**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM** **10-Q**







þ
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**For
      the quarterly period ended March 31, 2007**




or




**o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**For
      the transition period from** ___________________
      to ___________________




**Commission
      file number: 0-21324**







**NYFIX,
      INC.**


**(Exact
      name of registrant as specified in its charter)**




**Delaware**
              **(State
                or other jurisdiction of**
              **incorporation
                or organization****)**
            **06-1344888**
              **(I.R.S.
                Employer**
              **Identification
                Number)****100
                Wall Street**
              **New
                York, New York**
              **(Address
                of principal executive offices)**
            **10005**
              **(Zip
                code)**




**(646)
      525-3000**


**(** **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 o No x





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.




Large
                accelerated filero
            Accelerated
                filerx
            Non-accelerated
                filer o




Indicate
      by check mark whether the registrant is a shell company (as
      defined in Rule 12b-2 of the Exchange Act).


Yes o No x





As
      of
      July 31, 2007, the registrant had 36,501,987 shares of common stock, $0.001
      par
      value, outstanding.












**NYFIX,
      INC.**




**INDEX**




**Page****PART
              I - FINANCIAL INFORMATION****Item
                1.**
            **Unaudited
                Financial Statements**Condensed
                Consolidated Balance Sheets as of March 31, 2007 and December 31,
                2006
            
            3Condensed
                Consolidated Statements of Operations for the three months ended
                March 31,
                2007 and 2006
            
            4Condensed
                Consolidated Statement of Changes in Stockholders’ Equity and
                Comprehensive Loss for the three months ended March 31,
                2007
            
            5Condensed
                Consolidated Statements of Cash Flows for the three months ended
                March 31,
                2007 and 2006
            
            6Notes
                to Condensed Consolidated Financial Statements
            
            7**Item
                2.**
            **Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations**
            
            21**Item
                3.**
            **Quantitative
                and Qualitative Disclosures About Market Risk**
            
            33**Item
                4.**
            **Controls
                and Procedures**
            
            33**PART
              II - OTHER INFORMATION****Item
                1.**
            **Legal
                Proceedings**
            
            35**Item
                1A.**
            **Risk
                Factors**
            
            35**Item
                2.**
            **Unregistered
                Sales of Equity Securities and Use of Proceeds**
            
            35**Item
                3.**
            **Defaults
                Upon Senior Securities**
            
            36**Item
                4.**
            **Submission
                of Matters to a Vote of Security Holders**
            
            36**Item
                5.**
            **Other
                Information**
            
            36**Item
                6.**
            **Exhibits**
            
            37**Signatures**
            
            38




Page
          2


**Part
      I - FINANCIAL INFORMATION**





**Item
      1. Unaudited Financial Statements**




**NYFIX,
                Inc. and Subsidiaries****Condensed
                Consolidated Balance Sheets****(in
                thousands, except share and per share
                amounts)**





**March
                31,**
            
            **December
                31,****2007**
            
            **2006****(Unaudited)**
            
            **(Audited)****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            94,634
            
            $
            105,888Accounts
                receivable, less allowances of $382 and $316, respectively
            
            
            17,548
            
            
            13,744Clearing
                broker assets
            
            
            431,320
            
            
            422,880Prepaid
                expenses and other current assets
            
            
            5,349
            
            
            4,435Total
                current assets
            
            
            548,851
            
            
            546,947Property
                and equipment, net of accumulated depreciation and amortization of
                $34,125
                and $32,813, respectively
            
            
            16,151
            
            
            14,808Product
                enhancement costs, net of accumulated amortization of $16,997 and
                $16,139,
                respectively
            
            
            5,863
            
            
            5,900Goodwill
            
            
            58,183
            
            
            58,193Acquired
                intangible assets, net of accumulated amortization of $11,038 and
                $10,472,
                respectively
            
            
            1,402
            
            
            1,966Other
                assets, net
            
            
            1,560
            
            
            1,514Total
                assets
            
            $
            632,010
            
            $
            629,328**Liabilities
                and Stockholders' Equity**Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            27,264
            
            $
            25,133Clearing
                broker liabilities
            
            
            429,142
            
            
            422,429Current
                portion of capital lease obligations
            
            
            1,173
            
            
            1,223Current
                portion of long-term debt
            
            
            190
            
            
            188Current
                portion of other long-term liabilities
            
            
            931
            
            
            1,235Deferred
                revenue
            
            
            4,418
            
            
            4,212Total
                current liabilities
            
            
            463,118
            
            
            454,420Long-term
                portion of capital lease obligations
            
            
            260
            
            
            461Long-term
                debt
            
            
            7,419
            
            
            7,412Other
                long-term liabilities
            
            
            3,581
            
            
            3,662Total
                liabilities
            
            
            474,378
            
            
            465,955Commitments
                and contingenciesStockholders'
                equity:Preferred
                stock, $1.00 par value; 5,000,000 shares authorized:Series
                A, none issued
            
            
            -
            
            
            -Series
                B Voting Convertible, 1,500,000 shares issued and outstanding; liquidation
                preference of $76,319 at March 31, 2007
            
            
            62,092
            
            
            62,092Series
                C Non-Voting Convertible, none issued
            
            
            -
            
            
            -Common
                stock, $0.001 par value; 100,000,000 and 60,000,000 shares authorized;
                36,882,486 and 36,654,986 shares issued, respectively
            
            
            257,121
            
            
            256,835Accumulated
                deficit
            
            
            (148,660
            )
            
            (139,309
            )Treasury
                stock, 933,780 and 1,133,778 shares, respectively, at cost
            
            
            (12,901
            )
            
            (16,224
            )Accumulated
                other comprehensive loss
            
            
            (20
            )
            
            (21
            )Total
                stockholders' equity
            
            
            157,632
            
            
            163,373Total
                liabilities and stockholders' equity
            
            $
            632,010
            
            $
            629,328





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




Page
          3




**NYFIX,
                Inc. and Subsidiaries****Condensed
                Consolidated Statements of Operations
                (Unaudited)****(in
                thousands, except per share
                amounts)**





**Three
                Months Ended****March
                31,****2007**
            
            **2006****Revenue:**Subscription
                and maintenance
            
            $
            17,274
            
            $
            15,647Product
                sales and services
            
            
            680
            
            
            872Transaction
            
            
            9,776
            
            
            7,203Total
                revenue
            
            
            27,730
            
            
            23,722**Cost
                of revenue:**Subscription
                and maintenance
            
            
            8,546
            
            
            8,065Product
                sales and services
            
            
            387
            
            
            497Transaction
            
            
            5,401
            
            
            3,927Total
                cost of revenue
            
            
            14,334
            
            
            12,489**Gross
                profit**
            
            
            13,396
            
            
            11,233**Operating
                expense:**Selling,
                general and administrative
            
            
            16,878
            
            
            10,823Restatement,
                SEC investigation and related expenses
            
            
            3,593
            
            
            4,054Depreciation
                and amortization
            
            
            282
            
            
            369Loss
                from operations
            
            
            (7,357
            )
            
            (4,013
            )Interest
                expense
            
            
            (136
            )
            
            (134
            )Investment
                income
            
            
            1,227
            
            
            132Other
                expense, net
            
            
            (15
            )
            
            -Loss
                from continuing operations before income tax provision
            
            
            (6,281
            )
            
            (4,015
            )Income
                tax provision
            
            
            47
            
            
            47Loss
                from continuing operations
            
            
            (6,328
            )
            
            (4,062
            )Loss
                from discontinued operations
            
            
            -
            
            
            (192
            )Net
                loss
            
            
            (6,328
            )
            
            (4,254
            )Accumulated
                preferred dividends
            
            
            (1,717
            )
            
            -Loss
                applicable to common stockholders
            
            $
            (8,045
            )
            $
            (4,254
            )Basic
                and diluted loss from continuing operations per common share (net
                of
                accumulated preferred dividends)
            
            $
            (
                0.22
            )
            $
            (
                0.12
            )Basic
                and diluted loss from discontinued operations per common
                share
            
            
            -
            
            
            (
                0.01
            )Basic
                and diluted loss per common share
            
            $
            (
                0.22
            )
            $
            (
                0.13
            )Basic
                and diluted weighted average common shares outstanding
            
            
            35,767
            
            
            32,596





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




Page
          4




**NYFIX,
                Inc. and Subsidiaries****Condensed
                Consolidated Statement of Changes in Stockholders’ Equity and
                Comprehensive Loss (Unaudited)****For
                the Three Months Ended March 31, 2007****(in
                thousands, except share
                amounts)**





**Series
                B Voting Convertible preferred stock issued**
            
            **Preferred
                stock dividend**
              **distributable**
            
            **Common
                stock issued**
            
            **Accumulated**
              **deficit**
            
            **Treasury**
              **stock**
            
            **Accumulated
                other comprehensive**
              **loss**
            
            **Total
                stockholders'**
              **equity****Shares**
            
            **Amount**
            
            
            **Shares**
            
            **Amount**Balance
                December 31, 2006
            
            
            1,500,000
            
            $
            62,092
            
            $
            -
            
            
            36,654,986
            
            $
            256,835
            
            $
            (139,309
            )
            $
            (16,224
            )
            $
            (21
            )
            $
            163,373Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (6,328
            )
            
            -
            
            
            -
            
            
            (6,328
            )Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1
            
            
            1Total
                comprehensive loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (6,327
            )Issuance
                of treasury stock for stock options exercised (225,000 shares issued;
                73,171 shares surrendered)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,658
            )
            
            2,658
            
            
            -
            
            
            -Issuance
                of treasury stock pursuant to employment agreement (48,169
                shares)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (365
            )
            
            665
            
            
            -
            
            
            300Declaration
                of preferred stock dividend
            
            
            -
            
            
            -
            
            
            1,354
            
            
            -
            
            
            (1,354
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Common
                shares issued in payment of preferred stock dividend
            
            
            -
            
            
            -
            
            
            (1,354
            )
            
            227,500
            
            
            1,354
            
            
            -
            
            
            -
            
            
            -
            
            
            -Stock-based
                compensation expense
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            109
            
            
            -
            
            
            -
            
            
            -
            
            
            109Modification
                of stock options
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            177
            
            
            -
            
            
            -
            
            
            -
            
            
            177Balance
                March 31, 2007
            
            
            1,500,000
            
            $
            62,092
            
            $
            -
            
            
            36,882,486
            
            $
            257,121
            
            $
            (148,660
            )
            $
            (12,901
            )
            $
            (20
            )
            $
            157,632





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




Page
          5




**NYFIX,
                Inc. and Subsidiaries****Condensed
                Consolidated Statements of Cash Flows
                (Unaudited)****(in
                thousands)**




**Three
                Months Ended****March
                31,****2007**
            
            **2006**Operating
                activities:Net
                loss
            
            $
            (6,328
            )
            $
            (4,254
            )Adjustments
                to reconcile net loss to net cash (used in) provided by continuing
                operating activities:Loss
                from discontinued operations
            
            
            -
            
            
            192Depreciation
                and amortization
            
            
            2,756
            
            
            2,944Stock-based
                compensation expense
            
            
            109
            
            
            313Amortization
                of debt discounts and premiums
            
            
            10
            
            
            5Deferred
                income taxes
            
            
            37
            
            
            37Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (3,793
            )
            
            554Prepaid
                expenses and other assets
            
            
            (677
            )
            
            497Clearing
                broker assets
            
            
            (8,449
            )
            
            69,311Deferred
                revenue
            
            
            207
            
            
            (407
            )Accounts
                    payable, accrued expenses and other
                    liabilities
            
            
            1,971
            
            
            3,148Clearing
                broker liabilities
            
            
            6,713
            
            
            (70,659
            )Net
                cash (used in) provided by continuing operating activities
            
            
            (7,444
            )
            
            1,681Net
                cash provided by discontinued operating activities
            
            
            -
            
            
            197Net
                cash (used in) provided by operating activities
            
            
            (7,444
            )
            
            1,878Investing
                activities:Capital
                expenditures for property and equipment
            
            
            (2,653
            )
            
            (957
            )Capitalization
                of product enhancement costs
            
            
            (821
            )
            
            (755
            )Tax
                benefit attributable to goodwill
            
            
            10
            
            
            10Net
                cash used in continuing investing activities
            
            
            (3,464
            )
            
            (1,702
            )Net
                cash used in discontinued investing activities
            
            
            -
            
            
            (258
            )Net
                cash used in investing activities
            
            
            (3,464
            )
            
            (1,960
            )Financing
                activities:Principal
                payments under capital lease obligations
            
            
            (251
            )
            
            (168
            )Other,
                net
            
            
            (92
            )
            
            (20
            )Net
                cash used in continuing financing activities
            
            
            (343
            )
            
            (188
            )Effect
                of exchange rate changes on cash
            
            
            (3
            )
            
            26Net
                decrease in cash and cash equivalents
            
            
            (11,254
            )
            
            (244
            )Cash
                and cash equivalents, beginning of period
            
            
            105,888
            
            
            21,066Cash
                and cash equivalents, end of period
            
            
            94,634
            
            
            20,822Less
                cash and cash equivalents of discontinued operations, end of
                period
            
            
            -
            
            
            154Cash
                and cash equivalents of continuing operations, end of
                period
            
            $
            94,634
            
            $
            20,668





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




Page
          6




**Notes
        to Condensed Consolidated Financial Statements (Unaudited)**


**1.**
            **Summary
                of Significant Accounting Policies**




*Nature
      of Operations*




NYFIX,
      Inc. (together with its consolidated subsidiaries, “NYFIX” or the “Company”) provides
      trading workstations, middle office trade automation technologies and trade
      messaging services to domestic and international market participants. In
      addition, NYFIX’s registered broker-dealer subsidiaries also provide automated
      trade execution services to institutional counterparties and operate a
      matched-book stock borrow/stock loan business.




The
      Company has its headquarters and principal office on Wall Street in New York
      City, and has other offices in London’s Financial District, Hong Kong, Boston,
      MA, Stamford, CT and San Francisco, CA. The Company operates redundant data
      centers in the northeastern United States as well as data center hubs in London
      and Amsterdam.




*Basis
      of Presentation of Interim Financial Statements*




The
      accompanying unaudited condensed consolidated financial statements were prepared
      by the Company pursuant to the rules and regulations of the Securities and
      Exchange Commission (the “SEC”) and, in the opinion of management, include all
      adjustments (consisting of normal recurring accruals and adjustments necessary
      for adoption of new accounting standards) necessary to present fairly the
      results of the interim periods shown. Certain information and footnote
      disclosures normally included in financial statements prepared in accordance
      with generally accepted accounting principles (“GAAP”) have been condensed or
      omitted pursuant to such SEC rules and regulations. Management believes that
      the
      disclosures made are adequate to make the information presented not misleading.
      The results for the interim periods are not necessarily indicative of results
      for the full year. The financial statements contained herein should be read
      in
      conjunction with the consolidated financial statements and notes thereto
      included in the Company’s Annual Report on Form 10-K for the year ended December
      31, 2006 (“2006 10-K”).




The
      accompanying unaudited condensed consolidated financial statements include
      the
      accounts of NYFIX, Inc. and its majority-owned and wholly-owned subsidiaries.
      All significant intercompany balances and transactions have been eliminated
      in
      consolidation.




*Significant
      Accounting Policies*




There
      have been no material changes in the Company’s significant accounting policies
      during 2007, as compared to what was previously disclosed in the 2006
      10-K.




**2.**
            **Stock-Based
                Compensation**




The
      Company has stock option plans under which stock options have been granted
      to
      employees and non-employee members of the Board of Directors. These options
      are
      typically granted for a term not exceeding ten years and are forfeited, except
      in certain circumstances, in the event the employee or director terminates
      his
      or her employment or relationship with the Company. These options vest over
      periods specified at the time of grant, which generally range from less than
      one
      to five years.




The
      fair
      value of options is estimated using the Black-Scholes option-pricing model
      which
      considers, among other factors, the expected life of the award and the expected
      volatility of the Company’s stock price. Although the Black-Scholes model meets
      the requirements of Statement
      of Financial Accounting Standards (“SFAS”) 123 (revised 2004), *Share-Based
      Payment* and
      Staff Accounting Bulletin No. 107, *Share-Based
      Payment* ,
      the
      fair values generated by the model may not be indicative of the actual fair
      values of the Company’s awards, as it does not consider other factors important
      to those stock-based compensation awards, such as continued employment, periodic
      vesting requirements, and limited transferability.




Page
          7




**Notes
        to Condensed Consolidated Financial Statements - continued
        (Unaudited)**


*Stock
      Option Plans*




A
      summary
      of activity under stock option plans for three months ended March 31, 2007,
      follows:


**Weighted****Weighted**
              
              **average**
              
              **Aggregate****average**
              
              **remaining**
              
              **intrinsic****exercise**
              
              **contractual**
              
              **value****Options**
              
              **Shares**
              
              
              
              **price**
              
              **term
                  (years)**
              
              **(000's)**Outstanding
                  at beginning of the year
              
              
              3,670,780
              
              
              (1)
              
              $
              9.56Exercised
              
              
              (225,000
              )
              
              
              
              $
              2.00Cancelled
              
              
              (577,884
              )
              
              
              
              $
              9.16Outstanding
                  at end of the quarter
              
              
              2,867,896
              
              
              (2)
              
              $
              9.96
              
              4.8
              
              $
              2,882Exercisable
                  at end of the quarter
              
              
              2,802,896
              
              
              (2)
              
              $
              10.06
              
              4.7
              
              $
              2,842


(1)
                  Includes 1,089,906 shares related to Pending Exercises not settled
                  due to
                  the Company not being current
                  with its periodic reporting to the SEC. The weighted average exercise
                  price for such shares approximates
                  $3.95 per share.(2)
                  Includes 957,154 shares related to Pending Exercises not settled
                  due to
                  the Company not being current
                  with its periodic reporting to the SEC. The weighted average exercise
                  price for such shares approximates
                  $4.85 per
                  share.




Since
      the
      Company has not been current with its SEC reporting obligations, it generally
      did not issue shares to employees and directors in connection with the exercise
      of stock options since July 2005. In February 2006, the Compensation Committee
      of the Board of Directors approved a policy whereby the Company will honor
      awards to former employees who have validly notified the Company in writing
      of
      their intent to exercise. As a result, the Company modified vested in-the-money
      awards to terminating employees, prior to their termination of employment,
      extending the normal 90 day post-termination exercise period until such time
      as
      the Company expected to be current with its SEC reporting obligations and the
      underlying shares are once again covered by an effective registration statement.




The
      Company did not grant any awards during the three months ended March 31, 2007
      and 2006.




Stock-based
      compensation expense during the three months ended March 31, 2007 and 2006
      was
      approximately $0.1 million, and $0.4 million, respectively, which includes
      an
      aggregate of a nil amount and $0.1 million, respectively, of expense related
      to
      expired options to be cash settled and extending the normal 90 day
      post-termination exercise period.




**3.**
                **Loss
                    Per Share**




The
      Company’s basic loss per common share is determined by dividing the net loss
      applicable to common stockholders by the weighted average number of common
      shares outstanding during the period. Diluted loss per common share is
      determined by dividing the net loss applicable to common stockholders, adjusted
      for the effect of dilutive securities, by the weighted average number of common
      shares and dilutive potential common shares.




Page
          8


**Notes
        to Condensed Consolidated Financial Statements - continued
        (Unaudited)**


The
        following table sets forth the computations of loss per common share and
        of the
        weighted average common shares outstanding:


**Three
                  Months Ended****March
                  31,**(in
                  thousands, except per share amounts)
              
              **2007**
              
              **2006**Loss
                  from continuing operations
              
              $
              (6,328
              )
              $
              (4,062
              )Less:
                  Accumulated preferred dividends
              
              
              (1,717
              )
              
              -Loss
                  from continuing operations applicable to common stockholders, basic
                  and
                  diluted
              
              
              (8,045
              )
              
              (4,062
              )Loss
                  from discontinued operations, basic and diluted
              
              
              -
              
              
              (192
              )Loss
                  applicable to common stockholders, basic and diluted
              
              $
              (8,045
              )
              $
              (4,254
              )Basic
                  and diluted loss from continuing operations per common
                  share
              
              $
              (0.22
              )
              $
              (0.12
              )Basic
                  and diluted loss from discontinued operations per common
                  share
              
              
              -
              
              
              (0.01
              )Basic
                  and diluted loss per common share
              
              $
              (0.22
              )
              $
              (0.13
              )Weighted
                  average common shares outstanding:Basic
                  and diluted shares
              
              
              35,767
              
              
              32,596Antidilutive
                  securities:Stock
                  options, treasury stock method (1)
              
              
              439
              
              
              768Convertible
                  note (1)
              
              
              1,325
              
              
              1,304Convertible
                  preferred stock (1)
              
              
              15,000
              
              
              -
 
 (1)
                  The impact of stock options, the convertible note and the convertible
                  preferred stock on earnings per share is antidilutive
                  in a period of loss.




**4.**
            **Other
                Balance Sheet Information**




Accounts
      payable and accrued expenses consisted of the following at March 31, 2007 and
      December 31, 2006:


(in
                  thousands)
              
              **March
                    31,2007**
              
              **December
                    31,**
                  **2006**Accounts
                  payable
              
              $
              13,130
              
              $
              11,052Compensation
                  and related
              
              
              5,502
              
              
              6,276Modification
                  of stock-based awards
              
              
              2,412
              
              
              2,601Sale
                  of NYFIX Overseas working capital adjustment (Note 9)
              
              
              1,318
              
              
              1,318Taxes,
                  other than income and payroll taxes
              
              
              962
              
              
              834Penalties
                  on reporting delinquency (Note 11)
              
              
              631
              
              
              631Other
              
              
              3,309
              
              
              2,421Total
                  accounts payable and accrued expenses
              
              $
              27,264
              
              $
              25,133




**5.**
            **Broker-Dealer
                Operations**




*Clearing
      Broker Assets and Liabilities*




Page
          9




**Notes
      to Condensed Consolidated Financial Statements - continued
      (Unaudited)**


Clearing
        broker assets and liabilities consisted of the following at March 31, 2007
        and
        December 31, 2006:


(in
                  thousands)
              
              **March
                    31,****2007**
              
              **December
                      31,****2006**Securities
                  borrowed
              
              $
              427,018
              
              $
              421,435Securities
                  failed-to-deliver
              
              
              1,825
              
              
              -Deposits
                  with clearing firms
              
              
              770
              
              
              766Receivables
                  from clearing organizations
              
              
              1,707
              
              
              679Total
                  clearing broker assets
              
              $
              431,320
              
              $
              422,880Securities
                  loaned
              
              $
              427,370
              
              $
              422,414Securities
                  failed-to-receive
              
              
              1,772
              
              
              -Payables
                  to clearing organizations
              
              
              -
              
              
              15Total
                  clearing broker liabilities
              
              $
              429,142
              
              $
              422,429




*Securities
      Lending*




The
      Company receives collateral under securities borrowed transactions, which it
      is
      allowed by contract or custom to sell or repledge. As of March 31, 2007,
      securities borrowed with a fair value of $411.0 million were repledged for
      securities loaned. The gross amounts of interest earned on cash provided to
      counterparties as collateral for securities borrowed and interest incurred
      on
      cash received from counterparties as collateral for securities loaned and the
      resulting net amount included in transaction revenue for the three months ended
      March 31, 2007 and 2006, were as follows:


**Three
                  Months Ended****March
                  31,**(in
                  thousands)
              
              **2007**
              
              **2006**Interest
                  earned
              
              $
              3,652
              
              $
              2,720Interest
                  incurred
              
              
              (3,341
              )
              
              (2,351
              )Net
              
              $
              311
              
              $
              369




*Regulatory
      Net Capital Requirements*




*U.S.
      registered broker-dealer subsidiaries* - NYFIX
      Clearing Corporation (“NYFIX Clearing”), NYFIX Transaction Services, Inc.
      (“NYFIX Transaction”), and NYFIX Millennium, LLC (“NYFIX Millennium”) are
      subject to the SEC’s Uniform Net Capital Rule (15c3-1), which requires the
      maintenance of minimum regulatory net capital. NYFIX Clearing has elected to
      use
      the alternative method, as permitted by the rule, which requires the maintenance
      of minimum regulatory capital, as defined, equal to the greater of $250,000
      or
      2% of aggregate debit items arising from customer transactions, as defined.
      NYFIX Clearing’s membership in the Depository Trust & Clearing Corporation
      (the “DTCC”) requires it to maintain excess regulatory net capital of $10.0
      million. NYFIX Transaction and NYFIX Millennium have elected to use the
      aggregate indebtedness standard, which requires that the ratio of aggregate
      indebtedness to regulatory net capital, both as defined, shall not exceed 15
      to
      1. The regulatory net capital ratios for NYFIX Transaction and NYFIX Millennium,
      at March 31, 2007, were 1.73 to 1 and 1.78 to 1, respectively.




*Foreign
      registered subsidiaries* - NYFIX
      International, Ltd. (“NYFIX International”) is an ISD Category B registered firm
      of the Financial Services Authority (“FSA”) in the U.K. NYFIX International is
      required to maintain financial resources generally equal to three months average
      expenditures, subject to a minimum of €125,000, plus a proportion of less liquid
      assets on hand.




Page
          10




**Notes
      to Condensed Consolidated Financial Statements - continued
      (Unaudited)**




At
      March
      31, 2007, the regulatory net capital/resources and excess amounts were as
      follows:




**Excess****Regulatory**
            
            **Regulatory****Net
                Capital**
            
            **Net
                Capital**(in
                thousands)
            
            **/Resources**
            
            **/Resources**NYFIX
                Clearing
            
            $
            25,399
            
            $
            25,149NYFIX
                Transaction
            
            
            580
            
            
            514NYFIX
                Millennium
            
            
            1,845
            
            
            1,62627,824
            
            
            27,289NYFIX
                International
            
            
            1,171
            
            
            683$
            28,995
            
            $
            27,972




**6.**
            **Income
                Taxes**




The
      income tax provision differs from the statutory U.S. federal income tax rate
      due
      primarily to a valuation allowance provided against net deferred tax assets.
      As
      described in the Company’s 2006 10-K, the Company maintains a valuation
      allowance in accordance with SFAS 109 on its net deferred tax assets. This
      allowance excludes the off-setting impact of the deferred tax liability for
      amortization of goodwill related to the acquisition of Renaissance Trading
      Technologies, LLC (“Renaissance”) due to the indefinite life of goodwill. Until
      the Company achieves and sustains an appropriate level of profitability, it
      plans to maintain a valuation allowance on its net deferred tax
      assets.




**7.**
            **Total
                Comprehensive Loss**




The
      components of total comprehensive loss, net of tax, were as
      follows:


**Three
                  Months Ended****March
                  31,**(in
                  thousands)
              
              **2007**
              
              **2006**Net
                  loss
              
              $
              (6,328
              )
              $
              (4,254
              )Foreign
                  currency translation adjustment
              
              
              1
              
              
              58Total
                  comprehensive loss
              
              $
              (6,327
              )
              $
              (4,196
              )




**8.**
            **Business
                Segment Information**




In
      accordance with the requirements for interim period reporting under SFAS No.
      131, *Disclosures
      about Segments of an Enterprise and Related Information* (“SFAS
      131”), the Company is reporting the external, intersegment and net revenues and
      the operating income of its operating segments. As of March 31, 2007, the
      Company was organized into three operating divisions through which senior
      management evaluates the Company’s business. These divisions, as described in
      more detail below, are organized around the products and services provided
      to
      customers and represent the Company’s reportable segments under SFAS 131.




*FIX
      Division* .
      The FIX
      Division provides software and consultative services to enable global financial
      institutions to utilize the industry established Financial Information Exchange
      Protocol for messaging, monitoring and processing transaction information.
      The
      FIX Division also provides messaging channels for institutions who are members
      of its trading community for order routing and other value-added services.




*Order
      Management Systems (“OMS”) Division* .
      The OMS
      Division provides software applications for the management of New York Stock
      Exchange (“NYSE”) and Nasdaq listed trading activities. These products enable
      customers to take advantage of the broad range of products and services offered
      by other divisions.




Page
          11




**Notes
      to Condensed Consolidated Financial Statements - continued
      (Unaudited)**




*Transaction
      Services Division* .
      The
      Transaction Services Division is comprised of the three U.S. registered
      broker-dealer subsidiaries, NYFIX Millennium, NYFIX Transaction and NYFIX
      Clearing together with the execution business of NYFIX International in the
      U.K.
      NYFIX Millennium, an alternative trading system (“ATS”) registered under SEC
      Regulation ATS, provides anonymous matching and routing of U.S. equity
      securities. NYFIX Transaction provides direct electronic market access and
      algorithmic trading products. NYFIX Millennium and NYFIX Transaction also resell
      certain products and services offered by the FIX Division and the OMS Division.
      NYFIX Clearing clears trades on behalf of NYFIX Millennium and NYFIX Transaction
      and operates a matched-book stock borrow/stock loan business.




The
      Company does not currently break out total assets by reportable segment as
      there
      is a high level of shared utilization between certain reportable
      segments.




The
      following table presents information by reportable segment for the three months
      ended March 31, 2007 and 2006:


**Transaction**
              
              **Corporate**(in
                  thousands)
              
              **FIX
                  Division**
              
              **OMS
                  Division**
              
              **ServicesDivision**
              
              **&
                  Other (1)**
              
              **Total****March
                  31, 2007**Revenue
                  - external customers
              
              $
              13,309
              
              $
              3,407
              
              $
              11,014
              
              
              -
              
              $
              27,730Revenue
                  (cost of revenues), net - intersegment
              
              
              570
              
              
              238
              
              
              (808
              )
              
              -
              
              
              -Net
                  revenue
              
              
              13,879
              
              
              3,645
              
              
              10,206
              
              
              -
              
              
              27,730Operating
                  income (loss) (2)
              
              
              1,563
              
              
              (4,228
              )
              
              873
              
              
              (5,565
              )
              
              (7,357
              )**March
                  31, 2006**Revenue
                  - external customers
              
              $
              10,635
              
              $
              4,880
              
              $
              8,207
              
              
              -
              
              $
              23,722Revenue
                  (cost of revenues), net - intersegment
              
              
              617
              
              
              297
              
              
              (914
              )
              
              -
              
              
              -Net
                  revenue
              
              
              11,252
              
              
              5,177
              
              
              7,293
              
              
              -
              
              
              23,722Operating
                  income (loss) (2)
              
              
              1,864
              
              
              (1,944
              )
              
              294
              
              
              (4,227
              )
              
              (4,013
              )





(1)
                  Corporate & Other includes restatement, SEC investigation and related
                  expenses, certain transitional costs and other corporate
                  items which are not allocated to reportable segments and certain
                  shared
                  costs which were previously allocated to disposed
                  operations.(2)
                  Operating income (loss) by segment reflects a significant amount
                  of costs
                  which are allocated by headcount, usage and other
                  methods, depending on the nature of the
                  cost.




**9.**
            **Discontinued
                Operations**




During
      the third quarter of 2006, the Company disposed of all of the issued and
      outstanding capital stock of NYFIX Overseas, a wholly-owned subsidiary which
      previously comprised the Company’s Order Book Management Systems (“OBMS”)
      Division to G.L. Trade S.A. (“GL”). Of the initial purchase price, $1.3 million
      was repaid to the buyer in April 2007 in settlement of a working capital
      adjustment. There is also an earn-out adjustment, under the terms of which
      the
      Company is eligible for additional earn-out payments based on future revenues
      of
      NYFIX Overseas through December 31, 2007. The maximum earn-out payment is $5.1
      million, net of additional payments to the management team of NYFIX
      Overseas.




The
      Company has agreed to indemnify GL for certain claims made through December
      31,
      2007, as well as for losses arising out of or resulting from (1) any
      misrepresentation or breach of warranties; (2) any breach of a covenant or
      agreement made or to be performed by the Company under the Sale Agreement;
      (3)
      certain patent settlements; (4) the lack of recording stock-based compensation
      expense related to stock options granted to the employees of NYFIX Overseas
      by
      the Company; (5) specified taxes of NYFIX Overseas pre-closing that were not
      previously paid or adequately reserved for by NYFIX Overseas, and (6) any
      obligations relating to options to purchase shares of common stock of the
      Company held by employees of NYFIX Overseas.




For
      two
      years following the closing and subject to certain exceptions, the Company
      has
      agreed not to develop or market any product that is directly competitive with
      the OBMS product of NYFIX Overseas.




Page
          12




**Notes
      to Condensed Consolidated Financial Statements - continued
      (Unaudited)**




The
      disposition of NYFIX Overseas constitutes a discontinued operation and
      accordingly all financial statements presented reflect amounts relative to
      NYFIX
      Overseas, except for previously allocated overhead charges, as a discontinued
      operation.




Revenue
      related to NYFIX Overseas included in the loss from discontinued operations
      was
      $1.7 million for the three months ended March 31, 2006.




**10.**
            **Commitments
                and Contingencies**




*Stock-based
      Compensation Related Matters*




*SEC
      Investigation*




By
      letter
      dated October 28, 2004, the Division of Enforcement of the SEC informed the
      Company that it was conducting an informal investigation related to certain
      stock option grants. On February 25, 2005, the Company filed a current report
      on
      Form 8-K, which indicated that the Company believed that the matter was a formal
      inquiry. The Company is cooperating with the SEC with respect to this matter.
      The Company believes it is substantially complete with regard to producing
      all
      documents responsive to document requests and a subpoena. The SEC staff has
      taken testimony from current and/or former officers and/or directors, as well
      as
      from third parties, including the Company’s former independent registered public
      accounting firm.




*Grand
      Jury Subpoena*




In
      May
      2006, the Company received a grand jury subpoena from the U.S. Attorney for
      the
      Southern District of New York.  The subpoena sought documents relating to
      the Company’s granting of stock options.  With the agreement of the
      Assistant U.S. Attorney, the Company is responding to the subpoena by producing
      the documents it produces to the staff of the Division of Enforcement of the
      SEC. The U.S. Attorney has also conducted interviews with at least one current
      employee and two former employees (one of whom is a former officer) and with
      at
      least one employee of the Company’s former independent registered public
      accounting firm.




*Shareholder
      Derivative Actions*




On
      or
      about June 1, 2006, the Company was served as a nominal defendant with a
      complaint (the “Ritchie Complaint”) in a shareholder derivative action titled Ritchie
      v. Castillo, et al .
      in the
      Superior Court for the State of Connecticut.  The Ritchie Complaint also
      names the Company’s former Chairman and Chief Executive Officer, another former
      Chief Executive Officer and director, the Company’s former Chief Information
      Officer, a former Chief Financial Officer, and six other current directors
      as
      defendants. The Ritchie Complaint asserts a claim for breach of fiduciary duty
      against all the individual defendants and a claim for unjust enrichment against
      four individual defendants based on claimed backdating of stock option grants
      to
      these individuals between 2000 and 2003.  On June 9, 2006, the Company was
      named as a nominal defendant in a shareholder derivative action titled McLaughlin
      v. Castillo, et al .
      in the
      same court and with the same substantive allegations as the Ritchie action.
      In
      September 2006, the Court consolidated the Ritchie and McLaughlin actions.
      In
      October 2006, plaintiffs filed a consolidated complaint (the “State Court
      Consolidated Complaint”). The State Court Consolidated Complaint contains nine
      counts (as opposed to the two counts previously alleged in each of two actions),
      including counts for an accounting of all stock options granted to the
      individual defendants, breach of fiduciary duty and unjust enrichment, insider
      trading, rescission and breach of contract. The State Court Consolidated
      Complaint adds seven additional defendants: three former directors (one of
      whom
      is deceased); two former Chief Financial Officers, the Company’s current General
      Counsel and former Secretary and the Company’s former Executive Vice President
      and President of NYFIX Millennium. The nine counts of the State Court
      Consolidated Complaint are based on claimed backdating of stock option grants
      to
      eleven individual defendants between 1997 and 2003.




Page
          13




**Notes
      to Condensed Consolidated Financial Statements - continued
      (Unaudited)**




On
      August
      30, 2006, the Company was served as a nominal defendant with a complaint (the
      “Cattelona Complaint”) in a shareholder derivative action titled Cattelona
      v. Hansen, et al .,
      in the
      United States District Court for the District of Connecticut.   The
      Cattelona Complaint also names the Company’s former Chairman and Chief Executive
      Officer, another former Chief Executive Officer and director, a former Chief
      Information Officer, a former Chief Financial Officer, and six other current
      directors as defendants. The Cattelona Complaint asserts counts against the
      individual defendants for violation of Section 10(b) of the Securities Exchange
      Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, and
      Section 14(a) of the Exchange Act and Section 20(a) of the Exchange Act, and
      for
      breach of fiduciary duty, gross mismanagement and corporate waste. In addition,
      the Cattelona Complaint asserts a count against four of the individual
      defendants for unjust enrichment based on claimed backdating of stock option
      grants to the latter individuals between 1999 and 2002.




On
      or
      about September 7, 2006, a complaint (the “Brock Complaint”) was filed in a
      shareholder derivative action titled Brock
      v. Hansen, et al .,
      in the
      United States District Court for the District of Connecticut. The Brock
      Complaint names the Company as a nominal defendant, as well as the Company’s
      former Chairman and Chief Executive Officer, another former Chief Executive
      Officer and director, the Company’s former Chief Information Officer, a former
      Chief Financial Officer, and six other current directors as defendants. The
      Brock Complaint asserts a count for an accounting of all stock options granted
      to the individual defendants, and counts against all individual defendants
      for
      violation of Section 14(a) of the Exchange Act, breach of fiduciary duty, abuse
      of control, gross mismanagement, constructive fraud, corporate waste, unjust
      enrichment, and breach of contract. In addition, the Brock Complaint asserts
      counts against three individual defendants for rescission and for breach of
      contract for stock option grants made between 1997 and 2001.




On
      December 5, 2006, the U.S. District Court for the District of Connecticut
      consolidated the Brock and Cattelona actions. In December 2006, the plaintiffs
      filed a consolidated complaint (the “Federal Court Consolidated Complaint”). The
      Federal Court Consolidated Complaint contains twelve counts (as opposed to
      the
      eleven counts previously alleged in the Brock Complaint and the seven counts
      previously alleged in the Cattelona Complaint), including counts against all
      defendants for: violations of Section 10(b) of the Exchange Act and Rule 10b-5
      thereunder; violations of Section 14(a) of the Exchange Act; for an accounting
      of all stock options granted to the individual defendants; breach of fiduciary
      duty and/or aiding and abetting; abuse of control; gross mismanagement;
      constructive fraud; corporate waste; and unjust enrichment. The Federal Court
      Consolidated Complaint also contains counts against six of the individual
      defendants for rescission and for breach of contract. The Federal Court
      Consolidated Complaint adds four additional defendants: two former directors,
      a
      former Chief Financial Officer and a former Executive Vice President of the
      Company and President of NYFIX Millennium. The twelve counts of the Federal
      Court Consolidated Complaint are based on claimed backdating of stock option
      grants to six individual defendants from 1997 to the filing of the Federal
      Court
      Consolidated Complaint. In June, 2007, plaintiffs filed a corrected amended
      consolidated complaint (the “Federal Court Amended Consolidated Complaint”). The
      Federal Court Amended Consolidated Complaint drops eight individual defendants
      (two current directors, two former directors, a former Chief Executive Officer
      and director, a former Chief Financial Officer, our former Chief Information
      Officer and a former Executive Vice President of the Company and President
      of
      NYFIX Millennium), two counts for rescission and breach of contract and the
      count for violation of Section 14(a) of the Exchange Act and adds a count under
      Section 20 of the Exchange Act. The ten counts of the Federal Court Amended
      Consolidated Complaint are based on claimed backdating of stock option grants
      and an allegedly false and misleading Form 10-K filed in June 2005.




Page
          14




**Notes
      to Condensed Consolidated Financial Statements - continued
      (Unaudited)**




In
      addition, certain shareholders have made formal inquiries regarding alleged
      violations of Section 16(b) of the Exchange Act based on the same facts alleged
      in the Ritchie and McLaughlin suits, to
      which
      the Company has responded that in no case did it appear that options were
      exercised within six months or less from the date of grant and that each option
      would qualify as an exempt transaction under applicable rules.




*Related
      Tax Matters*




In
      2006
      and 2007, the Company has had communications with the United States Internal
      Revenue Service (“IRS”) and the United Kingdom HM Revenue & Customs (“Inland
      Revenue”) relating to historical stock option grants and exercises. These
      communications involve employment tax returns and the amounts of reported
      employee compensation and related payroll tax withholdings, as well as
      deductions on corporate income tax returns. The Company has received document
      requests from the IRS relating to stock option grants and exercises in
      connection with the IRS examination of the Company’s corporate tax returns for
      the years 2001 and 2004 and of the Company’s employment tax returns for the
      years 2003 through 2005, respectively. Subsequent to the sale of NYFIX Overseas
      in August 2006, GL forwarded correspondence from the Inland Revenue relating
      to
      NYFIX Overseas’ potential liability for payroll tax withholdings on prior option
      exercises by certain former employees.




The
      Company has determined that it has exposure as former management did not
      properly withhold employee income
      and related payroll
      taxes related to historical stock option activity. As a result, the Company
      has
      recorded a liability of $1.0 million related to tax withholdings not made on
      the
      exercises of stock options previously classified as Incentive Stock Options
      (“ISOs”), exposures related to Section 409A of the U.S. Internal Revenue Code
      (“Section 409A”), and similar exposures related to withholdings and payroll
      taxes which may be due in the U.K. related to stock option exercises under
      Pay
      As You Earn, or PAYE, and National Insurance Contribution provisions
      ( due
      to
      the Company’s indemnity obligations to GL) .
      In
      2006, the Company remedied the 409A exposure with respect to certain current
      and
      former directors and executive officers by increasing exercise prices of
      affected grants. In August 2007, the Company remedied the 409A exposure with
      respect to most current rank and file employees by unilaterally increasing
      exercise prices of affected grants. The Company intends to pay these employees
      in January 2008 an aggregate cash bonus of $0.3 million to offset the impact
      of
      the increase in these exercise prices. To remedy the 409A exposure of former
      employees holding Pending Exercises (defined below) the Company intends to
      pay
      $0.1 million representing the former employees 20% additional tax under 409A,
      related interest and an income tax gross-up.




Based
      upon the current information available and the liabilities
      recognized ,
      the
      Company believes the resolution of these tax matters will not have a material
      adverse effect on its consolidated financial condition or results of operations.
      However, the ongoing discussions with the taxing authorities could result in
      new
      information and higher than anticipated exposures. The Company is continuing
      to
      cooperate with the taxing authorities to resolve these matters.




*Pending
      Exercises*




Since
      the
      Company has not been current with its SEC reporting obligations, it generally
      did not issue shares to employees and directors in connection with the exercise
      of stock options since July 2005. In February 2006, the Compensation Committee
      of the Board of Directors approved a policy whereby the Company will honor
      awards to former employees who have validly notified the Company in writing
      of
      their intent to exercise.




The
      Company has cash exposure to these option holders equal to the difference
      between the fair market value of the Company’s common stock on the original
      exercise notification date and the fair market value of the Company’s common
      stock on the actual date of exercise if the price declines.




As
      of
      March 31, 2007, the Company had outstanding options covering 957,154 shares
      for
      which it had been notified of intents to exercise and which were not deemed
      probable of expiring before the Company could issue shares (“Pending
      Exercises”). Fair market values of the Company’s common stock on the dates of
      these notifications ranged from $2.90 to $7.35. The weighted average fair market
      value for such shares underlying options on the respective notification dates
      was $5.94. At March 31, 2007, the fair market value of the Company’s common
      stock was $6.10. The Company estimated that its potential cash exposure as
      of
      March 31, 2007, due to declines in its stock price after such notifications,
      was
      less than $0.1 million.




Page
          15




**Notes
      to Condensed Consolidated Financial Statements - continued
      (Unaudited)**




During
      the second quarter of 2007, the Company was notified of additional intents
      to
      exercise. As of June 30, 2007, Pending Exercises totaled 1,030,150 shares.
      The
      range of fair market values for the Company’s common stock on the dates of the
      corresponding notifications through June 30, 2007 was from $2.90 to $7.47,
      with
      a weighted average fair market value for such shares underlying options on
      their
      notification dates of $5.97. The Company estimated that its potential cash
      exposure as of June 30, 2007, due to declines in its stock price after such
      notifications, was less than $0.1 million, based on the fair market value of
      $7.40 at June 30, 2007. This cash exposure could, however, significantly
      increase if the fair market value of the Company’s stock declines once option
      holders are able to exercise and sell the underlying shares. The Company intends
      to offer to settle Pending Exercises in cash in an amount equal to the
      difference between the closing price of its stock on the date of notification
      and the exercise price of such options. The Company estimates its maximum cash
      exposure for net settlements of this nature at approximately $1.8
      million .




During
      the six months ended June 30, 2007, the Company paid $0.4 million to cash settle
      114,250 options which had reached their 10-year contractual life and expired.
      At
      June 30, 2007, liabilities for modified awards to be cash settled, related
      to
      expired options covering 21,375 shares, aggregated $0.1 million. The Company
      has
      additional cash exposure if it cannot settle Pending Exercises with stock prior
      to their expiration going forward. ****




*Internal
      Accounting Review and Restatements*




The
      Company performed an extensive internal review of its historical stock-based
      compensation awards as well as an overall accounting review. The consolidated
      financial statements for the years ended December 31, 2004 and 2003 were
      re-audited by a newly engaged independent registered public accounting firm.
      The
      internal review was overseen by the Audit Committee of the Board of Directors
      and a special Subcommittee of the Audit Committee formed in connection with
      a
      restructuring of the Board and of management that commenced in September 2005.




As
      a
      result of this internal review, in its 2005 10-K, the Company restated its
      consolidated financial statements for prior periods and related financial
      statement disclosures to reflect adjustments necessary, reducing its previously
      reported results by a net amount of $42.1 million (the
      “2005 Restatement”) .
      The
      items adjusted consisted of stock-based compensation, acquisitions and
      investments, revenue recognition, income taxes and treasury stock. The findings
      of the Company’s internal review of historical stock-based compensation awards
      included (i) grants to officers and directors which were made outside the terms
      of the stock option plans then in effect; (ii) modifications of grants to Peter
      Hansen, the Company’s founder, former Chief Executive Officer and Chairman,
      where evidence could not be located to demonstrate that the modifications were
      authorized by the Board or Compensation Committee; (iii) retroactive
      reinstatement of the employment status of Richard Castillo, the Company’s former
      Chief Financial Officer and Secretary, after he had discontinued providing
      employee services and the continued vesting of his outstanding awards, (iv)
      subsequent changing of vesting terms with retroactive documentation as of an
      earlier date; (v) grant schedules to the minutes of Board or Compensation
      Committee meetings which included awards that were not initiated until after
      the
      dates of these meetings; (vi) grant schedules to the minutes of Board or
      Compensation Committee meetings which included awards which were modified after
      the dates of such meetings to increase the number of options granted or to
      decrease the exercise price, but which were included on such schedules as if
      they had been granted in modified form on the dates of the Board or Compensation
      Committee meetings; (vii) options and warrants exercised by officers and
      directors with non-recourse notes where evidence could not be located to
      demonstrate that the issuance of such notes was approved by the Board or
      Compensation Committee; and (viii) other circumstances indicating the issuance
      of in-the-money grants. The modifications to Mr. Hansen’s grants noted in (ii)
      above resulted in the recording of a $25.0 million charge in March 2000, based
      on the incremental intrinsic value on the date assumed to be the modification
      date.




Page
          16




**Notes
      to Condensed Consolidated Financial Statements - continued
      (Unaudited)**




The
      restatement for stock-based compensation included in the Company’s 2005 10-K
      relied upon significant legal and other judgments. These judgments included
      determinations as to the validity of grants, measurement dates, and other
      matters, including reliance upon delegated authority with respect to awards
      issued directly by Mr. Hansen and not later ratified by the Board or
      Compensation Committee. Any and all of these determinations could be challenged.
      Additionally, new and possibly significant information may also be located
      which
      could lead to different determinations that may require different accounting
      treatment.




*NYFIX
      Millennium SEC Inquiry*




In
      connection with the restatement of the Company’s 1999 through 2002 consolidated
      financial statements relating to its accounting for the losses incurred by
      NYFIX
      Millennium filed in May 2004, the Division of Enforcement of the SEC informed
      the Company by letter dated July 14, 2004 that it was conducting an informal
      inquiry. On January 25, 2005, the Company filed a current report on Form 8-K,
      which indicated that the Company believed that the matter was a formal inquiry.
      The Company cooperated with the SEC, producing documents in response to document
      requests and subpoenas and making employees available for interviews and
      testimony. The SEC staff has taken testimony from current and/or former officers
      and/or directors, as well as from third parties, including the Company’s former
      independent registered public accounting firm. In March 2006, the Company
      announced that the SEC Enforcement Staff had advised that it is recommending
      that the SEC close its inquiry into this matter without any action being taken
      against the Company or any individual. As a result of the Staff’s
      recommendation, which is subject to a formal approval process within the SEC,
      the Company has not been required to produce any more documents or provide
      additional witnesses for testimony in connection with this inquiry.




*Other*




During
      the normal course of business, the Company becomes involved in various other
      routine legal proceedings, including issues pertaining to patent infringement,
      customer disputes and employee matters. The Company does not believe that the
      outcome of these matters will have a material adverse effect on its financial
      condition.




During
      the three months ended March 31, 2007 and 2006, the Company incurred $3.6
      million and $4.1 million, respectively, relating to the stock option
      investigation and subpoenas, a grand jury subpoena, related shareholder
      derivative litigation, related financial restatements and expenses to resolve
      related matters, together with an earlier SEC inquiry into former management’s
      accounting for NYFIX Millennium, related class action litigation and related
      financial restatement. These costs include outside counsels, contract attorneys
      and forensic accountants, other consultants and the cost of re-auditing
      previously issued financial statements following the resignation of the
      Company’s former independent registered public accounting firm . These
      costs do not include any portion of time that the Company’s employees have
      dedicated to these matters.  The
      Company will likely continue to incur material amounts of expense associated
      with these matters until they are resolved.




Other
      than the amounts described above for employee-related taxes for stock options
      and Pending Exercises, the Company, in accordance with SFAS No. 5, *Accounting
      for Contingencies* ,
      has not
      recorded any liability with respect to these matters as it is currently unable
      to predict the outcomes and reasonably estimate the amounts of loss, if any.
      With respect to the SEC investigation of stock option grants, the grand jury
      subpoena, the State Court Consolidated Complaint, and the Federal Court
      Consolidated Complaint associated with such matters and other related matters,
      the Company could be subject to penalties, fines or regulatory sanctions or
      claims by current and former officers, directors or employees for
      indemnification of costs or losses they may incur and such amounts, individually
      or collectively, could have a material impact on the Company’s financial
      condition. In addition, other actions may be brought against the Company related
      to the matters described above.




Page
          17




**Notes
      to Condensed Consolidated Financial Statements - continued
      (Unaudited)**




**11.**
            **Stockholders’
                Equity**




*Nasdaq
      Delisting Proceeding*




As
      a
      result of the Company’s common stock being delisted, on November 1, 2005, from
      the Nasdaq National Market, the Company’s shares are currently traded in the
      Over-the-Counter (“OTC”) securities market with real-time quotes available on
      the Pink Sheets electronic quotation service using the symbol NYFX. Stockholders
      may find it more difficult to obtain accurate quotes and execute trades in
      the
      OTC market.




*Preferred
      Stock*




The
      Company is authorized to issue 5 million shares of preferred stock. The
      Company’s Board of Directors has designated 0.1 million shares as Series A
      Preferred Stock for issuance in connection with the Stockholders’ Rights Plan
      discussed below. In connection with the private placement of convertible
      preferred stock discussed below, 1.5 million shares were designated as Series
      B
      Voting Convertible Preferred Stock and 0.5 million as Series C Non-Voting
      Convertible Preferred Stock.




*Stockholders’
      Rights Plan*




On
      September 1, 1997, the Board of Directors declared a dividend of a preference
      share purchase right (a “Right”) for each outstanding share of common stock of
      the Company held by stockholders of record on September 19, 1997 (the “Rights
      Agreement”). The number of outstanding Rights was adjusted for the two stock
      splits of 1.5 to 1.0 occurring in 1999 and 2000. Each share of common stock
      issued by the Company after such record date has the same Right attached
      thereto. Each Right entitles the registered holder to purchase from the Company,
      at any time after a stockholder acquires 20% or more of the Company's
      outstanding common stock, as set forth in the Rights Agreement, shares of the
      Company's Series A Preferred Stock (“Preference Stock”). The purchase price is
      $40 per one one-hundredth of a share of Preference Stock, subject to adjustment
      as set forth in the Rights Agreement.




Each
      share of Preference Stock will be entitled to a minimum preferential quarterly
      dividend payment of $1 per share but will be entitled to an aggregate dividend
      of one hundred times the dividend declared per share of common stock. In the
      event of liquidation, the holders of the Preference Stock will be entitled
      to a
      minimum preferential liquidation payment of $100 per share but will be entitled
      to an aggregate payment of one hundred times the payment made per share of
      common stock. Each share of Preference Stock will have one hundred votes, voting
      together with the shares of common stock. In the event of any merger,
      consolidation or other transaction in which shares of common stock are
      exchanged, each share of Preference Stock will be entitled to receive one
      hundred times the amount received per share of common stock.




Because
      of the nature of the Preference Stock’s dividend, liquidation and voting rights,
      the value of one one-hundredth interest in a share of Preference Stock
      purchasable upon exchange of each Right should approximate the value of one
      share of common stock.




On
      September 4, 2006, the Rights Agreement was amended to exclude the acquisition
      by Warburg Pincus Private Equity IX, L.P. (“Warburg Pincus”) of the 1.5 million
      shares of Series B Voting Convertible Preferred Stock issued on October 12,
      2006
      (see Private Placements) from triggering the exercise period for the Rights.




Page
          18




**Notes
      to Condensed Consolidated Financial Statements - continued
      (Unaudited)**


*Registration
        Rights Agreements and Reporting Requirements*
  In
        addition to its obligation to obtain registration of additional shares of
        its
        common stock under the terms of the $7.5 million convertible note, the Company
        is obligated to obtain registration of additional shares of its common stock
        under two separate registration rights agreements entered into coincidental
        to
        private placements of the Company’s equity securities and to become current in
        its reporting obligations under the Exchange Act as follows:


*Private
      Placement of Common Stock*




Pursuant
      to a registration rights agreement entered into in connection with the sale
      and
      issuance of 2,713,000 shares of its common stock in July 2006, the Company
      was
      obligated to use its best efforts to become current in its reporting obligations
      under the Exchange Act by September 30, 2006. The Company failed to become
      current in such obligations by December 31, 2006, which resulted in the
      Company incurring a liability to the Buyers in the form of liquidated damages
      in
      the amount of 5% of the aggregate purchase price. In the fourth quarter of
      2006,
      the Company recorded a charge of $631,000 (which was paid in April 2007) as
      a
      result of not meeting these filing requirements. In addition, the Company is
      obligated to cause a registration statement covering these shares to become
      effective within 45 days (if the SEC elects not to review such registration
      statement) or 120 days (if the SEC elects to review the registration statement)
      following the date that the Company cures the delinquency in its periodic
      reporting obligations (such 45- or 120-day deadline, as applicable, the
“Effectiveness Deadline”). Failure of the registration statement to become
      effective by the Effectiveness Deadline would result in a liability of the
      Company to the buyers for liquidated damages in the amount of 2% of the purchase
      price for each 30-day period after the Effectiveness Deadline during which
      the
      registration statement fails to become effective. The Company’s total liability
      for liquidated damages in connection with both such deadlines (including the
      5%
      charge recorded in the fourth quarter of 2006) is capped at 13% of the aggregate
      purchase price of $12.6 million. The registration rights agreement also contains
      customary indemnity and contribution provisions in favor of the investors and
      the Company. The Company is responsible for paying the costs associated with
      the
      registration statement.




*Private
      Placement of Series B Preferred Stock*




Pursuant
      to a registration rights agreement entered into in connection with the sale
      and
      issuance of 1.5 million shares of its Series B Preferred Stock, the Company
      is
      obligated to use reasonable business efforts to become current with regard
      to
      its periodic reporting with the SEC under the Exchange Act and obtain
      authorization for its common stock to be relisted on a “Principal Market,” as
      defined in the registration rights agreement. Beginning on October 12, 2007,
      the
      first anniversary of the closing date, the buyer has the right to make a written
      request to the Company to register “Registrable Securities,” as defined in the
      registration rights agreement. “Registrable Securities” include shares of the
      Company’s common stock: that are issued upon conversion of the Series B
      Preferred Stock, issued as a dividend, and any other shares held or acquired
      by
      the buyer.




*Common
      Stock and Treasury Stock*




On
      February 27, 2007, the stockholders of the Company approved an amendment to
      the
      Company’s Restated Certificate of Incorporation to increase the number of
      authorized shares of common stock from 60,000,000 to 100,000,000
      shares.




At
      December 31, 2006, the Company had outstanding 35,521,208 shares of common
      stock, with 1,133,778 held in treasury.




On
      January 25, 2007, the Board of Directors declared a dividend, payable that
      day,
      to holders of Series B Preferred Stock in payment of dividends accumulated
      through December 31, 2006; as a result, the Company issued 227,500 restricted
      shares of common stock, with a fair value of approximately $1,354,000 based
      on
      the market price of its common stock on that date. These accumulated dividends
      were reflected as a charge to loss applicable to common stockholders in
      calculating the basic and diluted loss per common share for the quarter and
      year
      ended December 31, 2006.




During
      the first quarter of 2007, certain stock options on the pending notification
      list aggregating 225,000 shares, held by an accredited investor (and former
      executive officer), were exercised at $2.00 per share. The $450,000 aggregate
      exercise price of such shares was paid for with the delivery of 73,171 shares
      of
      common stock previously held by the former executive officer for more than
      six
      months. The receipt of these shares is reflected in treasury stock. The Company
      then issued 225,000 restricted shares of common stock from treasury, on that
      same day, with a fair market value of $6.15 per share on the exercise date.
      The
      excess of the average cost of these treasury shares over the exercise proceeds
      received, of $2.7 million, was charged to retained earnings.




Page
          19




**Notes
      to Condensed Consolidated Financial Statements - continued
      (Unaudited)**




Also
      during March 2007, the Company issued 48,169 restricted shares of common stock
      from treasury to an officer in satisfaction of his employment agreement requiring
      issuance of shares with a fair market value of $300,000 .
      The
      fair value of such shares is being amortized pro rata over the requisite service
      period as defined in the employment agreement. The excess of the average cost
      of
      these treasury shares over the fair value of such shares on the reissuance
      date,
      of $365,000, was charged to retained earnings.




As
      a
      result of the foregoing activity, at March 31, 2007, the Company had outstanding
      35,948,706 shares of common stock, with 933,780 held in treasury.




On
      June
      19, 2007, the Board of Directors declared a dividend, payable July 2, 2007,
      to
      holders of Series B Preferred Stock in payment of dividends accumulated from
      January 1, 2007 through June 30, 2007; as a result, the Company issued 526,327
      restricted shares of common stock, with a fair value of approximately $3,426,000
      based on the market price of its common stock on the declaration date. A portion
      of these accumulated dividends was reflected as a charge to loss applicable
      to
      common stockholders in calculating the basic and diluted loss per common share
      for the three months ended March 31, 2007.




In
      July
      2007, the Company issued 26,954 shares from treasury stock with an aggregate
      market price of $193,000 as final payment on the Renaissance acquisition related
      promissory notes.




Page
          20




**Part
      I**  **Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**




This
      report on Form 10-Q contains “forward-looking statements” within the meaning of
      Section 27A of the Securities Act, and Section 21E of the Exchange Act, which
      are intended to be covered by the safe harbors created thereby. Forward-looking
      statements are any statements other than statements of historical fact. In
      some
      cases, forward-looking statements are identified by words such as “believes,”
“anticipates,” “expects,” “intends,” “plans,” “will,” “may,” and similar
      expressions. This report on Form 10-Q may include forward-looking statements
      about future SEC filings, future restatements and related charges, future
      activities of new employees and the impact thereof on us. In addition, any
      statements that refer to our plans, expectations, strategies or other
      characterizations of future events or circumstances are forward-looking
      statements. Forward-looking statements include statements other than historical
      information or statements of current conditions and may relate to our future
      plans, operations and objectives and results, among other things, and may also
      include our belief regarding the effect of proposed transactions or various
      legal proceedings, as well as the impact of our ability to meet periodic filing
      deadlines, initiatives that may impact future business activities, and future
      disclosure practices. Actual future events, circumstances, performance and
      trends could materially differ from those set forth in these statements
      (including those discussed in Part II, Item 1A.Risk Factors) due to various
      factors, including but not limited to: general economic conditions; the impact
      of recording a sufficiently large impairment charge relating to our goodwill
      because we are not profitable; the effects of current, pending and future
      legislation; regulation and regulatory actions; our ability to achieve and
      maintain effective internal control over financial reporting in accordance
      with
      SEC rules promulgated under Section 404 of the Sarbanes-Oxley Act (“SOX 404”);
      the impact of accounting for stock-based compensation and ongoing regulatory
      investigations, including the possibility of new and significant information
      subsequently arising which could lead to different determinations and require
      different accounting treatment; actions and initiatives by both current and
      future competitors; the potential financial exposure related to cash settlements
      of certain stock option exercises and the possible sales of stock by employees
      exercising options; the risks related to our ability to market and develop
      our
      products and services; our success in obtaining, retaining and selling
      additional products and services to clients; the pricing of products and
      services; stock market activity; the ability of NYFIX Clearing to clear trades
      due to maximum limits imposed by the DTCC and the need for intra-day funding
      commitments from third parties; the ability of our Transaction Services Division
      to maintain third-party assistance to access exchanges and other important
      trading venues; our ability to comply with the SEC’s Uniform Net Capital Rule;
      the impact of our customers defaulting on their trading obligations; changes
      in
      technology; our ability to accommodate increased levels of trading activity
      and
      keep current with market data requirements; the availability of skilled
      technical associates; our ability to obtain necessary network equipment,
      technical support or other telecommunications services or being forced to pay
      higher prices for such equipment, support or services; and the impact of new
      acquisitions and divestitures; and other risks and uncertainties including
      those
      detailed in our SEC filings; as well as future decisions by us. Our actual
      results could differ materially from those discussed in, or implied by, these
      forward-looking statements. Factors that could cause actual results or
      conditions to differ from those anticipated by these and other forward-looking
      statements include those referred to in Part II, Item 1A. Risk Factors. Our
      business may have changed since the date hereof, and we undertake no obligation
      to update these forward-looking statements.




When
      we
      use the terms “NYFIX”, the “Company”, “we”, “us” and “our”, we mean NYFIX, Inc.
      and its consolidated subsidiaries.




The
      following discussion should be read together with the accompanying Condensed
      Consolidated Financial Statements and notes thereto.




**Overview**




We
      are a
      pioneer in electronic trading solutions and we continue to transform trading
      through innovation.  The NYFIX Marketplace TM is a
      global community of trading counterparties utilizing innovative services that
      optimize the business of trading, including trading workstations, middle office
      trade automation technologies and trade messaging services.  NYFIX
      Millennium provides the NYFIX Marketplace TM with
      enhanced methods of accessing liquidity.  We also provide value-added
      informational and analytic services and powerful tools for measuring execution
      quality.  As a trusted
      business partner and service provider to
      investment managers, mutual fund, pension fund and hedge fund managers (the
      “Buy-Side”) and brokerage firms and banks (the “Sell-Side”), NYFIX enables
      ultra-low touch, low impact market access and end-to-end transaction processing.
      We refer to ourselves as a “trusted business partner” because our clients depend
      on our products and services for mission-critical business functions, including
      order management, order routing and trade execution. And since we act only
      as
      agent for our clients and never engage in proprietary trading for the firm’s
      account, we are viewed as a neutral intermediary and impartial by Buy-Side
      and
      Sell-Side alike.




Page
          21




We
      operate businesses that design, produce and sell technology based products
      and
      services to professional financial services organizations that are engaged
      in
      trading activities including traditional asset management (including the trading
      of those assets), proprietary trading, and/or the handling of client orders
      in
      the U.S. and international securities markets.




Many
      of
      our products and services utilize the FIX Protocol which is a messaging standard
      developed specifically for real-time electronic exchange of securities trading
      information.




We
      believe our innovative NYFIX products and services deliver value-added
      improvements in speed, quality of execution and cost efficiency by automating
      both the work flows at the user work station level and the interactive process
      of transmitting and executing orders between the Buy-Side institutional
      investors (e.g., hedge funds, investment advisers, mutual funds and pension
      funds) and the Sell-Side broker-dealers, and through exchanges (e.g., NYSE,
      American Stock Exchange (“AMEX”), the NASDAQ Stock Market (“Nasdaq”) and other
      exchanges), the OTC market, ATSs and electronic communication networks (“ECNs”).




**Business
      Model**




Our
      revenue is comprised of subscription and maintenance, product sales and services
      and transaction revenue, as follows:




Subscription
      and maintenance consists of contracts that provide for the use of our systems
      and our messaging channels, together with managed services, with a term of
      generally one to three years.  Additional services, provided under
      schedules, or addenda to the contracts, are either co-terminus with the original
      contract or have provisions similar to the original contract.  Under the
      terms of the subscription contracts and addenda, clients are typically invoiced
      a flat periodic charge after initial installation. Subscription
      and m aintenance
      also includes maintenance contracts for software under separate, renewable
      maintenance contracts. Software related maintenance contracts are generally
      for
      a term of one year. Revenue
      related to these contracts and addenda is recognized over the term of the
      contract, addendum, or service period, on a straight-line basis.  We
      include within our subscription and maintenance revenue charges for connectivity
      to the NYFIX trading community. These include the various costs of connecting
      clients which include telecommunications, installation and maintenance of
      routers, network management software, and staff, and other costs related to
      the
      management of connectivity. The connectivity charges are recognized as the
      services are provided.




Product
      sales and services are primarily comprised of FIX software licenses and
      professional services fees. This revenue is recognized when the software has
      been shipped and accepted by the client and when other contractual obligations,
      including installation, if applicable, have been satisfied and collection of
      the
      resulting receivable is reasonably assured.




Transaction
      revenue primarily consists of per-share commissions charged to clients who
      send
      and receive a match and execution in our NYFIX Millennium ATS and clients to
      whom we provide execution and smart order routing technology, gateways to access
      markets and algorithmic trading ability in: (i) their own name, (ii) a third
      party name, or (iii) our name. Revenue for these services is generally invoiced
      monthly in arrears or is obtained through the clearing process within three
      days
      of the trade date, and is recognized on a trade date basis, in the period in
      which it is earned. Transaction revenue also includes the net interest spread
      on
      our matched book of securities borrowed/loaned.




Cost
      of
      revenue includes the following:




·
            Data
                center operating costs, including salaries, related to equipment,
                infrastructure and software supporting operations and the NYFIX
                MarketplaceTM;




·
            Managed
                connectivity costs, including telecommunication and other costs incurred
                on behalf of clients, and costs to maintain the data centers, including
                depreciation and amortization of assets utilized by the data centers,
                which are recognized as either a cost of subscription and maintenance
                or
                cost of transaction revenue, as appropriate;




Page
          22




·
            Amortization
                expense of acquired intangible assets and capitalized product enhancement
                costs relating to the applicable revenue
                category;




·
            Developer
                and quality assurance personnel labor for client and product support
                of
                software products;




·
            The
                cost of leased subscription and service bureau equipment, which is
                depreciated over the estimated useful life of the equipment. When
                inventory is leased on a subscription basis, the cost of the inventory
                is
                relieved and transferred to property and equipment. The depreciation
                expense related to this equipment is included in cost of subscription
                and
                maintenance revenue; and




·
            Execution
                and clearing costs to access various markets and exchanges and to
                process
                and settle transactions.




**SEC
      Investigation and Related Contingencies**




As
      described more fully in Note 10 to the Condensed Consolidated Financial
      Statements there is an ongoing SEC investigation of our historical stock option
      granting practices as well as a related grand jury subpoena and related
      shareholder derivative litigations and tax inquiries. In addition, in March
      2007
      we filed our 2005 10-K which included restatements of previously reported
      results related to stock-based compensation as well as acquisitions and
      investments, revenue recognition, income taxes and treasury stock. Our 2005
      10-K
      includes detailed findings of the internal review of our historical stock-based
      awards.




We
      have
      determined that we have exposure as former management did not properly withhold
      employee income and related payroll taxes related to historical stock option
      activity. As a result, we have recorded a liability of $1.0 million related
      to
      tax withholdings not made on the exercises of stock options previously
      classified as Incentive Stock Options (“ISOs”), exposures related to Section
      409A of the U.S. Internal Revenue Code (“Section 409A”), and similar exposures
      related to withholdings and payroll taxes which may be due in the U.K, related
      to stock option exercises under Pay As You Earn, or PAYE, and National Insurance
      Contribution provisions (due to our indemnity obligations to GL).




Due
      to
      the fact that we are not current with our SEC reporting obligations, we have
      generally not issued shares to employees and directors in connection with the
      exercise of stock options since July 2005. In February 2006, the Compensation
      Committee of the Board of Directors approved a policy whereby we will honor
      awards to former employees who have validly notified us in writing of their
      intent to exercise. These awards will be honored once the Company is current
      with its periodic SEC reporting requirements and can settle awards under its
      registration statements. Certain former employees have notified us in writing
      of
      their intent to exercise; however, we have not honored such exercises at this
      time. We have cash exposure if our stock price drops after employees have
      notified us in writing of their intent to exercise.




As
      of
      March 31, 2007, we had outstanding
      options covering 957,154 shares for which we had been notified of intents to
      exercise and which were not deemed probable of expiring before the Company
      could
      issue shares (“Pending Exercises”). The
      range
      of fair market values for our common stock on the dates of these notifications
      was from $2.90 to $7.35, with a weighted average fair market value for such
      shares on the notification dates of $5.94.




During
      the second quarter of 2007, we were notified of additional intents to exercise.
      As of June 30, 2007, Pending Exercises totaled 1,030,150 shares. The range
      of
      fair market values of our common stock on the dates of the corresponding
      notifications through June 30, 2007 was from $2.90 to $7.47, with a weighted
      average fair market value for such shares underlying options on their
      notification dates of $5.97. Our potential cash exposure as of June 30, 2007
      for
      declines in our stock price after such notifications was estimated at less
      than
      $0.1 million, based on the fair market value of $7.40 at June 30, 2007. This
      cash exposure could, however, significantly increase if the fair market value
      of
      our stock declines once option holders are able to exercise and sell the
      underlying shares. We intend to offer to settle Pending Exercises in cash in
      an
      amount equal to the difference between the closing price of its stock on the
      date of notification and the exercise price of such options. We estimate our
      maximum cash exposure for net settlements of this nature at approximately $1.8
      million .




Page
          23




During
      the six months ended June 30, 2007, we paid $0.4 million to cash settle options
      which had reached their 10-year contractual life and expired. At June 30, 2007,
      liabilities for modified awards to be cash settled, related to options covering
      21,375 shares, aggregated $0.1 million. We have additional cash exposure if
      we
      cannot settle Pending Exercises with stock prior to their expiration going
      forward.




During
      the three months ended March 31, 2007 and 2006, we incurred $3.6 million and
      $4.1 million, respectively, relating to the stock option investigation and
      subpoenas, a grand jury subpoena, related shareholder derivative litigation,
      related financial restatements and expenses to resolve related matters, together
      with an earlier SEC inquiry into former management’s accounting for NYFIX
      Millennium, related class action litigation and related financial restatement.
      These costs include outside counsels, contract attorneys and forensic
      accountants, other consultants and the cost of re-auditing previously issued
      financial statements following the resignation of our former independent
      registered public accounting firm . These
      costs do not include any portion of time that our employees have dedicated
      to
      these matters. We will likely continue to incur material amounts of expense
      associated with these matters until they are resolved.




As
      described more fully in Note 10 to the Condensed Consolidated Financial
      Statements, other than amounts for employee-related taxes for stock options
      and
      Pending Exercises, we, in accordance with SFAS No. 5, *Accounting
      for Contingencies* ,
      have
      not recorded any liability with respect to these matters as we are currently
      unable to predict the outcomes and reasonably estimate the amounts of loss,
      if
      any. With respect to the SEC investigation of stock option grants, the grand
      jury subpoena, the State Court Consolidated Complaint, and the Federal Court
      Consolidated Complaint associated with such matters and other related matters,
      we could be subject to penalties, fines or regulatory sanctions or claims by
      current and former officers, directors or employees for indemnification of
      costs
      or losses they may incur and such amounts, individually or collectively, could
      have a material impact on the our financial condition. In addition, other
      actions may be brought against us related to the matters described above.




**Results
      of Operations for the Three Month Periods Ended March 31, 2007 and 2006**




The
      following table presents our consolidated results of operations for the periods
      indicated. These consolidated results of operations are not necessarily
      indicative of the consolidated results of operations that will be achieved
      in
      any future period.




Page
          24




**Three
                  Months Ended March 31,****%
                  of**
              
              
              
              **%
                  of**(in
                  thousands, except percentages)
              
              **2007**
              
              **revenue**
              
              **2006**
              
              **revenue****Revenue:**Subscription
                  and maintenance
              
              $
              17,274
              
              
              62%
              
              $
              15,647
              
              
              66%Product
                  sales and services
              
              
              680
              
              
              2%
              
              
              872
              
              
              4%Transaction
              
              
              9,776
              
              
              35%
              
              
              7,203
              
              
              30%Total
                  revenue
              
              
              27,730
              
              
              100%
              
              
              23,722
              
              
              100%**Cost
                  of revenue:**Subscription
                  and maintenance (1)
              
              
              8,546
              
              
              31%
              
              
              8,065
              
              
              34%Product
                  sales and services (1)
              
              
              387
              
              
              1%
              
              
              497
              
              
              2%Transaction
                  (1)
              
              
              5,401
              
              
              19%
              
              
              3,927
              
              
              17%Total
                  cost of revenue
              
              
              14,334
              
              
              52%
              
              
              12,489
              
              
              53%**Gross
                  profit**
              
              
              13,396
              
              
              48%
              
              
              11,233
              
              
              47%**Operating
                  expense:**Selling,
                  general and administrative (1)
              
              
              16,878
              
              
              61%
              
              
              10,823
              
              
              46%Restatement,
                  SEC investigation and related expenses (1)
              
              
              3,593
              
              
              13%
              
              
              4,054
              
              
              17%Depreciation
                  and amortization
              
              
              282
              
              
              1%
              
              
              369
              
              
              2%Loss
                  from operations
              
              
              (7,357
              )
              
              -27%
              
              
              (4,013
              )
              
              -17%Interest
                  expense
              
              
              (136
              )
              
              0%
              
              
              (134
              )
              
              -1%Investment
                  income
              
              
              1,227
              
              
              4%
              
              
              132
              
              
              1%Other
                  expense, net
              
              
              (15
              )
              
              NM
              
              
              -
              
              
              -Loss
                  from continuing operations before income tax provision
              
              
              (6,281
              )
              
              -23%
              
              
              (4,015
              )
              
              -17%Income
                  tax provision
              
              
              47
              
              
              0%
              
              
              47
              
              
              0%Loss
                  from continuing operations
              
              
              (6,328
              )
              
              -23%
              
              
              (4,062
              )
              
              -17%Loss
                  from discontinued operations
              
              
              -
              
              
              
              
              
              (192
              )Net
                  loss
              
              
              (6,328
              )
              
              
              
              
              (4,254
              )Accumulated
                  preferred dividends
              
              
              (1,717
              )
              
              
              
              
              -Loss
                  applicable to common stockholders
              
              $
              (8,045
              )
              
              
              
              $
              (4,254
              )
 
 NM
                  - not meaningfulPercentage
                  sub-totals may not add due to rounding(1)
                  Stock-based compensation expense includedin
                  the respective line items above follows:Cost
                  of revenue:Subscription
                  and maintenance
              
              $
              10
              
              
              
              
              $
              43Product
                  sales and services
              
              
              1
              
              
              
              
              
              4Transaction
              
              
              -
              
              
              
              
              
              3Selling,
                  general and administrative
              
              
              98
              
              
              
              
              
              263Restatement,
                  SEC investigation and related expenses
              
              
              (11
              )
              
              
              
              
              105$
              98
              
              
              
              
              $
              418




**Revenue**




The
      following table presents the components of revenue for the periods indicated:


**Three
                  Months Ended****March
                  31,**
              
              **Increase
                  (Decrease)**(in
                  thousands, except percentages)
              
              **2007**
              
              **2006**
              
              **$**
              
              **%**Subscription
                  and maintenance
              
              $
              17,274
              
              $
              15,647
              
              $
              1,627
              
              
              10%Product
                  sales and services
              
              
              680
              
              
              872
              
              
              (192
              )
              
              -22%Transaction
              
              
              9,776
              
              
              7,203
              
              
              2,573
              
              
              36%Total
                  revenue
              
              $
              27,730
              
              $
              23,722
              
              $
              4,008
              
              
              17%




Page
          25




*Subscription
      and Maintenance*




The
      increase in subscription and maintenance revenue for the three months ended
      March 31, 2007 was primarily attributable to an increase in subscriptions (and
      related managed services) of messaging channels offered by our FIX Division.
      This growth was attributable to an increase in the number of Buy-Side to
      Sell-Side messaging channels, primarily for order routing, as we continued
      our
      efforts to increase the level of business with Buy-Side institutions.
      Subscriptions (and related managed services) of our OMS Division desktop and
      floor products decreased $1.5 million to $3.7 million for the three months
      ended
      March 31, 2007 compared to $5.2 million during the three months ended March
      31,
      2006, due primarily to the declining presence of floor traders using our
      products. Recurring maintenance on licensed software was comparable between
      the
      three months ended 2007 and 2006 at $1.0 and $1.1 million,
      respectively.




For
      the
      full year 2007, we expect our OMS Division revenues to decline by approximately
      40% from 2006, due primarily to the discontinuation (during the second quarter)
      of certain floor application product offerings as well as cancellations by
      certain desktop clients.




*Product
      Sales and Services*




The
      decrease in product sales and services for the three months ended March 31,
      2007
      was primarily due to a decrease in sales of software licenses and related
      services by our FIX Division.




*Transaction*




The
      increase in transaction revenue for the three months ended March 31, 2007 was
      attributable to an increase in commissions on trade executions. Commissions
      increased $2.6 million to $9.4 million during the three months ended March
      31,
      2007 compared to $6.8 million during three months ended March 31, 2006 due
      primarily to a $3.8 million increase in commissions from Sell-Side clients
      offset by a $1.2 million decrease in commissions from Buy-Side clients. The
      increase from Sell-Side clients was due to increased matched volumes in NYFIX
      Millennium, increased use of the NYFIX NEXAS TM algorithmic
      trading products and an increase in commissions for direct market access
      services, offset in part by a decline in billed specialist fees. The average
      daily matched volume in NYFIX Millennium during the three months ended March
      31,
      2007 was 41.3 million shares, a 120% increase over the average of 18.8 million
      shares during the three months ended March 31, 2006. This increase reflects
      increased popularity of dark pool matching venues for trading and algorithmic
      trading solutions sponsored by broker dealers. The increased popularity of
      these
      third-party algorithmic trading solutions with Buy-Side clients has had the
      effect of disintermediating our direct Buy-Side sales efforts, resulting in
      lower share volumes and commissions from these clients. Our securities lending
      business generated net interest spread on its matched book stock borrow/stock
      loan portfolio of $0.3 million during the three months ended March 31, 2007,
      compared to $0.4 million during the three months ended March 31,
      2006.




Included
      in the NYFIX Millennium volume figures reported above are conditional orders
      executed against pass-through orders and other conditional orders, and third
      market trades crossed by clients and reported by NYFIX Millennium to
      Nasdaq.




**Costs
      and Expenses**




*Cost
      of Revenue*




The
      following table presents cost of revenue for the periods indicated:


**Three
                  Months Ended****March
                  31,**
              
              **Increase
                  (Decrease)**(in
                  thousands, except percentages)
              
              **2007**
              
              **2006**
              
              **$**
              
              **%**Subscription
                  and maintenance
              
              $
              8,546
              
              $
              8,065
              
              $
              481
              
              
              6%Product
                  sales and services
              
              
              387
              
              
              497
              
              
              (110
              )
              
              -22%Transaction
              
              
              5,401
              
              
              3,927
              
              
              1,474
              
              
              38%Total
                  cost of revenue
              
              $
              14,334
              
              $
              12,489
              
              $
              1,845
              
              
              15%Percent
                  of total revenue
              
              
              52%
              
              
              53%


Page
          26




*Subscription
      and Maintenance*




The
      increase in subscription and maintenance cost of revenue for the three months
      ended March 31, 2007 was primarily attributable to an increase in fees paid
      of
      $0.2 million to third-party order management system providers to establish
      messaging channels with their clients, investments in our subscription-based
      products, including higher personnel costs of $0.1 million and increased
      telecommunication costs of $0.1 million. These increases were offset in part
      by
      decreases in various other costs. As a percentage of related revenue, these
      costs decreased to 49% for the three months ended March 31, 2007 as compared
      to
      52% for the three months ended March 31, 2006.




*Product
      Sales and Services*




The
      decrease in product sales and services cost of revenue for the three months
      ended March 31, 2007 was attributable to lower amortization of capitalized
      enhancement costs of $0.1 million. Recently, such costs have been primarily
      fixed versus variable in nature. As a percentage of related revenue these costs
      were comparable at 57% for the respective periods in 2007 and 2006.




*Transaction*




The
      increase in transaction cost of revenue for the three months ended March 31,
      2007 primarily related to increased execution and clearing fees of $1.4 million,
      of which $1.1 million was associated with the growth in transaction volumes
      and
      $0.3 million related to outbound routed NYSE linkage fees. Upon the March 5,
      2007 effective date of Regulation NMS for exchanges, we began to incur
      significant linkage fees from the NYSE to route orders to other market centers
      in order to access improved prices related to pending trades. As a percentage
      of
      related revenue, these costs were comparable at 55% for the three months ended
      March 31, 2007 and 2006. Due to significant delays and difficulties in capturing
      the trade-by-trade information for NYSE outbound routed orders and timely
      notifying our direct access clients of the respective linkage fee charges on
      a
      real time basis, we are still in the process of passing the linkage fee charges
      incurred from March 5, 2007 through May 31, 2007 to the respective clients
      as
      billed revenue. Due to this situation and related contingency, we will not
      record any offsetting linkage fee revenue for the period from March 5, 2007
      to
      May 31, 2007 until trade-by-trade data is available and collectibility is
      reasonably assured.  In addition to the $0.3 million of linkage fee expense
      we recorded in March 2007, we recorded an additional $1.6 million of linkage
      fee
      expense during April 2007 and May 2007 which we are in the process of passing
      to
      customers.




*Selling,
      General and Administrative Expenses (SG&A)*




The following table presents components of our selling, general and
      administrative expense
      for the periods indicated :


**Three
                  Months Ended****March
                  31,**
              
              **Increase
                  (Decrease)**(in
                  thousands, except percentages)
              
              **2007**
              
              **2006**
              
              **$**
              
              **%**Compensation
                  and related
              
              $
              7,838
              
              $
              6,157
              
              $
              1,681
              
              
              27%Occupancy
                  and related
              
              
              754
              
              
              724
              
              
              30
              
              
              4%Marketing,
                  travel and entertainment
              
              
              791
              
              
              463
              
              
              328
              
              
              71%Professional
                  fees
              
              
              2,921
              
              
              1,604
              
              
              1,317
              
              
              82%Stock-based
                  compensation
              
              
              98
              
              
              263
              
              
              (165
              )
              
              -63%Transitional
                  rebuilding and remediation
              
              
              1,742
              
              
              -
              
              
              1,742
              
              
              -Transitional
                  employment costs
              
              
              1,036
              
              
              181
              
              
              855
              
              
              472%General
                  and other
              
              
              1,698
              
              
              1,431
              
              
              267
              
              
              19%Total
                  SG&A
              
              $
              16,878
              
              $
              10,823
              
              $
              6,055
              
              
              56%Percent
                  of total revenue
              
              
              61%
              
              
              46%




Page
          27




*Compensation
      and Related*




The
      increase in the portion of recurring compensation and related costs included
      in
      SG&A for the three months ended March 31, 2007 was primarily due to the
      impact of salary increases, growth in headcount as we continue to scale our
      organization for growth, increased incentive compensation associated with higher
      revenue levels and increased costs for employee benefits.




*Occupancy
      and Related*




Occupancy
      and related costs for the three months ended March 31, 2007 were comparable
      to
      the three months ended March 31, 2006 at $0.8 million and $0.7 million,
      respectively.




*Marketing,
      Travel and Entertainment*




The
      increase in marketing, travel and entertainment expenses for the three months
      ended March 31, 2007, primarily reflected our efforts to market our products
      including participation in industry trade shows and product
      promotion.




*Professional
      Fees*




The
      increase in professional fees incurred for the three months ended March 31,
      2007, was primarily due to the use of consultants for organizational
      development, marketing, public relations and strategy, as well as increases
      in
      SOX 404 compliance and legal fees. Consultants and outside legal counsels were
      also engaged to supplement day-to-day management activities while the
      restatements and related legal issues were being addressed by management. These
      costs do not include the time spent by outside consultants and advisors on
      the
      restatements and related legal issues as such costs have been separately
      categorized below.




*Stock-based
      Compensation*




The
      decrease in stock-based compensation for the three months ended March 31, 2007
      was primarily attributable to the fact that we have not issued any stock-based
      awards since the second quarter of 2005.




*Transitional
      Rebuilding and Remediation Costs*




Transitional
      rebuilding and remediation costs reflect a Company-wide, one-time effort,
      following the $75 million preferred stock investment by Warburg Pincus, to
      remediate deficiencies as well as improve critical operational systems and
      processes, including technology infrastructure and management information
      systems to improve scalability. As a result of this effort, we expect to have
      improvements in our lab environment, data replication and back-up, network
      monitoring, application security and more timely and detailed internal and
      external financial reporting. These efforts are also addressing certain
      historical administrative issues such as our corporate legal structure and
      our
      compensation programs. These costs primarily consist of fees paid to outside
      consultants. During the three months ended March 31, 2007, we incurred $1.7
      million of such costs. We expect to incur approximately $6.0 million of these
      costs, mostly during the 2007 year, however, a portion of this work and related
      costs may carry forward into early 2008.




Page
          28




*Transitional
      Employment Costs*




Transitional
      employment costs reflect the Company’s efforts to build critical teams, retain
      key employees, and improve various operational capabilities while remediating
      related skill gaps to improve scalability. These transitional costs primarily
      consist of sign-on bonuses and retention bonuses, severance and other
      termination benefits. During the three months ended March 31, 2007 and March
      31,
      2006, we incurred $1.0 million and $0.2 million of such costs, respectively.
      We
      expect to incur in excess of $3.0 million of such costs during the 2007 year
      and
      an additional $0.3 million during the first half of 2008.




*General
      and Other*




The
      increase in general and other expenses for the three months ended March 31,
      2007
      primarily reflects an increase in recruiting fees, various municipal taxes
      and
      higher software maintenance costs. These increases were offset in part by
      decreases in costs for temporary administrative help and various other general
      expenses.




*Other
      Operating Expenses*




Other
      operating expenses consist of the following for the periods
      indicated:




**Three
                  Months Ended****March
                  31,**
              
              **Decrease**(in
                  thousands, except percentages)
              
              **2007**
              
              **2006**
              
              **$**
              
              **%**Restatement,
                  SEC investigation and related expenses
              
              $
              3,593
              
              $
              4,054
              
              $
              (461
              )
              
              -11%Depreciation
                  and amortization
              
              
              282
              
              
              369
              
              
              (87
              )
              
              -24%




*Restatement,
      SEC Investigation and Related Expenses*




During
      the three months ended March 31, 2007 and 2006, we incurred costs relating
      to
      the stock option investigation and subpoenas, a grand jury subpoena related
      to
      our stock option grants, related shareholder derivative litigation, related
      financial restatements and expenses to resolve related matters, together with
      the NYFIX Millennium SEC inquiry, related class action litigation and related
      financial restatement. These costs include outside counsels, contract attorneys
      and forensic accountants, other consultants and the cost of re-auditing
      previously issued financial statements following the resignation of our former
      independent registered public accounting firm. These costs do not include any
      portion of time that our employees have dedicated to these matters.  We
      will
      continue to incur expenses associated with these matters until they are
      resolved. The amount of such expenses will likely vary and may be
      material.




These
      costs decreased $0.5 million to $3.6 million for the three months ended March
      31, 2007, compared to $4.1 million for the three months ended March 31, 2006.
      With the completion of the 2005 Restatement in March 2007, we expect these
      costs
      to decline over the remainder of 2007 although we do expect to continue to
      incur
      costs related to the stock option investigation and litigations and other stock
      option related matters.




*Depreciation
      and Amortization*




The
      decline in the portion of depreciation and amortization not included in cost
      of
      revenue for the three months ended March 31, 2007 was due to an increase in
      the
      amount of general overhead assets that have become fully
      depreciated.




**Non-Operating
      Income (Expense)**




Non-operating
      income (expense) items are as follows for the periods indicated:


**Three
                  Months Ended**
              
              **Increase****March
                  31,**
              
              **(Decrease)**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **$**Interest
                  expense
              
              $
              (136
              )
              $
              (134
              )
              $
              2Investment
                  income
              
              
              1,227
              
              
              132
              
              
              1,095Other
                  expense, net
              
              
              (15
              )
              
              -
              
              
              (15
              )




Page
          29




*Interest* *Expense* **




For
      the
      three months ended March 31, 2007 and 2006, interest expense was comparable
      at
      $0.1 million, reflecting the interest on capital lease obligations and the
      $7.5
      million convertible note.




*Investment* *Income*




The
      increase in investment income for the three months ended March 31, 2007
      reflected higher average cash balances invested during the period, primarily
      as
      a result of two private placements of equity securities during the last half
      of
      2006.




**Income
      Tax Provisi** **on**




The
      income tax provisions for the three months ended March 31, 2007 and 2006 were
      solely attributable to the impact of deducting goodwill related to the
      Renaissance acquisition in our tax filings. All other tax effects during the
      three months ended March 31, 2007 and 2006 have been netted out in our deferred
      tax asset valuation reflecting our view that historical pre-tax book income
      and
      historical income for tax purposes are not sufficient to support a conclusion
      that the value of our net deferred tax assets are more likely than not to be
      realized. Until we achieve and sustain an appropriate level of profitability,
      we
      plan to maintain a valuation allowance on our net deferred tax assets.




**Liquidity
      and Capital Resources**




**As
                  of****March
                  31,**
              
              **December
                  31,**(in
                  thousands)
              
              **2007**
              
              **2006**Cash
                  and cash equivalents
              
              $
              94,634
              
              $
              105,888




**Three
                  Months Ended**(in
                  thousands)
              
              **March
                  31, 2007**Net
                  cash used in operating activities
              
              $
              (7,444
              )Net
                  cash used in investing activities
              
              
              (3,464
              )Net
                  cash used in financing activities
              
              
              (343
              )Effect
                  of exchange rate changes on cash
              
              
              (3
              )Net
                  decrease in cash and cash equivalents
              
              $
              (11,254
              )




*Liquidity*




We
      derive
      our liquidity and capital resources primarily from our cash flows from
      operations, from issuances of stock and from long-term borrowings. At March
      31,
      2007, we had cash and cash equivalents of $94.6 million. We believe resources
      available at March 31, 2007 will be sufficient to finance our current investing,
      transitional rebuilding, remediation and other costs, and operating needs as
      well as the net capital requirements of our broker-dealer subsidiaries. Due
      to
      operating losses and other uses during the three months ended June 30, 2007,
      our
      cash and cash equivalents on hand declined to $85.2 million at June 30, 2007.
      At
      March 31, 2007, $31.0 million of our total cash and cash equivalents were held
      in our broker-dealer subsidiaries to help meet their regulatory capital
      requirements.




Page
          30




*Operating
      Activities*




The
      following table sets forth our net loss adjusted for non-cash items, such as
      depreciation, amortization, deferred taxes, provision for doubtful accounts
      and
      stock-based compensation; and the effect on cash generated by operating
      activities of changes in working capital and other operating accounts between
      periods.




**Three
                  Months Ended**(in
                  thousands)
              
              **March
                  31, 2007**Net
                  loss adjusted for non-cash items
              
              $
              (3,416
              )Effect
                  of changes in working capital and other operating accounts
              
              
              (4,028
              )Net
                  cash used in operating activities
              
              $
              (7,444
              )


Changes
      in working capital and other operating accounts affected cash flows during
      the
      three months ended March 31, 2007 primarily as a result of changes in the levels
      of accounts receivable, accounts payable and accrued expenses and net clearing
      broker assets between periods. These changes resulted primarily from increasing
      levels of sales and the timing of cash posted for securities lending positions,
      offset in part by increasing levels of expenditures, and from cash management
      efforts affecting the timing of payments.




*Broker-Dealer
      Operations*




Clearing
      broker assets reflect amounts on hand to support our ability to self-clear
      the
      transactions of NYFIX Millennium and NYFIX Transaction, such as receivables
      from
      clearing organizations and deposits with clearing firms, as well as balances
      to
      support our matched-book stock borrow/stock loan business. Our matched-book
      balances include offsetting stock borrowed and stock loaned and offsetting
      securities failed-to-deliver and securities failed-to-receive. At March 31,
      2007, the net balance for clearing broker assets and clearing broker liabilities
      was a net receivable of $2.2 million.




Securities
      borrowed and securities loaned are recorded at the amount of cash collateral
      provided for securities borrowed transactions and received for securities loaned
      transactions, plus accrued interest. We monitor the market value of securities
      borrowed and loaned on a daily basis with additional collateral obtained or
      refunded as necessary. At March 31, 2007, clearing broker assets include stock
      borrows of $427.0 million and clearing broker liabilities include stock loans
      of
      $427.4 million. We anticipate that these balances will grow in 2007 as a result
      of the $12.5 million capital infusion into the business in December 2006.




NYFIX
      Millennium, NYFIX Transaction and NYFIX Clearing are U.S. registered
      broker-dealers required to maintain levels of regulatory net capital under
      Rule
      15c3-1. NYFIX Clearing’s DTCC membership, used to self-clear securities
      transactions, requires the maintenance of $10 million in excess regulatory
      net
      capital. NYFIX International is a registered ISD Category B firm with the FSA,
      required to maintain financial resources generally equal to three months average
      expenditures, subject to a minimum of €125,000, plus a proportion of less liquid
      assets on hand. At March 31, 2007, the aggregate regulatory net
      capital/resources of our regulated subsidiaries in the U.S. and U.K. were $29.0
      million, $18.0 million in excess of our aggregate requirement of $11.0 million
      (including the $10 million excess required by DTCC).




*Investing
      Activities*




Investments
      in current technology to maintain our infrastructure and to enhance our products
      remain an important requirement for our available cash resources.




Net
      cash
      used in investing activities for the three months ended March 31, 2007 was
      $3.5
      million. This consisted of capital expenditures for property and equipment,
      principally for data center equipment and software, of $2.7 million and
      capitalized product enhancement costs of $0.8 million.




*Financing
      Activities*




Our
      financing activities primarily consist of long-term debt issued for
      acquisitions, capital lease obligations used for equipment purchases, long-term
      debt issued for working capital purposes, and issuance
      of capital stock for general corporate purposes and business development
      activities. At March
      31, 2007, we had long-term debt and capital lease obligations outstanding
      aggregating $9.0 million (including current portions and the convertible note
      discussed below).




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          31




At
      March
      31, 2007, we had outstanding a $7.5 million convertible note with an interest
      rate of 5%, due in December 2009. At March 31, 2007, the price at which the
      lender could convert the convertible note into shares of our common stock was
      $5.66 per share. The conversion price may be reduced if we issue shares of
      common stock at a price below the conversion price in effect, excluding stock
      option exercises, the settlement of obligations outstanding as of the date
      of
      the convertible note and other transactions previously approved by our Board
      of
      Directors.




At
      the
      option of the lender, we may issue to the lender up to an additional $2.5
      million note under terms substantially similar to those described above.




Net
      cash
      used in financing activities for the three months ended March 31, 2007 was
      $0.3
      million, consisting primarily of principal payments under capital lease
      obligations.




**Commitments
      and Contingencies**




There
      are
      various lawsuits and claims pending against us as well as ongoing SEC and United
      States Attorney’s Office investigations into our accounting for stock option
      grants and an SEC investigation into our accounting for the losses incurred
      by
      NYFIX Millennium. We are currently unable to predict the outcomes and reasonably
      estimate the amounts of loss, if any, with respect to these matters. With
      respect to certain of these matters, we could be subject to penalties, fines
      or
      regulatory sanctions or claims by current and former officers, directors or
      employees for indemnification of costs or losses they may incur and such
      amounts, individually or collectively, could have a material impact on our
      financial condition. In addition, other actions may be brought against us
      related to these matters.




See
      Note
      10 to the Condensed Consolidated Financial Statements for a description of
      our
      commitments and contingencies.




**Seasonality
      and Inflation**




We
      believe that our operations have not been significantly affected by seasonality
      or inflation.




**Off-balance
      Sheet Arrangements**




We
      have
      no material off-balance sheet arrangements other than those related to the
      contingent obligations under the $7.5 million convertible note as described
      above and under the terms of our Series B Preferred Stock as described in our
      2006 10-K.




**Critical
      Accounting Policies and Estimates**




The
      discussion and analysis of our financial condition and results of operations
      are
      based on our consolidated financial statements, which have been prepared in
      accordance with GAAP. The preparation of these financial statements requires
      us
      to make estimates and judgments that affect the reported amounts of assets,
      liabilities, revenues, and expenses and related disclosures of contingent assets
      and liabilities. On an on-going basis, we evaluate our estimates, including
      our
      allowance for doubtful accounts, inventory valuation and obsolescence,
      long-lived tangible and intangible assets, income taxes, and contingencies
      and
      litigation. We base our estimates on historical experience and on various other
      assumptions that are believed to be reasonable under the circumstances, the
      results of which form the basis for making judgments about the carrying values
      of assets and liabilities that are not readily apparent from other sources.
      Actual results may differ from these estimates under different assumptions
      or
      conditions. In our 2006 10-K, we identified and disclosed critical accounting
      policies, which included revenue recognition, allowance for doubtful accounts,
      property and equipment, acquisitions and goodwill, product enhancement costs,
      long-lived assets, income taxes, contingencies and stock-based compensation.
      These critical accounting policies affect significant judgments and estimates
      used in the preparation of our financial statements. We reviewed our policies
      in
      conjunction with the preparation of this report and have determined that those
      critical policies remain and have not changed since December 31, 2006.




Page
          32


**Part
      I Item 3. Quantitative and Qualitative Disclosures About Market
      Risk**




There
      have been no material changes in our exposure to market risk during the three
      months ended March 31, 2007, from those described in Part II, Item 7A,
      Quantitative and Qualitative Disclosures About Market Risk, included in our
      2006
      10-K.




**Part
      I Item 4. Controls and Procedures**




***Disclosure
      Controls and Procedures***




In
      connection with the preparation of this report on Form 10-Q, our management,
      with the participation of our
      Chief Executive Officer and our Chief Financial Officer, carried out an
      evaluation of the effectiveness of the design and operation of our disclosure
      controls and procedures as of March 31, 2007. Disclosure controls and
      procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
      Act, are controls and other procedures designed to provide reasonable assurance
      that the information we are required to disclose in the reports we file or
      submit under the Exchange Act is recorded, processed, summarized and reported
      within the time periods specified in the SEC’s rules and forms, and that such
      information is accumulated and communicated to our management, including our
      Chief Executive Officer and Chief Financial Officer, as appropriate to allow
      timely decisions regarding required disclosure.




As
      disclosed in our 2006 10-K (filed in August 2007), management and our
      independent registered public accounting firm identified several material
      weaknesses regarding elements of our internal control over financial reporting. A
      material weakness is a control deficiency, or combination of control
      deficiencies, that results in more than a remote
      likelihood that a material misstatement of the annual or interim financial
      statements will not be prevented or detected. Material weaknesses in internal
      controls may also constitute deficiencies in our disclosure controls and
      procedures.




Based
      on
      an evaluation of the identified material weaknesses, our
      Chief
      Executive Officer and Chief Financial Officer concluded that, as of March 31,
      2007, we continued to have material weaknesses regarding elements of our
      internal control over financial reporting, and as a result, concluded that
      our
      disclosure controls and procedures were not effective at the reasonable
      assurance level as of March 31, 2007.




***Interim
      Measures to Ensure the Accuracy of Financial
      Reporting***




In
      response to the material weaknesses identified as a result of management’s
      assessment of internal control over financial reporting as disclosed in our
      2005
      and 2006 10-K’s, our management, with oversight from our Audit Committee,
      implemented measures to help ensure the accuracy of our financial reporting
      until such time as we are able to further improve our control environment and
      remedy our material weaknesses, including, among other things:




·
            expansion
                of our period-end closing
                procedures,




·
            enhanced
                monitoring and communications,




·
            additional
                analyses and cross team reviews,




·
            the
                dedication of significant internal
                resources,




·
            the
                engagement of external consultants,
                and




·
            additional
                top level management reviews of financial information and related
                disclosures.




As
      a
      result of these expanded and compensating procedures, we concluded that the
      consolidated financial statements included in this report on Form 10-Q present
      fairly, in all material respects, our financial position, results of operations
      and cash flows for the periods presented in conformity with GAAP.




Page
          33




The
      certifications of our principal executive officer and principal financial
      officer required in accordance with Section 302 of the Sarbanes-Oxley Act of
      2002 are attached as exhibits to this report on Form 10-Q. The disclosures
      set
      forth in this Item 4 contain information concerning the evaluation of our
      disclosure controls and procedures and our internal control over financial
      reporting, referred to in the certifications. Those certifications should be
      read in conjunction with this Item 4 for a complete understanding of the matters
      covered by the certifications.




***Changes
      in Internal Control Over Financial Reporting***




During
      2006 and through the August 6, 2007 filing of our 2006 10-K (which included
      developments during the three months ended March 31, 2007), we initiated changes
      to address previously reported material weaknesses in internal control over
      financial reporting, as described therein, that have a material effect or are
      reasonably likely to have a material effect on our internal control over
      financial reporting.  Our
      efforts, which
      spanned the January 1, 2006 through August 6, 2007 period and continued to
      the date of filing of this report as part of an ongoing process, have
      focused and continue to focus, on:




(i)
              Expanding
                  our organizational capabilities to improve our control
                  environment;




(ii)
              Implementing
                  process changes to strengthen our internal control and monitoring
                  activities; and




(iii)
              Implementing
                  adequate information technology general controls.




Ongoing
      Remediation of Material Weaknesses -




While
      we
      believe our ongoing efforts have improved our internal control over financial
      reporting, we have not completed the redesign and/or programming of all
      necessary procedures and controls nor our documentation and testing of the
      processes. Accordingly, we will continue to perform the interim measures
      described above and monitor the effectiveness of our internal control over
      financial reporting in the areas impacted by the material weaknesses discussed
      above.




We
      continue to have extensive work remaining and management has increased the
      resources dedicated to our remediation program following completion of our
      internal accounting review in February 2007, and the resultant restatement
      of
      our financial results for prior periods.




We
      believe that these remedial actions have improved and that further planned
      actions will continue to improve our internal control over financial reporting,
      as well as our disclosure controls and procedures. However, we do not believe
      that all of these material weaknesses, including certain of those involving
      our
      IT infrastructure and related controls, will be fully remediated by
      December 31, 2007. We expect that we will need a period of time over which
      to demonstrate that these controls are functioning appropriately to conclude
      that we have adequately remediated the weaknesses. Accordingly, we expect to
      report that our internal control over financial reporting and our disclosure
      controls and procedures remain ineffective as of December 31, 2007.




Certain
      of the planned remediation efforts will require significant ongoing effort
      and
      investment. Our management, with the oversight of our Audit Committee, will
      continue to identify and take steps to remedy known material weaknesses as
      expeditiously as possible and enhance the overall design and capability of
      our
      control environment.


Page
          34




**PART
      II -- OTHER INFORMATION**





**Part
      II Item 1. Legal Proceedings**




The
      information required by this Item with respect to legal proceedings set forth
      under “Commitments and Contingencies” in Note 10 to the Condensed Consolidated
      Financial Statements included in Part I, Item 1, Unaudited Financial Statements
      of this report on Form 10-Q is hereby incorporated by
      reference.




**Part
      II Item 1A. Risk Factors**




An
      investment in our securities involves a high degree of risk. The risks referred
      to in our 2006 10-K are not the only ones facing us. Additional risks not
      presently known to us, or that we currently deem immaterial, may also have
      a
      material adverse effect on us. If any of the risks referred to in our 2006
      10-K
      actually occur our financial condition, results of operations, cash flows or
      business could be harmed. In that case, the market price of our securities
      could
      decline, and you could lose part or all of your investment.




We
      are
      not presently aware of new material risk factors in addition to those referred
      to in our 2006 10-K For more information regarding risk factors relating to
      us
      and our business, please refer to Item 1A, Risk Factors in our 2006
      10-K.




**Part
      II Item 2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds**




*Uses
      of Common Stock*




Certain
      transactions involving our common stock occurring during the first quarter
      of
      2007 and through the date of this report were as follows:




*Three
      months ended March 31, 2007*




·
            On
                January 25, 2007, the Board of Directors declared a dividend payable
                to
                holders of Series B Preferred Stock in payment of dividendsaccumulatedthrough December 31, 2006. As a result,we
                issued 227,500 restricted shares of common stock, with a fair value
                of
                approximately $1,354,000 based on themarket
                price of our common stock onthe
                declarationdate.The
                issuance of the shares was effected in reliance on the exemption
                set forth
                in Section 4(2) of the Securities Act.




·
            During
                the three months ended March 31, 2007, certain stock options on the
                pending notification list aggregating 225,000 shares were exercised
                by an
                affiliate at $2.00 per share. The $450,000 aggregate exercise price
                of
                such shares was paid for with 73,171 shares of then-outstanding common
                stock, which were returned to treasury. We then issued 225,000 restricted
                shares of common stock from treasury, on that same day, with a fair
                market
                value of $6.15 per share on the exercise date.The issuance of the shares was effected in reliance on the exemption
                set
                forth in Section 4(2) of the Securities Act.




·
            Also
                during March 2007, we issued 48,169 restricted shares of common stock
                from
                treasury to an officer in satisfaction of his employment agreement
                requiring issuance of shares worth $300,000.The
                issuance of the shares to the officer was effected in reliance on
                the
                exemption set forth in Section 4(2) of the Securities
                Act.




*Subsequent
      Stock Issuances*




On
      June
      19, 2007, the Board of Directors declared a dividend payable to holders of
      Series B Preferred Stock in payment of dividends accumulated from January 1,
      2007 through June 30, 2007; as a result, we issued 526,327 restricted shares
      of
      common stock in July 2007, with a fair value of approximately $3,426,000 based
      on the market price of our common stock on the declaration date. The
      issuance of the shares was effected in reliance on the exemption set forth
      in
      Section 4(2) of the Securities Act.




Page
          35




**Part
      II Item 3. Defaults Upon Senior Securities**




There
      were no payment defaults on our outstanding indebtedness during the three months
      ended March 31, 2007; however, there have been defaults related to our other
      obligations to become current with our periodic SEC filings and to register
      certain securities. Please see Note 11 to the Condensed Consolidated Financial
      Statements included in this report for a more detailed description of these
      matters.




**Part
      II Item 4. Submission of Matters to a Vote of Security Holders**




A
      special
      meeting of stockholders was held on February 27, 2007, following a proxy filed
      with the SEC on January 31, 2007, to approve a proposal of the Board of
      Directors to amend the Restated Certificate of Incorporation of the Company
      to
      increase the number of authorized shares of the Company’s common stock from
      60,000,000 to 100,000,000. A tabulation of the stockholder vote approving the
      proposal follows:




Vote
                  of the Company’s Common Stock as a ClassFor
              
              
              29,372,641Against
              
              
              435,836Abstain
              
              
              41,425Broker
                  Non-votes
              
              
              0
  Vote
                  of the Company’s Common Stock and the Series B Preferred Stock Combined as
                  a Single ClassFor
              
              
              44,372,641Against
              
              
              435,836Abstain
              
              
              41,425Broker
                  Non-votes
              
              
              0




**Part
      II Item 5. Other Information**




None.




Page
          36




**Part
      II Item 6.****Exhibits**




a.)
            Exhibits




**Exhibit****No.**
            
            **Description
                of Exhibit***31.1
            
            Certification
                of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a)
                of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.*31.2
            
            Certification
                of Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a)
                of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.*32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.*32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.







*
            Filed
                herewith




Page
          37


**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.




NYFIX, INC.August
                15, 2007
            
            /s/ P.
                Howard EdelsteinP.
                Howard EdelsteinPresident
                and
              Chief Executive
                Officer




August
                15, 2007
            
            /s/ Steven
                  R. VigliottiSteven
                  R. VigliottiChief
                  Financial Officer




Page
          38




**EXHIBIT
      INDEX**





31.1
            
            Certification
                of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a)
                of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a)
                of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




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          39