<PAGE>


                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

     (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended: March 31, 2003
                                                 --------------
                                       OR

          ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                 For the transition period from _____ to ______

                         Commission file number: 1-14897


                             A.B. Watley Group Inc.
                             ----------------------
             (Exact name of registrant as specified in its charter)


             Delaware                                       13-3911867
 (State or other jurisdiction of                        (I.R.S. Employer
  incorporation or organization)                       Identification No.)


                       40 Wall Street, New York, NY 10005
                       ----------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)


                                 (212) 422-1100
                                 --------------
              (Registrant's telephone number, including area code)

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 [ ].

The number of shares  outstanding of the issuer's common stock,  par value $.001
per share, as of May 13, 2003 was 12,508,852.



<PAGE>
<TABLE>
<CAPTION>


                                                   A.B. Watley Group Inc.
Index


PART I-- FINANCIAL INFORMATION                                                                           Page
<S>     <C>                                                                                               <C>

           Item 1. Financial Statements

            Condensed Consolidated Statements of Financial Condition

                           As of March 31, 2003 (Unaudited) and September 30, 2002 ......................   3

            Condensed Consolidated Statements of Operations

                           For the Three Months and Six Months Ended March 31, 2003 and 2002 (Unaudited)    4

            Condensed Consolidated Statements of Cash Flows

                           For the Six Months Ended March 31, 2003 and 2002 (Unaudited) .................   5

            Notes to Condensed Consolidated Financial Statements (Unaudited) ............................   7

            Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations  12

            Item 3. Quantitative and Qualitative Disclosures About Market Risk ..........................  21

            Item 4. Controls and Procedures .............................................................  21

PART II-- OTHER INFORMATION

            Item 1. Legal Proceedings ...................................................................  21

            Item 2. Changes in Securities ...............................................................  22

            Item 3. Default on Senior Securities ........................................................  22

            Item 4. Submission of Matters to a Vote of Security Holders .................................  23

            Item 5. Other Information ...................................................................  23

            Item 6. Exhibits and Reports on Form 8-K ....................................................  23

Signatures ..............................................................................................  24


Certifications ..........................................................................................  25




</TABLE>


<PAGE>

<TABLE>
<CAPTION>

PART I -- FINANCIAL INFORMATION
Item 1.  Financial Statements



                             A.B. Watley Group Inc.
                      Condensed Consolidated Statements of
                               Financial Condition
--------------------------------------------------------------------------------

                                                                              March 31, 2003    September 30, 2002
                                                                              --------------    ------------------
                                                                               (Unaudited)
<S>                                                                                 <C>                  <C>
Assets:
Cash and cash equivalents                                                          $ 34,228           $  213,766
Restricted cash                                                                       -                  292,565
Receivables from clearing brokers                                                   893,621            1,028,588
Securities owned at market value                                                    103,221            2,145,472
Secured demand note receivable                                                    5,000,000                -
Property and equipment, net of accumulated depreciation
         of $6,321,161 and $5,317,435                                             1,950,934            2,889,711
Loans receivable from related party                                                 258,226              258,226
Security deposits                                                                   159,296              132,001
Other assets                                                                        156,830               76,291
                                                                                 ------------       ------------
Total Assets                                                                     $8,556,356           $7,036,620
                                                                                 ============       ============
Liabilities and Stockholders' Deficit:

Accounts payable and accrued liabilities                                         $9,620,429          $ 8,409,141
Accrued liabilities to LLC Class B Members                                        2,370,253            2,492,310
Notes payable - other                                                             3,082,826            3,282,826
Notes payable to former officers                                                    700,000              700,000
Lease obligations and other                                                       1,242,568            1,524,195
Subordinated
borrowings - other                                                                5,121,897              350,000
Subordinated borrowings from officer                                                180,000              180,000
                                                                                 -----------        ------------
                                                                                 22,317,973           16,938,472
                                                                                 -----------        ------------

Series A  redeemable  convertible  preferred  stock $0.01 par value,  690 shares
   authorized  and 630 and 0  issued  and  outstanding  at  March  31,  2003 and
   September 30, 2002 and accrued dividends of $504,000 and $315,000 for the
   period ended March 31, 2003 and September 30, 2002 respectively
   (liquidation preference  - $6,300,000)                                         7,874,594            6,926,487
                                                                                ------------         ------------

Stockholders' Deficit:
Preferred Stock $0.01 par value, 1,000,000 shares authorized and none issued and
   outstanding at March 31, 2003 and September 30, 2002                                -                  -
Common stock, $0.001 par value, 20,000,000 shares authorized at March 31, 2003
   and September 30, 2002, and 12,508,852 issued and
outstanding at March 31, 2003 and September 30, 2002                                 12,509              12,509
Additional paid-in capital                                                       45,904,292          45,819,569
Option costs                                                                        (16,329)            (32,663)
Accumulated deficit                                                             (67,536,683)        (62,627,754)
                                                                                ------------        ------------
Total Stockholders' Deficit                                                     (21,636,211)        (16,828,339)
                                                                                ------------        ------------               Total
Liabilities and Stockholders' Deficit                                           $ 8,556,356         $ 7,036,620
                                                                                ============        ===========

</TABLE>


See accompanying notes to condensed consolidated financial statements.


<PAGE>

<TABLE>
<CAPTION>
                              A.B. Watley Group Inc.
                 Condensed Consolidated Statements of Operations
                                   (Unaudited)


                                                             Three Months Ended             Six Months Ended
                                                                  March 31,                     March 31,
                                                      ----------------------------    ----------------------------
                                                          2003           2002            2003            2002
                                                      ------------    ------------    ------------    ------------
Revenues:
<S>                                                          <C>             <C>            <C>             <C>
Commissions                                            $1,214,697      $5,236,418      $2,692,673    $12,200,131
Maintenance and data service fees                         100,865         224,696         262,355        540,809
Principal transactions                                  2,009,365         633,398       3,954,671      1,000,758
Interest income                                           108,466         503,050         215,838      1,118,932
Other Income                                               61,323           -             548,879         25,633
                                                      ------------    ------------    ------------    ------------
Total revenues                                          3,494,716       6,597,562       7,674,416     14,886,263
Interest expense                                          277,629       1,349,749         424,522      2,234,243
Interest expense - related parties                           -            127,750            -           259,966
                                                      ------------    ------------    ------------    ------------
Net revenues                                            3,217,087       5,120,063       7,249,894     12,392,054
                                                      ------------    ------------    ------------    ------------

Expenses and other charges:
Commissions, floor brokerage and clearing charges       1,536,972       3,963,667       2,552,188      8,306,945
Employee compensation and related costs                 2,057,244       3,215,351       3,865,029      6,591,742
Communications                                            542,478         885,504         824,926      1,733,002
Business development                                      106,550         149,235         128,249        411,578
Professional services                                     599,706         865,588         998,730      1,320,501
Occupancy and equipment costs                             349,510       2,838,916       1,441,049      4,618,289
Depreciation and amortization                             504,319       1,495,287       1,003,726      3,714,266
Other expenses                                            841,429         489,360       1,347,658      1,030,068
Loss on Investments                                         -               -              84,287             -
Impairment of intangibles                                   -           5,724,110            -         5,724,110
Minority interest applicable to LLC Class B members         -            (15,992)            -          (412,495)
                                                       ----------      -----------      ---------     ----------

Total Expenses                                         6,538,208       19,611,026      12,245,842      33,038,006
                                                     ------------     -----------      ----------      ----------
Loss before income taxes and extraordinary item       (3,321,121)     (14,490,963)    (4,995,948)     (20,645,952)
Income tax provision                                        -              (1,516)           -             (4,150)
                                                     ------------    ------------      ----------    ------------
Loss before extraordinary item                        (3,321,121)     (14,492,479)    (4,995,948)     (20,650,102)
Extraordinary loss on extinguishment of debt                -                -               -           (250,000)
                                                      ------------    ------------    -----------     ------------
Net loss                                             $(3,321,121)    $(14,492,479)   $(4,995,948)    $(20,900,102)
                                                      ============    ============    ===========     ============

Basic and diluted loss per common share:

Loss before extraordinary item                       $(3,321,121)   $(14,492,479)    $(4,995,948)    $(20,650,102)
       Deemed dividend to preferred shareholders
- beneficial conversion                                    -              -                 -          (1,639,797)
       Deemed dividend to preferred shareholders
- accretion of redemption                                  -           (783,000)            -            (783,000)
Preferred stock dividends                               (94,500)        (47,250)        (189,000)        (126,000)
                                                      ------------    ------------    ------------    ------------
Loss before extraordinary item attributable to
common shareholders                                   (3,415,621)    (15,322,729)     (5,184,948)     (23,198,899)
       Extraordinary loss on extinguishment of debt        -              -                -             (250,000)
                                                      ------------    ------------    ------------    ------------
Net loss attributable to common shareholders         $(3,415,621)   $(15,322,729)    $(5,184,948)    $(23,448,899)
                                                      ============    ============    ============    ============

Loss before extraordinary item                          $(0.27)        $   (1.22)         $(0.41)         $ (1.85)
Extraordinary item                                      $   -          $        -         $  -            $ (0.02)
                                                      ------------    ------------    ------------    ------------

Basic and diluted loss per share                        $(0.27)        $   (1.22)         $(0.41)         $ (1.87)
                                                      ============    ============    =============  =============

Weighted average shares outstanding                   12,508,852       12,508,852      12,508,852      12,508,852
                                                      ============    ============    =============  =============

See accompanying notes to condensed consolidated financial statements.
</TABLE>


<TABLE>
<CAPTION>


                             A.B. Watley Group Inc.
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)



                                                                              Six Months Ended
                                                                                 March 31,
                                                                  -------------------------------------
                                                                      2003                     2002
                                                                  ------------             ------------
<S>     <C>                                                           <C>                      <C>

Cash flows provided by (used in) operating activities:

Net loss                                                          $(4,995,948)            $(20,900,102)
Adjustments to reconcile net loss to net cash provided by (used in)
   Operating activities:
       Non-cash compensation and service costs                         16,334                   92,530
       Options costs                                                     -                     216,467
       Penalties-preferred stock                                      759,107                  311,487
       Issuance of warrants                                            45,620                1,390,569
       Minority interest applicable to LLC
       Class B members                                                   -                    (412,495)
       Depreciation and amortization                                1,003,726                3,831,136
       Loss on impairment of intangibles                                 -                   5,724,110
       Loss on extinguishment of debt                                    -                     250,000
       Changes in assets and liabilities:
       (Increase) decrease in operating assets:
              Restricted cash                                         292,565                  (15,202)
              Receivables from clearing brokers                       134,967                  473,123
              Securities owned                                      2,042,251                 (490,844)
              Loans receivable from related party                        -                      10,370
              Security deposits                                       (27,295)               1,328,645
              Other assets                                            (80,539)                 639,116
       Increase (decrease) in operating liabilities:
              Accounts payable and accrued liabilities              1,211,288                2,652,663
              Securities sold, not yet purchased                         -                  (1,786,134)
              Lease obligations and other                            (281,627)                 122,518
                                                                  ------------            -------------
Net cash provided by (used in) operating activities                   120,449               (6,562,043)
                                                                  ------------            -------------

Cash flows (used in) provided by investing activities:

Purchases of property and equipment                                   (64,949)                (211,006)
Proceeds of sale of software license                                     -                     571,210
                                                                  ------------            ------------
Net cash (used in) provided by investing
activities                                                            (64,949)                 360,204
                                                                  ------------            ------------

Cash flows from financing activities:

Proceeds from sale of preferred stock                                    -                   3,324,291
Proceeds from notes payable - other                                   250,000                1,491,682
Proceeds from notes payable to officer                                   -                     900,000
Repayment of notes payable - other                                    (450,000)                   -
Capital distribution to LLC Class B members                           (35,038)                 (22,187)
                                                                  ------------            ------------
Net cash (used in) provided by financing activities                  (235,038)               5,693,786
                                                                  ------------            ------------

Net decrease in cash and cash equivalents                           (179,538)                 (508,053)
Cash and cash equivalents at beginning of period                     213,766                   508,053
                                                                  ------------            ------------
Cash and cash equivalents at end of period                        $   34,228               $      -
                                                                  ============            ============


     See accompanying notes to condensed consolidated financial statements.

</TABLE>
<PAGE>

<TABLE>
<CAPTION>


                             A.B. Watley Group Inc.
                 Condensed Consolidated Statements of Cash Flows
                             (Unaudited), Continued



                                                                                        Six Months Ended
                                                                                            March 31,
                                                                               ---------------------------------
                                                                                  2003                   2002
                                                                               -----------            ----------
<S>                                                                               <C>                         <C>

Supplemental  non-cash   financing   activities
  and  disclosure  of  cash  flow information:


Issuance of notes payable in payment of operating
expenses                                                                       $    -                 $  225,714
                                                                               ===========            ==========
Preferred stock dividends                                                      $  189,000             $  126,000
                                                                               ===========            ==========
Exchange of subordinated debt for preferred stock                              $    -                 $2,500,000
                                                                               ===========            ==========
Deemed dividend to preferred shareholders -beneficial
conversion                                                                     $    -                 $1,639,797
                                                                               ===========            ==========
Deemed dividend to preferred shareholders -accretion of
redemption feature                                                             $    -                 $  783,000
                                                                               ===========            ==========
Net assets of On-Site acquired by the issuance of
common stock                                                                   $    -                 $5,703,000
                                                                               ===========            ==========

Borrowings under secured demand note collateral agreement                      $5,000,000             $    -
                                                                               ===========            ==========
Debt discount issued relating  to the warrants issued in
connection with the borrowings under the secured demand note                   $  273,723             $    -
                                                                               ==========             ==========

Settlements of Minority Interests                                              $   87,019             $    -
                                                                               ===========            ==========
Cash paid for:
   Interest                                                                    $  152,168             $  145,252
                                                                               ===========            ==========

   Taxes                                                                       $     -                $   -
                                                                               ===========            ==========

</TABLE>
     See accompanying notes to condensed consolidated financial statements.



<PAGE>


                             A.B. Watley Group Inc.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)


1.   Organization and Business

     A.B.  Watley  Group  Inc.  ("ABWG"  or  the  "Company")  is a  U.S.  public
corporation.  The Company  conducts  business  primarily  through its  principal
subsidiaries,   A.B.  Watley,  Inc.  ("A.B.  Watley")  and  Integrated  Clearing
Solutions, Inc. ("Integrated").

     A.B.  Watley  and  Integrated  are  registered   broker-dealers   with  the
Securities  and Exchange  Commissions  ("SEC"),  and are members of the National
Association of Securities Dealers, Inc. ("NASD").  A.B. Watley is an introducing
broker-dealer,  conducting  business  in  electronic  trading,  information  and
brokerage  services,  institutional  block  trading  as well as equity and fixed
income trading.  Integrated is an introducing  broker-dealer conducting sales of
mutual funds to  institutional  clients.  A.B.  Watley and Integrated  clear all
transactions  through clearing brokers on a fully disclosed basis.  Accordingly,
A.B.  Watley  and  Integrated  are  exempt  from Rule  15c3-3 of the  Securities
Exchange Act of 1934.


2.   Basis of Presentation and Accounting Policies

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States of America  (GAAP) and reflect all normal  recurring  adjustments
which are, in the opinion of management,  necessary for a fair  presentation  of
the  results  for the  interim  periods  presented.  Pursuant  to the  rules and
regulations  of the  SEC,  certain  footnote  disclosures,  which  are  normally
required  under  GAAP,  have  been  omitted.   It  is  recommended   that  these
consolidated  financial  statements  be read in  conjunction  with  the  audited
consolidated  financial  statements  included in the Company's  Annual Report on
Form 10-K for the year ended  September 30, 2002.  The results of operations for
any interim period are not necessarily indicative of results for the full year.

     The consolidated  financial statements include the accounts of ABWG and its
wholly  owned   subsidiaries.   All   significant   intercompany   balances  and
transactions  have been  eliminated.  Certain  prior  period  amounts  have been
reclassified to conform to the current period's presentation. The preparation of
the financial  statements in  conformity  with GAAP 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.

     Certain  amounts  in  the  prior  years  financial  statements  have  been
reclassified  to  conform  with  the  current  years  presentation.

     The  Financial  Accounting  Standards  Board  "FASB"  issued  Statement  of
Financial  Accounting  Standards  ("SFAS")  No.  146,  "Accounting  for  Costs
Associated  with  Exit or Disposal Activities". This standard 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  replaces  the existing guidance provided by EITF 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  to  be  applied prospectively to exit or disposal activities
initiated  after  December  31,  2002.

     The  FASB  issued  SFAS  No. 148, "Accounting for Stock-Based Compensation-
Transition  and  Disclosure  -  an  amendment  of  FASB  Statement No. 123" that
provides  alternatives  methods of transition for a voluntary change to the fair
value  based  method  of  accounting  for stock-based employee compensation. The
provisions  of  this  Statement  are  effective for fiscal years beginning after
December  15,  2003.

     The Company adopted the above pronouncements during the current quarter and
there  was  no material effect on the Company's condensed consolidated financial
statements.

3.   Liquidity and Capital Resources

     The  Company  has   significant   deficits  in  both  working  capital  and
stockholders'  equity. These factors raise substantial doubt about the Company's
ability to continue as a going concern.  The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

4.   Net Capital Requirements

     A.B.  Watley and  Integrated  are subject to the SEC's  Uniform Net Capital
Rule ("Rule  15c3-1").  In accordance with this rule, A.B. Watley is required to
maintain  defined  minimum  net  capital to the greater of $100,000 or 6-2/3% of
aggregate  indebtedness as defined.  Integrated is required to maintain  minimum
net capital of $5,000 or 6-2/3% of aggregate indebtedness as defined.

     As of March 31, 2003, A.B. Watley and Integrated's net capital in excess of
minimum requirements was $2,837,827 and $23,713, respectively.

     As  of  September  30,  2002,  A.B.  Watley  had  a  net capital deficit of
$301,523.  This  deficiency  was  cured  in  October  2002.


5.   Financial  Instruments  with Off Balance Sheet Risk and  Concentrations  of
     Credit Risk

     Pursuant to clearance  agreements,  the clearing and depository  operations
for the Company  and its  customers'  securities  transactions  are  provided by
clearing  broker-dealers.  The  Company  has agreed to  indemnify  its  clearing
brokers for losses that the  clearing  brokers  may  sustain  from the  customer
accounts  introduced  by the Company and  maintains  deposits with such clearing
brokers to collateralize  such  indemnification  obligations.  Such deposits are
reflected on the consolidated statement of financial condition, net of unsecured
customer receivables for which the Company is ultimately responsible.

     The  Company,  through  its  clearing  brokers,  seeks to control the risks
associated  with these  activities  by requiring  customers  to maintain  margin
collateral in compliance  with various  regulatory  and internal  company policy
guidelines.  The clearing  brokers  monitor  required  margin  levels daily and,
pursuant to such guidelines,  request customers to deposit additional collateral
or reduce securities positions when necessary.

6.   Redeemable Convertible Preferred Stock

     On November 29,  2001,  the Company  entered into the Series A  Convertible
Preferred Stock Purchase Agreement (the "Purchase Agreement") to issue and sell,
in a private placement,  an aggregate of 630 (690 shares  authorized,  par value
$.01)  shares of Series A Redeemable  Convertible  Preferred  Stock  ("Preferred
Stock").  Each share is  convertible  into 3,390 shares of the Company's  Common
Stock at an exercise price of $2.95.  The purchasers of the Preferred Stock were
issued warrants,  expiring in 5 years from the date of issuance,  to purchase an
additional 1,629,069 shares of Common Stock at an exercise price of $2.95.

     Pursuant to the Purchase  Agreement and the  Registration  Rights Agreement
(the "Registration Agreement"),  the Company was required to file a registration
statement  (the  "Registration  Statement")  with the  Securities  and  Exchange
Commission registering for resale the 2,135,700 shares of Common Stock issuable
upon the conversion of the shares of Preferred  Stock,  and the 1,629,069 shares
of Common Stock subject to purchase  upon exercise of the warrants.  The Company
has not yet  filed a  Registration  Statement  and  will not be able to have the
Registration  Statement filed and declared effective within the period required.
A penalty of 2% of the liquidation  preference  value of the Preferred Stock for
each thirty-day period accrues to each holder of Preferred Stock and is added to
the liquidation  preference  amount until cured. As of March 31, 2003 liquidated
damages of approximately $1,827,000 were accrued to the preferred holders.

     The Preferred Stock includes a liquidation  preference of $10,000 per share
and bears a cumulative dividend at an initial 6% annual rate, which increases to
a 15%  annual  rate after  eighteen  months,  payable  twice a year in shares of
Common Stock. For the six-month periods ended March 31, 2003 and 2002, dividends
of $189,000 and $126,000 were accrued for the Preferred Stock.

     The holders of Preferred  Stock may elect to convert  their shares into the
Company's  Common Stock at any time,  just as they may choose to exercise  their
related warrants at any time. The holders of Preferred Stock also have the right
to require  the Company to redeem all of the  Preferred  Stock for cash equal to
the  greater of the  liquidation  preference  amount plus any accrued but unpaid
dividends  and  penalties or the  aggregate of the market value of the shares of
the  Common  Stock  into  which  such  shares  of the  Preferred  Stock are then
convertible,  upon certain triggering events, as defined in the Agreement.  Such
triggering events have occurred. The holders of the Preferred Stock waived their
Redemption Right through September 30, 2002.  Although,  the waiver has not been
amended or extended,  to date,  no  redemption  notice has been  received by the
Company from any of its Preferred Stockholders.

<PAGE>
     The  $6,300,000  aggregate  purchase  price of the Preferred  Stock and the
warrants was  allocated  $4,340,383  to the  Preferred  Stock and the balance of
$1,959,617 was attributed to the fair value of the warrants.  In connection with
this transaction,  the Company issued Preferred Stock and received cash proceeds
of $3,324,291 (net of issue costs) and exchanged a note payable in the amount of
$2,500,000  ("Senior  Subordinated  Demand  Note") for  $2,750,000  plus accrued
interest.  The premium of $250,000 was recorded as an extraordinary  loss on the
extinguishment of debt in December 2001. The discount  associated with the value
of the warrants was accreted over a ten-month period through September 30, 2002,
the date the redemption waiver expired.

     Since the holders of the Preferred  Stock may require the Company to redeem
all of the Preferred  Stock,  the Company has excluded the Preferred  Stock from
Stockholders'  Deficit in the accompanying  consolidated  statement of financial
condition.

     The holders are not subject to any limitations on the number of conversions
of Preferred Stock or subsequent  sales of the  corresponding  Common Stock that
they can effect,  other than a prohibition on any holder  acquiring a beneficial
ownership of more than 4.95% of the outstanding  shares of the Company's  Common
Stock.

7.   Notes and Loans Payable

     The Company's  outstanding  obligation  under notes and loans payable as of
March 31, 2003 and September 30, 2002 was as follows:


                                        March  31,     September 30,
                                           2003              2002
                                        ----------        ----------
Borrowings under line of credit         $3,082,826        $3,082,826
Notes payable to former officers           700,000           700,000
Loans payable - other                         -              200,000
                                        ----------        ----------
                                        $3,782,826        $3,982,826
                                        ==========        ==========

     As of March 31,  2003 and  September  30,  2002,  interest  payable  on the
Company's  borrowings  totaled $471,000 and $275,000, respectively. The Company
recognized interest expense of $206,000 and $1,297,800 for the six month periods
ending  March  31, 2003 and 2002, respectively. Included in interest expense for
the  six  months ended March 31, 2002 is the amortization of the warrants issued
in  connection  of the borrowing under the line of credit that occurred in March
2002. The value of such warrants were amortized over the term of the loan as a
component  of interest expense. Interest expense relating to the amortization of
the warrants issued in connection of the financing was approximately $1,000,000.

     On December 31, 2002, the Company borrowed $250,000 from a third party. The
associated  promissory  note bears  interest  at 15% per annum and was repaid on
January 14, 2003.

     In March 2002,  one of the holders of the Company's  Preferred  Stock led a
group that granted a line of credit of  $4,200,000  to the  Company.  Borrowings
under  the line of credit were  payable  on demand  after  June 18,  2002,  with
interest  payable  at 10%.  The  proceeds  of the loans  were  used for  working
capital.  Additionally, one member of the group was granted warrants to purchase
1,000,000  shares of the Company's Common Stock at an exercise price of $0.918 a
share in connection with the loan facility and a consultant retained by a member
of the  group  was also  granted  warrants  to  purchase  50,000  shares  of the
Company's  Common  Stock at an  exercise  price of  $0.918 a share.  The loan is
collateralized by the assets of the Company as defined in the loan agreement.

     In February  2002, the Company  borrowed  $200,000 from a former officer of
the Company,  due on demand.  The Company also  borrowed  $500,000 from the same
party in October 2001 with a stated maturity of October 1, 2002. Both notes bear
interest at 10% per annum. The loan due in October 2002 has not been repaid.

     In February  2002,  the Company  borrowed  $200,000 from a third party with
interest payable at 10% per annum. The loan was repaid on October 26, 2002.

     In August  2001,  the  Company  obtained  a  $2,500,000  loan (the  "Senior
Subordinated  Demand  Note")  bearing  interest  at an annual  rate of 6% due on
demand.  The loan was redeemed and converted to Series A  Convertible  Preferred
Stock (see Note 6) on November 29, 2001.

8.   Subordinated Borrowings

     Subordinated  borrowings as of March 31, 2003 and September 30, 2002 are as
follows:

<TABLE>
<CAPTION>


Subordinated Notes:                                  March 31, 2003   September 30, 2002
                                                     --------------   ------------------
<S>                                                       <C>               <C>

   Non-interest bearing, due October 31, 2003        $   55,000         $  55,000
   12%,due October 31, 2003                             125,000           125,000
                                                     -----------       -----------
                                                     $  180,000         $ 180,000
                                                     ===========       ===========



   13%,due October 31, 2003                          $  150,000         $ 150,000
   15%,due October 31, 2003                             200,000           200,000
                                                     -----------       -----------
                                                     $  350,000         $ 350,000


Secured Subordinated Demand Notes:
   7% due June 30, 2004                              $5,000,000             --
      Less debt discount relating to the warrants
      issued in connection with the Secured
      Subordinated Demand Note                         (228,103)            --
                                                     -----------       -----------

                                                     $4,771,897             --
                                                     -----------       -----------

                                                     $5,121,897         $ 350,000
                                                     ===========       ===========
</TABLE>

     On January  15,  2003,  A.B.  Watley  entered  into a secured  demand  note
agreement for  $5,000,000  with a maturity date of June 30, 2004. The loan bears
an  interest  rate of 7% per annum,  payable  monthly.  In  connection  with the
agreement,  the Company  issued  warrants to purchase  500,000  shares of Common
Stock at $0.75 per share.  The warrants  are  immediately  exercisable  and will
expire in January  2008.  The loan has been approved by the NASD and is included
for the purposes of computing net capital  under Rule 15c3-1.  The holder of the
secured demand note has the option to convert all of the collateral  into Common
Stock of the Company  within five  business  days after  February 15, 2004, at a
discount of 5% of the average  price per share based on the 10-day  period prior
to  conversion.  The holder may also elect to convert the collateral within five
business  days  after  June  30, 2004 at $1.80. In no event shall the conversion
result  in  the  holder  of  the secured demand note owning more than 15% of the
Company's  Common  Stock.

     The Company recorded a debt discount of $273,723 which will be amortized to
interest  expense  over  the  life  of the secured demand note. Interest expense
relating  to  the  warrants  was  $45,620  for the period ending March 31, 2003.

    Subordinated  borrowings are covered by agreements  approved by the NASD and
are included by A.B.  Watley for purposes of computing net capital under the Net
Capital Rule. To the extent that such  subordinated  borrowings are required for
A.B. Watley's continued compliance with minimum net capital  requirements,  they
may not be repaid.  The  subordinated  borrowings in the amounts of $125,000 and
$55,000 were originally scheduled to mature on October 31, 2002. Such borrowings
were renewed with a new maturity date of October 31, 2003.

     Of  the  total subordinated borrowings, $180,000 and $350,000 both at March
31,  2003  and  September  30,  2002, are from an officer and stockholder of the
Company,  respectively.


9.   Stock Based Compensation

During the current quarter, the Company adopted Statement of Financial
Accounting Standard No. 148, "Accounting for Stock-based Compensation-Transition
and Disclosure." This statement amended Statement No. 123, "Accounting for
Stock-based Compensation." As permitted under Statement No. 123, the Company
continues to apply the Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." As required under Statement No. 148, the
following table presents pro forma net income and basic and diluted earnings per
share as if the fair value-based method had been applied to all awards.

<TABLE>
<CAPTION>
                                       THREE MONTHS                                SIX MONTHS
                                 -------------------------------       --------------------------------
                                     2003               2002               2003                2003
                                 ------------       ------------       --------------     -------------
<S>                              <C>               <C>                 <C>               <C>
Periods ended March 31,
Net loss                          $(3,415,621)      $(15,322,729)       $(5,184,948)      $ (23,448,899)
Stock-based employee
compensation cost, net
of tax effect, under
fair value accounting                 134,857             89,905            214,560             330,405
                                  -----------       ------------        -----------       -------------
Pro forma net loss under
Fair Value Method                 $(3,550,478)      $(15,412,634)       $(5,399,508)      $ (23,779,304)
                                   -----------       ------------        -----------       -------------
Loss per share
basic and diluted                 $     (0.27)      $      (1.22)       $     (0.41)      $       (1.87)
Per share stock-based
employee compensation
cost, net of tax effect,
under fair value
accounting                               0.01               0.01               0.02                 .03
                                  -----------       ------------        -----------       -------------
Pro forma loss per
share - basic and diluted         $     (0.28)      $      (1.23)       $     (0.43)      $       (1.90)
                                  -----------       ------------        -----------       -------------
</TABLE>

The fair value of each option grant was estimated at the date of grant using the
Black-Scholes option valuation model. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options which have
no vesting restrictions and are fully transferable. Because the Company's
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value estimate of
its stock options. In calculating the fair values of the stock options, the
following assumptions were used:



                                             2003 GRANTS   2002 GRANTS
                                             -----------   -----------
Dividend yield                                        0%          0%
Weighted average expected life:
         Employee                               5 Years       5 years
         Non-employee                                --          --
Weighted average risk-free interest rate           4.21        3.88
Expected volatility                                 239%         50%



10.   Commitments and Contingencies

Lease Agreements
----------------

     In January  2003,  the  Company  entered  into two leases for office  space
requiring  security  deposits of  approximately  $21,000 and  aggregate  minimum
monthly rents of $15,173. The leases expire in 2004.


Litigation
----------

     The Company is a party to various suits alleging  breach of contract due to
non-payment  for services or goods provided,  and for the minority  interests of
the Class B members of the LLC.  The  Company is  defending  these suits and has
commenced settlement negotiations with respect to several of these suits.

     A  suit  seeking damages of $31,400,000 has been brought by Akro Investicni
Spolecnost,  A.S.  and  Bozena  Konvalinkova,  as  Czech  Receiver  of  Private
Investors,  against  A.B.  Watley.  Approximately  $950,000  of  that amount was
alleged to represent AKRO's claims, with the balance representing claims brought
by  the Receiver. The suit alleged violations of New York common law and federal
securities  law  by  A.B.  Watley  arising  from  an  agreement  between Private
Investors,  a  Czech  broker-dealer.  On March 12, 2003, the Court dismissed the
claims  brought by the Receiver, and the parties are currently in the process of
arriving  at  a  settlement  of  the  remaining  claims.

     In March 2003,  the holder of the $5 million  secured  demand note demanded
repayment of the note. On March 31, 2003,  ABW filed a NASD  Arbitration  Demand
and a  Statement  of  Claims  with  the  NASD  Dispute  Resolution  office.  The
arbitration seeks to enforce the provisions of the secured demand note agreement
and  to  prevent  premature withdrawal by the lender. A date for the arbitration
hearing has not yet been determined. The financial statements do not include any
adjustments  for  fees  and  penalties  associated  with  the  litigation.

     In the opinion of management,  after consultation with independent counsel,
the  Company  is  unable to  predict  the  ultimate  outcome  of these  matters;
accordingly,   no  adjustment  has  been  made  in  the  accompanying  condensed
consolidated financial statements for any potential losses.

11.  Income taxes

     The Company has net  operating  loss  carryforwards  ("NOL's")  for federal
income tax purposes  approximating  $65,208,000  as of March 31, 2003. The NOL's
are scheduled to expire no sooner than September 30, 2013.

     The ultimate  realization of the deferred tax asset is primarily  dependent
upon the  generation  of future  taxable  income prior to the  expiration of the
NOL's. In assessing the realizability of deferred tax assets resulting from such
NOL's, management considers whether it is more likely than not that some portion
or all of  the  deferred  tax  assets  will  not  be  realized.  Management  has
established a 100%  valuation  allowance for such deferred tax asset,  since the
Company has not yet generated taxable net income.

11. Accounting Developments

     The following  pronouncements have been issued by the Financial  Accounting
Standards Board ("FASB").

In January 2003, the FASB issued  Interpretation  46,  Consolidation of Variable
Interest  Entities.  In general,  a variable  interest  entity is a corporation,
partnership, trust, or any other legal structure used for business purposes that
either (a) does not have equity  investors  with voting rights or (b) has equity
investors that do not provide sufficient  financial  resources for the entity to
support its activities. Interpretation 46 requires a variable interest entity to
be  consolidated  by a company if that  company is subject to a majority  of the
risk of loss from the  variable  interest  entity's  activities  or  entitled to
receive a majority of the entity's  residual returns or both. The  consolidation
requirements  of  Interpretation  46  apply  immediately  to  variable  interest
entities created after January 31, 2003. The consolidation requirements apply to
older entities in the first fiscal year or interim period  beginning  after June
15,  2003.  Certain  of the  disclosure  requirements  apply  in  all  financial
statements  issued  after  January 31,  2003,  regardless  of when the  variable
interest entity was established.

In April 2003,  Financial Accounting Standards Board, "FASB" issued Statement of
Financial  Accounting  Standard,  SFAS No. 149,  "Amendment  of Statement 133 on
Derivative  Instruments  and  Hedging  Activities."  The  Statement  amends  and
clarifies accounting for derivative  instruments,  including certain derivative
instruments  embedded  in other  contracts,  and for  hedging  activities  under
Statement  133.  This  Statement  is  effective  for  contracts  entered into or
modified  after  June  30,  2003,   except  as  stated  below  and  for  hedging
relationships  designated  after June 30, 2003.  The guidance  should be applied
prospectively.  The  provisions of this  Statement  that relate to Statement 133
Implementation  Issues that have been  effective for fiscal  quarters that began
prior to June 15, 2003 should  continue to be applied in  accordance  with their
respective effective dates. In addition,  certain provisions relating to forward
purchases or sales of when-issued securities or other securities that do not yet
exist,  should be applied to existing contracts as well as new contracts entered
into after June 30, 2003.


Management  does not believe  that the  adoption of any of these  pronouncements
will have a material effect on the Company's  condensed  consolidated  financial
statements.

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

     The  following  discussion  of  the  financial  condition  and  results  of
operations of the Company  should be read in conjunction  with the  consolidated
financial  statements and notes thereto  included in the Company's Annual Report
on Form 10-K. The results of operations for interim  periods are not necessarily
indicative of the results for the entire fiscal year.

     This  Form  10-Q  contains  certain "forward-looking statements" within the
meaning  of  Section  27A  of  the  Securities  Act  of  1933,  as  amended (the
"Securities  Act"),  and  Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Specifically, all statements other than statements
of  historical  facts  included in this report regarding the Company's financial
position, business strategy and plans and objectives of the Company's management
for  future  operations  are  forward-looking  statements. These forward-looking
statements  are  based  on  the  beliefs of the Company's management, as well as
assumptions  made  by  and  information  currently  available  to  the Company's
management.  When  used  in  this  report,  the  words  "anticipate," "believe,"
"estimate,"  "expect," "intend," and words or phrases of similar import, as they
relate  to  the  Company  or  Company  management,  are  intended  to  identify
forward-looking  statements.  Such  statements  (the  "cautionary  statements")
reflect  the  current  view  of  the Company's management with respect to future
events  and  are  subject  to  risks,  uncertainties, and assumptions related to
various  factors  including,  without  limitation,  competitive factors, general
economic  conditions,  customer  relations,  relationships  with  vendors,  the
interest rate environment, governmental regulation and supervision, seasonality,
product  introductions and acceptance, technological change, changes in industry
practices,  and one-time events. Although the Company believes that expectations
are reasonable, it can give no assurance that such expectations will prove to be
correct.  Based  upon changing conditions, should any one or more of these risks
or  uncertainties  materialize,  or  should  any  underlying  assumptions  prove
incorrect,  actual  results  may  vary materially from those described herein as
anticipated,  believed, estimated, expected, or intended. All subsequent written
and  oral  forward-looking  statements  attributable  to  the Company or persons
acting on its behalf are expressly qualified in their entirety by the applicable
cautionary  statements.  The  Company  does  not  assume  any  responsibility to
publicly update any of its forward-looking statements regardless whether factors
change  as  a result of new information, future events, or for any other reason.
The  Company  advises you to review any additional disclosures made in its 10-Q,
8-K,  and  10-K  reports  filed  with  the  Commission.

Results of Operations

Three  Months  Ended March 31, 2003 Compared to the Three Months Ended March 31,
2002

     Revenues.  Total  revenues  for the  quarter  ended  March  31,  2003  were
$3,494,716, a decrease of 47%, as  compared  to revenues of  $6,597,562  for the
quarter ended March 31, 2002.

    Commissions.  For the three month period  ending  March 31, 2003,  we earned
commission revenues of $1,214,697 representing a 77% decrease as compared to the
commission  revenues of $5,236,418  for the  corresponding  period in 2002.  The
$4,021,271 decrease in commission revenues is largely due to loss of the On-Site
customers  from our direct  access  business that was acquired in October 2001,
lower sales volume from our  institutional  sales division and the reductions in
the overall trading volume.

     Maintenance  and  Data Service Fees. Our revenues from maintenance and data
service  fees  decreased  by  $123,831 or 55% from $224,696 for the three months
ended March 31, 2002 to $100,865 for the three months ended March 31, 2003. This
decrease  is  due  the  migration  of  customers  from  third  party software to
UltimateTrader  II  for  which  no  fees  are charged as well the loss of direct
access  customer  accounts  for  which  maintenance  fees  are  charged.

    Revenues from  Principal  Transaction.  Revenues from  proprietary  security
transactions  increased by 217%.  We earned  $2,009,365  from such  transactions
ending  March 31, 2003 as compared to $633,398  for the three month period March
31, 2002.  This increase is due partially due to our opening of the fixed income
desk during the three month period ending March 31, 2003.

     Interest  Income. Interest income decreased $394,584, or 78%, from $503,050
for  the  quarter ended March 31, 2002, to $ 108,466 for the quarter ended March
31,  2003.  This  decrease is largely due to the decrease in margin interest and
interest  that  was  earned  by the Company on the retail accounts acquired from
On-Site  that  was  closed  in  June  2002 and interest income that is no longer
earned  from  the  LLC's  operations,  which  were  closed  in  May  2002

     Interest  Expense. Interest expense decreased from $1,477,499 for the three
months  ending  March  31, 2002 to $277,629 for the three months ended March 31,
2003.  Included in interest expense for the three months ended March 31, 2002 is
the  amortization  of the warrants issued in connection with the borrowing under
the  line of credit that occurred in March 2002. The value of such warrants were
amortized over the term of the loan as a component of interest expense. Interest
expense  relating  to the amortization of the warrants issued in connection with
the  financing  was  approximately  $1,000,000.

     Net  Revenues.  As  a  result  of  the foregoing, net revenues decreased by
$1,902,976,  or  37%,  from  $5,120,063 for the quarter ended March 31, 2002, to
$3,217,087  for the quarter ended March 31, 2003. Customers in the United States
generated  the majority of revenues and no single customer or group of customers
accounted  for  10%  or  more  of  our  revenues.

   Expenses.  Total  expenses  for  the  quarter  ended  March  31,  2003,  were
$6,538,208,  a 67% decrease as compared to total expenses of $19,611,026 for the
three month period ending March 31, 2002.

   Commissions,  Floor  Brokerage,  and  Clearing  Charges.  For the three month
period  ending March 31, 2003,  we incurred  $1,536,972  of  commissions, floor
brokerage  and  clearing  charges, a 61%  decrease as compared to the  previous
corresponding period in 2002. These costs represent payments to our clearing and
floor brokers who facilitate  security  transactions  for both our customers and
our own  proprietary  accounts.  This  decrease  is largely due to the June 2002
closing of the On-Site  business, which had been  acquired in October  2001.  In
addition,  our institutional sales division had lower volumes as compared to the
corresponding period in 2002.

     Employee  Compensation  and  Related  Costs.  Our employee compensation and
related  costs  decreased by $1,158,107, or 36%, from $3,215,351 for the quarter
ended  March  31, 2002, to $2,057,244 for the quarter ended March 31, 2003. This
decrease  is  attributable  to  both  the  reduction  in the number of employees
related  to  the  On-site business that was closed in June 2002 and to employees
that  were  involved in the development and maintenance of our software that was
sold in July 2002. In addition, lower compensation was paid to the institutional
sales  division  as  a  result  of  declining  revenue.

     Communications.  Communications  expense  for the three month period ending
March  31, 2003 amounted to $542,478, a 39% decrease as compared to the $885,504
for the corresponding three month period ending March 31, 2002. This decrease is
largely  due  to  the  June  2002  closing  of  the  On-Site business and to the
communication  costs  related  to  the  software  that  was  sold  in July 2002.

     Business  development.  Business  development  costs consist of advertising
costs,  which  have  mostly  been for print, media and trade shows to obtain new
clients.  These  expenses  decreased  by  $42,685, or 29%, from $149,235 for the
quarter ended March 31, 2002, to $106,550, for the quarter ended March 31, 2003.
This  decrease  was  the result of the Company decreasing such expenditures as a
part  of  its  cost  reduction  program.

     Professional  Services.  Professional  services primarily consist of legal,
and  accounting  costs  in addition to the cost of external consultants. For the
three  month  period ending March 31, 2003 our professional services amounted to
$599,706  as  compared  to $865,588 for the three month period March 31, 2002, a
decrease  of 31%. This decrease was largely due to a decrease in accounting fees
and  consulting  fees  as  compared  to  the  previous  period.

     Occupancy  and  Equipment. Occupancy and Equipment decreased $2,489,406, or
88%,  from  $2,838,916  for  the  three-month  period  ending  March 31, 2002 to
$349,510 for the three-month period ending March 31, 2003. Such costs, primarily
consisting  of  lease  costs for both office space and equipment, dropped due to
our  August  2002  surrender  and  termination of the 25th and 28th floor office
leases  at  40  Wall Street. These leases were terminated as part of our overall
cost  cutting  initiatives.  In  addition, as part of the closing of the On-Site
business  in June 2002, we no longer have branch offices in Great Neck, New York
and  Boca  Raton,  Florida. In addition, included in occupancy and equipment for
the  quarter  ended  March 31, 2002 are one time penalties associated with early
termination  of  leases.

     Depreciation  and  Amortization. Depreciation and amortization decreased by
$990,968,  or  66%,  when  comparing  the $1,495,287 for the three-months ending
March 31, 2002 to the $504,319 for the three-month period ending March 31, 2003,
which  was  primarily due to the disposal or surrender of assets subject to such
depreciation  and  amortization.  We  had  sold  software to an affiliate of our
clearing  broker and had written off intangible assets recognized as a result of
the  On-Site acquisition. In addition, we had surrendered leasehold improvements
at our 40 Wall Street office and at former offices in Great Neck and Boca Raton.

     Other expenses  increased by $352,069,  from $489,360 for the quarter ended
March 31, 2002 to $841,429 for the quarter ended March 31, 2003.

Loss  on  impairment.  The  loss  on impairment of $5,724,110 in the three month
period  ending  March  31,  2002  represents  the write off of intangible assets
(customer  lists)  acquired  in  the  On-Site acquisition during the three month
period  ending  March  31,  2002.


Six Months Ended March 31, 2003 Compared to Six Months Ended March 31, 2002

     Revenues.  Total  revenues  for  the  six  months ended March 31, 2003 were
$7,674,416,  a  decrease  of 48%, as compared to revenues of $14,886,263 for the
six  months  ended  March  31,  2002.

    Commissions.  For the six month  period  ending  March 31,  2003,  we earned
commission revenues of $2,692,673 representing a 78% decrease as compared to the
commission  revenues of $12,200,131 for the  corresponding  period in 2002. This
$9,507,458 decrease in commission revenues is largely due to loss of the On-Site
customers  from our direct  access  business  that was acquired in October 2001,
lower sales volume from our  institutional  sales division and the reductions in
the overall trading volume.

     Maintenance  and  Data Service Fees. Our revenues from maintenance and data
service  fees  decreased  by  $278,454, or 51%, from $540,809 for the six months
ended  March  31, 2002 to $262,355 for the six months ended March 31, 2003. This
decrease  is  due  the  migration  of  customers  from  third  party software to
UltimateTrader  II  for  which no fees are charged as well as the loss of direct
access  customer  accounts  for  which  maintenance  fees  are  charged.

     Revenues  from  Principal  Transaction.  Revenues from proprietary security
transactions  increased by 295%. We earned $3,954,671 from such transactions for
the six month period ending March 31, 2003 as compared to $1,000,758 for the six
month  period  March  31,  2002.

     Interest  Income.  Interest  income  decreased  $903,094,  or  81%,  from
$1,118,932  for  the  six  months ending March 31, 2002, to $215,838 for the six
months  ended  March  31,  2003. This decrease is largely due to the decrease in
margin  interest  and  interest  that  was  earned  by the Company on the retail
accounts acquired from On-Site that were closed in June 2002 and interest income
that  is  no  longer  earned from the LLC's operations, which were closed in May
2002.

    Other  Income.  Other income of $548,879 for the six months ending March 31,
2003  represents  a $523,246  increase as compared to the six months ended March
31, 2002. Such increase  primarily relates to settlements with vendors for which
the Company was the beneficiary.

     Interest  Expense.  Interest  expense decreased from $2,494,209 for the six
months  ended  March  31,  2002,  to $424,522 for the six months ended March 31,
2003.  This decrease was primarily due to the increased borrowings in connection
with  lines of credit that occurred for the six months ended March 31, 2002. The
Company issued warrants in connection with certain borrowings. The value of such
warrants  were  amortized  over  the term of the loan as a component of interest
expense. Interest expense relating to the amortization of the warrants issued in
connection  of  the  financing  during  the  six months ended March 31, 2002 was
approximately  $1,600,000.
<PAGE>
     Net  Revenues.  As  a  result  of  the foregoing, net revenues decreased by
$5,142,160,  or 41%, from $12,392,054 for the six months ended March 31, 2002 to
$7,249,894  for  the  six  months  ended March 31, 2003. Customers in the United
States generated the majority of the revenues and no single customer or group of
customers  accounted  for  10%  or  more  of  the  revenues.

     Expenses. Total expenses decreased by $20,792,164, or 63%, from $33,038,006
for the six months ended March 31, 2002, to $12,245,842 for the six months ended
March  31,  2003.

     Commissions,  Floor  Brokerage,  and  Clearing  Charges:  For the six month
period  ending  March  31,  2003,  we  incurred $2,552,188 of commissions, floor
brokerage  and clearing charges, a 69% decrease as compared to the corresponding
six-month  period  in  2002.  These costs represent payments to our clearing and
floor  brokers  who  facilitate security transactions for both our customers and
our  own  proprietary  accounts.  This  decrease is largely due to the June 2002
closing  of  the  On-Site  business  which had been acquired in October 2001. In
addition,  our  institutional sale division had lower volumes as compared to the
previous  period.

     Employee  Compensation  and  Related  Costs.  Our employee compensation and
related  costs  of  $3,865,029  for  the six month periods ending March 31, 2003
reflects a 41% decrease as compared to $6,591,742 incurred for such costs during
the  six  month  period  ending March 31, 2002. This decrease is attributable to
both  the  reduction  in the number of employees related to the On-site business
that  was  closed  in  June  2002  and  to  employees  that were involved in the
development  and  maintenance  of  our software, which was sold in July 2002. In
addition,  lower  compensation was paid to the institutional sales division as a
result  of  declining  revenues.

    Communications. Communications expense for the six month period ending March
31, 2003 amounted to $824,926,  a 52% decrease as compared to the $1,733,002 for
the corresponding  period in 2002. This decrease is largely due to the June 2002
closing of the  On-Site  business  and the  communication  costs  related to the
software that was sold in July 2002.

    Business  development.  Business  development  costs consist of  advertising
costs,  which have  mostly  been for print,  media and trade shows to obtain new
clients. These expenses decreased by $283,329, or 69%, from $411,578 for the six
months ended March 31, 2002, to $128,249 for the six month ended March 31, 2003,
as the  Company  decreased  such  expenditures  as a part of its cost  reduction
program.

   Professional services.  Professional services primarily consist of legal, and
accounting  costs in addition to the cost of external  consultants.  For the six
month  period  ending  March 31,  2003 our  professional  services  amounted  to
$998,730 as compared to  $1,320,501  for the six month period March 31, 2002, a
decrease of 24%. This decrease was largely due to a decrease in accounting  fees
and was partially  offset by an increase in legal fees  incurred as a result
of litigation and settlement with vendors.

     Occupancy  and  Equipment. Occupancy and equipment decreased $3,177,240, or
69%,  from  $4,618,289  for  the  six  month  period  ending  March  31, 2002 to
$1,441,049 for the six-month period ending March 31, 2003. Such costs, primarily
consisting  of  lease  costs for both office space and equipment, dropped due to
our  August  2002  surrender  and  termination of the 25th and 28th floor office
leases  at  40  Wall Street. These leases were terminated as part of our overall
cost  cutting  initiatives.  In  addition, as part of the closing of the On-Site
business  in  June 2002, we no longer have the branch offices in Great Neck, New
York  and  Boca  Raton, Florida. In addition included in the quarter ended March
31,  2002  are  one  time penalties associated with early termination of leases.

     Depreciation  and  Amortization. Depreciation and Amortization decreased by
$2,710,540,  or  73%,  when  comparing  the $3,714,266 for the six-months ending
March 31, 2002 to the $1,003,726 for the six-month period ending March 31, 2003,
primarily  due  to  the  disposal  or  surrender  of  assets  subject  to  such
depreciation  and  amortization. We had sold our software to an affiliate of our
clearing  broker and had written off intangible assets recognized as a result of
the  On-Site acquisition. In addition, we had surrendered leasehold improvements
at our 40 Wall Street office and at former offices in Great Neck and Boca Raton.


<PAGE>

     Other  expenses  increased  by  $317,590 from $1,030,068 for the six months
ended  March  31,  2002  to $ 1,347,658 for the six months ended March 31, 2003.
This  increase is due largely due the increase in the 2% penalty on the Series A
Convertible  Preferred  Stock.  The  2% penalty began to accrue in late December
2002  for  failure to file a registration statement in accordance with the terms
of  the  Series  A  Convertible  Preferred  Stock  agreement.  This increase was
partially  offset  by  a  reduction in general operating expenses as part of our
overall  cost  cutting  initiatives.

     Loss on  impairment.  The loss on impairment of $ 5,724,110  represents the
write  off of  intangible  assets  (customer  lists)  acquired  in  the  On-Site
acquisition.


    Minority  interest of $412,495  represents the trading losses of the Class B
non-voting members of the LLC that occurred in the six month period ending March
31, 2002. The LLC was closed in June 2002.


Liquidity and Capital Resources

     As indicated by the accompanying unaudited condensed consolidated financial
statements,  the Company has  continued to incur  consolidated  net losses,  and
negative cash flows from operations.  Additionally,  the Company has significant
deficits in both working capital and stockholders'  equity.  These factors raise
substantial  doubt about the Company's  ability to continue as a going  concern.
The financial  statements do not include any adjustments  that might result from
the outcome of this uncertainty.


     Trading  volume  has  significantly  decreased  and the  Company  has  lost
customers in its direct access business. To respond to its liquidity and capital
resource  needs  management  has  implemented  various cost cutting  initiatives
including  renegotiating  its clearing  agreements at more favorable  rates, the
restructuring of its software  license with E*Trade Group,  Inc. and the sale of
its software programs known as Ultimate Trader II and Watley Trader. The Company
is also looking into more traditional lines of business such as fixed income and
equity capital  markets,  as well as, the  feasibility of expanding its existing
business to attract  active  traders and hedge funds.  As a further fund raising
alternative  the  management of ABWG may seek to raise  additional  capital from
time to time to fund  operations  through  private  placements of equity or debt
instruments.  There can be no assurance that any of these  alternatives  will be
successful.

     Cash provided by operating activities during the six months ended March 31,
2003  was  $  120,449  as  compared  to cash utilized by operating activities of
$6,562,043 for the six months ended March 31, 2002. Cash was principally used to
fund the net loss of $4,995,948 net of non-cash items including depreciation and
amortization of $1,003,726, penalties related to the issuance of preferred stock
of  $759,107,  non-cash  compensation/service  costs  of  $16,334,  issuance  of
warrants of $45,620. In addition, cash was principally impacted by the return of
$292,565  in cash to the Company that was previously held as a security deposit,
a  decrease  in  receivables  from  clearing brokers of $134,967, a decrease of
securities  owned  of  $2,042,251,  an  increase in accounts payable and accrued
liabilities  of  $1,211,288  and  a  decrease  in lease obligations and other of
$281,627.

     Cash used in investing  activities  was $64,949 during the six months ended
March  31,  2003,  compared to cash provided by investing activities of $360,204
during  the  six months ended March 31, 2002. Uses of cash during the six months
ended  March  31,  2003,  primarily  related  to  the  purchase of furniture and
equipment.

     Cash used in financing  activities was $235,038 during the six months ended
March 31, 2003 compared to cash  provided by financing of $5,693,786  during the
six months ended March 31, 2002.  Cash provided by financing  activities  during
the six months  ended March 31, 2003,  principally  consisted of net payments of
notes payable of $200,000.

Net Operating Loss Carryforwards

     The  Company's net operating loss carryforwards begin to expire in the year
2013.  The issuance of additional equity securities, together with the Company's
recent  financing  and  public offering, could result in an ownership change and
thus  could  limit our use of the Company's net operating losses. If the Company
achieves profitable operations, any significant limitation on the utilization of
our  net  operating losses would have the effect of increasing our tax liability
and  reducing net income and available cash reserves. We are unable to determine
the availability of these net operating losses, which may be limited as a result
of  any  change  in  ownership.

<PAGE>

Relevant Accounting Standards

     The following  pronouncements have been issued by the Financial  Accounting
Standards Board ("FASB").

In January 2003, the FASB issued  Interpretation  46,  Consolidation of Variable
Interest  Entities.  In general,  a variable  interest  entity is a corporation,
partnership, trust, or any other legal structure used for business purposes that
either (a) does not have equity  investors  with voting rights or (b) has equity
investors that do not provide sufficient  financial  resources for the entity to
support its activities. Interpretation 46 requires a variable interest entity to
be  consolidated  by a company if that  company is subject to a majority  of the
risk of loss from the  variable  interest  entity's  activities  or  entitled to
receive a majority of the entity's  residual returns or both. The  consolidation
requirements  of  Interpretation  46  apply  immediately  to  variable  interest
entities created after January 31, 2003. The consolidation requirements apply to
older entities in the first fiscal year or interim period  beginning  after June
15,  2003.  Certain  of the  disclosure  requirements  apply  in  all  financial
statements  issued  after  January 31,  2003,  regardless  of when the  variable
interest entity was established.

In April 2003,  Financial Accounting Standards Board, "FASB" issued Statement of
Financial  Accounting  Standard,  SFAS No. 149,  "Amendment  of Statement 133 on
Derivative  Instruments  and  Hedging  Activities."  The  Statement  amends  and
clarifies accounting for derivative  instruments,  including certain derivative
instruments  embedded  in other  contracts,  and for  hedging  activities  under
Statement  133.  This  Statement  is  effective  for  contracts  entered into or
modified  after  June  30,  2003,   except  as  stated  below  and  for  hedging
relationships  designated  after June 30, 2003.  The guidance  should be applied
prospectively.  The  provisions of this  Statement  that relate to Statement 133
Implementation  Issues that have been  effective for fiscal  quarters that began
prior to June 15, 2003 should  continue to be applied in  accordance  with their
respective effective dates. In addition,  certain provisions relating to forward
purchases or sales of when-issued securities or other securities that do not yet
exist,  should be applied to existing contracts as well as new contracts entered
into after June 30, 2003.


Management  does not believe  that the  adoption of any of these  pronouncements
will have a material effect on the Company's  condensed  consolidated  financial
statements.


Investment Considerations and Risk Factors

     The following factors and other information in this filing should carefully
be considered when evaluating the Company and its stock.

     o    If we are unable to  continue  cost  cutting  and  revenue  generation
          initiatives,  enter into a strategic  business  combination  or obtain
          additional funding sources at acceptable terms, our ability to operate
          our business will be significantly diminished.

     We are implementing cost cutting and revenue  generation  initiatives,  and
exploring strategic business combinations.  We also will need to find additional
funding  sources at rates and terms  acceptable  to us to meet our  capital  and
liquidity  needs for the  remainder  of the year.  To the extent that capital is
raised through the sale of equity or convertible debt  securities,  the issuance
of these  securities  could  result in dilution to our  stockholders.  If we are
unable to obtain such financing,  make  sufficient  improvement in our operating
results or find a strategic  partner our ability to operate our business will be
significantly diminished.

     o    Periods of declining  securities prices,  decreasing trade volumes, or
          uncertainty  in the public  equity  markets may  adversely  affect our
          revenues.


     Our future  revenues  are likely to be lower  during  periods of  declining
securities prices or reduced  securities market activity The public markets have
historically  experienced significant volatility not only in the number and size
of share  offerings,  but also in the secondary market trading volume and prices
of newly issued  securities.  Activity in the private equity markets  frequently
reflects  the trends in the  public  markets.  As a result,  our  revenues  from
brokerage  activities may also be adversely affected during periods of declining
prices or reduced activity in the public markets.

     o    We may not be able to adapt with rapid technological  change in a cost
          effective manner.

     Traditional and online financial  services  industries are characterized by
rapid  technological  change,  changes in customer  requirements,  frequent  new
service  and  product  introductions  and  enhancements  and  evolving  industry
standards. Our future success will depend on our ability to enhance our existing
services and  products.  We must also  develop new  services  and products  that
address the  increasingly  sophisticated  and varied needs of our  customers and
prospective  customers.  We must respond to technological  advances and evolving
industry  standards  and  practices on a timely and  cost-effective  basis.  The
development  and  enhancement  of  services  and  products  entails  significant
technical and financial risks. We may fail to

o    use  new  technologies  effectively;
o    adapt  services  and  products  to  evolving
     industry  standards;  or
                 o    develop,  introduce  and  market  service  and  product
                      enhancements  or  new  services  and  products.

     In addition, we may experience difficulties that could delay or prevent the
successful development,  introduction or marketing of our services and products,
and our new service and product  enhancements may not achieve market acceptance.
If we encounter these problems, our business,  financial condition and operating
results may be materially adversely affected.

     o Operational risks may disrupt our business or limit our growth.

     Like other  securities  and  securities-related  businesses,  we are highly
dependent on information  processing  and  telecommunications  systems.  We face
operational  risks arising from potential  mistakes made in the  confirmation or
settlement of transactions or from the failure to properly  record,  evaluate or
account for transactions.  Our business is highly dependent on our ability,  and
the ability of our clearing  firms,  to process,  on a daily basis,  a large and
growing   number  of   transactions   across   numerous  and  diverse   markets.
Consequently,  we  and  our  clearing  firms  rely  heavily  on  our  respective
financial, accounting,  telecommunications and other data processing systems. If
any of these systems were to not operate  properly or become  unavailable due to
problems with our physical  infrastructure,  we could suffer  financial  loss, a
disruption of our business,  liability to clients,  regulatory  intervention  or
reputational  damage.  In  addition,  we are aware that other  companies  in our
industry have had problems due to high volume of telephone  and e-mail  customer
inquiries  that has at times  strained the capacity of their  telecommunications
systems and customer service staffs,  and has also led to temporary  disruptions
in website  service.  Thus,  any  inability  of systems used to  accommodate  an
increasing  volume of transactions  and customer  inquiries could also constrain
our ability to expand our businesses and could damage our reputation.

     o    Employee  misconduct  could  harm us and is  difficult  to detect  and
          deter.

     There  have been a number of highly  publicized  cases  involving  fraud or
other  misconduct  by employees  in the  financial  services  industry in recent
years, and we run the risk that employee  misconduct could occur.  Misconduct by
employees could bind us to transactions that exceed authorized limits or present
unacceptable risks, or hide from us unauthorized or unsuccessful activities.  In
either case, this type of conduct could result in unknown and unmanaged risks or
losses.  Employee misconduct could also involve the improper use of confidential
information, which could result in regulatory sanctions and serious reputational
harm.  It  is  not  always  possible  to  deter  employee  misconduct,  and  the
precautions  we take to prevent and detect this activity may not be effective in
all cases.

     o    The securities  industry in which we will operate is heavily regulated
          by the Securities and Exchange Commission  ("SEC"),  state regulators,
          and the National  Association of Securities  Dealers  ("NASD").  If we
          fail to  comply  with  applicable  laws and  regulations,  we may face
          penalties or other sanctions that may be detrimental to our business.

     The  securities  industry  in the United  States is  subject  to  extensive
regulation  under both  federal  and state laws.  Broker-dealers  are subject to
regulations covering all aspects of the securities business, including:


     o    sales methods;
     o    trade practices among broker-dealers;
     o    use and safekeeping of customers' funds and securities;
     o    capital structure;
     o    record keeping;
     o    conduct of directors, officers, and employees; and
     o    supervision of employees, particularly those in
          branch offices.


     The principal purpose of regulation and discipline of broker-dealers is the
protection of customers and the securities  markets,  rather than  protection of
creditors and stockholders of broker-dealers.

     Uncertainty  regarding the application of these laws and other  regulations
to our business may  adversely  affect the viability  and  profitability  of our
business.  The SEC,  the NASD,  other  self-regulatory  organizations  and state
securities  commissions can censure,  fine, issue  cease-and-desist  orders,  or
suspend  or expel a  broker-dealer  or any of its  officers  or  employees.  Our
ability to comply with all applicable laws and rules is largely dependent on our
establishment  and maintenance of a compliance system to ensure such compliance,
as well as our ability to attract and retain qualified compliance personnel.  We
could be subject to disciplinary  or other actions due to claimed  noncompliance
in the future,  and the  imposition  of any  material  penalties or orders on us
could have a material  adverse  effect on our  business,  operating  results and
financial  condition.  In  addition,  it is possible  that  noncompliance  could
subject  us to future  civil  lawsuits,  the  outcome  of which  could  harm our
business.

In  addition,  our  mode of operation and profitability may be directly affected
by:

 o    additional legislation;
 o    changes in rules promulgated by the SEC, state  regulators,  the NASD,
      and other regulatory and self-regulatory organizations; and
 o    changes  in  the  interpretation  or  enforcement  of
      existing  laws  and  rules.
 o    The failure to remain in  compliance  with the Net Capital  Rule would
      adversely   affect   our   ability  to   continue   to  operate  as  a
      broker-dealer.

     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  brokers,  including  the SEC's  Uniform Net  Capital  Rule (the "Net
Capital Rule"). Net capital is the net worth of a broker or dealer (assets minus
liabilities), less certain deductions that result from excluding assets that are
not readily convertible into cash and from conservatively  valuing certain other
assets.  Failure to  maintain  the  required  net  capital may subject a firm to
suspension or revocation of  registration by the SEC and suspension or expulsion
by the NASD and other regulatory  bodies and ultimately could require the firm's
liquidation.

     In addition, a change in the net capital rules, the imposition of new rules
or any unusually  large charge  against net capital could limit those aspects of
our contemplated  operations that require the intensive use of capital,  such as
trading activities and the financing of customer account balances. A significant
operating loss or any unusually large charge against net capital could adversely
affect our ability to operate and/or expand, which could have a material adverse
effect on our business, financial condition and operating results.

     As  of  September  30,  2002, A.B. Watley had a net capital deficit of
$301,523.  This deficiency was cured in October 31, 2002. While the Company is
presently in compliance with net capital requirements, there can be no assurance
that  we  will  not  fall  below minimum net capital requirements in the future.


   o      The failure of brokerage  customers to meet their margin  requirements
          could result in significant liabilities.

     The  brokerage  business,  by its  nature,  is subject to risks  related to
defaults by our customers in paying for securities  they have agreed to purchase
and delivering  securities  they have agreed to sell. Our clearing firm may make
margin loans to our customers in connection with their securities  transactions.
We are required by contract to indemnify that firm for, among other things,  any
loss or expense  incurred  due to defaults by our  customers in failing to repay
margin loans or to maintain  adequate  collateral  for those  loans.  We will be
subject to risks  inherent in extending  credit,  especially  during  periods of
volatile  markets or in connection  with the purchase of highly  volatile stocks
which could lead to a higher risk of customer defaults.

     o    We may be obligated to redeem our Series A Preferred  Stock at a point
          in the future.


     The  holders of our Series A  Preferred  Stock have the right to have their
shares  redeemed for cash equal to the greater of (i) the price we received when
we sold them the stock ($10,000 per share) plus any accrued and unpaid  dividend
payments and (ii) the  aggregate  value of the shares of Common Stock into which
such shares of Series A  Preferred  Stock are then  convertible  (based upon the
closing bid price), in any of the following situations:

     o    if our Common Stock is not tradable on the NYSE,  the AMEX, the NASDAQ
          National  Market or the  NASDAQ  SmallCap  market for a period of five
          consecutive days.
     o    if we fail to register with the Securities and Exchange Commission (or
          maintain such  registration of) the Common Stock into which the Series
          A Preferred Stock converts.
     o    if we fail to honor  requests  for  conversion,  or if we  notify  any
          holder  of  Series A  Preferred  Stock of our  intention  not to honor
          future requests for conversion.
     o    if the  holders of more than 30 percent of the  outstanding  shares of
          our Common Stock sell or exchange their stock.
     o    if we commit a material breach under, or otherwise  materially violate
          the terms of, the  transaction  documents  entered into in  connection
          with the issuance of the Series A Preferred Stock and the warrants.


     In April of 2002,  our Common  Stock was  delisted  from the  NASDAQ  Stock
Market.  In  addition,  we have not  registered  the Common Stock into which the
Series A Preferred Stock converts. We have not received a redemption notice from
any of the holders of our Series A Preferred  Stock.  Redemption of the Series A
Preferred  Stock in any  event  described  above  would  require  us to expend a
significant  amount of cash that  likely  will  exceed our  ability to make such
payment or raise additional capital.


     o    Our stockholders could experience  substantial dilution as a result of
          the  issuance  of and terms of our  Series A  Preferred  Stock and the
          related warrants.

     The 630 shares of Series A  Preferred  Stock that were sold in the  private
placement are  initially  convertible  into  approximately  2,135,700  shares of
Common  Stock.  The  warrants  granted in  connection  with the sale of Series A
Preferred Stock are initially  exercisable for 1,629,069 shares of Common Stock,
at an exercise price of $2.95 per share.
     Under the terms of the Series A Preferred  Stock,  we are also obligated to
issue  additional  shares of Common Stock every six months to the holders of the
Series  A  Preferred  Stock  as  preferred  stock  dividends.  Initially,  these
dividends  will be  payable at the rate of six  percent  for the first 18 months
following  issuance of the Series A Preferred  Stock and fifteen  percent  after
that  initial  18 month  period.  The  number of shares of Common  Stock will be
determined  by dividing the dividend  payment by the market price for our Common
Stock on the day before  such  dividend  is payable.  Because  these  shares are
issueable  as a  dividend,  we  will  receive  no  additional  consideration  in
connection with their issuance.

     o    We may also be  required  to issue  shares  of  Common  Stock  without
          additional  consideration  in the  event  that we fail to  redeem  any
          shares of Series A Preferred Stock when required.

     All  of  the  foregoing   issuances  of  Common  Stock  are  likely  to  be
substantially  dilutive to the  outstanding  shares of Common Stock,  especially
where,  as  described  above,  the  shares of Common  Stock are  issued  without
additional  consideration.  Moreover,  any  increase  in the number of shares of
Common Stock we are required to issue resulting from  anti-dilution  protection,
penalties  or other  adjustments  to the  conversion  or exercise  prices of the
Series A  Preferred  Stock  and/or the  warrants  described  above will  further
increase  the  anticipated  dilution  to the  outstanding  holders of our Common
Stock.  We cannot predict  whether or how many  additional  shares of our Common
Stock will become issuable due to these provisions.

     Any such dilution, potential dilution, or increase in dilution or potential
dilution, may result in a decrease in the value of the outstanding shares of our
Common  Stock.  Such a  decrease  in value,  the risk of  dilution,  any  actual
dilution,  or any increase in potential  dilution may cause our  stockholders to
sell their shares, which would contribute to a downward movement in the price of
our Common  Stock.  This  could  prevent us from  sustaining  a per share  price
sufficient  to enable us to  maintain  an active  trading  market on the  NASDAQ
National Market or SmallCap Market if our stock is re-listed.  In addition,  any
downward  pressure on the  trading  price of our Common  Stock  could  encourage
investors to engage in short sales, which would further contribute to a downward
pricing of our Common Stock.

     o    We may be  required  to obtain the  consent of the holders of Series A
          Preferred Stock before taking corporate actions,  which could harm our
          business.

     Our  charter  documents  require us to obtain the consent of the holders of
the Series A Preferred Stock before we may issue  securities that have senior or
equal rights as the Series A Preferred  Stock or take other actions with respect
to the Series A Preferred  Stock or  securities  that have fewer rights than the
Series A  Preferred  Stock.  We are also  required  to obtain the consent of the
holders  of the  Series  A  Preferred  Stock  before  we  amend  or  modify  our
certificate of  incorporation  or bylaws,  whether by merger,  consolidation  or
otherwise  to change  any of the  rights of the  holders  of Series A  Preferred
Stock.  While these obligations may deter a potential acquirer from completing a
transaction with us, they may also prevent us from taking corporate actions that
would be beneficial to the holders of our Common Stock and the Company,  such as
raising  capital to operate our business or maintain our  capitalization  or per
share price in attempts to maximize stockholder volume and liquidity.

     o    We may be  unable  to  obtain  critical  goods  or  services  from our
          suppliers

     We obtain financial  information from a number of third-party  suppliers of
software  and  information  services.  We  believe  we have  available  to us at
comparable  cost a number of  alternative  sources  of supply of these  items of
software and information  services, to provide adequate replacements on a timely
basis, if arrangements with any of our current suppliers are abrogated.  We have
established a number of relationships with third-party suppliers of software and
information  services.  There can be no assurance that such  relationships  will
continue or that timely  replacement  of such  services will be available in the
future.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

     Our  primary  financial  instruments  are cash in banks  and  money  market
instruments.  We do not believe that these  instruments  are subject to material
potential near-term losses in future earnings from reasonably possible near-term
changes  in  market  rates  or  prices.  We do  not  have  derivative  financial
instruments  for  speculative  or  trading  purposes.  In the  normal  course of
business, our customers enter into transactions where the risk of potential loss
due to market fluctuations or failure to perform exceeds the amount reported for
the transaction. We have established policies, procedures and internal processes
governing  our  management  of market risk in the normal  course of our business
operations.  We,  along with our  clearing  brokers,  continuously  monitor  our

exposure  to market  and  counter  party  risk  through  the use of a variety of
financial,  position and credit exposure  reporting and control  procedures.  In
addition,  we review the  creditworthiness of each customer and/or other counter
party  with  which we  conduct  business.  We are not  currently  exposed to any
material  currency  exchange  risk  because  the risk is borne by  international
customers and our international partners, and we do not hold any assets or incur
any liabilities denominated in foreign currency.

Item 4. Controls and Procedures

     During the quarter,  an evaluation was performed  under the supervision and
with the  participation  of the  Company's  management,  including the Principal
Executive Officer and the Principal  Financial Officer,  of the effectiveness of
the design and operation of the Company's  disclosure  controls and  procedures.
Based on that  evaluation,  the  Company's  management,  including the Principal
Executive  Officer  and the  Principal  Financial  Officer,  concluded  that the
Company's  disclosure  controls and  procedures  were  effective as of March 31,
2003. There have been no significant  changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to March 31,2003.

Part II - OTHER INFORMATION

Item 1. Legal Proceedings

     Our business involves substantial risks of liability, including exposure to
liability  under federal and state  securities laws in connection with claims by
dissatisfied clients for fraud, unauthorized trading,  churning,  mismanagement,
and breach of fiduciary duty, as well as in connection with the  underwriting or
distribution  of  securities.  In recent  years,  there  has been an  increasing
incidence of  litigation  involving the  securities  industry,  including  class
actions which generally seek rescission and substantial damages.

     In the ordinary  course of  business,  we and our  principals  are, and may
become, a party to legal proceedings or arbitration.  Except as described below,
the Company is not a party to any material legal proceedings or arbitrations.

     The Company is a party to various suits alleging breach of contract (i) due
to  non-payment  for  services  or  goods  provided,  and  (ii) for the minority
interest of the Class B members of the LLC. The Company is defending these suits
and  has  commenced  settlement  negotiations  with  respect to several of these
suits.

     A  suit  seeking damages of $31,400,000 had been brought by Akro Investicni
Spolecnost,  A.S.  and  Bozena  Konvalinkova,  as  Czech  Receiver  of  Private
Investors,  against  A.B.  Watley  .  Approximately  $950,000 of that amount was
alleged to represent AKRO's claims, with the balance representing claims brought
by  the Receiver. The suit alleged violations of New York common law and federal
securities  law  by  A.B.  Watley  arising  from  an  agreement  between Private
Investors,  a  Czech  broker-dealer.  On March 12, 2003, the Court dismissed the
claims  brought by the Receiver, and the parties are currently in the process of
arriving  at  a  settlement  of  the  remaining  claims.

     In March 2003,  the holder of the $5 million  secured  demand note demanded
repayment of the note. On March 31, 2003,  ABW filed a NASD  Arbitration  Demand
and a  Statement  of  Claims  with  the  NASD  Dispute  Resolution  office.  The
arbitration seeks to enforce the provisions of the secured demand note agreement
and  to  prevent  premature withdrawal by the lender. A date for the arbitration
hearing has not yet been determined. The financial statements do not include any
adjustments  for  fees  and  penalties  associated  with  the  litigation.

     We are a defendant in an action relating to the lease of equipment in which
the  plaintiff  has  asserted  breach  of  contract and damages in the amount of
$195,000.  This such action is pending before the Supreme Court of New York, New
York.

     We  are  a defendant in two actions relating to the lease of equipment in
which  the plaintiffs have asserted breach of contract claims against us. In May
2003,  judgments  were  entered against us by the Supreme Court of New York, New
York  in the aggregate amount of approximately $618,000 in connection with these
two  matters.  We intend to attempt to engage in discussions with the plaintiffs
regarding  potential  settlement  of these matters, however no assurances can be
provided  that  we  will  be  able  to  settle  these  matters.

     We are a defendant in an action  pending  before the  American  Arbitration
Association  ("AAA") in which the plaintiffs  have asserted  breach of fiduciary
duties.  The  plaintiff  in this  action  seeks an  accounting  and  unspecified
damages.


     We are a defendant in an action pending before the National  Association of
Securities  Dealers  ("NASD") in which the  claimants  have  asserted  breach of
contract and damages in the aggregate amount of approximately $147,000.



In  connection with the settlement of the following actions, we have paid or are
required  to  pay  an  aggregate  of  approximately  $476,000:

     -    We settled an action  pending  before the AAA in  connection  with our
          failure to maintain a  registration  statement in which the plaintiffs
          asserted breach of contract and damages in the amount of approximately
          $84,000;

     -    We settled a breach of  contract  action  pending  before the  Supreme
          Court,  Nassau County, New York arising out of an employment  dispute.
          The  plaintiff  in this  action was  seeking  compensatory  damages of
          $93,000, as well as liquidated damages, under New York's Labor Law, in
          the amount of 25% of the compensatory damages;

     -    We settled an action pending before the Supreme Court of New York, New
          York  in  connection  with  a  construction   contract  in  which  the
          plaintiffs  asserted  breach of contract and damages in the  aggregate
          amount of approximately $234,000;

     -    We settled an action pending before the Supreme Court of New York, New
          York  in  connection  with  an  advertising   contract  in  which  the
          plaintiffs  asserted  breach of contract and damages in the  aggregate
          amount of approximately $29,000;

     -    We settled an action  relating to  collection  of an existing  account
          payable in which a  judgment  has been  entered  against  the  Company
          totaling approximately $24,000; and

     -    We settled an action in which the plaintiffs  filed a claim against us
          requesting  damages  in the  amount  of  approximately  $274,658.  The
          settlement  agreement  required that we make eight monthly payments to
          the plaintiff in the amount of $15,625  totaling  $125,000.  As of the
          date  hereof,  we have made two  payments in the  aggregate  amount of
          $31,250.  We have failed to continue to make  further  payments  under
          this  settlement  agreement  and we are not able to determine  how our
          failure to make these  payments  will  impact the  Company in the near
          future.

The  foregoing  settled  matters  represented  claims  for  an  aggregate  of
approximately  $738,658.  As  stated  above,  we  have  entered  into settlement
agreements  with  respect to these matters, which agreements provide for payment
of  an  aggregate  of  approximately  $321,000. Such settlements require partial
payment  and  are  expected  to  be  completed between now and July 27, 2004. We
intend  to  make any required partial payments from the cash flow generated from
operations and/or from additional funds received from future financings, if any.
Should any of these payments not be made in a timely manner or at all, we may be
required  to  pay  the  balance  of  the  liabilities.

     In addition to the foregoing,  in the ordinary  course of business,  we and
our principals are, and may become,  a party to legal or regulatory  proceedings
commenced  by the  NASD,  the SEC or state  securities  regulators  relating  to
compliance,  trading  and  administrative  problems  that  are  detected  during
periodic  audits and  inspections or reported by  dissatisfied  customers.  Such
matters,  if pursued by such entities,  could rise to the level of  disciplinary
action.   The  Company  is  not  currently  involved  in  any  proceeding  by  a
governmental  agency or  self-regulatory  organization,  the outcome of which is
expected  to have a material  adverse  effect on our  business.  There can be no
assurance that one or more future disciplinary  actions, if decided adversely to
the Company, would not have a material adverse effect on the Company's business,
financial condition and results of operations.

Item 2. Changes in Securities
        None.

Item 3. Default upon Senior Securities

     On November  29,  2001,  the Company  entered  into a Series A  Convertible
Preferred   Purchase  Agreement  whereby  it  issued  630  shares  of  Series  A
Convertible  Preferred Stock,  par value $.01  ("Preferred  Stock") in a private
placement.  Each share is convertible  into 3,390 shares of the Company's Common
Stock at an exercise price of $2.95.  The purchasers of the Preferred Stock were
issued warrants,  expiring in 5 years from the date of issuance,  to purchase an
additional 1,629,069 shares of Common Stock at an exercise price of $2.95.

     Pursuant to the Purchase  Agreement and the  Registration  Rights Agreement
(the "Registration Agreement"),  the Company was required to file a registration
statement  (the  "Registration  Statement")  with the  Securities  and  Exchange
Commission  registering  for resale the shares of Common Stock issuable upon the
conversion of the shares of Preferred  Stock in the amount of 2,135,700  shares,
and upon the  exercise of warrants  to  purchase  shares of Common  Stock in the
amount  of  1,629,069.  As of the  date  hereof,  the  Company  has not  filed a
Registration  Statement and will not be able to have the Registration  Statement
filed and  declared  effective  within the  period  required.  As a result,  the
Company is in default of the Purchase Agreement and the Registration  Agreement.
A penalty of 2% of the liquidation  preference  value of the Preferred Stock for
each thirty-day period accrues to each holder of Preferred Stock and is added to
the liquidation  preference amount until cured. As of March 31, 2003, liquidated
damages of approximately $1,827,000 have been accrued to the preferred holders.



Item 4.  Submission of Matters to a Vote of Security Holders
None.

Item 5.  Other Information
None.


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

     (a)  Exhibits

          99.1 Certification by John J. Amore,  Chief Executive Officer pursuant
               to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of
               the Sarbanes-Oxley Act of 2002.

          99.2 Certification  by  Robert  Malin,   Principal  Financial  Officer
               pursuant  to 18 U.S.C.  Section  1350,  as  adopted  pursuant  to
               Section 906 of the Sarbanes-Oxley Act of 2002.

     (b)  Reports
               None.

<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Date: May 14, 2003

                                  A.B. WATLEY GROUP INC. (Registrant)

                                  By: /s/ John J. Amore
                                      --------------------------------
                                          John J. Amore
                                          Chief Executive Officer

                                  By: /s/ Robert Malin
                                      --------------------------------
                                          Robert Malin
                                          Principal Financial Officer








<PAGE>




                                  CERTIFICATION

I, John J. Amore, the Chief Executive Officer, certify that:

1.   I have reviewed  this  quarterly  report on Form 10-Q of A.B.  Watley Group
     Inc.

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report; and

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  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
     quarterly 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  quarterly  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
     quarterly report (the "Evaluation Date"); and
          c)  presented  in this  quarterly  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 functions):

          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
     quarterly 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.

                                        /s/ John J. Amore
                                        ----------------------------------
                                        Chief Executive Officer
                                        Date:  May 14, 2003





<PAGE>



                                  CERTIFICATION

I, Robert Malin, the Principal Financial Officer, certify that:

1.   I have reviewed  this  quarterly  report on Form 10-Q of A.B.  Watley Group
     Inc.

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report; and

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  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
     quarterly 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  quarterly  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
     quarterly report (the "Evaluation Date"); and
          c)  presented  in this  quarterly  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 functions):

          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
     quarterly 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.

                                    /s/ Robert Malin
                                    ----------------------------------
                                    Robert Malin
                                    Principal Financial Officer
                                    Date:  May 14, 2003




<PAGE>