000 acquisition of TradeStation Securities. Does not
include warrants to purchase up to 386,370 shares of common stock at an
exercise price of $6.73, granted to underwriters in connection with
TradeStation Securities initial public offering.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Marc J. Stone, the Vice President of Corporate Development, General
Counsel and Secretary, was a partner in a predecessor law firm to Bilzin
Sumberg Baena Price & Axelrod LLP until immediately prior to joining the
company in May 1997. Thereafter, Mr. Stone was of counsel to the predecessor
firm and is currently of counsel to Bilzin Sumberg. Bilzin Sumberg and its
predecessor firms have acted as our regular outside legal counsel since 1994.
The total fees and costs paid by us to Bilzin Sumberg in 2002 were
approximately $170,000. We believe that the fees paid are no less favorable to
us than could be obtained from comparable law firms in south Florida.

At the beginning of 2002, Benedict Gambino beneficially owned more than
10% of our outstanding common stock. In August 2002, we purchased 1.5 million
shares of our common stock from Mr. Gambino in a private transaction at a price
of $1.35 per share, or $2.0 million, and in October 2002 we purchased an
additional 2.4 million shares of our common stock from Mr. Gambino in a private
transaction at a price of $1.40 per share, or $3.4 million. Both transactions
were part of our 4 million share stock repurchase program announced in July
2002. After these transactions, Mr. Gambino owned approximately 1.3% of our
outstanding common stock.

53



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##### Table of Contents



Andrew A. Allen, the former Chairman of the Board and Chief Executive
Officer of TradeStation Securities and current beneficial owner of more than 5%
of our common stock, was entitled under an employment agreement with
TradeStation Securities to a severance payment of $600,000 because he elected
to terminate his employment following the change in control of TradeStation
Securities that occurred when we acquired that company. Prior to 2002, Mr.
Allen had already been paid $400,000, and was paid the final $200,000
installment on December 29, 2002. Additionally, in November 2002, we purchased
1 million shares of our common stock from Mr. Allen in a private transaction at
a price of $1.35 per share or $1.35 million. This transaction was not a part
of our previously completed, or any other, stock repurchase program.




ITEM 14. CONTROLS AND PROCEDURES

On February 24, 2003, an evaluation was completed under the supervision
and with the participation of the companys management, including the Co-Chief
Executive Officers and the Chief Financial Officer, of the effectiveness of the
design and operation of the companys disclosure controls and procedures as of
February 24, 2003 and as of and for the three months and year ended December
31, 2002. Based on that evaluation, the companys management, including the
Co-Chief Executive Officers and the Chief Financial Officer, concluded that the
companys disclosure controls and procedures were effective as of February 24,
2003 and as of and for the three months and year ended December 31, 2002. As
of the date of this report, there have been no significant changes subsequent
to February 24, 2003 in the companys internal controls or in other factors
that could significantly affect internal controls.

54



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PART IV




ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Documents filed as part of this report.

|   |  |                                                                                                                                                                                                                                       
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | Financial Statements. The Financial Statements and notes
thereto and the reports of the independent auditors thereon set
forth on pages F-1 through F-29 herein are filed as part of this
report and incorporated herein by reference.
|  
|2. |  | Financial Statement Schedules. The Financial Statement
Schedule and the reports of the independent auditors thereon set
forth on pages S-1 through S-4 herein are filed as part of this
report and incorporated herein by reference.  
|  
|3. |  | Exhibits.                                                                                                                                                                                                                             

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3.1     |  | TradeStation Groups Articles of Incorporation, as amended **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3.2     |  | TradeStation Groups Bylaws **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.1     |  | Form of Specimen Certificate for TradeStation
Groups Common Stock (incorporated by reference to Exhibit 4.1
to OnlineTrading.com Group, Inc.s Amendment No. 3 to
Registration Statement No. 333-34922 on Form S-4 filed with
the Commission on November 21, 2000)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.1    |  | Agreement and Plan of Merger and Reorganization
dated as of January 19, 2000 by and among Omega Research,
Inc., onlinetradinginc.com corp., OnlineTrading.com Group,
Inc., Omega Acquisition Corporation and Onlinetrading
Acquisition Corporation, together with the following exhibit
thereto: (i) Form of Omega Affiliate Agreement; (ii) Form of
Online Affiliate Agreement; (iii) Form of Employment
Agreement; and (iv) Form of Non-Competition and Non-Disclosure
Agreement*                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.2    |  | First Amendment to Agreement and Plan of Merger
and Reorganization effective March 7, 2000 among Omega
Research, Inc., onlinetradinginc.com corp., OnlineTrading.com
Group, Inc., Omega Acquisition Corporation and Onlinetrading
Acquisition Corporation, Second Amendment to Agreement and
Plan of Merger and Reorganization dated as of July 19, 2000 by
and among Omega Research, Inc., onlinetradinginc.com corp.,
TradeStation Group, Inc., Omega Acquisition Corporation and
Onlinetrading Acquisition Corporation and Third Amendment to
Agreement and Plan of Merger and Reorganization dated as of
September 21, 2000 by and among Omega Research, Inc.,
onlinetradinginc.com corp., TradeStation Group, Inc., Omega
Acquisition Corporation and Onlinetrading Acquisition
Corporation *

55



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.3    |  | TradeStation Group, Inc. Employee Stock Purchase
Plan***#                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.4    |  | TradeStation Group, Inc. Incentive Stock Plan
***#                                                                                                                                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.5    |  | TradeStation Group, Inc. Amended and Restated
Nonemployee Director Stock Option Plan (incorporated by
reference to Exhibit 10.5 to TradeStation Groups Annual
Report on Form 10-K for the fiscal year ended December 31,
2001) #                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.6    |  | Software License, Maintenance and Development
Agreement between Dow Jones Markets, Inc. and Omega Research,
Inc. as amended (TradeStation Agreement)+                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.7    |  | Lease Agreement, dated November 13, 2001, between
Crossroads Business Park Associates LLP and TradeStation
Group, Inc. (without exhibits and schedules) (incorporated by
reference to Exhibit 10.27 to TradeStation Groups Annual
Report on Form 10-K for the fiscal year ended December 31,
2001)                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.8    |  | Standard Office Building Lease between 8700
Flagler, Ltd. and Omega Research, Inc., as amended by
Memorandum of Commencement Date +                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.9    |  | Form of Indemnification Agreement +                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.10   |  | Sublease (for fourth floor of 8700 Flagler
Building) and Modification of Lease Agreement (incorporated by
reference to Exhibit 10.11 to Omega Research, Inc.s Annual
Report on Form 10-K for the fiscal year ended December 31,
1998)                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.11   |  | Form of Non-Competition and Non-Disclosure
Agreement*                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.12   |  | Form of Non-Competition Agreement +                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.13   |  | Office/Showroom/Warehouse Lease Agreement dated
June 12, 1996 between Springcreek Place Ltd. and Window On
WallStreet Inc. (then named MarketArts, Inc.), as amended by
Addendum to Lease dated October 12, 1998, and as further
amended by Addendum to Lease dated May 28, 1999 (incorporated
by reference to Exhibit 10.13 to Omega Research, Inc.s Annual
Report on Form 10-K for the fiscal year ended December 31,
1999)
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.14   |  | Modification and Ratification of Lease
Agreement, dated July 25, 2002, between Springcreek Place Ltd.
and TradeStation Technologies, Inc. (filed herewith)                                                                                                                                                                                                                                                                    

56



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|        |  |                                                                                                                                                                                                                                               
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                               
|Number  |  | Description                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                               
|10.15   |  | Lease Agreement, dated November 16, 1999,
between Fairfax Boca 92, L.P. and Omega Research, Inc.
(incorporated by reference to Exhibit 10.14 to Omega Research,
Inc.s Annual Report on Form 10-K for the fiscal year ended
December 31, 1999)
|        |  |                                                                                                                                                                                                                                               
|10.16   |  | Lease Termination and Surrender Agreement, dated
December 11, 2002, between Fairfax Boca 92, L.P. and
TradeStation Technologies, Inc. (filed herewith)                                                                                        
|        |  |                                                                                                                                                                                                                                               
|10.17   |  | onlinetradinginc.com corp. 1999 Stock Option Plan***#                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                               
|10.18   |  | Window On WallStreet Inc. 1997 Long Term Incentive Plan***#                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                               
|10.19   |  | Clearing Agreement with Bear, Stearns Securities Corp. ++                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                               
|10.20   |  | Office Lease dated August 13, 1998 between
onlinetradinginc.com corp. and Highwood/Florida Holdings, L.P.
++                                                                                                                                  
|        |  |                                                                                                                                                                                                                                               
|10.21   |  | Sublease Agreement, dated June 21, 2002, between
TradeStation Securities, Inc. and Steflind, Inc. (filed
herewith)                                                                                                                            
|        |  |                                                                                                                                                                                                                                               
|10.22   |  | Letter Agreement dated January 19, 2000 from
onlinetradinginc.com
corp. to and accepted by Andrew A. Allen *                                                                                                                                  
|        |  |                                                                                                                                                                                                                                               
|10.23   |  | Stock Purchase Agreement, dated as of August 8,
2002, between Benedict Gambino and TradeStation Group, Inc.
(filed herewith)                                                                                                                  
|        |  |                                                                                                                                                                                                                                               
|10.24   |  | Stock Purchase Agreement, dated as of October
18, 2002, between Benedict S. Gambino and TradeStation Group,
Inc. (filed herewith)                                                                                                             
|        |  |                                                                                                                                                                                                                                               
|10.25   |  | Stock Purchase Agreement, dated as of November
26, 2002, between Andrew A. Allen Family Limited Partnership
and TradeStation Group, Inc. (filed herewith)                                                                                     
|        |  |                                                                                                                                                                                                                                               
|21.1    |  | List of Subsidiaries (incorporated by reference
to Exhibit 21.1 to TradeStation Groups Annual Report on Form
10-K for the fiscal year ended December 31, 2000) +++                                                                           
|        |  |                                                                                                                                                                                                                                               
|23.1    |  | Consent of Ernst & Young LLP, Independent
Certified Public Accountants, with respect to TradeStation
Group, Inc.s consolidated financial statements (filed
herewith)                                                                         
|        |  |                                                                                                                                                                                                                                               
|99.1    |  | Certification of Co-Chief Executive Officers
under 18 U.S.C. §1350 (filed herewith)                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                               
|99.2    |  | Certification of Chief Financial Officer under 18
U.S.C. §1350 (filed herewith)                                                                                                                                                               

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---

|*   |  | Previously filed as part of the Rule 424(b)(1)
Proxy Statement/Prospectus of TradeStation Group filed with
the Securities and Exchange Commission (the Commission) on
December 12, 2000.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|**  |  | Previously filed as part of Registration
Statement No. 333-34922 on Form S-4 of OnlineTrading.com
Group, Inc. filed with the Commission on April 17, 2000.                                
|   
|*** |  | Previously filed as part of Registration
Statement No. 333-53222 on Form S-8 of TradeStation Group,
Inc. filed with the Commission on January 5, 2001.                                    
|   
|+   |  | Previously filed as part of Registration
Statement No. 333-32077 on Form S-1 of Omega Research, Inc.
filed with the Commission on July 25, 1997.                                          
|   
|++  |  | Previously filed as part of Registration
Statement No. 333-75119 of Form SB-2 of onlinetradinginc.com
corp. filed with the Commission on March 26, 1999.                                  
|   
|#   |  | Indicates a management contract or compensatory
plan or arrangement.                                                                                                                      

(b) Reports on Form 8-K.

|      |  |                                                                                                                                                                                                                                                                                                                                             
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   |  | On December 4, 2002, we filed a Current Report on Form 8-K
for an event that occurred on November 26, 2002, reporting in Item 5
thereof that the company purchased 1 million shares of the companys
common stock in a privately-negotiated transaction for a purchase
price of $1.35 per share, or a total purchase price of $1.35
million.
|      |  |                                                                                                                                                                                                                                                                                                                                             
|(ii)  |  | On January 29, 2003, we filed a Current Report on Form 8-K
for an event that occurred on January 29, 2003, reporting in Item 5
thereof that the company announced that it expected to report fourth
quarter 2002 net profit of $.05 per share when it formally released
fourth quarter earnings February 25, 2003.                          
|      |  |                                                                                                                                                                                                                                                                                                                                             
|(iii) |  | On February 25, 2003, we filed a Current Report on Form 8-K
for an event that occurred on February 25, 2003, reporting in Item 5
thereof the companys earnings for the fourth quarter and year ended
December 31, 2002.                                                                                                                    

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

|                      |  |                                                                                     
|--------------------- |  | ------------------------------------------------------------------------------------
|Dated: March 21, 2003 |  | TradeStation Group, Inc.                                                            
|                      |  |                                                                                     
|                      |  |                                                                                     
|                      |  | By: /s/ William R. Cruz                                                             
|                      |  |                                                                                     
|                      |  | William R. Cruz
Co-Chairman of the Board of Directors and
Co-Chief Executive Officer
|                      |  |                                                                                     
|                      |  | By: /s/ Ralph L. Cruz                                                               
|                      |  |                                                                                     
|                      |  | Ralph L. Cruz
Co-Chairman of the Board of Directors and
Co-Chief Executive Officer  

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

|                                             |  |                                                                                                               |  |               
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------------
|/s/ William R. Cruz

William R. Cruz         |  | Co-Chairman of the Board of Directors and
Co-Chief Executive Officer
(Co-Principal Executive Officer)         |  | March 21, 2003
|                                             |  |                                                                                                               |  |               
|                                             |  |                                                                                                               |  |               
|/s/ Ralph L. Cruz

Ralph L. Cruz             |  | Co-Chairman of the Board of Directors and
Co-Chief Executive Officer
(Co-Principal Executive Officer)         |  | March 21, 2003
|                                             |  |                                                                                                               |  |               
|                                             |  |                                                                                                               |  |               
|/s/ Salomon Sredni

Salomon Sredni           |  | Chief Operating Officer, President and Director (Principal Operating Officer)                                 |  | March 21, 2003
|                                             |  |                                                                                                               |  |               
|                                             |  |                                                                                                               |  |               
|/s/ David H. Fleischman

David H. Fleischman |  | Chief Financial Officer, Vice President
of Finance and Treasurer (Principal
Financial and Accounting Officer) |  | March 21, 2003
|                                             |  |                                                                                                               |  |               
|                                             |  |                                                                                                               |  |               
|/s/ Michael W. Fipps

Michael W. Fipps       |  | Director                                                                                                      |  | March 21, 2003
|                                             |  |                                                                                                               |  |               
|                                             |  |                                                                                                               |  |               
|/s/ Stephen C. Richards

Stephen C. Richards |  | Director                                                                                                      |  | March 21, 2003
|                                             |  |                                                                                                               |  |               
|                                             |  |                                                                                                               |  |               
|/s/ Charles F. Wright

Charles F. Wright     |  | Director                                                                                                      |  | March 21, 2003

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CERTIFICATIONS PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
CO-CHIEF EXECUTIVE OFFICER

I, William R. Cruz, Co-Chairman of the Board and Co-Chief Executive Officer of
TradeStation Group, Inc., certify that:

1.     I have reviewed this annual report on Form 10-K of TradeStation
Group, Inc.;

2.     Based on my knowledge, this annual 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 periods covered by this annual report;

3.     Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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-14 and 15d-14) for the registrant and
have:



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures 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 annual
report is being prepared;



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and

6.     The registrants other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

|               |  |                                                                             
|-------------- |  | ----------------------------------------------------------------------------
|March 21, 2003 |  | By: /s/ William R. Cruz                                                     
|               |  |                                                                             
|Date           |  | William R. Cruz
Co-Chairman of the Board
     and Co-Chief Executive Officer

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CERTIFICATIONS PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
CO-CHIEF EXECUTIVE OFFICER

I, Ralph L. Cruz, Co-Chairman of the Board and Co-Chief Executive Officer of
TradeStation Group, Inc., certify that:

1.     I have reviewed this annual report on Form 10-K of TradeStation
Group, Inc.;

2.     Based on my knowledge, this annual 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 periods covered by this annual report;

3.     Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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-14 and 15d-14) for the registrant and
have:



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures 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 annual
report is being prepared;



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and

6.     The registrants other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

|               |  |                                                                           
|-------------- |  | --------------------------------------------------------------------------
|March 21, 2003 |  | By: /s/ Ralph L. Cruz                                                     
|               |  |                                                                           
|Date           |  | Ralph L. Cruz
Co-Chairman of the Board
     and Co-Chief Executive Officer

61



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CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CHIEF FINANCIAL OFFICER

I, David H. Fleischman, Chief Financial Officer of TradeStation Group, Inc.,
certify that:

1.     I have reviewed this annual report on Form 10-K of TradeStation
Group, Inc.;

2.     Based on my knowledge, this annual 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 periods covered by this annual report;

3.     Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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-14 and 15d-14) for the registrant and
have:



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures 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 annual
report is being prepared;



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and

6.     The registrants other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

|               |  |                                                                                          
|-------------- |  | -----------------------------------------------------------------------------------------
|March 21, 2003 |  | By: /s/ David H. Fleischman                                                              
|               |  |                                                                                          
|Date           |  | David H. Fleischman
Chief Financial Officer,
     Vice President of Finance and Treasurer

62



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##### Table of Contents



TRADESTATION GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                     |  |  |     | 
|---------------------------------------------------------------------------------------------------- |  |  | --- | 
|Reports of Independent Certified Public Accountants                                                  |  |  | F-2 | 
|                                                                                                    
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                         |  |  | F-4 | 
|                                                                                                    
|Consolidated Statements of Operations for the Years Ended
December 31, 2002, 2001 and 2000           |  |  | F-5 | 
|                                                                                                    
|Consolidated Statements of Shareholders Equity for the Years Ended
December 31, 2002, 2001 and 2000 |  |  | F-6 | 
|                                                                                                    
|Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000           |  |  | F-7 | 
|                                                                                                    
|Notes to Consolidated Financial Statements                                                           |  |  | F-9 | 

F-1



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##### Table of Contents






REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To TradeStation Group, Inc.:

We have audited the accompanying consolidated balance sheet of
TradeStation Group, Inc. (a Florida corporation) and subsidiaries as of
December 31, 2002, and the related consolidated statements of operations,
shareholders equity and cash flows for the year then ended. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The consolidated financial statements of TradeStation Group, Inc.
and subsidiaries as of December 31, 2001, and for each of the two years in the
period ended December 31, 2001, were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those financial
statements in their report dated February 8, 2002.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TradeStation
Group, Inc. and subsidiaries as of December 31, 2002, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.

As discussed above, the financial statements of TradeStation Group, Inc.
and subsidiaries as of December 31, 2001, and each of the two years in the
period ended December 31, 2001, were audited by other auditors who have ceased
operations. As described in Note 6, these consolidated financial statements
have been revised to include the transitional disclosures required by Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets, which was adopted by the Company as of January 1, 2002. Our audit
procedures with respect to the transitional disclosures in Note 6 with respect
to 2001 and 2000 included (a) agreeing the previously reported net loss to the
previously issued financial statements and the adjustments to reported net loss
representing amortization expense (including any related tax effects)
recognized in those periods related to goodwill and intangible assets that are
no longer being amortized (including any related tax effects) to the Companys
underlying records obtained from management, and (b) testing the mathematical
accuracy of the reconciliation of reported net loss to adjusted net loss, and
the related per share amounts. In our opinion, the transitional disclosures
for 2001 and 2000 in Note 6 are appropriate. However, we were not engaged to
audit, review, or apply any procedures to the 2001 and 2000 consolidated
financial statements of the Company other than with respect to such disclosures
and, accordingly, we do not express an opinion or any other form of assurance
on the 2001 and 2000 consolidated financial statements taken as a whole.

|                                                  |  |                      
|------------------------------------------------- |  | ---------------------
|                                                  |  | /s/ Ernst & Young LLP
|Fort Lauderdale, Florida,
      February 3, 2003. |  |                      

F-2



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##### Table of Contents






REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS *

To TradeStation Group, Inc.:

We have audited the accompanying consolidated balance sheets of
TradeStation Group, Inc. (a Florida corporation) and subsidiaries as of
December 31, 2001 and 2000, and the related consolidated statements of
operations, shareholders equity and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TradeStation Group, Inc.
and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted
in the United States.

ARTHUR ANDERSEN LLP

Miami, Florida,
      February 8, 2002.

*      NOTE: Arthur Andersen LLP ceased operations in 2002. Its auditors report
has not been revised and the above is a copy of that report as issued. The
inclusion of this previously issued report is pursuant to the Temporary Final
Rule and Final Rule: Requirements for Arthur Andersen LLP auditing clients,
issued by the United States Securities and Exchange Commission in March 2002.
This audit report has not been reissued by Arthur Andersen LLP in connection
with this filing on Form 10-K.

F-3



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##### Table of Contents



TRADESTATION GROUP, INC. AND SUBSIDIARIES




CONSOLIDATED BALANCE SHEETS


|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |             |            | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ------------ | ---------- | ---- | - | ----------- | ---------- | 
|                                                |                                                                                                                                                           |                                            |   | December 31,
|                                                |                                                                                                                                                           |                                            |   |             
|                                                |                                                                                                                                                           |                                            |   | 2002         |            | 2001
|                                                |                                                                                                                                                           |                                            |   |              |            |     
|ASSETS:                                        
|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |            
|                                                | Cash and cash equivalents, including restricted
cash of $3,427,290 and $3,617,282 at December
31, 2002 and 2001, respectively                             |                                            | $ | 16,410,146   |            |      | $ | 19,981,591  |           
|                                                | Receivables from clearing firms                                                                                                                           |                                            |   | 751,220      |            |      |   | 255,146     |           
|                                                | Securities owned, at market value                                                                                                                         |                                            |   | 66,000       |            |      |   | 415,928     |           
|                                                | Accounts receivable                                                                                                                                       |                                            |   | 181,826      |            |      |   | 330,300     |           
|                                                | Property and equipment, net                                                                                                                               |                                            |   | 4,348,752    |            |      |   | 3,224,518   |           
|                                                | Intangible assets, net                                                                                                                                    |                                            |   | 244,337      |            |      |   | 1,748,096   |           
|                                                | Other assets                                                                                                                                              |                                            |   | 615,513      |            |      |   | 865,424     |           
|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |            
|                                                |                                                                                                                                                           | Total assets                               |   | $            | 22,617,794 |      |   | $           | 26,821,003 | 
|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |            
|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |            
|LIABILITIES AND SHAREHOLDERS EQUITY:          
|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |            
|LIABILITIES:                                    |                                                                                                                                                           |                                            |   |              |            |      |   |            
|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |            
|                                                | Accounts payable                                                                                                                                          |                                            | $ | 1,947,602    |            |      | $ | 1,596,244   |           
|                                                | Accrued expenses                                                                                                                                          |                                            |   | 6,894,616    |            |      |   | 6,360,374   |           
|                                                | Capital lease obligations                                                                                                                                 |                                            |   | 1,382,264    |            |      |   | 1,406,872   |           
|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |            
|                                                |                                                                                                                                                           | Total liabilities                          |   |              | 10,224,482 |      |   |             | 9,363,490  | 
|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |            
|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |            
|COMMITMENTS AND CONTINGENCIES (Notes 15 and 16) |                                                                                                                                                           |                                            |   |              |            |      |   |            
|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |            
|SHAREHOLDERS EQUITY:                           |                                                                                                                                                           |                                            |   |              |            |      |   |            
|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |            
|                                                | Preferred stock, $.01 par value; 25,000,000
shares authorized, none issued and outstanding                                                                |                                            |   |             |            |      |   |            |           
|                                                | Common stock, $.01 par value; 200,000,000
shares authorized, 39,588,881 and 44,547,316
issued and outstanding at December 31, 2002 and
2001, respectively |                                            |   | 395,889      |            |      |   | 445,473     |           
|                                                | Additional paid-in capital                                                                                                                                |                                            |   | 44,866,130   |            |      |   | 51,609,498  |           
|                                                | Accumulated deficit                                                                                                                                       |                                            |   | (32,833,307  | )          |      |   | (34,597,458 | )         
|                                                | Accumulated other comprehensive loss                                                                                                                      |                                            |   | (35,400      | )          |      |   |            |           
|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |            
|                                                |                                                                                                                                                           | Total shareholders equity                 |   |              | 12,393,312 |      |   |             | 17,457,513 | 
|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |            
|                                                |                                                                                                                                                           | Total liabilities and shareholders equity |   | $            | 22,617,794 |      |   | $           | 26,821,003 | 
|                                                |                                                                                                                                                           |                                            |   |              |            |      |   |            

The accompanying notes are an integral part of these consolidated financial statements.

F-4



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##### Table of Contents



TRADESTATION GROUP, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF OPERATIONS


|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |            |             |  
|------------------------------------ | -------------------------------------------- | --------------------------------- | ------- | -------------------------------- | ---------- | ---- | --------- | ---------- | ----------- | - | --------- | ---------- | ----------- | -
|                                     |                                              |                                   |         | For the Years Ended December 31,
|                                     |                                              |                                   |         |                                 
|                                     |                                              |                                   |         | 2002                             |            | 2001 |           | 2000      
|                                     |                                              |                                   |         |                                  |            |      |           |           
|REVENUES:                            |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|                                     | Brokerage revenues                           |                                   | $       | 38,493,928                       |            |      | $         | 18,601,627 |             |   | $         | 17,933,750 |            
|                                     | Subscription fees                            |                                   |         | 6,638,516                        |            |      |           | 9,566,566  |             |   |           | 8,170,083  |            
|                                     | Licensing fees                               |                                   |         | 1,131,193                        |            |      |           | 5,028,830  |             |   |           | 18,343,279 |            
|                                     | Other                                        |                                   |         | 2,127,474                        |            |      |           | 7,790,120  |             |   |           | 8,478,621  |            
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|                                     |                                              | Total revenues                    |         |                                  | 48,391,111 |      |           |            | 40,987,143  |   |           |            | 52,925,733  |  
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|OPERATING EXPENSES:                  |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|                                     | Clearing and execution costs                 |                                   |         | 11,311,828                       |            |      |           | 5,771,610  |             |   |           | 4,787,328  |            
|                                     | Data center costs                            |                                   |         | 4,890,729                        |            |      |           | 5,301,917  |             |   |           | 4,001,542  |            
|                                     | Technology development                       |                                   |         | 8,850,858                        |            |      |           | 9,308,563  |             |   |           | 8,128,376  |            
|                                     | Sales and marketing                          |                                   |         | 12,473,344                       |            |      |           | 11,325,049 |             |   |           | 27,679,913 |            
|                                     | General and administrative                   |                                   |         | 9,882,400                        |            |      |           | 12,924,434 |             |   |           | 11,915,028 |            
|                                     | Amortization of intangible assets            |                                   |         | 891,259                          |            |      |           | 6,198,264  |             |   |           | 5,978,478  |            
|                                     | (Recovery of) provision for insurance loss   |                                   |         | (1,250,000                       | )          |      |           | 2,707,249  |             |   |           |           |            
|                                     | Impairment of goodwill and intangible assets |                                   |         |                                 |            |      |           | 5,285,497  |             |   |           |           |            
|                                     | Merger related costs                         |                                   |         |                                 |            |      |           |           |             |   |           | 3,800,000  |            
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|                                     |                                              | Total operating expenses          |         |                                  | 47,050,418 |      |           |            | 58,822,583  |   |           |            | 66,290,665  |  
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|                                     |                                              | Income (loss) from operations     |         |                                  | 1,340,693  |      |           |            | (17,835,440 | ) |           |            | (13,364,932 | )
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|OTHER INCOME, net                    |                                              |                                   | 427,063 |                                  |            |      | 598,708   |            |             |   | 1,292,632 |           
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|                                     |                                              | Income (loss) before income taxes |         |                                  | 1,767,756  |      |           |            | (17,236,732 | ) |           |            | (12,072,300 | )
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|INCOME TAX PROVISION                 |                                              |                                   | 3,605   |                                  |            |      | 4,668,132 |            |             |   | 1,402,710 |           
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|                                     |                                              | Net income (loss)                 |         | $                                | 1,764,151  |      |           | $          | (21,904,864 | ) |           | $          | (13,475,010 | )
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|EARNINGS (LOSS) PER SHARE:           |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|                                     | Basic                                        |                                   | $       | 0.04                             |            |      | $         | (0.49      | )           |   | $         | (0.31      | )          
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|                                     | Diluted                                      |                                   | $       | 0.04                             |            |      | $         | (0.49      | )           |   | $         | (0.31      | )          
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|WEIGHTED AVERAGE SHARES
OUTSTANDING: |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|                                     | Basic                                        |                                   |         | 43,328,103                       |            |      |           | 44,458,689 |             |   |           | 43,955,819 |            
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           
|                                     | Diluted                                      |                                   |         | 43,386,250                       |            |      |           | 44,458,689 |             |   |           | 43,955,819 |            
|                                     |                                              |                                   |         |                                  |            |      |           |            |             |   |           |           

The accompanying notes are an integral part of these consolidated financial statements.

F-5



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##### Table of Contents



TRADESTATION GROUP, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


|                                                                              |                                                            |          |   |           |   |        |            |              |   |              |         |          |   |         |            |            |   |   |             |           |             |       |         |             |   |   |            |            |             |  
|----------------------------------------------------------------------------- | ---------------------------------------------------------- | -------- | - | --------- | - | ------ | ---------- | ------------ | - | ------------ | ------- | -------- | - | ------- | ---------- | ---------- | - | - | ----------- | --------- | ----------- | ----- | ------- | ----------- | - | - | ---------- | ---------- | ----------- | -
|                                                                              |                                                            |          |   |           |   |        |            |              |   |              |         |          |   |         |            |            |   |   |             |           |             |       |         | Accumulated |   |   |            |           
|                                                                              |                                                            |          |   |           |   |        |            |              |   |              |         |          |   |         |            |            |   |   |             | Retained  |             | Other |         |             |   |  
|                                                                              |                                                            |          |   |           |   |        |            | Common Stock |   | Additional   |         | Earnings |   | Compre- |            |            |   |  
|                                                                              |                                                            |          |   | Preferred |   |        |            | Paid-In      |   | (Accumulated |         | hensive  |   |         |            |           
|                                                                              |                                                            |          |   | Stock     |   | Shares |            | Amount       |   | Capital      |         | Deficit) |   | Loss    |            | Total     
|                                                                              |                                                            |          |   |           |   |        |            |              |   |              |         |          |   |         |            |           
|BALANCE, December 31, 1999                                                    |                                                            | $        |  |           |   |        | 44,182,345 |              |   | $            | 441,823 |          |   | $       | 50,479,282 |            |   | $ | 819,099     |           |             | $     |        |             |   | $ | 51,740,204 |           
|                                                                              |                                                            |          |   |           |   |        |            |              |   |              |         |          |   |         |            |            |   |   |             |           |             |       |         |             |   |   |            |           
|Issuance of common stock                                                      |                                                            |          |  |           |   |        | 150,770    |              |   |              | 1,508   |          |   |         | 384,378    |            |   |   |            |           |             |       |        |             |   |   | 385,886    |           
|Issuance of common stock
in connection with
contingent payment of
acquisition |                                                            |          |  |           |   |        | 143,386    |              |   |              | 1,434   |          |   |         | 255,566    |            |   |   |            |           |             |       |        |             |   |   | 257,000    |           
|Compensation expense on
stock option grants                                   |                                                            |          |  |           |   |        |           |              |   |              |        |          |   |         | 153,673    |            |   |   |            |           |             |       |        |             |   |   | 153,673    |           
|Change in fiscal year-end of
pooled company                                   |                                                            |          |  |           |   |        |           |              |   |              |        |          |   |         |           |            |   |   | (36,683     | )         |             |       |        |             |   |   | (36,683    | )         
|                                                                              |                                                            | Net loss |   |           |  |        |            |              |  |              |         |          |  |         |            |            |  |   |             |           | (13,475,010 | )     |         |             |  |   |            |            | (13,475,010 | )
|                                                                              |                                                            |          |   |           |   |        |            |              |   |              |         |          |   |         |            |            |   |   |             |           |             |       |         |             |   |   |            |           
|BALANCE, December 31, 2000                                                    |                                                            |          |  |           |   |        | 44,476,501 |              |   |              | 444,765 |          |   |         | 51,272,899 |            |   |   | (12,692,594 | )         |             |       |        |             |   |   | 39,025,070 |           
|                                                                              |                                                            |          |   |           |   |        |            |              |   |              |         |          |   |         |            |            |   |   |             |           |             |       |         |             |   |   |            |           
|Issuance of common stock                                                      |                                                            |          |  |           |   |        | 70,815     |              |   |              | 708     |          |   |         | 108,494    |            |   |   |            |           |             |       |        |             |   |   | 109,202    |           
|Compensation expense on
stock option grants                                   |                                                            |          |  |           |   |        |           |              |   |              |        |          |   |         | 228,105    |            |   |   |            |           |             |       |        |             |   |   | 228,105    |           
|                                                                              |                                                            | Net loss |   |           |  |        |            |              |  |              |         |          |  |         |            |            |  |   |             |           | (21,904,864 | )     |         |             |  |   |            |            | (21,904,864 | )
|                                                                              |                                                            |          |   |           |   |        |            |              |   |              |         |          |   |         |            |            |   |   |             |           |             |       |         |             |   |   |            |           
|BALANCE, December 31, 2001                                                    |                                                            |          |  |           |   |        | 44,547,316 |              |   |              | 445,473 |          |   |         | 51,609,498 |            |   |   | (34,597,458 | )         |             |       |        |             |   |   | 17,457,513 |           
|                                                                              |                                                            |          |   |           |   |        |            |              |   |              |         |          |   |         |            |            |   |   |             |           |             |       |         |             |   |   |            |           
|                                                                              | Issuance of common stock                                   |          |   |          |   |        |            | 41,565       |   |              |         | 416      |   |         |            | 42,341     |   |   |             |          |             |       |         |            |   |   |            | 42,757     |            
|                                                                              | Repurchase and retirement of
common stock                  |          |   |          |   |        |            | (5,000,000   | ) |              |         | (50,000  | ) |         |            | (6,823,401 | ) |   |             |          |             |       |         |            |   |   |            | (6,873,401 | )          
|                                                                              | Compensation expense on
stock option grants                |          |   |          |   |        |            |             |   |              |         |         |   |         |            | 37,692     |   |   |             |          |             |       |         |            |   |   |            | 37,692     |            
|                                                                              | Unrealized holding losses on
available-for-sale securities |          |   |          |   |        |            |             |   |              |         |         |   |         |            |           |   |   |             |          |             |       |         | (35,400     | ) |   |            | (35,400    | )          
|                                                                              | Net income                                                 |          |   |          |   |        |            |             |   |              |         |         |   |         |            |           |   |   |             | 1,764,151 |             |       |         |            |   |   |            | 1,764,151  |            
|                                                                              |                                                            |          |   |           |   |        |            |              |   |              |         |          |   |         |            |            |   |   |             |           |             |       |         |             |   |   |            |           
|BALANCE, December 31, 2002                                                    |                                                            | $        |  |           |   |        | 39,588,881 |              |   | $            | 395,889 |          |   | $       | 44,866,130 |            |   | $ | (32,833,307 | )         |             | $     | (35,400 | )           |   | $ | 12,393,312 |           
|                                                                              |                                                            |          |   |           |   |        |            |              |   |              |         |          |   |         |            |            |   |   |             |           |             |       |         |             |   |   |            |           

The accompanying notes are an integral part of these consolidated financial statements.

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##### Table of Contents



TRADESTATION GROUP, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                  |                                                                                          |                                                     |                                 |                                           |            |                                  |            |             |            |            |            |             |            |             |         | 
|----------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------- | ----------------------------------------- | ---------- | -------------------------------- | ---------- | ----------- | ---------- | ---------- | ---------- | ----------- | ---------- | ----------- | ------- | 
|                                                                  |                                                                                          |                                                     |                                 |                                           |            | For the Years Ended December 31,
|                                                                  |                                                                                          |                                                     |                                 |                                           |            |                                 
|                                                                  |                                                                                          |                                                     |                                 |                                           |            | 2002                             |            | 2001        |            | 2000      
|                                                                  |                                                                                          |                                                     |                                 |                                           |            |                                  |            |             |            |           
|CASH FLOWS FROM OPERATING ACTIVITIES:                             |                                                                                          |                                                     |                                 |                                           |            |                                  |            |             |            |            |            |            
|                                                                  | Net income (loss)                                                                        |                                                     | $                               | 1,764,151                                 |            |                                  | $          | (21,904,864 | )          |            | $          | (13,475,010 | )         
|                                                                  | Adjustment for change in fiscal year-end of pooled company -                             |                                                     |                                 |                                          |            |                                  |            |            |            |            |            | (36,683     | )         
|                                                                  | Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                                     |                                 |                                           |            |                                  |            |             |            |            |            |             |           
|                                                                  |                                                                                          | Depreciation and amortization                       |                                 |                                           | 2,854,192  |                                  |            |             | 7,772,935  |            |            |             | 7,514,405  |            
|                                                                  |                                                                                          | Compensation expense on stock option grants         |                                 |                                           | 37,692     |                                  |            |             | 228,105    |            |            |             | 153,673    |            
|                                                                  |                                                                                          | Gain on sale of intangible assets                   |                                 |                                           | (287,500   | )                                |            |             |           |            |            |             |           |            
|                                                                  |                                                                                          | Deferred income tax provision                       |                                 |                                           |           |                                  |            |             | 4,805,651  |            |            |             | 10,706,200 |            
|                                                                  |                                                                                          | Impairment of goodwill and intangible assets        |                                 |                                           |           |                                  |            |             | 5,285,497  |            |            |             |           |            
|                                                                  |                                                                                          | Provision for doubtful accounts                     |                                 |                                           |           |                                  |            |             | 714,286    |            |            |             |           |            
|                                                                  |                                                                                          | (Increase) decrease in:                             |                                 |                                           |            |                                  |            |             |            |            |            |             |            |            
|                                                                  |                                                                                          |                                                     | Receivables from clearing firms |                                           |            | (496,074                         | )          |             |            | 713,251    |            |             |            | (269,737    | )      
|                                                                  |                                                                                          |                                                     | Securities owned                |                                           |            |                                 |            |             |            |           |            |             |            | 3,689       |        
|                                                                  |                                                                                          |                                                     | Accounts receivable             |                                           |            | 148,474                          |            |             |            | (400,386   | )          |             |            | 1,331,800   |        
|                                                                  |                                                                                          |                                                     | Income tax receivable           |                                           |            |                                 |            |             |            | 8,542,413  |            |             |            | (10,278,458 | )      
|                                                                  |                                                                                          |                                                     | Other assets                    |                                           |            | 249,911                          |            |             |            | 225,730    |            |             |            | 509,477     |        
|                                                                  |                                                                                          | Increase (decrease) in:                             |                                 |                                           |            |                                  |            |             |            |            |            |             |            |            
|                                                                  |                                                                                          |                                                     | Accounts payable                |                                           |            | 351,358                          |            |             |            | (1,983,718 | )          |             |            | 295,529     |        
|                                                                  |                                                                                          |                                                     | Accrued expenses                |                                           |            | 534,242                          |            |             |            | (170,761   | )          |             |            | 3,435,429   |        
|                                                                  |                                                                                          |                                                     | Income tax payable              |                                           |            |                                 |            |             |            | (1,003,912 | )          |             |            | 350,771     |        
|                                                                  |                                                                                          |                                                     |                                 |                                           |            |                                  |            |             |            |            |            |            
|                                                                  |                                                                                          |                                                     |                                 | Net cash provided by operating activities |            |                                  | 5,156,446  |             |            |            | 2,824,227  |             |            |             | 241,085 | 
|                                                                  |                                                                                          |                                                     |                                 |                                           |            |                                  |            |             |            |            |            |            
|CASH FLOWS FROM INVESTING ACTIVITIES:                             |                                                                                          |                                                     |                                 |                                           |            |                                  |            |             |            |            |            |            
|                                                                  | Capital expenditures                                                                     |                                                     |                                 | (1,735,588                                | )          |                                  |            | (545,788    | )          |            |            | (1,039,365  | )         
|                                                                  | Decrease (increase) in restricted cash                                                   |                                                     |                                 | 189,992                                   |            |                                  |            | (3,107,282  | )          |            |            | (510,000    | )         
|                                                                  | Purchases of securities owned                                                            |                                                     |                                 |                                          |            |                                  |            | (317,828    | )          |            |            | (4,086,860  | )         
|                                                                  | Proceeds from maturity of securities owned                                               |                                                     |                                 | 314,528                                   |            |                                  |            | 151,323     |            |            |            | 5,684,064   |           
|                                                                  | Acquisition of intangible assets                                                         |                                                     |                                 | (100,000                                  | )          |                                  |            | (225,000    | )          |            |            | (15,000     | )         
|                                                                  | Proceeds from sale of intangible assets                                                  |                                                     |                                 | 1,000,000                                 |            |                                  |            |            |            |            |            |            |           
|                                                                  |                                                                                          | Net cash (used in) provided by investing activities |                                 |                                           | (331,068   | )                                |            |             | (4,044,575 | )          |            |             | 32,839     |            
|                                                                  |                                                                                          |                                                     |                                 |                                           |            |                                  |            |             |            |            |            |            
|CASH FLOWS FROM FINANCING ACTIVITIES:                             |                                                                                          |                                                     |                                 |                                           |            |                                  |            |             |            |            |            |            
|                                                                  | Proceeds from issuance of common stock, net                                              |                                                     |                                 | 42,757                                    |            |                                  |            | 109,202     |            |            |            | 385,886     |           
|                                                                  | Repurchase and retirement of common stock                                                |                                                     |                                 | (6,873,401                                | )          |                                  |            |            |            |            |            |            |           
|                                                                  | Repayment of capital lease obligations                                                   |                                                     |                                 | (1,376,187                                | )          |                                  |            | (409,541    | )          |            |            | (78,456     | )         
|                                                                  |                                                                                          |                                                     |                                 |                                           |            |                                  |            |             |            |            |            |            
|                                                                  |                                                                                          | Net cash (used in) provided by financing
activities |                                 |                                           | (8,206,831 | )                                |            |             | (300,339   | )          |            |             | 307,430    |            
|                                                                  |                                                                                          |                                                     |                                 |                                           |            |                                  |            |             |            |            |            |            
|NET (DECREASE) INCREASE IN UNRESTRICTED
CASH AND CASH EQUIVALENTS |                                                                                          |                                                     | (3,381,453                      | )                                         |            |                                  | (1,520,687 | )           |            |            | 581,354    |            
|                                                                  |                                                                                          |                                                     |                                 |                                           |            |                                  |            |             |            |            |            |            
|UNRESTRICTED CASH AND CASH EQUIVALENTS,
beginning of year         |                                                                                          |                                                     | 16,364,309                      |                                           |            |                                  | 17,884,996 |             |            |            | 17,303,642 |            
|                                                                  |                                                                                          |                                                     |                                 |                                           |            |                                  |            |             |            |            |            |            
|UNRESTRICTED CASH AND CASH EQUIVALENTS,
end of year               |                                                                                          | $                                                   | 12,982,856                      |                                           |            | $                                | 16,364,309 |             |            | $          | 17,884,996 |            
|                                                                  |                                                                                          |                                                     |                                 |                                           |            |                                  |            |             |            |            |            |            

(continued)

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TRADESTATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)

|                                                          |                                                    |  |                                  |           |      |  |      |           |  |  |   |           | 
|--------------------------------------------------------- | -------------------------------------------------- |  | -------------------------------- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                                          |                                                    |  | For the Years Ended December 31,
|                                                          |                                                    |  |                                 
|                                                          |                                                    |  | 2002                             |           | 2001 |  | 2000
|                                                          |                                                    |  |                                  |           |      |  |     
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:         |                                                    |  |                                  |           |      |  |      |           |  |  |   |          
|                                                          | Cash paid for interest                             |  | $                                | 217,924   |      |  | $    | 198,935   |  |  | $ | 51,878    | 
|                                                          |                                                    |  |                                  |           |      |  |      |           |  |  |   |          
|                                                          | Cash paid for income taxes                         |  | $                                |          |      |  | $    | 916,252   |  |  | $ | 1,068,949 | 
|                                                          |                                                    |  |                                  |           |      |  |      |           |  |  |   |          
|                                                          |                                                    |  |                                  |           |      |  |      |           |  |  |   |          
|SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES: |                                                    |  |                                  |           |      |  |      |           |  |  |   |          
|                                                          | Equipment acquired under capital lease obligations |  | $                                | 1,351,579 |      |  | $    | 1,602,344 |  |  | $ | 180,450   | 
|                                                          |                                                    |  |                                  |           |      |  |      |           |  |  |   |          

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:

In December 2000, the Companys obligation to issue shares of common
stock, valued at $257,000, as a contingent payment in connection with the 1999
acquisition of certain intangible assets became fixed, and accordingly, the
intangible assets were adjusted for this amount. In December 2001, it was
determined that certain of these intangible assets were impaired and,
accordingly, they were reduced to their estimated fair value. See
Note 6 
INTANGIBLE ASSETS, NET.

The accompanying notes are an integral part of these consolidated financial statements.

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TRADESTATION GROUP, INC. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

TradeStation Group, Inc. (the Company), a Florida corporation formed in
2000, is the successor company to Omega Research, Inc., a Florida corporation
that was formed in 1982. TradeStation Group is listed on The Nasdaq National
Market under the symbol TRAD. TradeStation Securities, Inc. and TradeStation
Technologies, Inc. are TradeStation Groups two operating subsidiaries. See
Note 3  BUSINESS COMBINATIONS for further discussion.

Over the past few years, the Company has transformed itself from a
software company to an Internet-based securities brokerage for institutional,
professional and serious, active individual traders  a brokerage that offers
an electronic trading platform which seamlessly integrates powerful strategy
trading software tools, historical and streaming real-time market data, and
intelligent direct-access order-routing and execution.

The following is a summary of significant accounting policies followed in
the preparation of these consolidated financial statements:

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, TradeStation Technologies and TradeStation
Securities, and Window On WallStreet Inc. (Window On WallStreet), which was
merged into TradeStation Technologies on December 31, 2000 in a transaction
between entities under common control. All significant intercompany
transactions have been eliminated in consolidation.

Use of Estimates

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

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents consist primarily of overnight investments, money market funds and
certificates of deposit. Cash and cash equivalents at December 31, 2002 and
2001 include restricted cash of $3.4 million and $3.6 million, respectively.
See Note 16  COMMITMENTS AND CONTINGENCIES  Restricted Cash.

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Receivables from Clearing Firms

Receivables from clearing firms consist of receivables from the
brokerages clearing organizations. The Company services its brokerage
customer securities accounts through Bear, Stearns Securities Corp. and its
futures customer accounts through Refco, LLC (collectively, the Clearing
Firms) on a fully disclosed basis. The Clearing Firms provide services,
handle the Companys customers funds, hold securities and remit monthly
activity statements to the customers on the Companys behalf. The receivables
from the Clearing Firms relate primarily to commissions earned by the Company
for trades executed by the Clearing Firms on the Companys behalf.

Securities Owned

Securities owned are carried at market value. As of December 31, 2002,
securities owned consist solely of corporate stock. As of December 31, 2001,
securities owned also consisted of a certificate of deposit. In accordance
with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting
for Certain Investments in Debt and Equity Securities, management has currently
designated these securities as available-for-sale securities. Unrealized
holding losses have been excluded from earnings and reported in other
comprehensive income (loss), as required for available-for-sale securities.

Accounts Receivable

As of December 31, 2002 and 2001, accounts receivable were comprised
primarily of receivables earned under royalty agreements with entities that
market and sell financial market data subscriptions (see Other Revenuesbelow).
The Company performs periodic credit evaluations and no allowances for
potential credit losses were deemed necessary at December 31, 2002 or 2001.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, receivables from
clearing firms, securities owned, accounts receivable and accounts payable
approximate fair value as of December 31, 2002 and 2001.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation
and amortization. Property and equipment are depreciated or amortized using
the straight-line method over the estimated useful lives of the assets.
Maintenance and repairs are charged to expense when incurred; betterments are
capitalized. Upon the sale or retirement of assets, the cost and accumulated
depreciation are removed from the accounts, and any gain or loss is recognized
currently. See Note 5  PROPERTY AND EQUIPMENT, NET.

Software Development Costs

In accordance with SFAS No. 86, Accounting for the Cost of Capitalized
Software to be Sold, Leased or Otherwise Marketed, the Company examines its
software development costs after technological feasibility has been established
to determine the amount of capitalization that is

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required. Based on the Companys technology development process, technological
feasibility is established upon completion of a working model. The costs that
are capitalized are amortized over the period of benefit of the related
products. For the periods presented, the technological feasibility of the
Companys products and the general release of such software substantially
coincide, and, as a result, software development costs qualifying for
capitalization are not significant. There were no capitalized software
development costs at December 31, 2002 or 2001.

Intangible Assets

Intangible assets are stated at cost less accumulated amortization and are
amortized using the straight-line method over their estimated useful lives of
one to five years. See Impairment of Long-Lived Assets, below,
and Note 6 
INTANGIBLE ASSETS, NET.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets for recoverability whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable. Impairment losses are recognized if the carrying amount exceeds
the sum of the undiscounted cash flows estimated to be generated by those
assets. The amount of impairment loss is calculated as the amount by which the
carrying value exceeds fair value. No impairment occurred in 2002. In
December 2001, an impairment of goodwill and certain intangible assets was
recorded. See Note 6  INTANGIBLE ASSETS, NET. No impairment occurred in
2000.

Revenue Recognition:

Brokerage Revenues

Brokerage revenues are comprised mainly of transactional fee income for
securities and futures transactions and, to a lesser extent, monthly platform
fees earned from brokerage customers using the TradeStation 6online trading
platform and interest earned from interest revenue sharing arrangements with
the Clearing Firms. Brokerage transactional fees and related clearing costs
are recorded on a trade date basis as transactions occur, while such
transactions are reported to the customer on a settlement date basis. Platform
fees and interest are recorded monthly, when earned.

Subscription Fees

The Company provides investment analysis trading tools, including
streaming real-time market information, via the Internet through its
subscription services in exchange for monthly subscription fee payments. In
addition to these services, payment of subscription fees gives customers access
to certain customer support services such as telephone and electronic mail
support. Revenue is recognized on a monthly basis as the service is provided.
Payments received in advance of service are deferred and recognized on a
monthly basis as service is provided.

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Licensing Fees

The Companys client software product sales are recognized on a cash basis
due to the lack of predictability of return reserves and future collectibility
of receivables, in accordance with the provisions of the American Institute of
Certified Public Accountants Statement of Position 97-2, Software Revenue
Recognition.

Other Revenues

Other revenues are comprised mainly of royalties. The Company has, with
respect to its client software products, entered into certain agreements with
entities that market and sell financial market data subscriptions. Except for
the agreement described in Note 16  COMMITMENTS AND CONTINGENCIES  Telerate
Royalty Agreement(which is a royalty arrangement), the Company receives
monthly commission payments based on its client software customers use of
financial market data feed subscriptions that are accessed through one of its
client software products. The Company records these revenues as they are
earned in accordance with the terms of the applicable contracts.

Advertising Costs

Advertising costs are expensed when the initial advertisement takes place,
and are included in sales and marketing expenses in the accompanying statements
of operations. Advertising costs for the years ended December 31, 2002, 2001
and 2000 were $2.1 million, $663,000 and $10.8 million, respectively.

Stock-Based Compensation

In accordance with SFAS No. 123, Accounting for Stock-Based Compensation,
in accounting for stock-based transactions with non-employees, the Company
records compensation expense in the statement of operations when such equity
instruments are issued. Such compensation expense for the years ended December
31, 2002, 2001 and 2000 was approximately $38,000, $63,000 and $37,000,
respectively.

As permitted by SFAS No. 123, the Company accounts for its stock-based
compensation paid to employees using the intrinsic value method in accordance
with the recognition and measurement principles of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees,and related
Interpretations. Generally, no stock-based employee compensation cost is
reflected in net income (loss), as all options granted under the Companys
plans have an exercise price equal to the fair value of the underlying common
stock on the date of grant. However, certain stock options granted during 1996
and 1997 were issued below fair value, as determined by an independent
appraisal and, accordingly, compensation expense was recorded during 2001 and
2000, as such differences were amortized over the five-year vesting period of
the related stock options. See the table below. All such differences are
fully amortized as of December 31, 2002.

The following table illustrates the effect on net income (loss) and
earnings (loss) per share if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation.

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|                                                                                                                                                      |                                |   |            |      |      |   |             |       |   |   |             |       |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | - | ---------- | ---- | ---- | - | ----------- | ----- | - | - | ----------- | ----- | -
|                                                                                                                                                      |                                |   | 2002       |      | 2001 |   | 2000       
|                                                                                                                                                      |                                |   |            |      |      |   |            
|Net income (loss), as reported                                                                                                                        |                                | $ | 1,764,151  |      |      | $ | (21,904,864 | )     |   | $ | (13,475,010 | )    
|                                                                                                                                                      |                                |   |            |      |      |   |             |       |   |   |             |      
|Add: Stock-based employee
compensation expense included in
reported net income (loss), determined
under the intrinsic value method, net
of tax impact |                                |   |           |      |      |   | 165,526     |       |   |   | 116,225     |      
|                                                                                                                                                      |                                |   |            |      |      |   |             |       |   |   |             |      
|Deduct: Total stock-based employee
compensation expense determined
under the fair value based method
for all awards, net of tax impact                |                                |   | (1,947,348 | )    |      |   | (2,375,136  | )     |   |   | (2,232,119  | )    
|                                                                                                                                                      |                                |   |            |      |      |   |             |       |   |   |             |      
|Pro forma net loss                                                                                                                                    |                                | $ | (183,197   | )    |      | $ | (24,114,474 | )     |   | $ | (15,590,904 | )    
|                                                                                                                                                      |                                |   |            |      |      |   |             |       |   |   |             |      
|                                                                                                                                                      |                                |   |            |      |      |   |             |       |   |   |             |      
|Earnings (loss) per share:                                                                                                                            |                                |   |            |      |      |   |             |       |   |   |             |      
|                                                                                                                                                      | Basic and diluted, as reported |   | $          | 0.04 |      |   | $           | (0.49 | ) |   | $           | (0.31 | )
|                                                                                                                                                      |                                |   |            |      |      |   |             |       |   |   |             |      
|                                                                                                                                                      | Basic and diluted, pro forma   |   | $          | 0.00 |      |   | $           | (0.54 | ) |   | $           | (0.35 | )
|                                                                                                                                                      |                                |   |            |      |      |   |             |       |   |   |             |      

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes model with the following assumptions:

|                              |  |      |    |      |  |      |    |   |  |  |    |  
|----------------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                              |  | 2002 |    | 2001 |  | 2000
|                              |  |      |    |      |  |     
|Risk free interest rate       |  |      | 4  | %    |  |      | 5  | % |  |  | 6  | %
|Dividend yield                |  |      |   |      |  |      |   |   |  |  |   |  
|Volatility factor             |  |      | 66 | %    |  |      | 75 | % |  |  | 75 | %
|Weighted average life (years) |  |      | 4  |      |  |      | 4  |   |  |  | 4  |  

In December 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure  an amendment of FASB Statement No. 123. The Company has adopted
the additional disclosure requirements as of December 31, 2002. See Recently
Issued Accounting Standards, below.

See Note 9  SHAREHOLDERS EQUITY  Stock Option Plans.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 requires that deferred income tax
balances be recognized based on the differences between the financial statement
and income tax bases of assets and liabilities using the enacted tax rates.
Prior to December 29, 2000, the effective time of the merger of TradeStation
Technologies and TradeStation Securities, TradeStation Technologies and
TradeStation Securities were separate tax-paying entities. Accordingly, each
companys income taxes were accounted for separately. See Note 13  INCOME
TAXES.

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Earnings (Loss) Per Share

Earnings (loss) per share is calculated in accordance with SFAS No. 128,
Earnings per Share, which requires presentation of basic and diluted loss per
share. Basic earnings (loss) per share is computed by dividing the net income
(loss) available to common shareholders by the weighted average shares of
outstanding common stock during the period. The calculation of diluted
earnings per share is similar to basic earnings per share except that the
denominator includes dilutive common stock equivalents such as stock options
and warrants. See Note 12  EARNINGS (LOSS) PER SHARE.

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in a business
enterprises equity during a period arising from transactions, events or
circumstances relating to non-owner sources, such as unrealized holding gains
or losses on available-for-sale securities and foreign currency translation
adjustments. It includes all changes in equity during a period except those
resulting from investments by, or distributions to, owners. See Note
11 
COMPREHENSIVE INCOME (LOSS).

Segment Information

Segment information is required to be presented in accordance with SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information.
SFAS No. 131 requires segmentation if warranted by managements approach to the
Companys business and the Companys internal organization and disclosure of
revenue and operating income based upon internal accounting methods. During the
three years ended December 31, 2002, management evaluated and operated its
business as two segments. See Note 17  SEGMENT AND RELATED INFORMATION.

Reclassifications

Certain prior year amounts have been reclassified to conform to the
current year presentation.

Recently Issued Accounting Standards

The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets
effective on January 1, 2002. SFAS No. 142 addresses financial accounting and
reporting for intangible assets acquired individually or with a group of other
assets, and for goodwill and other intangible assets subsequent to their
acquisition. Goodwill and intangible assets with indefinite useful lives will
no longer be subject to amortization, but will be subject to at least an annual
assessment for impairment by applying a fair value-based test. The impairment
loss is the amount, if any, by which the implied fair value of goodwill is less
than the carrying or book value. The adoption of SFAS No. 142 did not have any
impact on the Companys consolidated financial position, results of operations
or cash flows as the Company did not have goodwill or intangible assets with
indefinite useful lives at the time of adoption.

The Company adopted SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assetson January 1, 2002. SFAS No. 144, which
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of, and APB No.

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30, Reporting the Results of Operations  Reporting the Effects of Disposal of
a Segment of Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, establishes a single accounting model, based on the
framework established in SFAS No. 121, for long-lived assets to be disposed of
by sale, whether previously held and used or newly acquired. SFAS No. 144
retains the provisions of APB No. 30 for presentation of discontinued
operations in the statement of operations, but broadens the presentation to
include a component of an entity. The adoption of SFAS No. 144 did not have
any impact on the Companys consolidated financial position, results of
operations or cash flows.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an amendment of FASB Statement No.
123. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
Company has adopted the additional disclosure requirements as of December 31,
2002. See Stock-Based Compensationabove.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS No. 146 nullifies Emerging Issues Task Force Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring).SFAS No.
146 is effective for exit or disposal activities initiated after December 31,
2002. The Company does not believe that the adoption of SFAS No. 146 will have
a material impact on its consolidated financial position, results of operations
or cash flows.

(2) COMMON STOCK REPURCHASES AND RETIREMENT

In July 2002, the Company announced a stock repurchase program
authorizing, at the discretion of management, the use of available cash to
purchase from time to time up to 4 million shares of the Companys common stock
in the open market or through privately-negotiated transactions. Through
October 2002, the Company had purchased and retired all 4 million shares at
prices ranging from $1.35 to $1.40 per share, for a total purchase price of
$5.5 million. This included two private transactions with a former principal
shareholder of onlinetradinginc.com corp. for the purchase of 1.5 million
shares at a price of $1.35 per share and 2.4 million shares at a price of $1.40
per share.

In November 2002, the Company purchased and retired an additional 1
million shares at a price of $1.35 per share in a private transaction with
another former principal shareholder of onlinetradinginc.com corp., bringing
the total shares of common stock purchased and retired for the year to 5
million, for a total purchase price of $6.9 million.

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(3) BUSINESS COMBINATIONS

TradeStation Group was formed in connection with the December 29, 2000
merger of TradeStation Technologies (formerly known as Omega Research, Inc.)
and TradeStation Securities (formerly known as onlinetradinginc.com corp.)

As a result of the merger, all of the outstanding shares of common stock
of each of TradeStation Technologies and TradeStation Securities converted into
shares of common stock of TradeStation Group. TradeStation Technologies
shareholders received one share of TradeStation Group common stock for each
share of TradeStation Technologies common stock (a 1 to 1 ratio) and
TradeStation Securities shareholders received 1.7172 shares of TradeStation
Group common stock for each share of TradeStation Securities common stock (a
1.7172 to 1 ratio). At the effective time of the merger, TradeStation Group
was owned approximately 57% (on a fully diluted basis) by former TradeStation
Technologies shareholders and approximately 43% (on a fully diluted basis) by
TradeStation Securities former shareholders. After giving effect to the
merger, there were outstanding 44,476,501 shares of common stock of
TradeStation Group.

Nonrecurring merger expenses recorded during the quarter ended December
31, 2000 (the period that the merger became effective) were approximately $3.8
million, comprised of approximately $1.6 million in banking fees, $1.2 million
in legal, accounting and tax service fees, $600,000 in severance expenses and
$400,000 in printing and miscellaneous expenses.

The merger was intended to qualify as a tax-free reorganization for United
States federal income tax purposes, and TradeStation Group accounted for the
merger as a pooling-of-interests. Accordingly, the financial data herein gives
retroactive effect to the combination by merger.

Prior to the merger, TradeStation Technologies reported operations on a
calendar year basis while TradeStation Securities reported operations on a
fiscal year basis with a year-end of January 31. TradeStation Group reports
financial information on a calendar year basis. For the year ended December
31, 2000, TradeStation Securities converted from its fiscal year-end of January
31 to a December 31 calendar year-end. The conversion of TradeStation
Securities fiscal year-end from January 31 to December 31 resulted in the
results of operations, shareholders equity and cash flows for the month ended
January 31, 2000 being recorded twice, both in 1999 and 2000. This resulted in
an adjustment to accumulated deficit during the year ended December 31, 2000
reducing shareholders equity by $36,683, which is comprised of the following:

|                   |  |   |           | 
|------------------ |  | - | --------- | 
|Revenues           |  | $ | 1,504,904 | 
|Operating expenses |  |   | 1,424,395 | 
|Net income         |  |   | 36,683    | 

The following table summarizes components of selected financial data for
year ended December 31, 2000:

|                          |  |          |            |                   |  |   |             |  
|------------------------- |  | -------- | ---------- | ----------------- |  | - | ----------- | -
|                          |  | Revenues |            | Net (Loss) Income
|                          |  |          |            |                  
|TradeStation Technologies |  | $        | 34,991,983 |                   |  | $ | (14,430,631 | )
|TradeStation Securities   |  |          | 17,933,750 |                   |  |   | 955,621     |  
|                          |  |          |            |                   |  |   |             |  
|TradeStation Group        |  | $        | 52,925,733 |                   |  | $ | (13,475,010 | )
|                          |  |          |            |                   |  |   |             |  

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(4) SECURITIES OWNED, AT MARKET VALUE

Securities owned, at market value, consist of the following as of December
31, 2002 and 2001:

|                       |  |      |        |      |  |   |         | 
|---------------------- |  | ---- | ------ | ---- |  | - | ------- | 
|                       |  | 2002 |        | 2001
|                       |  |      |        |     
|Corporate stock        |  | $    | 66,000 |      |  | $ | 101,400 | 
|Certificate of deposit |  |      |       |      |  |   | 314,528 | 
|                       |  |      |        |      |  |   |         | 
|                       |  | $    | 66,000 |      |  | $ | 415,928 | 
|                       |  |      |        |      |  |   |         | 

(5) PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consist of the following as of December 31,
2002 and 2001:

|                                          |  |                  |     |      |  |      |            |   |  |   |            |  
|----------------------------------------- |  | ---------------- | --- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                          |  | Estimated Useful |     |      |  |      |            |   |  |  
|                                          |  | Life In Years    |     | 2002 |  | 2001
|                                          |  |                  |     |      |  |     
|Computers and software                    |  |                  | 3-5 |      |  | $    | 8,770,635  |   |  | $ | 7,770,479  |  
|Furniture and equipment                   |  |                  | 3-7 |      |  |      | 1,556,464  |   |  |   | 692,052    |  
|Leasehold improvements                    |  |                  | 10  |      |  |      | 658,760    |   |  |   | 390,558    |  
|                                          |  |                  |     |      |  |      |            |   |  |   |            |  
|                                          |  |                  |     |      |  |      | 10,985,859 |   |  |   | 8,853,089  |  
|Accumulated depreciation and amortization |  |                  |     |      |  |      | (6,637,107 | ) |  |   | (5,628,571 | )
|                                          |  |                  |     |      |  |      |            |   |  |   |            |  
|                                          |  |                  |     |      |  | $    | 4,348,752  |   |  | $ | 3,224,518  |  
|                                          |  |                  |     |      |  |      |            |   |  |   |            |  

Depreciation and amortization expense that related to property and
equipment, including equipment under capital leases, was approximately $2.0
million, $1.6 million and $1.5 million, for the years ended December 31, 2002,
2001 and 2000, respectively.

(6) INTANGIBLE ASSETS, NET

Intangible assets, net, consist of the following as of December 31, 2002
and 2001:

|            |                         |  |           |  |          |   |                   |         |          |   |          |          |   |   |         |         | 
|----------- | ----------------------- |  | --------- |  | -------- | - | ----------------- | ------- | -------- | - | -------- | -------- | - | - | ------- | ------- | 
|            |                         |  |           |  |          |   | December 31, 2002
|            |                         |  | Estimated |  |         
|            |                         |  | Useful    |  | Gross    |   |                   |         |          |   | Net     
|            |                         |  | Life      |  | Carrying |   | Accumulated       |         | Carrying
|            |                         |  | In Years  |  | Amount   |   | Amortization      |         | Amount  
|            |                         |  |           |  |          |   |                   |         |         
|Data rights |                         |  | 3-5       |  |          | $ | 682,900           |         |          | $ | (480,230 | )        |   | $ | 202,670 |        
|Other       |                         |  | 4         |  |          |   | 200,000           |         |          |   | (158,333 | )        |   |   | 41,667  |        
|            |                         |  |           |  |          |   |                   |         |          |   |          |          |   |   |         |        
|            | Total intangible assets |  |           |  |          |   | $                 | 882,900 |          |   | $        | (638,563 | ) |   | $       | 244,337 | 
|            |                         |  |           |  |          |   |                   |         |          |   |          |          |   |   |         |        

|                     |                         |  |           |  |          |   |                   |            |          |   |            |            |   |   |         |           | 
|-------------------- | ----------------------- |  | --------- |  | -------- | - | ----------------- | ---------- | -------- | - | ---------- | ---------- | - | - | ------- | --------- | 
|                     |                         |  |           |  |          |   | December 31, 2001
|                     |                         |  | Estimated |  |         
|                     |                         |  | Useful    |  | Gross    |   |                   |            |          |   | Net       
|                     |                         |  | Life      |  | Carrying |   | Accumulated       |            | Carrying
|                     |                         |  | In Years  |  | Amount   |   | Amortization      |            | Amount  
|                     |                         |  |           |  |          |   |                   |            |         
|Purchased technology |                         |  | 3         |  |          | $ | 7,600,000         |            |          | $ | (6,933,333 | )          |   | $ | 666,667 |          
|Customer lists       |                         |  | 3-5       |  |          |   | 2,631,240         |            |          |   | (1,902,672 | )          |   |   | 728,568 |          
|Data rights          |                         |  | 3-5       |  |          |   | 582,900           |            |          |   | (321,706   | )          |   |   | 261,194 |          
|Other                |                         |  | 3-4       |  |          |   | 265,000           |            |          |   | (173,333   | )          |   |   | 91,667  |          
|                     |                         |  |           |  |          |   |                   |            |          |   |            |            |   |   |         |          
|                     | Total intangible assets |  |           |  |          |   | $                 | 11,079,140 |          |   | $          | (9,331,044 | ) |   | $       | 1,748,096 | 
|                     |                         |  |           |  |          |   |                   |            |          |   |            |            |   |   |         |          

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During the year ended December 31, 2002, certain fully amortized
intangible assets were written-off.

In December 2001, the Company recorded a non-cash charge of $5.3 million
for impairment of goodwill and certain intangible assets, reducing such assets
to their estimated fair value, as determined by a qualified independent
appraiser, representing the price at which the assets would change hands
between a willing buyer and seller.

Approximately $1.1 million of this impairment charge related to the
brokerage services segment, and resulted from the Companys December 2001
decision to sell accounts that did not meet the requirements of its active and
institutional trader business model. Accordingly, the value of the intangible
assets acquired from Newport Discount Brokerage, Inc. (Newport), including
customer lists, was reduced to its estimated fair value of $712,500. Beginning
January 1, 2002, the remaining Newport assets were held for sale and
amortization was discontinued. During the second quarter of 2002, the Company
sold these intangible assets for $1.0 million in cash, and recorded a gain of
$287,500 on the sale, which is included in other income, net in the
accompanying consolidated statement of operations.

The remaining $4.2 million of this impairment charge related to the
software products and services segment and resulted from the Companys
decision, made and implemented in the fourth quarter of 2001, to upgrade all
WindowOnWallStreet.com subscribers to TradeStation 6. Accordingly, all
goodwill and certain intangible assets associated with the 1999 acquisition of
Window On WallStreet, including purchased technology, trade names, patents,
customer lists and non-compete agreements, were determined to be impaired and
were reduced to their estimated fair value.

The following reconciliation adjusts net loss in prior years to remove
amortization expense related to goodwill and workforce that is no longer
amortized effective January 1, 2002 under the provisions of SFAS No. 142,
Goodwill and Other Intangible Assets:

|                                          |  |      |             |      |  |   |             |  
|----------------------------------------- |  | ---- | ----------- | ---- |  | - | ----------- | -
|                                          |  | 2001 |             | 2000
|                                          |  |      |             |     
|Reported net loss                         |  | $    | (21,904,864 | )    |  | $ | (13,475,010 | )
|Add back goodwill amortization            |  |      | 408,252     |      |  |   | 408,252     |  
|Add back workforce amortization           |  |      | 666,667     |      |  |   | 666,667     |  
|                                          |  |      |             |      |  |   |             |  
|Adjusted net loss                         |  | $    | (20,829,945 | )    |  | $ | (12,400,091 | )
|                                          |  |      |             |      |  |   |             |  
|Reported basic and diluted loss per share |  | $    | (0.49       | )    |  | $ | (0.31       | )
|Add back goodwill amortization            |  |      | 0.01        |      |  |   | 0.01        |  
|Add back workforce amortization           |  |      | 0.01        |      |  |   | 0.02        |  
|                                          |  |      |             |      |  |   |             |  
|Adjusted basic and diluted loss per share |  | $    | (0.47       | )    |  | $ | (0.28       | )
|                                          |  |      |             |      |  |   |             |  

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(7) ACCRUED EXPENSES

Accrued expenses consist of the following as of December 31, 2002 and
2001:

|                                         |  |      |           |      |  |   |           | 
|---------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                         |  | 2002 |           | 2001
|                                         |  |      |           |     
|Payroll and related accruals             |  | $    | 923,896   |      |  | $ | 1,216,440 | 
|Deferred rent and related concessions    |  |      | 770,205   |      |  |   |          | 
|Data and exchange fees                   |  |      | 768,000   |      |  |   | 617,000   | 
|Uninsured loss reserves                  |  |      | 750,000   |      |  |   | 550,000   | 
|Estimated loss on sublease of facilities |  |      | 732,839   |      |  |   | 380,000   | 
|Consulting and professional fees         |  |      | 607,740   |      |  |   | 620,751   | 
|Returns                                  |  |      | 108,377   |      |  |   | 546,000   | 
|Other                                    |  |      | 2,233,559 |      |  |   | 2,430,183 | 
|                                         |  |      |           |      |  |   |           | 
|                                         |  | $    | 6,894,616 |      |  | $ | 6,360,374 | 
|                                         |  |      |           |      |  |   |           | 

Other includes clearing deposits, customer credits, event termination
fees, deferred revenues, commissions to third parties, and other accrued
expenses and reserves, none of which individually exceeds 5% of total
liabilities.

(8) CAPITAL LEASE OBLIGATIONS

The Company has various capital leases for computer equipment, which are
used primarily at the Companys data server farms, and office furniture and
equipment. The leases were capitalized at interest rates ranging from 6.0% to
13.3% and are paid monthly over periods ranging from 12 to 36 months.

The following is a schedule by years of future minimum lease payments
under capital leases together with the present value of the net minimum lease
obligations as of December 31, 2002:

|                                                                         |                                             |   |           |           | 
|------------------------------------------------------------------------ | ------------------------------------------- | - | --------- | --------- | 
|2003                                                                     |                                             | $ | 1,326,109 |          
|2004                                                                     |                                             |   | 205,357   |          
|2005                                                                     |                                             |   | 8,213     |          
|                                                                         |                                             |   |           |          
|                                                                         | Total payments                              |   |           | 1,539,679 | 
|Less amount representing estimated executory costs (primarily sales tax) |                                             |   | (78,446   | )        
|                                                                         |                                             |   |           |          
|                                                                         | Net minimum lease payments                  |   |           | 1,461,233 | 
|Less amount representing interest                                        |                                             |   | (78,969   | )        
|                                                                         |                                             |   |           |          
|                                                                         | Present value of net minimum lease payments |   | $         | 1,382,264 | 
|                                                                         |                                             |   |           |          

The following is an analysis of the leased property under capital leases
by major classes as of December 31, 2002 and 2001:

|                         |  |                  |     |      |  |      |            |   |  |   |           |  
|------------------------ |  | ---------------- | --- | ---- |  | ---- | ---------- | - |  | - | --------- | -
|                         |  | Estimated Useful |     |      |  |      |            |   |  |  
|                         |  | Life In Years    |     | 2002 |  | 2001
|                         |  |                  |     |      |  |     
|Computers and software   |  |                  | 1-5 |      |  | $    | 2,503,965  |   |  | $ | 1,644,353 |  
|Furniture and equipment  |  |                  | 3-7 |      |  |      | 742,481    |   |  |   | 250,515   |  
|                         |  |                  |     |      |  |      |            |   |  |   |           |  
|                         |  |                  |     |      |  |      | 3,246,446  |   |  |   | 1,894,868 |  
|Accumulated depreciation |  |                  |     |      |  |      | (1,198,491 | ) |  |   | (331,680  | )
|                         |  |                  |     |      |  |      |            |   |  |   |           |  
|                         |  |                  |     |      |  | $    | 2,047,955  |   |  | $ | 1,563,188 |  
|                         |  |                  |     |      |  |      |            |   |  |   |           |  

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(9) SHAREHOLDERS EQUITY

Preferred Stock

The Company has authorized 25 million shares of preferred stock with a par
value of $.01 per share. No specific preferences or rights have been
established to date with respect to any of these shares, nor have any of these
shares been issued.

Common Stock

The Company has authorized 200 million shares of common stock with a par
value of $.01 per share. As of December 31, 2002 and 2001, 39,588,881 and
44,547,316 shares were issued and outstanding, respectively. See Note
2 
COMMON STOCK REPURCHASES AND RETIREMENT.

Warrants

In connection with TradeStation Securities initial public offering,
warrants to purchase up to 225,000 shares of TradeStation Securities common
stock, at an exercise price of $11.55, were granted to the underwriters, with
an expiration date of June 11, 2004. TradeStation Group assumed such warrants
in connection with the merger and, based on the 1.7172 to 1 merger conversion
ratio, the underwriters may purchase up to 386,370 shares of the Companys
common stock at an exercise price of $6.73.

Stock Option Plans

The Company has reserved 7,500,000 shares of its common stock for issuance
under the TradeStation Group Incentive Stock Plan (the Incentive Stock Plan).
Under the Incentive Stock Plan, incentive and nonqualified stock options, stock
appreciation rights, stock awards, performance shares and performance units are
available to employees or consultants. Currently, only stock options have been
granted. The terms of each option agreement are determined by the Compensation
Committee of the Board of Directors. The exercise price of incentive stock
options may not be less than fair value at the date of grant and their terms
may not exceed ten years.

In connection with the merger, as discussed in Note 3  BUSINESS
COMBINATIONS, TradeStation Group assumed the outstanding options under
TradeStation Securities 1999 Stock Option Plan. Each option issued under
TradeStation Securities plan was assumed and converted to 1.7172 options to
purchase TradeStation Groups common stock at the original exercise price
divided by 1.7172.

As part of the 1999 acquisition of Window on WallStreet, TradeStation
Group assumed all outstanding stock options to purchase Window On WallStreet
common stock (WOW Options). The WOW Options generally vest ratably over a
four-year period and their terms are ten years.

The Company has reserved 350,000 shares of its common stock for issuance
under the TradeStation Group Amended and Restated Nonemployee Director Stock
Option Plan (the Director Plan). Under the Director Plan, an independent
director is awarded an initial grant of

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up to 75,000 non-qualified stock options and annual grants of up to 7,000
non-qualified stock options. The terms of each option grant are determined by
the Board of Directors.

A summary of all stock option activity is as follows:

|                               |  |           |            |     |  |                        |      |          |  |   |       |  |  |   |      | 
|------------------------------ |  | --------- | ---------- | --- |  | ---------------------- | ---- | -------- |  | - | ----- |  |  | - | ---- | 
|                               |  |           |            |     |  | Option Price Per Share
|                               |  | Number    |            |    
|                               |  | of Shares |            | Low |  | High                   |      | Weighted
|                               |  |           |            |     |  |                        |      |         
|Outstanding, December 31, 1999 |  |           | 4,643,902  |     |  | $                      | .48  |          |  | $ | 11.00 |  |  | $ | 3.80 | 
|Granted                        |  |           | 1,118,515  |     |  |                        | 1.72 |          |  |   | 6.63  |  |  |   | 4.84 | 
|Canceled                       |  |           | (651,468   | )   |  |                        | 1.66 |          |  |   | 11.00 |  |  |   | 5.03 | 
|Exercised                      |  |           | (120,561   | )   |  |                        | 1.66 |          |  |   | 11.00 |  |  |   | 2.68 | 
|                               |  |           |            |     |  |                        |      |          |  |   |       |  |  |   |      | 
|Outstanding, December 31, 2000 |  |           | 4,990,388  |     |  |                        | .48  |          |  |   | 11.00 |  |  |   | 3.90 | 
|Granted                        |  |           | 1,327,690  |     |  |                        | 1.88 |          |  |   | 4.08  |  |  |   | 2.24 | 
|Canceled                       |  |           | (553,067   | )   |  |                        | 1.66 |          |  |   | 11.00 |  |  |   | 4.26 | 
|Exercised                      |  |           | (20,345    | )   |  |                        | 1.25 |          |  |   | 2.88  |  |  |   | 1.66 | 
|                               |  |           |            |     |  |                        |      |          |  |   |       |  |  |   |      | 
|Outstanding, December 31, 2001 |  |           | 5,744,666  |     |  |                        | .48  |          |  |   | 11.00 |  |  |   | 3.49 | 
|Granted                        |  |           | 1,909,287  |     |  |                        | 1.12 |          |  |   | 1.47  |  |  |   | 1.43 | 
|Canceled                       |  |           | (1,062,495 | )   |  |                        | 1.25 |          |  |   | 11.00 |  |  |   | 3.36 | 
|                               |  |           |            |     |  |                        |      |          |  |   |       |  |  |   |      | 
|Outstanding, December 31, 2002 |  |           | 6,591,458  |     |  |                        | .48  |          |  |   | 11.00 |  |  |   | 2.92 | 
|                               |  |           |            |     |  |                        |      |          |  |   |       |  |  |   |      | 

Additional information regarding options outstanding at December 31, 2002 is as follows:

|         |       |             |   |             |  |               |  |                     |  |                     |  |       |  |  |   |       |  |  |  |           |  |  |   |       |  | 
|-------- | ----- | ----------- | - | ----------- |  | ------------- |  | ------------------- |  | ------------------- |  | ----- |  |  | - | ----- |  |  |  | --------- |  |  | - | ----- |  | 
|         |       |             |   |             |  |               |  | Options Outstanding |  | Options Exercisable
|Range of |       |             |   |            
|Exercise |       | Number      |   | Weighted    |  | Weighted      |  | Number              |  | Weighted           
|Prices   |       | Outstanding |   | Average     |  | Average       |  | Exercisable         |  | Average            
|         |       | As of       |   | Contractual |  | Exercise      |  | As of               |  | Exercise           
|Low      |       | High        |   | 12/31/02    |  | Life in Years |  | Price               |  | 12/31/02            |  | Price
|         |       |             |   |             |  |               |  |                     |  |                     |  |      
|         | $.48  |             | $ | .48         |  |               |  | 81,940              |  |                     |  | 2.9   |  |  | $ | .48   |  |  |  | 81,940    |  |  | $ | .48   | 
|         | 1.12  |             |   | 1.66        |  |               |  | 2,947,398           |  |                     |  | 7.6   |  |  |   | 1.45  |  |  |  | 1,073,808 |  |  |   | 1.47  | 
|         | 1.72  |             |   | 2.50        |  |               |  | 945,709             |  |                     |  | 7.8   |  |  |   | 2.13  |  |  |  | 236,956   |  |  |   | 2.12  | 
|         | 2.59  |             |   | 3.88        |  |               |  | 1,049,938           |  |                     |  | 6.0   |  |  |   | 2.97  |  |  |  | 669,324   |  |  |   | 2.99  | 
|         | 4.00  |             |   | 5.97        |  |               |  | 686,356             |  |                     |  | 6.2   |  |  |   | 4.55  |  |  |  | 456,654   |  |  |   | 4.59  | 
|         | 6.03  |             |   | 8.57        |  |               |  | 822,292             |  |                     |  | 6.5   |  |  |   | 7.34  |  |  |  | 486,156   |  |  |   | 7.50  | 
|         | 10.25 |             |   | 11.00       |  |               |  | 57,825              |  |                     |  | 5.5   |  |  |   | 10.61 |  |  |  | 45,825    |  |  |   | 10.71 | 
|         |       |             |   |             |  |               |  |                     |  |                     |  |       |  |  |   |       |  |  |  |           |  |  |   |      
|         | .48   |             |   | 11.00       |  |               |  | 6,591,458           |  |                     |  | 7.0   |  |  |   | 2.92  |  |  |  | 3,050,663 |  |  |   | 3.40  | 
|         |       |             |   |             |  |               |  |                     |  |                     |  |       |  |  |   |       |  |  |  |           |  |  |   |      

At December 31, 2002, there were approximately 1.3 million shares
available for future grants under the Incentive Stock Plan, and 179,000 shares
available for future grants under the Director Plan.

Employee Stock Purchase Plan

The Company has reserved 500,000 shares of common stock for issuance under
the TradeStation Group Employee Stock Purchase Plan (the Purchase Plan).
Under the Purchase Plan, participating employees may purchase common stock
through accumulated payroll deductions. The exercise price for the options for
each six-month Purchase Plan period is 85% of the lower of the fair market
value of the Companys common stock on the first and last business day of the
Purchase Plan period. During the years ended December 31, 2002, 2001 and 2000,
41,565, 50,470 and 30,209 shares of common stock were issued under the plan at
an

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average price of $1.03, $1.49 and $2.07, respectively. At December 31, 2002,
there were approximately 342,000 shares available for future grants under the
Purchase Plan.

(10) EMPLOYEE BENEFIT PLANS

The Company provides retirement benefits through a defined contribution
401(k) plan (the 401(k) Plan) established during 1994. All employees with at
least three months of continuous service are eligible to participate and may
contribute up to 60% of their compensation up to the annual limit set by the
Internal Revenue Service. Employer matching contributions are discretionary,
as defined in the 401(k) Plan, and are vested 20% for each year of service.
Matching contributions accrued under this plan were approximately $265,000 for
the year ended December 31, 2002. There were no matching contributions paid or
accrued in 2001 or 2000.

From January 2000 through June 2001, eligible TradeStation Securities
employees could contribute up to 15% of their eligible salary into a defined
contribution 401(k) plan (the Old Plan). TradeStation Securities would match
50 percent of such contributions, up to $2,500. Matching contributions made
under this plan were approximately $57,000 and $92,000 for the years ended
December 31, 2001 and 2000, respectively. Effective July 1, 2001, the assets
of the Old Plan were transferred to the 401(k) Plan.

(11) COMPREHENSIVE INCOME (LOSS)

A reconciliation of net income (loss) to comprehensive income (loss) is as
follows:

|                                                           |  |      |           |      |  |      |             |   |  |   |             |  
|---------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | ----------- | - |  | - | ----------- | -
|                                                           |  | 2002 |           | 2001 |  | 2000
|                                                           |  |      |           |      |  |     
|Net income (loss)                                          |  | $    | 1,764,151 |      |  | $    | (21,904,864 | ) |  | $ | (13,475,010 | )
|Unrealized holding losses on
available-for-sale securities |  |      | (35,400   | )    |  |      |            |   |  |   |            |  
|                                                           |  |      |           |      |  |      |             |   |  |   |             |  
|Comprehensive income (loss)                                |  | $    | 1,728,751 |      |  | $    | (21,904,864 | ) |  | $ | (13,475,010 | )
|                                                           |  |      |           |      |  |      |             |   |  |   |             |  

(12) EARNINGS (LOSS) PER SHARE

Weighted average shares outstanding for the years ended December 31, 2002,
2001 and 2000 are calculated as follows:

|                                                                          |  |      |            |      |  |      |            |  |  |  |            | 
|------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  |  | ---------- | 
|                                                                          |  | 2002 |            | 2001 |  | 2000
|                                                                          |  |      |            |      |  |     
|Weighted average shares outstanding (basic)                               |  |      | 43,328,103 |      |  |      | 44,458,689 |  |  |  | 43,955,819 | 
|Impact of dilutive stock options after
applying the treasury stock method |  |      | 58,147     |      |  |      |           |  |  |  |           | 
|                                                                          |  |      |            |      |  |      |            |  |  |  |            | 
|Weighted average shares outstanding (diluted)                             |  |      | 43,386,250 |      |  |      | 44,458,689 |  |  |  | 43,955,819 | 
|                                                                          |  |      |            |      |  |      |            |  |  |  |            | 

Stock options and warrants outstanding for the years ended December 31,
2002, 2001 and 2000, which were not included in the calculation of diluted loss
per share because their impact was antidilutive are as follows:

|              |  |      |           |      |  |      |           |  |  |  |           | 
|------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|              |  | 2002 |           | 2001 |  | 2000
|              |  |      |           |      |  |     
|Stock options |  |      | 6,011,768 |      |  |      | 5,744,666 |  |  |  | 4,990,388 | 
|              |  |      |           |      |  |      |           |  |  |  |           | 
|Warrants      |  |      | 386,370   |      |  |      | 386,370   |  |  |  | 386,370   | 
|              |  |      |           |      |  |      |           |  |  |  |           | 

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During the year ended December 31, 2002, the Company purchased and retired
5,000,000 shares. These shares are weighted for the portion of the year for
which they were outstanding. See Note 2  COMMON STOCK REPURCHASES AND
RETIREMENT.

(13) INCOME TAXES

The components of income tax provision (benefit) for the years ended
December 31, 2002, 2001, and 2000 are as follows:

|                                 |         |                                       |   |       |       |      |   |           |           |   |   |            |            |  
|-------------------------------- | ------- | ------------------------------------- | - | ----- | ----- | ---- | - | --------- | --------- | - | - | ---------- | ---------- | -
|                                 |         |                                       |   | 2002  |       | 2001 |   | 2000     
|                                 |         |                                       |   |       |       |      |   |          
|Current tax provision (benefit): |         |                                       |   |       |       |      |   |           |           |   |   |           
|                                 | Federal |                                       | $ |      |       |      | $ | (100,312  | )         |   | $ | (8,111,780 | )         
|                                 | State   |                                       |   | 3,605 |       |      |   | (37,207   | )         |   |   | (1,191,710 | )         
|                                 |         |                                       |   |       |       |      |   |           |           |   |   |           
|                                 |         | Total current tax provision (benefit) |   |       | 3,605 |      |   |           | (137,519  | ) |   |            | (9,303,490 | )
|                                 |         |                                       |   |       |       |      |   |           |           |   |   |           
|                                 |         |                                       |   |       |       |      |   |           |           |   |   |           
|Deferred tax provision:          |         |                                       |   |       |       |      |   |           |           |   |   |           
|                                 | Federal |                                       |   |      |       |      |   | 4,230,651 |           |   |   | 9,273,800  |           
|                                 | State   |                                       |   |      |       |      |   | 575,000   |           |   |   | 1,432,400  |           
|                                 |         |                                       |   |       |       |      |   |           |           |   |   |           
|                                 |         | Total deferred tax provision          |   |       |      |      |   |           | 4,805,651 |   |   |            | 10,706,200 |  
|                                 |         |                                       |   |       |       |      |   |           |           |   |   |           
|                                 |         | Total income tax provision            |   | $     | 3,605 |      |   | $         | 4,668,132 |   |   | $          | 1,402,710  |  
|                                 |         |                                       |   |       |       |      |   |           |           |   |   |           

Deferred income taxes are recorded when revenues and expenses are
recognized in different periods for financial and income tax reporting
purposes. The temporary differences that created deferred income taxes are as
follows:

|                            |                                          |   |            |             |      |   |            |             |  
|--------------------------- | ---------------------------------------- | - | ---------- | ----------- | ---- | - | ---------- | ----------- | -
|                            |                                          |   | 2002       |             | 2001
|                            |                                          |   |            |             |     
|Deferred income tax assets: |                                          |   |            |             |      |   |            |            
|                            | Net operating loss carryforwards         |   | $          | 8,702,107   |      |   | $          | 6,483,217   |  
|                            | Deferred revenue and accrued liabilities |   |            | 852,119     |      |   |            | 2,182,670   |  
|                            | Tax credits                              |   |            | 727,603     |      |   |            | 334,841     |  
|                            | Stock option expense                     |   |            | 238,358     |      |   |            | 238,358     |  
|                            | Property and equipment depreciation      |   |            | 96,439      |      |   |            | 126,665     |  
|                            | Difference in revenue recognition        |   |            | 89,509      |      |   |            | 2,441,786   |  
|                            | Reserves and allowances                  |   |            | 33,714      |      |   |            | 59,985      |  
|                            | Intangible asset amortization            |   |            | 12,365      |      |   |            | 710,351     |  
|                            |                                          |   |            |             |      |   |            |            
|                            |                                          |   | 10,752,214 |             |      |   | 12,577,873 |            
|                            | Valuation allowance                      |   |            | (10,752,214 | )    |   |            | (12,577,873 | )
|                            |                                          |   |            |             |      |   |            |            
|                            |                                          | $ |           |             |      | $ |           |            
|                            |                                          |   |            |             |      |   |            |            

The change in the valuation allowance in 2002 includes a decrease of
approximately $952,000 relating to adjustments made to the deferred income tax
assets and valuation allowance in connection with the filing of the 2001 income
tax return.

During the fourth quarter of 2001, in accordance with the requirements of
SFAS No. 109, the Company recorded a $4.8 million non-cash charge establishing
a full valuation allowance against its deferred income tax assets. The Company
has continued to apply a full valuation allowance against its deferred income
tax assets in 2002.

The Company has available net operating loss carryforwards and tax credit
carryforwards for federal tax purposes estimated at $22.8 million and $728,000,
respectively, which expire

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between 2010 and 2022. For state tax purposes, the available net operating
loss carryforwards are estimated at $26.4 million. Included in these amounts
are net operating loss carryforwards and tax credit carryforwards totaling
approximately $6.3 million and $124,000, respectively, through TradeStation
Technologies acquisition of Window On WallStreet. The utilization of the
Window On WallStreet net operating losses will be subject to limitations of
approximately $617,000 per year, which are cumulative to the extent not
utilized. The deferred income tax asset related to all of these carryforwards
has been reduced to zero by a full valuation allowance.

A reconciliation of the difference between the expected provision
(benefit) for income taxes using the statutory federal tax rate of 34% and the
Companys actual provision is as follows:

|                                                                   |                            |   |          |       |      |   |            |           |  |   |            |           | 
|------------------------------------------------------------------ | -------------------------- | - | -------- | ----- | ---- | - | ---------- | --------- |  | - | ---------- | --------- | 
|                                                                   |                            |   | 2002     |       | 2001 |   | 2000      
|                                                                   |                            |   |          |       |      |   |           
|Income tax provision (benefit) using
statutory federal tax rate    |                            | $ | 601,037  |       |      | $ | (5,860,489 | )         |  | $ | (4,104,582 | )        
|Change in valuation allowance                                      |                            |   | (873,546 | )     |      |   | 7,329,373  |           |  |   | 2,479,500  |          
|Nondeductible amortization of goodwill and
other intangible assets |                            |   | 249,129  |       |      |   | 1,784,270  |           |  |   | 1,818,971  |          
|Nondeductible impairment of goodwill and
other intangible assets   |                            |   |         |       |      |   | 1,442,319  |           |  |   |           |          
|Nondeductible merger expenses                                      |                            |   |         |       |      |   |           |           |  |   | 1,292,000  |          
|Other                                                              |                            |   | 26,985   |       |      |   | (27,341    | )         |  |   | (83,179    | )        
|                                                                   |                            |   |          |       |      |   |            |           |  |   |            |          
|                                                                   | Total income tax provision |   | $        | 3,605 |      |   | $          | 4,668,132 |  |   | $          | 1,402,710 | 
|                                                                   |                            |   |          |       |      |   |            |           |  |   |            |          

(14) NET CAPITAL REQUIREMENTS

TradeStation Securities is subject to the Securities and Exchange
Commission uniform net capital rule (Rule 15c3-1), which requires the
maintenance of minimal net capital and requires that the ratio of aggregate
indebtedness to net capital, both as defined, shall not exceed 15 to 1. As of
December 31, 2002, TradeStation Securities had net capital of $8.3 million,
which was $8.0 million in excess of its required net capital of $273,000, and a
ratio of aggregate indebtedness to net capital of .49 to 1. As of December 31,
2001, TradeStation Securities had net capital of $11.9 million, which was $11.7
million in excess of its required net capital of $250,000, and a ratio of
aggregate indebtedness to net capital of .28 to 1.

(15) CONCENTRATIONS AND CREDIT RISKS

Financial Instruments With Off-Balance-Sheet Risk

TradeStation Securities customer securities and futures activities are
transacted on either a cash or margin basis. In margin transactions,
TradeStation Securities may be obligated for credit extended to its customers
by the Clearing Firms, subject to various regulatory and Clearing Firm margin
requirements, collateralized by cash and securities in the customers accounts.
In connection with these activities, TradeStation Securities executes customer
transactions involving the sale of securities not yet purchased, substantially
all of which are transacted on a margin basis subject to individual exchange
regulations. Such transactions may expose TradeStation Securities to
significant off-balance-sheet risk in the event margin requirements are not
sufficient to fully cover losses that customers may incur. In the event the
customer fails to satisfy its obligations, TradeStation Securities may be
required to purchase or sell financial instruments at prevailing market prices
to fulfill the customers obligations.

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TradeStation Securities seeks to control the risks associated with its
customer activities by requiring customers to maintain margin collateral in
compliance with its Clearing Firms requirements as well as various regulatory
requirements. TradeStation Securities and its Clearing Firms monitor required
margin levels daily and, pursuant to such guidelines, require the customers to
deposit additional collateral or to reduce positions when necessary.

TradeStation Securities customer financing and securities settlement
activities require TradeStation Securities Clearing Firms to pledge customer
securities as collateral in support of various secured financing sources such
as bank loans and securities loaned. In the event the counterparty is unable
to meet its contractual obligation to return customer securities pledged as
collateral, TradeStation Securities may be exposed to the risk of acquiring the
securities at prevailing market prices in order to satisfy its customers
obligations. TradeStation Securities controls this risk by monitoring the
market value of securities pledged on a daily basis and by requiring
adjustments of collateral levels in the event of excess market exposure. In
addition, TradeStation Securities establishes credit limits for such activities
and monitors compliance on a daily basis.

Concentrations of Credit Risk

TradeStation Securities is engaged in various trading and brokerage
activities with counterparties, primarily broker-dealers, banks, and other
financial institutions. In the event counterparties do not fulfill their
obligations, TradeStation Securities may be exposed to risk. The risk of
default depends on the creditworthiness of the counterparty or issuer of the
instrument. It is TradeStation Securities policy to review, as necessary, the
credit standing of each counterparty.

(16) COMMITMENTS AND CONTINGENCIES

Restricted Cash

As of December 31, 2002, the Company has $3.4 million of restricted cash
which is broken down as follows: (i) $2.4 million of cash supporting a ten-year
lease agreement; (ii) $488,000 of cash securing a letter of credit, which
secures equipment leases; (iii) $350,000 of cash reserved for the benefit of
certain customers; and (iv) $200,000 of cash securing a credit card clearing
agreement.

Insurance Claim

In June 2001, the Company made a claim of $2.7 million with its insurance
carrier relating to a trading error made with respect to a clients account.
In December 2001, the insurance company denied this claim and, accordingly, the
receivable recorded in the consolidated balance sheet was fully reserved as of
December 31, 2001. On July 25, 2002, the Company entered into an agreement to
settle this claim for $1.25 million, payment of which was received in August
2002.

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Operating Leases

The Company has a ten-year lease (with two 5-year renewal options) that
commenced in the summer of 2002 for an approximately 70,000 square foot
corporate headquarters in Plantation, Florida. In addition to this lease, the
Company has six non-cancelable operating leases for facilities (including 2
data centers) with expirations ranging from November 2003 through July 2007.
In addition to the leases for facilities, the Company leases certain office
equipment and furniture. Future minimum lease payments as of December 31, 2002
under all operating leases are as follows:

|           |  |          |            |          |  |          |          |   |  |   |            | 
|---------- |  | -------- | ---------- | -------- |  | -------- | -------- | - |  | - | ---------- | 
|           |  | Gross    |            | Sublease |  | Net     
|           |  | Payments |            | Rentals  |  | Payments
|           |  |          |            |          |  |         
|2003       |  | $        | 3,044,334  |          |  | $        | (65,860  | ) |  | $ | 2,978,474  | 
|2004       |  |          | 2,723,539  |          |  |          | (68,511  | ) |  |   | 2,655,028  | 
|2005       |  |          | 2,376,217  |          |  |          | (71,260  | ) |  |   | 2,304,957  | 
|2006       |  |          | 2,275,145  |          |  |          | (74,109  | ) |  |   | 2,201,036  | 
|2007       |  |          | 1,936,588  |          |  |          | (12,614  | ) |  |   | 1,923,974  | 
|Thereafter |  |          | 8,848,498  |          |  |          |         |   |  |   | 8,848,498  | 
|           |  |          |            |          |  |          |          |   |  |   |            | 
|           |  | $        | 21,204,321 |          |  | $        | (292,354 | ) |  | $ | 20,911,967 | 
|           |  |          |            |          |  |          |          |   |  |   |            | 

Total rent expense for 2002, 2001 and 2000 was approximately $3.6 million,
$4.5 million and $3.6 million, net of sublease rentals, respectively. In
addition, beginning in 2001 and continuing in 2002, the Company recorded a
charge for future rental payments related to facilities, net of subleases,
which the Company no longer occupies.

Data Services Provider Agreement

The Company has an agreement with its data services provider that may
require the payment of a termination fee of $600,000 if terminated prior to
December 31, 2004. The Companys position is that events have transpired which
have removed any termination fee obligation, and has notified the data services
provider of that position. The data services vendor did not respond to that
notification. No minimum obligation exists under the agreement.

Telerate Royalty Agreement

The Company was party to a Software License, Maintenance and Development
Agreement (the Agreement) with Telerate, Inc., a subsidiary of Bridge
Information Systems, Inc. (Telerate). Under the Agreement, the Company
modified one of its software products to create a Telerate version and granted
Telerate a license to promote, market, sublicense and distribute the Telerate
version for six years. During 2000, the Company earned approximately $6.0
million in royalties (based upon minimum royalty requirements) under the terms
of this Agreement. The minimum royalty requirement for 2001 was $8.0 million.
However in February 2001, Telerate and its parent company filed a Chapter 11
reorganization proceeding under the federal bankruptcy code. In October 2001,
the assets of Telerate were sold to MoneyLine Network, Inc. Effective October
17, 2001, the Company entered into a new royalty agreement with MoneyLine that
expired December 31, 2002, under which the guaranteed royalty minimums for the
2001 fourth quarter were $230,000 per month (as compared to the $666,667 per
month minimum payments under the Telerate agreement that was rejected in the
bankruptcy). Accordingly, only $6.7 million in royalties were recorded in 2001
(however, see Litigation and Claimsbelow). Of this amount, approximately
$714,000 was considered part of the pre-petition estate in

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Telerates Chapter 11 bankruptcy, and was not paid as a result of the rejection
of the Agreement in those bankruptcy proceedings. A $714,000 provision for bad
debts was recognized in the first quarter of 2001. There were no guaranteed
royalty minimums in 2002.

Litigation and Claims

In October 2002, the Company received information about alleged fraudulent
conduct by an executive of a company that referred individual accounts (the
Referral Company) to TradeStation Securities. The executive of the Referral
Company was authorized to trade on behalf of such individuals (the Referred
Account Holders) and allegedly issued fraudulent account statements to them.
The Referred Account Holders incurred several million dollars of trading
losses, in the aggregate, during the time the executive of the Referral Company
traded on their behalves. On February 2, 2003, the Referral Company
communicated to TradeStation Securities in writing that it believes
TradeStation Securities shares responsibility for some or all of the alleged
losses incurred by the Referred Account Holders and/or the Referral Company and
wishes to make an amicable settlement. The Referral Company further stated
that if an amicable settlement is not reached it intends to initiate legal
action of some kind against TradeStation Securities in the United States. The
Company believes the Referral Companys claims are without merit and, to date,
no legal action has been commenced against the Company by any of the Referred
Account Holders or the Referral Company.

In January 2003, the bankruptcy estate of Bridge Information Systems
demanded that the Company return payments made to the Company by Telerate in
December 2000 and January 2001 totaling approximately $1.0 million, claiming
such payments were preferential under the Bankruptcy Code. The Company has
refused the demands on various grounds, and believes the demands are without
merit.

The Company is also engaged in routine litigation or other dispute
resolution proceedings, such as arbitration, incidental to, and part of the
ordinary course of, its business (two arbitrations are currently pending, one
claiming $250,000 in actual damages and $250,000 in punitive damages, and one
claiming $560,000 in damages).

The Company does not believe that the ultimate outcome of any of the above
legal matters or claims will result in a material adverse effect on its
consolidated financial position, results of operations or cash flows.

The Company decided, as of June 1, 2002, to no longer carry errors or
omissions insurance that covers third-party claims made by brokerage clients or
software subscribers as a result of alleged human or system errors, failures,
acts or omissions. This decision was made based upon the Companys assessment
of the potential risks and benefits, including significant increases in premium
rates, deductibles and coinsurance amounts, reductions in available per
occurrence and aggregate coverage amounts, and the unavailability of policies
that sufficiently cover the types of risks that relate to the Companys
business.

(17) SEGMENT AND RELATED INFORMATION

For the three years in the period ended December 31, 2002, TradeStation
Group operated in two principal business segments: (i) brokerage services and
(ii) software products and services. The Company evaluates the performance of
its segments based on revenue and operating

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##### Table of Contents



income. The brokerage services segment represents the operations of
TradeStation Securities and the software products and services segment
represents the operations of TradeStation Technologies.

|                               |                                |   |                                           |            |      |   |             |             |   |   |             |             |  
|------------------------------ | ------------------------------ | - | ----------------------------------------- | ---------- | ---- | - | ----------- | ----------- | - | - | ----------- | ----------- | -
|                               |                                |   | As of or for the Years Ended December 31,
|                               |                                |   |                                          
|                               |                                |   | 2002                                      |            | 2001 |   | 2000       
|                               |                                |   |                                           |            |      |   |            
|Revenues:                      |                                |   |                                           |            |      |   |             |             |   |   |             |            
|                               | Brokerage services             |   | $                                         | 38,493,673 |      |   | $           | 18,601,627  |   |   | $           | 17,933,750  |  
|                               | Software products and services |   |                                           | 19,610,988 |      |   |             | 22,385,516  |   |   |             | 34,991,983  |  
|                               | Eliminations                   |   |                                           | (9,713,550 | )    |   |             |            |   |   |             |            |  
|                               |                                |   |                                           |            |      |   |             |             |   |   |             |            
|                               |                                | $ | 48,391,111                                |            |      | $ | 40,987,143  |             |   | $ | 52,925,733  |            
|                               |                                |   |                                           |            |      |   |             |             |   |   |             |            
|(Loss) income from operations: |                                |   |                                           |            |      |   |             |             |   |   |             |            
|                               | Brokerage services             |   | $                                         | (26,014    | )    |   | $           | (703,128    | ) |   | $           | 1,152,588   |  
|                               | Software products and services |   |                                           | 1,366,707  |      |   |             | (17,132,312 | ) |   |             | (14,517,520 | )
|                               |                                |   |                                           |            |      |   |             |             |   |   |             |            
|                               |                                | $ | 1,340,693                                 |            |      | $ | (17,835,440 | )           |   | $ | (13,364,932 | )          
|                               |                                |   |                                           |            |      |   |             |             |   |   |             |            
|Identifiable assets:           |                                |   |                                           |            |      |   |             |             |   |   |             |            
|                               | Brokerage services             |   | $                                         | 14,585,643 |      |   | $           | 20,144,278  |   |   | $           | 22,461,748  |  
|                               | Software products and services |   |                                           | 8,032,151  |      |   |             | 6,676,725   |   |   |             | 27,892,400  |  
|                               |                                |   |                                           |            |      |   |             |             |   |   |             |            
|                               |                                | $ | 22,617,794                                |            |      | $ | 26,821,003  |             |   | $ | 50,354,148  |            
|                               |                                |   |                                           |            |      |   |             |             |   |   |             |            
|Depreciation and amortization: |                                |   |                                           |            |      |   |             |             |   |   |             |            
|                               | Brokerage services             |   | $                                         | 423,383    |      |   | $           | 815,356     |   |   | $           | 693,176     |  
|                               | Software products and services |   |                                           | 2,430,809  |      |   |             | 6,957,579   |   |   |             | 6,821,229   |  
|                               |                                |   |                                           |            |      |   |             |             |   |   |             |            
|                               |                                | $ | 2,854,192                                 |            |      | $ | 7,772,935   |             |   | $ | 7,514,405   |            
|                               |                                |   |                                           |            |      |   |             |             |   |   |             |            
|Capital expenditures:          |                                |   |                                           |            |      |   |             |             |   |   |             |            
|                               | Brokerage services             |   | $                                         | 188,877    |      |   | $           | 17,952      |   |   | $           | 290,240     |  
|                               | Software products and services |   |                                           | 1,546,711  |      |   |             | 527,836     |   |   |             | 749,125     |  
|                               |                                |   |                                           |            |      |   |             |             |   |   |             |            
|                               |                                | $ | 1,735,588                                 |            |      | $ | 545,788     |             |   | $ | 1,039,365   |            
|                               |                                |   |                                           |            |      |   |             |             |   |   |             |            

(18) UNAUDITED QUARTERLY FINANCIAL INFORMATION

The following tables summarize selected unaudited quarterly financial data
for the years ended December 31, 2002 and 2001.

|                                     |                   |   |            |            |         |   |            |            |         |   |            |            |  |   |            |            |  |   |            |            | 
|------------------------------------ | ----------------- | - | ---------- | ---------- | ------- | - | ---------- | ---------- | ------- | - | ---------- | ---------- |  | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                     |                   |   | 2002      
|                                     |                   |   |           
|                                     |                   |   | First      |            | Second  |   | Third      |            | Fourth  |   | Full      
|                                     |                   |   | Quarter    |            | Quarter |   | Quarter    |            | Quarter |   | Year      
|                                     |                   |   |            |            |         |   |            |            |         |   |           
|Revenues                             |                   | $ | 9,679,188  |            |         | $ | 12,222,789 |            |         | $ | 13,101,512 |            |  | $ | 13,387,622 |            |  | $ | 48,391,111 |           
|(Loss) income from
operations        |                   |   | (2,239,019 | )          |         |   | (19,477    | )          |         |   | 1,739,230  |            |  |   | 1,859,959  |            |  |   | 1,340,693  |           
|Net (loss) income                    |                   |   | (2,251,802 | )          |         |   | 341,278    |            |         |   | 1,794,526  |            |  |   | 1,880,149  |            |  |   | 1,764,151  |           
|(Loss) earnings per share:           |                   |   |            |            |         |   |            |            |         |   |            |            |  |   |            |            |  |   |            |           
|                                     | Basic and diluted |   |            | (0.05      | )       |   |            | 0.01       |         |   |            | 0.04       |  |   |            | 0.05       |  |   |            | 0.04       | 
|Weighted average shares
outstanding: |                   |   |            |            |         |   |            |            |         |   |            |            |  |   |            |            |  |   |            |           
|                                     | Basic             |   |            | 44,547,816 |         |   |            | 44,547,816 |         |   |            | 43,698,342 |  |   |            | 40,623,764 |  |   |            | 43,328,103 | 
|                                     | Diluted           |   |            | 44,547,816 |         |   |            | 44,600,584 |         |   |            | 43,791,189 |  |   |            | 40,710,736 |  |   |            | 43,386,250 | 

F-28



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|                                     |                   |   |            |            |         |   |            |            |         |   |            |            |   |   |             |            |   |   |             |            |  
|------------------------------------ | ----------------- | - | ---------- | ---------- | ------- | - | ---------- | ---------- | ------- | - | ---------- | ---------- | - | - | ----------- | ---------- | - | - | ----------- | ---------- | -
|                                     |                   |   | 2001      
|                                     |                   |   |           
|                                     |                   |   | First      |            | Second  |   | Third      |            | Fourth  |   | Full      
|                                     |                   |   | Quarter    |            | Quarter |   | Quarter    |            | Quarter |   | Year      
|                                     |                   |   |            |            |         |   |            |            |         |   |           
|Revenues                             |                   | $ | 12,107,152 |            |         | $ | 10,593,479 |            |         | $ | 9,175,203  |            |   | $ | 9,111,309   |            |   | $ | 40,987,143  |           
|Loss from operations                 |                   |   | (1,881,009 | )          |         |   | (3,449,583 | )          |         |   | (4,330,875 | )          |   |   | (8,173,973  | )          |   |   | (17,835,440 | )         
|Net loss                             |                   |   | (1,671,121 | )          |         |   | (3,274,872 | )          |         |   | (4,238,635 | )          |   |   | (12,720,236 | )          |   |   | (21,904,864 | )         
|                                     |                   |   |            |            |         |   |            |            |         |   |            |            |   |   |             |            |   |   |             |           
|Loss per share:                      |                   |   |            |            |         |   |            |            |         |   |            |            |   |   |             |            |   |   |             |           
|                                     | Basic and diluted |   |            | (0.04      | )       |   |            | (0.07      | )       |   |            | (0.10      | ) |   |             | (0.29      | ) |   |             | (0.49      | )
|                                     |                   |   |            |            |         |   |            |            |         |   |            |            |   |   |             |            |   |   |             |           
|Weighted average shares
outstanding: |                   |   |            |            |         |   |            |            |         |   |            |            |   |   |             |            |   |   |             |           
|                                     | Basic and diluted |   |            | 44,307,025 |         |   |            | 44,485,540 |         |   |            | 44,520,498 |   |   |             | 44,521,893 |   |   |             | 44,458,689 |  

F-29



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##### Table of Contents



TRADESTATION GROUP, INC. AND SUBSIDIARIES




INDEX TO CONSOLIDATED FINANCIAL SCHEDULE


|                                                                                                     |  |    
|---------------------------------------------------------------------------------------------------- |  | ---
|Reports of Independent Certified Public Accountants on Schedule                                      |  | S-2
|                                                                                                    
|Schedule II  Valuation and Qualifying Accounts for the Years Ended December 31, 2002,
2001 and 2000 |  | S-4

S-1



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##### Table of Contents






REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE

To TradeStation Group, Inc.:

We have audited the consolidated financial statements of TradeStation
Group, Inc. and subsidiaries as of and for the year ended December 31, 2002 and
have issued our report thereon dated February 3, 2003 (included elsewhere in
this Form 10-K). Our audit also included the financial statement schedule
listed in Item 15(a) of this Form 10-K. This schedule is the responsibility of
the Companys management. Our responsibility is to express an opinion based on
our audit. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

The consolidated financial statements of TradeStation Group, Inc. and
subsidiaries as of December 31, 2001, and for each of the two years in the
period ended December 31, 2001, were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those financial
statements in their report dated February 8, 2002.

|                                                  |  |                      
|------------------------------------------------- |  | ---------------------
|                                                  |  | /s/ Ernst & Young LLP
|                                                  |  |                      
|Fort Lauderdale, Florida,
      February 3, 2003. |  |                      

S-2



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##### Table of Contents






REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE*

To TradeStation Group, Inc.:

We have audited in accordance with auditing standards generally accepted
in the United States, the consolidated financial statements included in this
Form 10-K and have issued our report thereon dated February 8, 2002. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying Schedule II is the
responsibility of the Companys management and is presented for purposes of
complying with the Securities and Exchange Commissions rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

ARTHUR ANDERSEN LLP

Miami, Florida,
      February 8, 2002.

*     NOTE: Arthur Andersen LLP ceased operations in 2002. Its auditors report
has not been revised and the above is a copy of that report as issued. The
inclusion of this previously issued report is pursuant to the Temporary Final
Rule and Final Rule: Requirements for Arthur Andersen LLP auditing clients,
issued by the United States Securities and Exchange Commission in March 2002.
This audit report has not been reissued by Arthur Andersen LLP in connection
with this filing on Form 10-K.

S-3



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##### Table of Contents



TRADESTATION GROUP INC. AND SUBSIDIARIES




SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS


|                              |                                  |   |              |            |            |   |            |           |        |   |            |            |   |   |            |            | 
|----------------------------- | -------------------------------- | - | ------------ | ---------- | ---------- | - | ---------- | --------- | ------ | - | ---------- | ---------- | - | - | ---------- | ---------- | 
|                              |                                  |   | Balance at   |            | Charged to |   |            |           |        |   | Balance at
|                              |                                  |   | Beginning of |            | Costs and  |   |            |           |        |   | End of    
|                              |                                  |   | Period       |            | Expenses   |   | Deductions |           | Period
|                              |                                  |   |              |            |            |   |            |           |       
|Year ended December 31, 2002: |                                  |   |              |            |            |   |            |           |        |   |            |            |   |   |            |           
|                              | Allowance for doubtful accounts  |   | $            |           |            |   | $          |          |        |   | $          |           |   |   | $          |           | 
|                              | Allowance for returns            |   |              |           |            |   |            |          |        |   |            |           |   |   |            |           | 
|                              | Deferred tax valuation allowance |   |              | 12,577,873 |            |   |            |          |        |   |            | (1,825,659 | ) |   |            | 10,752,214 | 
|                              |                                  |   |              |            |            |   |            |           |        |   |            |            |   |   |            |           
|                              |                                  | $ | 12,577,873   |            |            | $ |           |           |        | $ | (1,825,659 | )          |   | $ | 10,752,214 |           
|                              |                                  |   |              |            |            |   |            |           |        |   |            |            |   |   |            |           
|                              |                                  |   |              |            |            |   |            |           |        |   |            |            |   |   |            |           
|Year ended December 31, 2001: |                                  |   |              |            |            |   |            |           |        |   |            |            |   |   |            |           
|                              | Allowance for doubtful accounts  |   | $            |           |            |   | $          | 714,286   |        |   | $          | (714,286   | ) |   | $          |           | 
|                              | Allowance for returns            |   |              |           |            |   |            |          |        |   |            |           |   |   |            |           | 
|                              | Deferred tax valuation allowance |   |              | 5,248,500  |            |   |            | 7,329,373 |        |   |            |           |   |   |            | 12,577,873 | 
|                              |                                  |   |              |            |            |   |            |           |        |   |            |            |   |   |            |           
|                              |                                  | $ | 5,248,500    |            |            | $ | 8,043,659  |           |        | $ | (714,286   | )          |   | $ | 12,577,873 |           
|                              |                                  |   |              |            |            |   |            |           |        |   |            |            |   |   |            |           
|                              |                                  |   |              |            |            |   |            |           |        |   |            |            |   |   |            |           
|Year ended December 31, 2000: |                                  |   |              |            |            |   |            |           |        |   |            |            |   |   |            |           
|                              | Allowance for doubtful accounts  |   | $            | 716,000    |            |   | $          |          |        |   | $          | (716,000   | ) |   | $          |           | 
|                              | Allowance for returns            |   |              | 83,000     |            |   |            | 26,647    |        |   |            | (109,647   | ) |   |            |           | 
|                              | Deferred tax valuation allowance |   |              | 2,769,000  |            |   |            | 2,479,500 |        |   |            |           |   |   |            | 5,248,500  | 
|                              |                                  |   |              |            |            |   |            |           |        |   |            |            |   |   |            |           
|                              |                                  | $ | 3,568,000    |            |            | $ | 2,506,147  |           |        | $ | (825,647   | )          |   | $ | 5,248,500  |           
|                              |                                  |   |              |            |            |   |            |           |        |   |            |            |   |   |            |           

S-4



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EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|3.1     |  | TradeStation Groups Articles of Incorporation, as amended **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|3.2     |  | TradeStation Groups Bylaws **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.1     |  | Form of Specimen Certificate for TradeStation Groups Common Stock
(incorporated by reference to Exhibit 4.1 to OnlineTrading.com Group,
Inc.s Amendment No. 3 to Registration Statement No. 333-34922 on Form
S-4 filed with the Commission on November 21, 2000)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.1    |  | Agreement and Plan of Merger and Reorganization dated as of January
19, 2000 by and among Omega Research, Inc., onlinetradinginc.com corp.,
OnlineTrading.com Group, Inc., Omega Acquisition Corporation and
Onlinetrading Acquisition Corporation, together with the following
exhibit thereto: (i) Form of Omega Affiliate Agreement; (ii) Form of
Online Affiliate Agreement; (iii) Form of Employment Agreement; and (iv)
Form of Non-Competition and Non-Disclosure Agreement*                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.2    |  | First Amendment to Agreement and Plan of Merger and Reorganization
effective March 7, 2000 among Omega Research, Inc., onlinetradinginc.com
corp., OnlineTrading.com Group, Inc., Omega Acquisition Corporation and
Onlinetrading Acquisition Corporation, Second Amendment to Agreement and
Plan of Merger and Reorganization dated as of July 19, 2000 by and among
Omega Research, Inc., onlinetradinginc.com corp., TradeStation Group,
Inc., Omega Acquisition Corporation and Onlinetrading Acquisition
Corporation and Third Amendment to Agreement and Plan of Merger and
Reorganization dated as of September 21, 2000 by and among Omega
Research, Inc., onlinetradinginc.com corp., TradeStation Group, Inc.,
Omega Acquisition Corporation and Onlinetrading Acquisition Corporation*
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.3    |  | TradeStation Group, Inc. Employee Stock Purchase Plan***#                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.4    |  | TradeStation Group, Inc. Incentive Stock Plan***#                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.5    |  | TradeStation Group, Inc. Amended and Restated Nonemployee Director
Stock Option Plan (incorporated by reference to Exhibit 10.5 to
TradeStation Groups Annual Report on Form 10-K for the fiscal year
ended December 31, 2001)#                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.6    |  | Software License, Maintenance and Development Agreement between Dow
Jones Markets, Inc. and Omega Research, Inc. as amended (TradeStation
Agreement)+                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

i



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.7    |  | Lease Agreement, dated November 13, 2001, between Crossroads Business
Park Associates LLP and TradeStation Group, Inc. (without exhibits and
schedules) (incorporated by reference to Exhibit 10.27 to TradeStation
Groups Annual Report on Form 10-K for the fiscal year ended December
31, 2001)                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.8    |  | Standard Office Building Lease between 8700 Flagler, Ltd. and Omega
Research, Inc., as amended by Memorandum of Commencement Date +                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.9    |  | Form of Indemnification Agreement +                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.10   |  | Sublease (for fourth floor of 8700 Flagler Building) and Modification
of Lease Agreement (incorporated by reference to Exhibit 10.11 to Omega
Research, Inc.s Annual Report on Form 10-K for the fiscal year ended
December 31, 1998)                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.11   |  | Form of Non-Competition and Non-Disclosure Agreement*                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.12   |  | Form of Non-Competition Agreement +                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.13   |  | Office/Showroom/Warehouse Lease Agreement dated June 12, 1996 between
Springcreek Place Ltd. and Window On WallStreet Inc. (then named
MarketArts, Inc.), as amended by Addendum to Lease dated October 12,
1998, and as further amended by Addendum to Lease dated May 28, 1999
(incorporated by reference to Exhibit 10.13 to Omega Research, Inc.s
Annual Report on Form 10-K for the fiscal year ended December 31, 1999)
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.14   |  | Modification and Ratification of Lease Agreement, dated July 25, 2002,
between Springcreek Place Ltd. and TradeStation Technologies, Inc. (filed
herewith)                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.15   |  | Lease Agreement, dated November 16, 1999, between Fairfax Boca 92,
L.P. and Omega Research, Inc. (incorporated by reference to Exhibit 10.14
to Omega Research, Inc.s Annual Report on Form 10-K for the fiscal year
ended December 31, 1999)                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.16   |  | Lease Termination and Surrender Agreement, dated December 11, 2002,
between Fairfax Boca 92, L.P. and TradeStation Technologies, Inc. (filed
herewith)                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.17   |  | onlinetradinginc.com corp. 1999 Stock Option Plan***#                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.18   |  | Window On WallStreet Inc. 1997 Long Term Incentive Plan***#                                                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.19   |  | Clearing Agreement with Bear, Stearns Securities Corp. ++                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.20   |  | Office Lease dated August 13, 1998 between onlinetradinginc.com corp.
and Highwood/Florida Holdings, L.P. ++                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.21   |  | Sublease Agreement, dated June 21, 2002, between TradeStation
Securities, Inc. and Steflind, Inc. (filed herewith)                                                                                                                                                                                                                                                                                                            

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|        |  |                                                                                                                                                                      
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                      
|Number  |  | Description                                                                                                                                                          
|        |  |                                                                                                                                                                      
|10.22   |  | Letter Agreement dated January 19, 2000 from onlinetradinginc.com corp.
to and accepted by Andrew A. Allen*                                                          
|        |  |                                                                                                                                                                      
|10.23   |  | Stock Purchase Agreement, dated as of August 8, 2002, between
Benedict Gambino and TradeStation Group, Inc. (filed herewith)                                         
|        |  |                                                                                                                                                                      
|10.24   |  | Stock Purchase Agreement, dated as of October 18, 2002, between
Benedict S. Gambino and TradeStation Group, Inc. (filed herewith)                                    
|        |  |                                                                                                                                                                      
|10.25   |  | Stock Purchase Agreement, dated as of November 26, 2002, between
Andrew A. Allen Family Limited Partnership and TradeStation Group,
Inc. (filed herewith)            
|        |  |                                                                                                                                                                      
|21.1    |  | List of Subsidiaries (incorporated by reference to Exhibit 21.1 to
TradeStation Groups Annual Report on Form 10-K for the fiscal year
ended December 31, 2000)      
|        |  |                                                                                                                                                                      
|23.1    |  | Consent of Ernst & Young LLP, Independent Certified Public
Accountants, with respect to TradeStation Group, Inc.s consolidated
financial statements (filed herewith)
|        |  |                                                                                                                                                                      
|99.1    |  | Certification of Co-Chief Executive Officers under 18 U.S.C. §1350
(filed herewith)                                                                                  
|        |  |                                                                                                                                                                      
|99.2    |  | Certification of Chief Financial Officer under 18 U.S.C. §1350 (filed
herewith)                                                                                      



---

|*   |  | Previously filed as part of the Rule 424(b)(1) Proxy
Statement/Prospectus of TradeStation Group filed with the Securities and
Exchange Commission (the Commission) on December 12, 2000.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|**  |  | Previously filed as part of Registration Statement No. 333-34922 on
Form S-4 of OnlineTrading.com Group, Inc. filed with the Commission on
April 17, 2000.                                
|   
|*** |  | Previously filed as part of Registration Statement No. 333-53222 on
Form S-8 of TradeStation Group, Inc. filed with the Commission on January
5, 2001.                                    
|   
|+   |  | Previously filed as part of Registration Statement No. 333-32077 on
Form S-1 of Omega Research, Inc. filed with the Commission on July 25,
1997.                                          
|   
|++  |  | Previously filed as part of Registration Statement No. 333-75119 of
Form SB-2 of onlinetradinginc.com corp. filed with the Commission on
March 26, 1999.                                  
|   
|#   |  | Indicates a management contract or compensatory plan or arrangement.                                                                                                                      

iii