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

FORM 10-Q

|           |  |                                                                                          |  | 
|---------- |  | ---------------------------------------------------------------------------------------- |  | 
|(Mark One) |  |                                                                                          |  | 
|x          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934  |  | 
|           |  |                                                                                          |  | 
|           |  | For the quarterly period ended June 30, 2003                                             |  | 
|           |  |                                                                                          |  | 
|OR        
|           |  |                                                                                          |  | 
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |  | 
|           |  |                                                                                          |  | 

For the transition period from __________________ to ____________________

Commission file number 0-31049

TradeStation Group, Inc.

(Exact name of registrant as
specified in its charter)


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

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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes   x   No   
o

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

As of July 29, 2003, there were 40,703,068 shares of the Registrants
Common Stock outstanding.



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TABLE OF CONTENTS



|                                            |                                                                    |  |  |  |  |  |  | 
|------------------------------------------- | ------------------------------------------------------------------ |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION             
|                                            | ITEM 1. FINANCIAL STATEMENTS                                      
|CONSOLIDATED BALANCE SHEETS                
|CONSOLIDATED STATEMENTS OF OPERATIONS      
|CONSOLIDATED STATEMENTS OF CASH FLOWS      
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
|                                            | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL         
|                                            | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|                                            | ITEM 4. CONTROLS AND PROCEDURES                                   
|PART II  OTHER INFORMATION                
|                                            | ITEM 1. LEGAL PROCEEDINGS                                         
|                                            | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                 
|                                            | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                          
|SIGNATURE                                  
|REMOTE PROCESSING AGREEMENT                
|CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
|CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
|CERTIFICATION OF CHIEF FINANCIAL OFFICER   
|CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
|CERTIFICATION OF CHIEF FINANCIAL OFFICER   



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TRADESTATION GROUP, INC. AND SUBSIDIARIES

INDEX

|          |  |                                                                                                     |  |     
|--------- |  | --------------------------------------------------------------------------------------------------- |  | ----
|          |  |                                                                                                     |  | Page
|          |  |                                                                                                     |  |     
|PART I.   |  | FINANCIAL INFORMATION                                                                               |  |     
|          |  |                                                                                                     |  |     
|Item 1.   |  | Financial Statements:                                                                               |  |     
|          |  |                                                                                                     |  |     
|          |  | Consolidated Balance Sheets
June 30, 2003 (unaudited) and December 31, 2002                         |  | 3   
|          |  |                                                                                                     |  |     
|          |  | Consolidated Statements of Operations
Three and Six Months Ended June 30, 2003 and 2002 (unaudited) |  | 4   
|          |  |                                                                                                     |  |     
|          |  | Consolidated Statements of Cash Flows
Six Months Ended June 30, 2003 and 2002 (unaudited)           |  | 5   
|          |  |                                                                                                     |  |     
|          |  | Notes to Consolidated Financial Statements                                                          |  | 6   
|          |  |                                                                                                     |  |     
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations               |  | 13  
|          |  |                                                                                                     |  |     
|Item 3.   |  | Quantitative and Qualitative Disclosures about Market Risk                                          |  | 31  
|          |  |                                                                                                     |  |     
|Item 4.   |  | Controls and Procedures                                                                             |  | 31  
|          |  |                                                                                                     |  |     
|PART II.  |  | OTHER INFORMATION                                                                                   |  |     
|          |  |                                                                                                     |  |     
|Item 1.   |  | Legal Proceedings                                                                                   |  | 32  
|          |  |                                                                                                     |  |     
|Item 2.   |  | Changes in Securities and Use of Proceeds                                                           |  | 33  
|          |  |                                                                                                     |  |     
|Item 6.   |  | Exhibits and Reports on Form 8-K                                                                    |  | 33  
|          |  |                                                                                                     |  |     
|Signature |  | 34                                                                                                 

2



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##### Table of Contents






PART I  FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

TRADESTATION GROUP, INC. AND SUBSIDIARIES




CONSOLIDATED BALANCE
SHEETS


|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |             |            | 
|------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | - | ----------- | ---------- | ------------ | - | ----------- | ---------- | 
|                                      |                                                                                                                                                                    |                                            |   | June 30,    |            | December 31,
|                                      |                                                                                                                                                                    |                                            |   | 2003        |            | 2002        
|                                      |                                                                                                                                                                    |                                            |   |             |            |             
|                                      |                                                                                                                                                                    |                                            |   | (Unaudited) |            |              |   |            
|ASSETS:                               |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                      | Cash and cash equivalents, including restricted cash
of $2,842,747 and $3,427,290 at June 30, 2003
and December 31, 2002, respectively                             |                                            | $ | 23,085,548  |            |              | $ | 16,410,146  |           
|                                      | Receivables from clearing firms                                                                                                                                    |                                            |   | 480,786     |            |              |   | 751,220     |           
|                                      | Accounts receivable                                                                                                                                                |                                            |   | 156,619     |            |              |   | 181,826     |           
|                                      | Income tax receivable                                                                                                                                              |                                            |   | 873,949     |            |              |   |            |           
|                                      | Property and equipment, net                                                                                                                                        |                                            |   | 3,858,099   |            |              |   | 4,348,752   |           
|                                      | Intangible assets, net                                                                                                                                             |                                            |   | 154,380     |            |              |   | 244,337     |           
|                                      | Other assets                                                                                                                                                       |                                            |   | 601,826     |            |              |   | 681,513     |           
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                      |                                                                                                                                                                    | Total assets                               |   | $           | 29,211,207 |              |   | $           | 22,617,794 | 
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|LIABILITIES AND SHAREHOLDERS EQUITY: |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|LIABILITIES:                          |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                     
|                                      | Accounts payable                                                                                                                                                   |                                            | $ | 1,888,896   |            |              | $ | 1,947,602   |           
|                                      | Accrued expenses                                                                                                                                                   |                                            |   | 6,636,308   |            |              |   | 6,894,616   |           
|                                      | Capital lease obligations                                                                                                                                          |                                            |   | 534,851     |            |              |   | 1,382,264   |           
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                      |                                                                                                                                                                    | Total liabilities                          |   |             | 9,060,055  |              |   |             | 10,224,482 | 
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|COMMITMENTS AND CONTINGENCIES         |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|SHAREHOLDERS EQUITY:                 |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                     
|                                      | Preferred stock, $.01 par value; 25,000,000
shares authorized, none issued and outstanding                                                                         |                                            |   |            |            |              |   |            |           
|                                      | Common stock, $.01 par value; 200,000,000
shares authorized, 40,659,920 and 39,588,881
issued and outstanding at June 30, 2003 and
December 31, 2002, respectively |                                            |   | 406,599     |            |              |   | 395,889     |           
|                                      | Additional paid-in capital                                                                                                                                         |                                            |   | 47,469,844  |            |              |   | 44,866,130  |           
|                                      | Accumulated deficit                                                                                                                                                |                                            |   | (27,725,291 | )          |              |   | (32,833,307 | )         
|                                      | Accumulated other comprehensive loss                                                                                                                               |                                            |   |            |            |              |   | (35,400     | )         
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                      |                                                                                                                                                                    | Total shareholders equity                 |   |             | 20,151,152 |              |   |             | 12,393,312 | 
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                     
|                                      |                                                                                                                                                                    | Total liabilities and shareholders equity |   | $           | 29,211,207 |              |   | $           | 22,617,794 | 
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            

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

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TRADESTATION GROUP, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


|                                     |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |            |            |  
|------------------------------------ | ---------------------------- | --------------------------------- | -------- | ------------------ | ---------- | ---------------- | ------- | ---------- | ---------- | ---- | -------- | ---------- | ---------- |  | ------- | ---------- | ---------- | -
|                                     |                              |                                   |          | Three Months Ended |            | Six Months Ended
|                                     |                              |                                   |          | June 30,           |            | June 30,        
|                                     |                              |                                   |          |                    |            |                 
|                                     |                              |                                   |          | 2003               |            | 2002             |         | 2003       |            | 2002
|                                     |                              |                                   |          |                    |            |                  |         |            |            |     
|REVENUES:                            |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           
|                                     | Brokerage revenues           |                                   | $        | 12,720,649         |            |                  | $       | 9,797,580  |            |      | $        | 23,682,872 |            |  | $       | 16,645,846 |           
|                                     | Subscription fees            |                                   |          | 1,694,372          |            |                  |         | 1,533,129  |            |      |          | 3,405,459  |            |  |         | 3,193,271  |           
|                                     | Other                        |                                   |          | 554,435            |            |                  |         | 892,080    |            |      |          | 1,193,688  |            |  |         | 2,062,861  |           
|                                     |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           
|                                     |                              | Total revenues                    |          |                    | 14,969,456 |                  |         |            | 12,222,789 |      |          |            | 28,282,019 |  |         |            | 21,901,978 |  
|                                     |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           
|OPERATING EXPENSES:                  |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           
|                                     | Clearing and execution costs |                                   |          | 4,810,867          |            |                  |         | 2,429,540  |            |      |          | 8,304,232  |            |  |         | 4,369,435  |           
|                                     | Data center costs            |                                   |          | 985,696            |            |                  |         | 1,211,031  |            |      |          | 2,019,701  |            |  |         | 2,423,196  |           
|                                     | Technology development       |                                   |          | 1,867,161          |            |                  |         | 2,340,641  |            |      |          | 3,717,854  |            |  |         | 4,687,761  |           
|                                     | Sales and marketing          |                                   |          | 2,721,353          |            |                  |         | 3,506,201  |            |      |          | 5,291,467  |            |  |         | 6,745,710  |           
|                                     | General and administrative   |                                   |          | 2,360,850          |            |                  |         | 2,496,305  |            |      |          | 4,518,035  |            |  |         | 5,420,051  |           
|                                     | Amortization of intangibles  |                                   |          | 52,479             |            |                  |         | 258,548    |            |      |          | 104,957    |            |  |         | 514,320    |           
|                                     |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           
|                                     |                              | Total operating expenses          |          |                    | 12,798,406 |                  |         |            | 12,242,266 |      |          |            | 23,956,246 |  |         |            | 24,160,473 |  
|                                     |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           
|                                    
|                                     |                              | Income (loss) from operations     |          |                    | 2,171,050  |                  |         |            | (19,477    | )    |          |            | 4,325,773  |  |         |            | (2,258,495 | )
|                                    
|OTHER INCOME (EXPENSE), net          |                              |                                   | (29,280  | )                  |            |                  | 361,081 |            |            |      | (18,586  | )          |            |  | 348,297 |           
|                                     |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           
|                                     |                              | Income (loss) before income taxes |          |                    | 2,141,770  |                  |         |            | 341,604    |      |          |            | 4,307,187  |  |         |            | (1,910,198 | )
|                                    
|INCOME TAX PROVISION (BENEFIT)       |                              |                                   | (714,046 | )                  |            |                  | 326     |            |            |      | (800,829 | )          |            |  | 326     |           
|                                     |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           
|                                    
|                                     |                              | Net income (loss)                 |          | $                  | 2,855,816  |                  |         | $          | 341,278    |      |          | $          | 5,108,016  |  |         | $          | (1,910,524 | )
|                                     |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           
|EARNINGS (LOSS) PER SHARE:           |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           
|                                     | Basic                        |                                   | $        | 0.07               |            |                  | $       | 0.01       |            |      | $        | 0.13       |            |  | $       | (0.04      | )         
|                                     |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           
|                                     | Diluted                      |                                   | $        | 0.07               |            |                  | $       | 0.01       |            |      | $        | 0.12       |            |  | $       | (0.04      | )         
|                                     |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           
|WEIGHTED AVERAGE SHARES
OUTSTANDING: |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           
|                                     | Basic                        |                                   |          | 40,092,803         |            |                  |         | 44,547,816 |            |      |          | 39,843,096 |            |  |         | 44,547,816 |           
|                                     |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           
|                                     | Diluted                      |                                   |          | 43,588,162         |            |                  |         | 44,600,584 |            |      |          | 42,093,040 |            |  |         | 44,547,816 |           
|                                     |                              |                                   |          |                    |            |                  |         |            |            |      |          |            |            |  |         |           

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

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##### Table of Contents



TRADESTATION GROUP, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


|                                                                  |                                                                                                    |                                             |                                 |                                                     |           |                  |            |            |           |            |            |  
|----------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------------------------------- | --------------------------------------------------- | --------- | ---------------- | ---------- | ---------- | --------- | ---------- | ---------- | -
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           | Six Months Ended
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           | June 30,        
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           |                 
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           | 2003             |            | 2002      
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|CASH FLOWS FROM OPERATING ACTIVITIES:                             |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|                                                                  | Net income (loss)                                                                                  |                                             | $                               | 5,108,016                                           |           |                  | $          | (1,910,524 | )        
|                                                                  | Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |                                             |                                 |                                                     |           |                  |            |            |          
|                                                                  |                                                                                                    | Depreciation and amortization               |                                 |                                                     | 1,139,575 |                  |            |            | 1,517,584 |           
|                                                                  |                                                                                                    | Loss on sale of investments                 |                                 |                                                     | 54,823    |                  |            |            |          |           
|                                                                  |                                                                                                    | Gain on sale of intangible assets           |                                 |                                                     |          |                  |            |            | (287,500  | )         
|                                                                  |                                                                                                    | Compensation expense on stock option grants |                                 |                                                     |          |                  |            |            | 37,692    |           
|                                                                  |                                                                                                    | (Increase) decrease in:                     |                                 |                                                     |           |                  |            |            |           |           
|                                                                  |                                                                                                    |                                             | Receivables from clearing firms |                                                     |           | 270,434          |            |            |           | (1,163,258 | )         
|                                                                  |                                                                                                    |                                             | Accounts receivable             |                                                     |           | 25,207           |            |            |           | 125,825    |           
|                                                                  |                                                                                                    |                                             | Income tax receivable           |                                                     |           | (873,949         | )          |            |           |           |           
|                                                                  |                                                                                                    |                                             | Other assets                    |                                                     |           | 13,687           |            |            |           | (311,432   | )         
|                                                                  |                                                                                                    | Increase (decrease) in:                     |                                 |                                                     |           |                  |            |            |           |           
|                                                                  |                                                                                                    |                                             | Accounts payable                |                                                     |           | (58,706          | )          |            |           | 423,774    |           
|                                                                  |                                                                                                    |                                             | Accrued expenses                |                                                     |           | (258,308         | )          |            |           | 516,010    |           
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|                                                                  |                                                                                                    |                                             |                                 | Net cash provided by (used in) operating activities |           |                  | 5,420,779  |            |           |            | (1,051,829 | )
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                             |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|                                                                  | Capital expenditures                                                                               |                                             |                                 | (543,965                                            | )         |                  |            | (246,055   | )        
|                                                                  | Decrease in restricted cash                                                                        |                                             |                                 | 584,543                                             |           |                  |            | 132,684    |          
|                                                                  | Proceeds from sale/maturity of investments                                                         |                                             |                                 | 46,577                                              |           |                  |            | 311,558    |          
|                                                                  | Proceeds from sale of intangible assets                                                            |                                             |                                 |                                                    |           |                  |            | 1,000,000  |          
|                                                                  | Acquisition of intangible assets                                                                   |                                             |                                 | (15,000                                             | )         |                  |            | (100,000   | )        
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|                                                                  |                                                                                                    |                                             |                                 | Net cash provided by investing activities           |           |                  | 72,155     |            |           |            | 1,098,187  |  
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                             |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|                                                                  | Proceeds from issuance of common stock                                                             |                                             |                                 | 2,614,424                                           |           |                  |            | 21,860     |          
|                                                                  | Repayment of capital lease obligations                                                             |                                             |                                 | (847,413                                            | )         |                  |            | (548,184   | )        
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|                                                                  |                                                                                                    |                                             |                                 | Net cash provided by (used in) financing activities |           |                  | 1,767,011  |            |           |            | (526,324   | )
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|NET INCREASE (DECREASE) IN UNRESTRICTED
CASH AND CASH EQUIVALENTS |                                                                                                    |                                             | 7,259,945                       |                                                     |           |                  | (479,966   | )         
|UNRESTRICTED CASH AND CASH EQUIVALENTS,
beginning of period       |                                                                                                    |                                             | 12,982,856                      |                                                     |           |                  | 16,364,309 |           
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|UNRESTRICTED CASH AND CASH EQUIVALENTS,
end of period             |                                                                                                    | $                                           | 20,242,801                      |                                                     |           | $                | 15,884,343 |           
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:                 |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|                                                                  | Cash paid for interest                                                                             |                                             | $                               | 53,666                                              |           |                  | $          | 124,874    |          
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|                                                                  | Cash paid (received) for income taxes, net                                                         |                                             | $                               | 71,217                                              |           |                  | $          | (19,746    | )        
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|SUPPLEMENTAL DISCLOSURE OF NON-CASH                               |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           
|                                                                  | FINANCING ACTIVITIES:                                                                              |                                             |                                 |                                                     |           |                  |            |            |          
|                                                                  | Equipment acquired under capital lease obligations                                                 |                                             | $                               |                                                    |           |                  | $          | 1,049,322  |          
|                                                                  |                                                                                                    |                                             |                                 |                                                     |           |                  |            |           

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

5



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##### Table of Contents



TRADESTATION GROUP, INC. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All notes and related disclosures applicable to
the three and six months ended June 30, 2003 and 2002 are unaudited)

TradeStation Group, Inc. (the Company), a Florida corporation formed in
2000, is the successor company to Omega Research, Inc., a Florida corporation
that was formed in 1982. TradeStation Group is listed on The Nasdaq National
Market under the symbol TRAD. TradeStation Securities, Inc. and TradeStation
Technologies, Inc. are TradeStation Groups two operating subsidiaries. The
accompanying consolidated financial statements should be read in conjunction
with the Consolidated Financial Statements and Notes to Consolidated Financial
Statements included in the Annual Report on Form 10-K of TradeStation Group for
the year ended December 31, 2002. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the consolidated financial position as of June 30, 2003, the
consolidated results of operations for the three and six months ended June 30,
2003 and 2002 and the consolidated cash flows for the six months ended June 30,
2003 and 2002 have been recorded. The results of operations and cash flows for
an interim period are not necessarily indicative of the results of operations
or cash flows that may be reported for the year or for any subsequent period.
Certain prior period amounts have been reclassified to conform to the current
period presentation.

(1) EARNINGS (LOSS) PER SHARE

Weighted average shares outstanding for the three and six months ended
June 30, 2003 and 2002 are calculated as follows:

|                                                                                       |  |                      |            |                    |  |      |            |      |  |  |            |  |  |  |            | 
|-------------------------------------------------------------------------------------- |  | -------------------- | ---------- | ------------------ |  | ---- | ---------- | ---- |  |  | ---------- |  |  |  | ---------- | 
|                                                                                       |  | For the Three Months |            | For the Six Months
|                                                                                       |  | Ended June 30,       |            | Ended June 30,    
|                                                                                       |  |                      |            |                   
|                                                                                       |  | 2003                 |            | 2002               |  | 2003 |            | 2002
|                                                                                       |  |                      |            |                    |  |      |            |     
|Weighted average shares
outstanding (basic)                                            |  |                      | 40,092,803 |                    |  |      | 44,547,816 |      |  |  | 39,843,096 |  |  |  | 44,547,816 | 
|Impact of dilutive stock
options and warrants after
applying the treasury stock
method |  |                      | 3,495,359  |                    |  |      | 52,768     |      |  |  | 2,249,944  |  |  |  |           | 
|                                                                                       |  |                      |            |                    |  |      |            |      |  |  |            |  |  |  |            | 
|Weighted average shares
outstanding (diluted)                                          |  |                      | 43,588,162 |                    |  |      | 44,600,584 |      |  |  | 42,093,040 |  |  |  | 44,547,816 | 
|                                                                                       |  |                      |            |                    |  |      |            |      |  |  |            |  |  |  |            | 

Stock options and warrants outstanding for the three and six months ended
June 30, 2003 and 2002, which are not included in the calculation of diluted
earnings (loss) per share because their impact is antidilutive, are as follows:

|                              |  |                      |         |                    |  |      |           |      |  |  |         |  |  |  |           | 
|----------------------------- |  | -------------------- | ------- | ------------------ |  | ---- | --------- | ---- |  |  | ------- |  |  |  | --------- | 
|                              |  | For the Three Months |         | For the Six Months
|                              |  | Ended June 30,       |         | Ended June 30,    
|                              |  |                      |         |                   
|                              |  | 2003                 |         | 2002               |  | 2003 |           | 2002
|                              |  |                      |         |                    |  |      |           |     
|Stock options                 |  |                      | 465,685 |                    |  |      | 6,574,791 |      |  |  | 465,685 |  |  |  | 6,722,481 | 
|                              |  |                      |         |                    |  |      |           |      |  |  |         |  |  |  |           | 
|Warrants (expiring June 2004) |  |                      |        |                    |  |      | 386,369   |      |  |  |        |  |  |  | 386,369   | 
|                              |  |                      |         |                    |  |      |           |      |  |  |         |  |  |  |           | 

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(2) STOCK-BASED COMPENSATION  PRO FORMA NET INCOME (LOSS)

In accordance with Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation, in accounting for stock-based
transactions with non-employees, the Company records compensation expense in
the statement of operations when such equity instruments are issued. Such
compensation expense for the three and six months ended June 30, 2002 was
approximately $8,000 and $38,000, respectively. No such compensation expense
was recorded for the three and six months ended June 30, 2003.

As permitted by SFAS No. 123, the Company accounts for its stock-based
compensation paid to employees using the intrinsic value method in accordance
with the recognition and measurement principles of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees,and related
interpretations. Generally, no stock-based employee compensation cost is
reflected in net income (loss), as all options granted under the Companys
plans have an exercise price equal to the fair value of the underlying common
stock on the date of grant.

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

|                                                                                                                                       |                      |   |                      |      |                    |   |          |       |      |   |           |      |  |   |            |       |  
|-------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | - | -------------------- | ---- | ------------------ | - | -------- | ----- | ---- | - | --------- | ---- |  | - | ---------- | ----- | -
|                                                                                                                                       |                      |   | For the Three Months |      | For the Six Months
|                                                                                                                                       |                      |   | Ended June 30,       |      | Ended June 30,    
|                                                                                                                                       |                      |   |                      |      |                   
|                                                                                                                                       |                      |   | 2003                 |      | 2002               |   | 2003     |       | 2002
|                                                                                                                                       |                      |   |                      |      |                    |   |          |       |     
|Net income (loss), as reported                                                                                                         |                      | $ | 2,855,816            |      |                    | $ | 341,278  |       |      | $ | 5,108,016 |      |  | $ | (1,910,524 | )    
|Deduct: Total stock-based
employee compensation
expense determined under the
fair value based method for
all awards, net of tax impact |                      |   | (468,743             | )    |                    |   | (633,273 | )     |      |   | (976,482  | )    |  |   | (1,245,720 | )    
|                                                                                                                                       |                      |   |                      |      |                    |   |          |       |      |   |           |      |  |   |            |      
|Pro forma net income (loss)                                                                                                            |                      | $ | 2,387,073            |      |                    | $ | (291,995 | )     |      | $ | 4,131,534 |      |  | $ | (3,156,244 | )    
|                                                                                                                                       |                      |   |                      |      |                    |   |          |       |      |   |           |      |  |   |            |      
|Earnings (loss) per share:                                                                                                             |                      |   |                      |      |                    |   |          |       |      |   |           |      |  |   |            |      
|                                                                                                                                       | Basic, as reported   |   | $                    | 0.07 |                    |   | $        | 0.01  |      |   | $         | 0.13 |  |   | $          | (0.04 | )
|                                                                                                                                       |                      |   |                      |      |                    |   |          |       |      |   |           |      |  |   |            |      
|                                                                                                                                       | Diluted, as reported |   | $                    | 0.07 |                    |   | $        | 0.01  |      |   | $         | 0.12 |  |   | $          | (0.04 | )
|                                                                                                                                       |                      |   |                      |      |                    |   |          |       |      |   |           |      |  |   |            |      
|                                                                                                                                      
|                                                                                                                                       | Basic, pro forma     |   | $                    | 0.06 |                    |   | $        | (0.01 | )    |   | $         | 0.10 |  |   | $          | (0.07 | )
|                                                                                                                                       |                      |   |                      |      |                    |   |          |       |      |   |           |      |  |   |            |      
|                                                                                                                                       | Diluted, pro forma   |   | $                    | 0.05 |                    |   | $        | (0.01 | )    |   | $         | 0.10 |  |   | $          | (0.07 | )
|                                                                                                                                       |                      |   |                      |      |                    |   |          |       |      |   |           |      |  |   |            |      

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

|                              |  |  |                      |   |                    |  |      |   |      |  |    |   |  |  |    |  
|----------------------------- |  |  | -------------------- | - | ------------------ |  | ---- | - | ---- |  | -- | - |  |  | -- | -
|                              |  |  | For the Three Months |   | For the Six Months
|                              |  |  | Ended June 30,       |   | Ended June 30,    
|                              |  |  |                      |   |                   
|                              |  |  | 2003                 |   | 2002               |  | 2003 |   | 2002
|                              |  |  |                      |   |                    |  |      |   |     
|Risk free interest rate       |  |  | 2                    | % |                    |  | 4    | % |      |  | 2  | % |  |  | 4  | %
|Dividend yield                |  |  |                     |   |                    |  |     |   |      |  |   |   |  |  |   |  
|Volatility factor             |  |  | 68                   | % |                    |  | 66   | % |      |  | 68 | % |  |  | 66 | %
|Weighted average life (years) |  |  | 4                    |   |                    |  | 4    |   |      |  | 4  |   |  |  | 4  |  

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(3) COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is defined as the change in a business
enterprises equity during a period arising from transactions, events or
circumstances relating to non-owner sources, such as unrealized gains or losses
on available-for-sale securities and foreign currency translation adjustments.
It includes all changes in equity during a period except those resulting from
investments by, or distributions to, owners. In June 2003, the Company
recorded a loss of $55,000 when it sold an investment in corporate stock,
classified as an available-for-sale security, at market value. Prior to the
sale of such investment, temporary unrealized holding gains and losses were
excluded from earnings and reported in comprehensive income (loss).

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

|                                                                                                         |  |                      |           |                    |  |      |         |      |  |   |           |   |  |   |            |  
|-------------------------------------------------------------------------------------------------------- |  | -------------------- | --------- | ------------------ |  | ---- | ------- | ---- |  | - | --------- | - |  | - | ---------- | -
|                                                                                                         |  | For the Three Months |           | For the Six Months
|                                                                                                         |  | Ended June 30,       |           | Ended June 30,    
|                                                                                                         |  |                      |           |                   
|                                                                                                         |  | 2003                 |           | 2002               |  | 2003 |         | 2002
|                                                                                                         |  |                      |           |                    |  |      |         |     
|Net income (loss)                                                                                        |  | $                    | 2,855,816 |                    |  | $    | 341,278 |      |  | $ | 5,108,016 |   |  | $ | (1,910,524 | )
|Unrealized holding gains (losses)
on available-for-sale securities
arising during period,
net of tax     |  |                      | 707       |                    |  |      |        |      |  |   | (19,423   | ) |  |   |           |  
|Reclassification adjustment for
loss on available-for-sale
securities included in net
income, net of tax |  |                      | 54,823    |                    |  |      |        |      |  |   | 54,823    |   |  |   |           |  
|                                                                                                         |  |                      |           |                    |  |      |         |      |  |   |           |   |  |   |            |  
|Comprehensive income (loss)                                                                              |  | $                    | 2,911,346 |                    |  | $    | 341,278 |      |  | $ | 5,143,416 |   |  | $ | (1,910,524 | )
|                                                                                                         |  |                      |           |                    |  |      |         |      |  |   |           |   |  |   |            |  

(4) ACCRUED EXPENSES

Accrued expenses consist of the following as of June 30, 2003 and December
31, 2002:

|                                         |  |          |           |              |  |   |           | 
|---------------------------------------- |  | -------- | --------- | ------------ |  | - | --------- | 
|                                         |  | June 30, |           | December 31,
|                                         |  | 2003     |           | 2002        
|                                         |  |          |           |             
|Payroll and related accruals             |  | $        | 1,006,009 |              |  | $ | 923,896   | 
|Data and exchange fees                   |  |          | 919,765   |              |  |   | 768,000   | 
|Deferred rent and related concessions    |  |          | 811,491   |              |  |   | 770,205   | 
|Uninsured loss reserves                  |  |          | 675,000   |              |  |   | 750,000   | 
|Estimated loss on sublease of facilities |  |          | 581,023   |              |  |   | 732,839   | 
|Consulting and professional fees         |  |          | 554,009   |              |  |   | 607,740   | 
|Clearing deposits                        |  |          | 425,211   |              |  |   | 416,731   | 
|Other                                    |  |          | 1,663,800 |              |  |   | 1,925,205 | 
|                                         |  |          |           |              |  |   |           | 
|                                         |  | $        | 6,636,308 |              |  | $ | 6,894,616 | 
|                                         |  |          |           |              |  |   |           | 

Other includes customer credits, commissions to third parties, technical
support costs, advertising, returns, event termination fees (at December 31,
2002), and other accrued expenses and reserves, none of which individually
exceeds 5% of total liabilities.

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(5) NET CAPITAL REQUIREMENTS

TradeStation Securities is subject to the net capital requirements of the
Securities and Exchange Commissions Uniform Net Capital Rule (Rule 15c3-1) and
the Commodity Futures Trading Commissions financial requirement (Regulation
1.17). As defined in both, TradeStation Securities is required to maintain net
capital equal to the greater of $250,000 or 1/15th of aggregate indebtedness.
Also, the ratio of aggregate indebtedness to net capital cannot exceed 15 to 1.
As of June 30, 2003, TradeStation Securities had net capital of $10.1 million,
which was $9.6 million in excess of its required net capital of $520,000, and a
ratio of aggregate indebtedness to net capital of 0.77 to 1. As of December
31, 2002, TradeStation Securities had net capital of $8.3 million, which was
$8.0 million in excess of its required net capital of $273,000, and a ratio of
aggregate indebtedness to net capital of 0.49 to 1.

(6) SEGMENT AND RELATED INFORMATION

For the three and six months ended June 30, 2003 and 2002, TradeStation
Group operated in two principal business segments: (i) brokerage services; and
(ii) software products and services. The Company evaluates the performance of
its segments based on revenue and operating income. The brokerage services
segment represents the operations of TradeStation Securities and the software
products and services segment represents the operations of TradeStation
Technologies. All intercompany transactions are eliminated in consolidation.

|                               |                                |   |                      |            |                    |   |            |            |      |   |            |            |   |   |            |            |  
|------------------------------ | ------------------------------ | - | -------------------- | ---------- | ------------------ | - | ---------- | ---------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                               |                                |   | For the Three Months |            | For the Six Months
|                               |                                |   | Ended June 30,       |            | Ended June 30,    
|                               |                                |   |                      |            |                   
|                               |                                |   | 2003                 |            | 2002               |   | 2003       |            | 2002
|                               |                                |   |                      |            |                    |   |            |            |     
|Revenues:                      |                                |   |                      |            |                    |   |            |            |      |   |            |            |   |   |            |           
|                               | Brokerage services             |   | $                    | 12,794,637 |                    |   | $          | 9,735,548  |      |   | $          | 23,785,185 |   |   | $          | 16,583,814 |  
|                               | Software products and services |   |                      | 5,164,044  |                    |   |            | 5,318,941  |      |   |            | 11,332,209 |   |   |            | 8,871,364  |  
|                               | Eliminations                   |   |                      | (2,989,225 | )                  |   |            | (2,831,700 | )    |   |            | (6,835,375 | ) |   |            | (3,553,200 | )
|                               |                                |   |                      |            |                    |   |            |            |      |   |            |            |   |   |            |           
|                               |                                | $ | 14,969,456           |            |                    | $ | 12,222,789 |            |      | $ | 28,282,019 |            |   | $ | 21,901,978 |           
|                               |                                |   |                      |            |                    |   |            |            |      |   |            |            |   |   |            |           
|Income (loss) from operations: |                                |   |                      |            |                    |   |            |            |      |   |            |            |   |   |            |           
|                               | Brokerage services             |   | $                    | 851,890    |                    |   | $          | (188,251   | )    |   | $          | 622,322    |   |   | $          | (399,579   | )
|                               | Software products and services |   |                      | 1,319,160  |                    |   |            | 168,774    |      |   |            | 3,703,451  |   |   |            | (1,858,916 | )
|                               |                                |   |                      |            |                    |   |            |            |      |   |            |            |   |   |            |           
|                               |                                | $ | 2,171,050            |            |                    | $ | (19,477    | )          |      | $ | 4,325,773  |            |   | $ | (2,258,495 | )         
|                               |                                |   |                      |            |                    |   |            |            |      |   |            |            |   |   |            |           

|                     |                                |   |            |            |              |   |            |            |  |  |  |  |  |  |  |  | 
|-------------------- | ------------------------------ | - | ---------- | ---------- | ------------ | - | ---------- | ---------- |  |  |  |  |  |  |  |  | 
|                     |                                |   | As of      |            | As of        |   |            |            |  |  |  |  | 
|                     |                                |   | June 30,   |            | December 31, |   |            |            |  |  |  |  | 
|                     |                                |   | 2003       |            | 2002         |   |            |            |  |  |  |  | 
|                     |                                |   |            |            |              |   |            |            |  |  |  |  | 
|Identifiable assets: |                                |   |            |            |              |   |            |            |  |  |  |  |  |  |  | 
|                     | Brokerage services             |   | $          | 19,749,376 |              |   | $          | 14,585,643 |  |  |  |  |  |  |  |  | 
|                     | Software products and services |   |            | 9,461,831  |              |   |            | 8,032,151  |  |  |  |  |  |  |  |  | 
|                     |                                |   |            |            |              |   |            |            |  |  |  |  |  |  |  | 
|                     |                                | $ | 29,211,207 |            |              | $ | 22,617,794 |            |  |  |  |  |  |  |  | 
|                     |                                |   |            |            |              |   |            |            |  |  |  |  |  |  |  | 

(7) INCOME TAX PROVISION (BENEFIT)

During the three and six months ended June 30, 2003, the Company recorded
an income tax benefit, net of expense, of $714,000 and $801,000, respectively,
comprised of refunds related to prior year federal income tax returns (see
below), and a state income tax refund received during the 2003 first quarter
for the overpayment of a prior years income tax, partially offset by an
increase to the valuation allowance established for the amount due under the
current years alternative minimum tax calculation. Other than the increase
to the valuation allowance for the amount due under the current years
alternative minimum tax calculation, the income tax expense associated with net
operating income generated during the six months ended June 30, 2003 was
totally offset by a reduction to the previously established valuation allowance
associated with deferred tax assets, primarily net operating loss
carryforwards.

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In February 2003, in connection with an Internal Revenue Service (IRS)
audit of a prior years federal income tax return, the Company learned that it
was entitled to a $72,000 refund related to research and development tax
credits. The Company recorded that benefit in the 2003 first quarter. Also in
conjunction with the IRS audit, in late April 2003 the Company was advised that
it was due a refund relating to its 1997 income taxes paid. Accordingly,
during the 2003 second quarter, the Company recorded a benefit of approximately
$802,000.

(8) RECENTLY ISSUED ACCOUNTING STANDARDS

In November 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others(FIN No.
45). FIN No. 45 elaborates on the disclosures to be made by a guarantor in
its financial statements about its obligations under certain guarantees that it
has issued. It also clarifies that a guarantor is required to recognize, at
the inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and initial
measurement provisions of FIN No. 45 should be applied only on a prospective
basis to guarantees issued or modified after December 31, 2002, irrespective of
the guarantors fiscal year end. The disclosure requirements were effective
for financial statements ending after December 15, 2002. The adoption of FIN
No. 45 did not have any impact on the Companys consolidated financial
position, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities(FIN No. 46). FIN No. 46 clarifies the
application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated support from other parties. FIN No. 46 requires a variable
interest entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entitys activities or
entitled to receive a majority of the entitys residual returns or both. FIN
No. 46 also requires disclosures about variable interest entities that the
company is not required to consolidate but in which it has a significant
variable interest. The consolidation requirements of FIN No. 46 apply
immediately to variable interest entities created after January 31, 2003 and to
existing variable interest entities in the first interim or annual period
beginning after June 15, 2003. The Company does not believe that the adoption
of FIN No. 46 will have a material impact on its consolidated financial
position, results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. Most of
the guidance in SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003, applied prospectively. The Company does not
believe that the adoption of SFAS No. 149 will have a material impact on its
consolidated financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS No. 150 improves the accounting for certain financial instruments that,
under previous guidance, issuers could account for as equity. SFAS No. 150
requires that those instruments be classified as liabilities in statements of
financial position. Most of the guidance in SFAS No. 150 is effective for all
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. The Company does not believe that the adoption of SFAS
No. 150 will have a material impact on its consolidated financial position,
results of operations or cash flows.

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(9) COMMITMENTS AND CONTINGENCIES

Restricted Cash

As of June 30, 2003, the Company had $2.8 million of restricted cash,
broken down as follows: (i) $2.4 million of cash supporting a ten-year lease
agreement; (ii) $372,000 of cash reserved for the benefit of certain customers;
and (iii) $81,000 of cash securing a letter of credit, which secures an
equipment lease.

Litigation and Claims

On July 25, 2003, Benedict S. Gambino, a former principal of
onlinetradinginc.com corp. (the predecessor of TradeStation Securities) from
whom the Company, as of October 18, 2002, purchased 2,417,000 shares of its
common stock (the Share Purchase) in a privately-negotiated transaction,
filed a lawsuit against the Company and three of its executive officers,
William R. Cruz, Ralph L. Cruz and Marc J. Stone, in the Circuit Court of
Broward County, State of Florida. The lawsuit alleges violation of the Florida
Securities and Investor Protection Act, common law fraud, negligent
misrepresentations, breach of fiduciary duty and breach of contract in
connection with the Share Purchase and seeks rescission of the Share Purchase
or compensatory damages, plus interest, costs and attorneys fees. The Company
believes the allegations are baseless, intends to defend itself and the
executives vigorously in court and expects to prevail in the litigation.

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

On February 11, 2003, the plan administrator appointed under the
reorganization plan in the Chapter 11 bankruptcy of Bridge Information Systems,
Inc. and its affiliates filed an adversary complaint against TradeStation
Technologies and the Company in the United States Bankruptcy Court for the
Eastern District of Missouri demanding that the Company and TradeStation
Technologies return payments made to TradeStation Technologies by a Bridge
subsidiary in December 2000 and January 2001 totaling approximately $1.0
million, claiming such payments were preferences under the federal bankruptcy
code as a result of being made to TradeStation Technologies during the
ninety-day period immediately preceding the Chapter 11 bankruptcy filing. The
Company believes this claim to be without merit on various grounds and intends
to vigorously defend this claim.

The Company is also engaged in routine litigation or other dispute
resolution proceedings, such as arbitration, incidental to, and part of the
ordinary course of, its business (two arbitrations are currently pending, one
claiming $250,000 in actual damages and $250,000 in punitive damages, and
another claiming over $1.0 million in damages).

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

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

Capital Lease Obligations And Operating Lease Commitments

A summary of capital and operating leases (net of subleases) as of June
30, 2003 is as follows:

|                        |  |             |         |               |         |           |            |   |            |   |            |   |            | 
|----------------------- |  | ----------- | ------- | ------------- | ------- | --------- | ---------- | - | ---------- | - | ---------- | - | ---------- | 
|                        |  |             |         | Capital Lease |         | Operating |            |   |            |  
|Year                    |  | Obligations |         | Leases        |         | Total    
|                        |  |             |         |               |         |          
|Remainder of 2003       |  | $           | 371,697 |               |         | $         | 1,492,315  |   |            | $ | 1,864,012  |  
|2004                    |  |             | 205,357 |               |         |           | 2,655,028  |   |            |   | 2,860,385  |  
|2005                    |  |             | 8,213   |               |         |           | 2,304,957  |   |            |   | 2,313,170  |  
|2006                    |  |             |        |               |         |           | 2,201,036  |   |            |   | 2,201,036  |  
|2007                    |  |             |        |               |         |           | 1,923,974  |   |            |   | 1,923,974  |  
|Thereafter (cumulative) |  |             |        |               |         |           | 8,848,498  |   |            |   | 8,848,498  |  
|                        |  |             |         |               |         |           |            |   |            |   |            |  
|                        |  |             | 585,267 |               |         |           | 19,425,808 |   |            |   | 20,011,075 |  
|Less interest and taxes |  |             | (50,416 | )             |         |           |           |   |            |   | (50,416    | )
|                        |  |             |         |               |         |           |            |   |            |   |            |  
|                        |  | Total       |         | $             | 534,851 |           |            | $ | 19,425,808 |   |            | $ | 19,960,659 | 
|                        |  |             |         |               |         |           |            |   |            |   |            |  

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ITEM 2. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial Statements of
TradeStation Group and its subsidiaries contained herein. The results of
operations for an interim period are not necessarily indicative of results for
the year, or for any subsequent period.

Recent Developments

In May 2003, as a result of a substantial futures clearing cost rate
increase imposed by our former futures clearing firm, we changed clearing
firms. By the end of the quarter, more than 99% of our futures trading volume
had been transferred to the new clearing firm. If we had cleared through our
new futures clearing firm for the entire quarter, we estimate clearing costs
would have decreased by approximately $400,000.

In July 2003, we announced our plans to begin self-clearing stock trades
for our active trader accounts by January 1, 2004. We have entered into a
contract with a third party to support back-office transaction processing
functionality for the clearing and settlement of trades. We expect that
self-clearing of our active trader client stock trades will have a significant
positive impact on our results shortly after self-clearing operations begin.
Based upon our expected client monthly share volume during 2004 and other
factors, and assuming that no unexpected costs are incurred or items that
negatively impact revenue occur, we expect that positive impact to generate at
least an additional $4.0 million of pre-tax income in 2004.

Results of Operations

For the three and six months ended June 30, 2003 and 2002, we operated in
two principal business segments: (i) brokerage services and (ii) software
products and services. All intercompany transactions are eliminated in
consolidation. The following table presents, for the periods indicated,
certain items in our consolidated statements of operations broken down by
segment:

|                    |                                   |                               |   |                    |        |                    |   |                |       |       |   |          |        |           |   |        |        |                |   |       |       |          |   |       |       |  |   |        |        |   |   |       |        |  
|------------------- | --------------------------------- | ----------------------------- | - | ------------------ | ------ | ------------------ | - | -------------- | ----- | ----- | - | -------- | ------ | --------- | - | ------ | ------ | -------------- | - | ----- | ----- | -------- | - | ----- | ----- |  | - | ------ | ------ | - | - | ----- | ------ | -
|                    |                                   |                               |   | Three Months Ended |        | Three Months Ended
|                    |                                   |                               |   | June 30, 2003      |        | June 30, 2002     
|                    |                                   |                               |   |                    |        |                   
|                    |                                   |                               |   |                    |        |                    |   | Software       |       |       |   |          |        |           |   |        |        |                |   |       |       | Software |   |       |       |  |   |        |        |  
|                    |                                   |                               |   |                    |        |                    |   | Products       |       |       |   |          |        |           |   |        |        |                |   |       |       | Products |   |       |       |  |   |        |        |  
|                    |                                   |                               |   | Brokerage          |        | And                |   | Elimin-        |       |       |   |          |        | Brokerage |   | And    |        | Elimin-        |   |       |       |         
|                    |                                   |                               |   | Services           |        | Services           |   | ations         |       | Total |   | Services |        | Services  |   | ations |        | Total         
|                    |                                   |                               |   |                    |        |                    |   |                |       |       |   |          |        |           |   |        |        |               
|                    |                                   |                               |   |                    |        |                    |   | (In thousands) |       |       |   |          |        |           |   |        |        | (In thousands) |   |       |       |         
|Revenues:           |                                   |                               |   |                    |        |                    |   |                |       |       |   |          |        |           |   |        |        |                |   |       |       |          |   |       |       |  |   |        |        |   |   |      
|                    | Brokerage revenues                |                               | $ | 12,721             |        |                    | $ |               |       |       | $ |         |        |           | $ | 12,721 |        |                | $ | 9,736 |       |          | $ |      |       |  | $ | 62     |        |   | $ | 9,798 |       
|                    | Subscription fees                 |                               |   |                   |        |                    |   | 4,684          |       |       |   | (2,990   | )      |           |   | 1,694  |        |                |   |      |       |          |   | 4,365 |       |  |   | (2,832 | )      |   |   | 1,533 |       
|                    | Other                             |                               |   | 74                 |        |                    |   | 480            |       |       |   |         |        |           |   | 554    |        |                |   |      |       |          |   | 954   |       |  |   | (62    | )      |   |   | 892   |       
|                    |                                   |                               |   |                    |        |                    |   |                |       |       |   |          |        |           |   |        |        |                |   |       |       |          |   |       |       |  |   |        |        |   |   |      
|                    |                                   | Total revenues                |   |                    | 12,795 |                    |   |                | 5,164 |       |   |          | (2,990 | )         |   |        | 14,969 |                |   |       | 9,736 |          |   |       | 5,319 |  |   |        | (2,832 | ) |   |       | 12,223 |  
|                    |                                   |                               |   |                    |        |                    |   |                |       |       |   |          |        |           |   |        |        |                |   |       |       |          |   |       |       |  |   |        |        |   |   |      
|Operating expenses: |                                   |                               |   |                    |        |                    |   |                |       |       |   |          |        |           |   |        |        |                |   |       |       |          |   |       |       |  |   |        |        |   |   |      
|                    | Clearing and execution costs      |                               |   | 4,811              |        |                    |   |               |       |       |   |         |        |           |   | 4,811  |        |                |   | 2,430 |       |          |   |      |       |  |   |       |        |   |   | 2,430 |       
|                    | Data center costs                 |                               |   | 3,028              |        |                    |   | 948            |       |       |   | (2,990   | )      |           |   | 986    |        |                |   | 2,832 |       |          |   | 1,211 |       |  |   | (2,832 | )      |   |   | 1,211 |       
|                    | Technology development            |                               |   | 368                |        |                    |   | 1,499          |       |       |   |         |        |           |   | 1,867  |        |                |   | 124   |       |          |   | 2,216 |       |  |   |       |        |   |   | 2,340 |       
|                    | Sales and marketing               |                               |   | 2,521              |        |                    |   | 200            |       |       |   |         |        |           |   | 2,721  |        |                |   | 3,161 |       |          |   | 345   |       |  |   |       |        |   |   | 3,506 |       
|                    | General and administrative        |                               |   | 1,215              |        |                    |   | 1,146          |       |       |   |         |        |           |   | 2,361  |        |                |   | 1,377 |       |          |   | 1,119 |       |  |   |       |        |   |   | 2,496 |       
|                    | Amortization of intangible assets |                               |   |                   |        |                    |   | 52             |       |       |   |         |        |           |   | 52     |        |                |   |      |       |          |   | 259   |       |  |   |       |        |   |   | 259   |       
|                    |                                   |                               |   |                    |        |                    |   |                |       |       |   |          |        |           |   |        |        |                |   |       |       |          |   |       |       |  |   |        |        |   |   |      
|                    |                                   | Total operating expenses      |   |                    | 11,943 |                    |   |                | 3,845 |       |   |          | (2,990 | )         |   |        | 12,798 |                |   |       | 9,924 |          |   |       | 5,150 |  |   |        | (2,832 | ) |   |       | 12,242 |  
|                    |                                   |                               |   |                    |        |                    |   |                |       |       |   |          |        |           |   |        |        |                |   |       |       |          |   |       |       |  |   |        |        |   |   |      
|                    |                                   | Income (loss) from operations |   | $                  | 852    |                    |   | $              | 1,319 |       |   | $        |       |           |   | $      | 2,171  |                |   | $     | (188  | )        |   | $     | 169   |  |   | $      |       |   |   | $     | (19    | )
|                    |                                   |                               |   |                    |        |                    |   |                |       |       |   |          |        |           |   |        |        |                |   |       |       |          |   |       |       |  |   |        |        |   |   |      

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|                    |                                   |                          |                               |        |                  |     |                  |        |                |       |       |        |          |   |           |        |        |       |                |        |        |      |          |       |        |        |   |        |        |   |   |        |        |        |  
|------------------- | --------------------------------- | ------------------------ | ----------------------------- | ------ | ---------------- | --- | ---------------- | ------ | -------------- | ----- | ----- | ------ | -------- | - | --------- | ------ | ------ | ----- | -------------- | ------ | ------ | ---- | -------- | ----- | ------ | ------ | - | ------ | ------ | - | - | ------ | ------ | ------ | -
|                    |                                   |                          |                               |        | Six Months Ended |     | Six Months Ended
|                    |                                   |                          |                               |        | June 30, 2003    |     | June 30, 2002   
|                    |                                   |                          |                               |        |                  |     |                 
|                    |                                   |                          |                               |        |                  |     |                  |        | Software       |       |       |        |          |   |           |        |        |       |                |        |        |      | Software |       |        |        |   |        |        |   |  
|                    |                                   |                          |                               |        |                  |     |                  |        | Products       |       |       |        |          |   |           |        |        |       |                |        |        |      | Products |       |        |        |   |        |        |   |  
|                    |                                   |                          |                               |        | Brokerage        |     | And              |        | Elimin-        |       |       |        |          |   | Brokerage |        | And    |       | Elimin-        |        |        |      |         
|                    |                                   |                          |                               |        | Services         |     | Services         |        | ations         |       | Total |        | Services |   | Services  |        | ations |       | Total         
|                    |                                   |                          |                               |        |                  |     |                  |        |                |       |       |        |          |   |           |        |        |       |               
|                    |                                   |                          |                               |        |                  |     |                  |        | (In thousands) |       |       |        |          |   |           |        |        |       | (In thousands) |        |        |      |         
|Revenues:           |                                   |                          |                               |        |                  |     |                  |        |                |       |       |        |          |   |           |        |        |       |                |        |        |      |          |       |        |        |   |        |        |   |   |       
|                    | Brokerage revenues                |                          | $                             | 23,683 |                  |     | $                |       |                |       | $     |       |          |   | $         | 23,683 |        |       | $              | 16,584 |        |      | $        |      |        |        | $ | 62     |        |   | $ | 16,646 |       
|                    | Subscription fees                 |                          |                               |       |                  |     |                  | 10,240 |                |       |       | (6,835 | )        |   |           | 3,405  |        |       |                |       |        |      |          | 6,746 |        |        |   | (3,553 | )      |   |   | 3,193  |       
|                    | Other                             |                          |                               | 102    |                  |     |                  | 1,092  |                |       |       |       |          |   |           | 1,194  |        |       |                |       |        |      |          | 2,125 |        |        |   | (62    | )      |   |   | 2,063  |       
|                    |                                   |                          |                               |        |                  |     |                  |        |                |       |       |        |          |   |           |        |        |       |                |        |        |      |          |       |        |        |   |        |        |   |   |       
|                    |                                   | Total revenues           |                               |        | 23,785           |     |                  |        | 11,332         |       |       |        | (6,835   | ) |           |        | 28,282 |       |                |        | 16,584 |      |          |       | 8,871  |        |   |        | (3,553 | ) |   |        | 21,902 |       
|                    |                                   |                          |                               |        |                  |     |                  |        |                |       |       |        |          |   |           |        |        |       |                |        |        |      |          |       |        |        |   |        |        |   |   |       
|Operating expenses: |                                   |                          |                               |        |                  |     |                  |        |                |       |       |        |          |   |           |        |        |       |                |        |        |      |          |       |        |        |   |        |        |   |   |       
|                    | Clearing and execution costs      |                          |                               | 8,304  |                  |     |                  |       |                |       |       |       |          |   |           | 8,304  |        |       |                | 4,369  |        |      |          |      |        |        |   |       |        |   |   | 4,369  |       
|                    | Data center costs                 |                          |                               | 6,901  |                  |     |                  | 1,954  |                |       |       | (6,835 | )        |   |           | 2,020  |        |       |                | 3,553  |        |      |          | 2,423 |        |        |   | (3,553 | )      |   |   | 2,423  |       
|                    | Technology development            |                          |                               | 692    |                  |     |                  | 3,026  |                |       |       |       |          |   |           | 3,718  |        |       |                | 231    |        |      |          | 4,457 |        |        |   |       |        |   |   | 4,688  |       
|                    | Sales and marketing               |                          |                               | 4,960  |                  |     |                  | 331    |                |       |       |       |          |   |           | 5,291  |        |       |                | 6,038  |        |      |          | 708   |        |        |   |       |        |   |   | 6,746  |       
|                    | General and administrative        |                          |                               | 2,306  |                  |     |                  | 2,212  |                |       |       |       |          |   |           | 4,518  |        |       |                | 2,792  |        |      |          | 2,628 |        |        |   |       |        |   |   | 5,420  |       
|                    | Amortization of intangible assets |                          |                               |       |                  |     |                  | 105    |                |       |       |       |          |   |           | 105    |        |       |                |       |        |      |          | 514   |        |        |   |       |        |   |   | 514    |       
|                    |                                   |                          |                               |        |                  |     |                  |        |                |       |       |        |          |   |           |        |        |       |                |        |        |      |          |       |        |        |   |        |        |   |   |       
|                    |                                   | Total operating expenses |                               |        | 23,163           |     |                  |        | 7,628          |       |       |        | (6,835   | ) |           |        | 23,956 |       |                |        | 16,983 |      |          |       | 10,730 |        |   |        | (3,553 | ) |   |        | 24,160 |       
|                    |                                   |                          |                               |        |                  |     |                  |        |                |       |       |        |          |   |           |        |        |       |                |        |        |      |          |       |        |        |   |        |        |   |   |       
|                    |                                   |                          | Income (loss) from operations |        | $                | 622 |                  |        | $              | 3,704 |       |        | $        |  |           |        | $      | 4,326 |                |        | $      | (399 | )        |       | $      | (1,859 | ) |        | $      |  |   |        | $      | (2,258 | )
|                    |                                   |                          |                               |        |                  |     |                  |        |                |       |       |        |          |   |           |        |        |       |                |        |        |      |          |       |        |        |   |        |        |   |   |       

Critical Accounting Policies and Estimates

Our significant accounting policies are described in Note 1 of Notes to
Consolidated Financial Statements included in the Annual Report on Form 10-K of
TradeStation Group for the year ended December 31, 2002  DESCRIPTION OF
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ materially from those estimates.

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

Income Taxes.Management determines any valuation allowance recorded
against our net deferred income tax assets, which includes the benefit from net
operating loss carryforwards. For all periods presented, a valuation allowance
was adjusted to offset the tax expense or benefit of all current period changes
in deferred income taxes. As of June 30, 2003, we have approximately $8.5
million of deferred income tax assets that have been fully reserved, which
relate primarily to net operating loss carryforwards, the benefit of which may
be recorded in future periods should realization become more likely than not.
See Income Taxes below.

Uninsured Loss Reserves.We decided, as of June 1, 2002, to no longer
carry errors or omissions insurance that covers third-party claims made by
brokerage clients or software subscribers as a result of alleged human or
system errors, failures, acts or omissions. This decision was made based upon
our assessment of the potential risks and benefits, including significant
increases in premium rates, deductibles and coinsurance amounts, reductions in
available per occurrence and aggregate coverage amounts, and the unavailability
of policies that sufficiently cover the types of risks that relate to our
business. Each quarter, we continue to evaluate our accruals for settlements
related to claims and potential claims. Estimates of settlements for such
potential claims, including related legal fees, were accrued in the
consolidated financial statements. The ultimate outcome of such potential
claims may be substantially different than our estimates. During the first
quarter of 2003, we reduced our accruals by

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$98,000 as a result of the settlement of one of those claims for an amount
lower than the amount we estimated. See Six Months Ended June 30, 2003 and
2002 - Brokerage Services Segment  Operating Expenses  General and
Administrative.

Sublease of Facilities. During the second quarter of 2002, we completed
the consolidation of our Florida operations to one location. Based upon advice
from our outside real estate advisors, using current market factors, we
estimated the potential losses relating to the sublease of facilities that we
will no longer occupy. During the six months ended June 30, 2003, net payments
of $152,000 were applied against this accrual, resulting in a balance of
$581,000 as of June 30, 2003. See Brokerage Services Segment  Operating
Expenses  General and Administrative.

Three Months Ended June 30, 2003 and 2002

Overall

Total revenues were $15.0 million for the three months ended June 30,
2003, as compared to $12.2 million for the three months ended June 30, 2002, an
increase of $2.8 million, or 22%, due primarily to an increase in brokerage
revenues.

Income from operations was $2.2 million for the three months ended June
30, 2003, as compared to a loss from operations of $19,000 for the three months
ended June 30, 2002, an improvement of $2.2 million. This improvement was due
to higher brokerage revenues offset by an increase in related clearing and
execution costs, and decreases in all other operating expense categories.

Other income (expense), net consists primarily of interest income earned
on our cash and cash equivalents, offset by interest expense related to capital
lease obligations and bank fees, as well as other gains and losses on the sale
of assets. Other expense, net was $29,000 for the three months ended June 30,
2003, as compared to other income, net of $361,000 for the three months ended
June 30, 2002. The decrease of $390,000 was due primarily to the 2002 second
quarter gain of $287,500 recorded on the sale of legacy customer accounts, a
loss during the 2003 second quarter of $55,000 on the sale of investments in
corporate stock, and a decrease in interest income of $49,000 due to lower
interest rates.

Income tax benefit, net of expense, of $714,000 was recorded during the
three months ended June 30, 2003. See Income Taxes below.

Brokerage Services Segment

Revenues

Total Revenues. Total revenues were $12.8 million for the three months
ended June 30, 2003, as compared to $9.7 million for the three months ended
June 30, 2002, an increase of $3.1 million, or 31%, due primarily to increased
brokerage revenues.

Brokerage Revenues. Brokerage revenues are comprised primarily of
brokerage commissions and fees earned from our clients brokerage transactions
and, to a lesser extent, platform fees earned from brokerage customers using
the TradeStationelectronic trading platform and interest earned from interest
revenue sharing arrangements with the brokerages clearing firms. For the
three months ended June 30, 2003, brokerage revenues were $12.7 million (which
included brokerage commissions and fees of $10.3 million) as compared to
brokerage revenues of $9.7 million (which included brokerage commissions and
fees of $8.9 million) for the three months ended June 30, 2002. This increase
of $3.0 million, or 31%, was due primarily to increased brokerage commissions
of $1.4 million on higher trading volume and increased platform fees and
interest sharing of $1.6 million related to brokerage client account growth.

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In April 2002, our new brokerage commission plan  one that charges
traders fees based solely upon the share volume of client trades as opposed to
per ticket charges  became effective. The new plan, as expected,
significantly reduced our commissions per trade. This reduction was partially
offset by charging brokerage clients monthly platform fees. In August 2002, we
modified our price per share plan by reducing the price per share. Effective
March 31, 2003, we reduced our commission pricing for futures and options
trades. Additionally, 2003 media advertising expenditures have been reduced as
compared to 2002. Continued price pressure on online brokerage commissions and
fees, as well as our ability to maintain or improve revenue growth with reduced
advertising expenditures, are challenges we expect to face for the foreseeable
future.

Other Revenues. Other revenues are comprised primarily of fees for our
training workshops that help customers take full advantage of the
state-of-the-art features of the TradeStationelectronic trading platform.
Other revenues for the three months ended June 30, 2003 were $74,000. There
were no other revenues for the three months ended June 30, 2002.

Operating Expenses

Clearing and Execution Costs.Clearing and execution costs are the costs
of executing and clearing customer trades, including commissions paid to
third-party broker-dealers. Clearing and execution costs were $4.8 million for
the three months ended June 30, 2003, as compared to $2.4 million for the three
months ended June 30, 2002, an increase of $2.4 million, or 98%, due primarily
to increased trading volume related to brokerage client account growth and, to
a lesser extent, a substantial increase in futures clearing costs. In May
2003, as a result of that substantial futures clearing cost rate increase, we
changed clearing firms. By the end of the quarter, more than 99% of our
futures trading volume had been transferred to the new clearing firm. If we
had cleared through our new futures clearing firm for the entire 2003 second
quarter, we estimate clearing costs would have decreased by approximately
$400,000.

Clearing and execution costs as a percentage of brokerage revenues
increased to 38% for the three months ended June 30, 2003, from 25% for the
three months ended June 30, 2002, due to: (i) the lower gross margins that
resulted from our equities per share pricing structure first offered in the
second quarter of 2002, (ii) price reductions subsequent to the second quarter
of 2002, including the August 2002 reduction of our equities per share pricing
structure, (iii) the March 31, 2003 reduction of our pricing for futures and
options trades, and (iv) increased costs for futures clearing imposed by our
former futures clearing firm. We believe that clearing costs as a percentage
of brokerage revenues will decrease in the 2003 third quarter based upon our
change of futures clearing firms.

Data Center Costs. Data center costs are primarily intercompany
subscription fees paid to the software products and services segment for
providing streaming real-time, Internet-based trading analysis software and
data services to brokerage clients. See Technology Development below. Data
center costs for the three months ended June 30, 2003 were $3.0 million, as
compared to $2.8 million for the three months ended June 30, 2002, an increase
of $196,000, or 7%, due primarily to the increased number of brokerage accounts
during 2003 as compared to 2002, offset by a decrease in intercompany fees made
retroactive to the first quarter of 2003. This intercompany charge of
approximately $600,000 had no effect on the consolidated results. See
Software Products and Services Segment  Revenues  Subscription Fees and -
Operating Expenses  Data Center Costs.

Technology Development. Technology development expenses consist primarily
of personnel costs associated with product management of the brokerage products
and services TradeStation Securities offers to its clients and the creation of
documentation and other training and educational materials. Technology
development expenses for the three months ended June 30, 2003 were $368,000, as
compared to $124,000 for the three months ended June 30, 2002, an increase of
$244,000, or 197%, due to increased personnel and related costs as a result of
an increased number of technology development employees. Most of the
technology costs required for our brokerage firm to offer and operate a highly

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sophisticated electronic trading platform are borne by its technology
affiliate, which licenses that technology to the brokerage firm pursuant to an
intercompany agreement. See Software Products and Services Segment -
Operating Expenses  Technology Development.

Sales and Marketing. Sales and marketing expenses consist primarily of
personnel costs for sales, customer support centers, marketing and order desk,
as well as brokers commissions; marketing programs, including advertising,
brochures, direct mail programs and account opening kits; data and information
tools used by sales and brokerage personnel; and web-site maintenance and
administration costs. Sales and marketing expenses were $2.5 million for the
three months ended June 30, 2003, as compared to $3.2 million for the three
months ended June 30, 2002, a decrease of $640,000, or 20%. This decrease was
due primarily to decreased advertising and promotional costs of $559,000 and,
to a lesser extent, decreased personnel and related costs of $153,000.

General and Administrative. General and administrative expenses consist
primarily of costs for administrative personnel such as executive, human
resources, finance, compliance and information technology employees;
professional fees; telecommunications; rent; insurance; and other facility
expenses. General and administrative expenses were $1.2 million for the three
months ended June 30, 2003, as compared to $1.4 million for the three months
ended June 30, 2002, a decrease of $162,000, or 12%. This decrease is due
primarily to a decrease in facility costs of $106,000, mainly due to estimated
loss on the sublease of facilities recorded during 2002 related to facilities
that we no longer occupy and, to a lesser extent, a decrease in communication
costs of $48,000. See Critical Accounting Policies and Estimates - Sublease
of Facilities.

Software Products and Services Segment

Revenues

Total Revenues. Total revenues were $5.2 million for the three months
ended June 30, 2003, as compared to $5.3 million for the three months ended
June 30, 2002, a decrease of $155,000, or 3%, due primarily to a decrease in
other revenues (which relate primarily to our legacy software business, which
is no longer a primary focus) partially offset by an increase in subscription
fees.

Subscription Fees. Subscription fees represent monthly fees earned for
providing streaming real-time, Internet-based trading analysis software tools
and data services. Subscription fees also include intercompany revenue for
licensing to TradeStation Securities the right to provide these software tools
and data services to the brokerage customers of TradeStation Securities
(Intercompany Subscription Fees). Subscription fees were $4.7 million for
the three months ended June 30, 2003, as compared to $4.4 million for the three
months ended June 30, 2002, an increase of $319,000, or 7%. Excluding
Intercompany Subscription Fees, subscription fees were $1.7 million for the
three months ended June 30, 2003, as compared to $1.5 million for the three
months ended June 30, 2002, an increase of $161,000, or 11% as a result of
higher-priced subscription offerings during 2003. Subscription services have
not been actively marketed since December 2000.

Other Revenues. Other revenues consist primarily of royalties and
commissions received from third parties whose customers use our legacy software
products, and licensing fees that are derived from direct sales of our legacy
client software products. Other revenues were $480,000 for the three months
ended June 30, 2003, as compared to $954,000 for the three months ended June
30, 2002, a decrease of $474,000, or 50%. This expected decrease is the result
of no longer offering these products domestically since September 2001. Other
revenues are expected to continue to decrease in future quarters.

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Operating Expenses

Data Center Costs. Data center costs represent expenses related to the
operation, maintenance and support of our data server farms. These expenses
consist primarily of rent and data communications costs at our co-location
facilities, rent or depreciation for servers, and data distribution and
exchange fees. Data center costs for the three months ended June 30, 2003 were
$948,000, as compared to $1.2 million for the three months ended June 30, 2002,
a decrease of $263,000, or 22%. The decrease is due primarily to lower data
distribution and exchange fees, and lower server costs. The decrease in data
distribution and exchange fees resulted from approximately $75,000 of credits
received from data providers and increased recovery of exchange fees from
client accounts, partially offset by incremental costs related to account
growth.

Technology Development. Technology development expenses include expenses
associated with the development of new products, services and technology;
enhancements to existing products, services and technology; testing of products
and services; and, in the prior year, the creation of documentation and other
training and educational materials. Technology development expenses consist
primarily of personnel costs, depreciation of computer and related equipment,
facility expenses and telecommunications costs. TradeStation Technologies owns
all intellectual property rights relating to our businesses, including, but not
limited to, all order execution technology. Technology development expenses
were $1.5 million for the three months ended June 30, 2003, as compared to $2.2
million for the three months ended June 30, 2002, a decrease of $717,000, or
32%, due primarily to decreased personnel and related costs of $541,000 (due to
24, or 28%, fewer employees at June 30, 2003, as compared to June 30, 2002),
and decreased facility costs of $104,000 related to the consolidation of our
facilities during June 2002.

Sales and Marketing. We no longer actively market software products and
services, the focus of our business being to continue to build an online
brokerage firm for active and institutional traders. Sales and marketing
expenses have consisted primarily of personnel costs for customer support
centers and facility costs. Sales and marketing expenses were $200,000 for the
three months ended June 30, 2003, as compared to $345,000 for the three months
ended June 30, 2002, a decrease of $145,000, or 42%, due primarily to decreases
in personnel and related costs of $132,000.

General and Administrative. General and administrative expenses consist
primarily of costs for administrative personnel such as executive, human
resources, finance and information technology employees; professional fees;
telecommunications; rent; other facility expenses; and insurance. General and
administrative expenses were $1.1 million for both the three months ended June
30, 2003 and 2002.

Amortization of Intangible Assets. Amortization of intangible assets
includes amortization related to the October 1999 acquisition of Window On
WallStreet Inc., which was accounted for under the purchase method of
accounting, and amortization of data rights and other intangible assets.
Amortization of intangible assets was $52,000 for the three months ended June
30, 2003, as compared to $259,000 for the three months ended June 30, 2002, a
decrease of $207,000, or 80%. The decrease was due primarily to certain Window
On WallStreet intangible assets becoming fully amortized in October 2002.

Six Months Ended June 30, 2003 and 2002

Overall

Total revenues were $28.3 million for the six months ended June 30, 2003,
as compared to $21.9 million for the six months ended June 30, 2002, an
increase of $6.4 million, or 29%, due primarily to an increase in brokerage
revenues, partially offset by a decrease in other revenues.

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Income from operations was $4.3 million for the six months ended June 30,
2003, as compared to a loss from operations of $2.3 million for the six months
ended June 30, 2002, an improvement of $6.6 million. This improvement was due
primarily to higher brokerage revenues offset by an increase in related
clearing and execution costs, and decreases in all other operating expense
categories.

Other expense, net was $19,000 for the six months ended June 30, 2003, as
compared to other income, net of $348,000 for the six months ended June 30,
2002. The decrease of $367,000 was due primarily to a gain of $287,500
recorded on the sale of legacy customer accounts during the second quarter of
2002, a loss of $55,000 on the sale of investments in corporate stock during
the second quarter of 2003, and a decrease in interest income of $62,000,
partially offset by a decrease in interest expense related to capital lease
obligations of $50,000.

Income tax benefit, net of expense, of $801,000 was recorded during the
six months ended June 30, 2003. See Income Taxes below.

Brokerage Services Segment

Revenues

Total Revenues. Total revenues were $23.8 million for the six months
ended June 30, 2003, as compared to $16.6 million for the six months ended June
30, 2002, an increase of $7.2 million, or 43%, due primarily to increased
brokerage revenues.

Brokerage Revenues. For the six months ended June 30, 2003, brokerage
revenues were $23.7 million (which included brokerage commissions and fees of
$19.1 million) as compared to brokerage revenues of $16.6 million (which
included brokerage commissions and fees of $15.4 million) for the six months
ended June 30, 2002. This increase of $7.1 million, or 43%, was due primarily
to increased brokerage commissions of $3.7 million on higher trading volume and
increased platform fees and interest sharing of $3.4 million related to
brokerage client account growth.

Other Revenues. Other revenues from training workshops were $102,000 for
the six months ended June 30, 2003. There were no other revenues for the six
months ended June 30, 2002.

Operating Expenses

Clearing and Execution Costs.Clearing and execution costs were $8.3
million for the six months ended June 30, 2003, as compared to $4.4 million for
the six months ended June 30, 2002, an increase of $3.9 million, or 90%, due
primarily to increased trading volume related to brokerage client account
growth and, to a lesser extent, increased futures clearing costs prior to our
May 2003 change in our futures clearing firm. Clearing and execution costs as
a percentage of brokerage revenues increased to 35% for the six months ended
June 30, 2003, from 26% for the six months ended June 30, 2002, due to: (i)
the lower gross margins that resulted from our equities per share pricing
structure first offered in the second quarter of 2002, (ii) price reductions
subsequent to the second quarter of 2002, including the August 2002 reduction
of our equities per share pricing structure, (iii) the March 31, 2003 reduction
of our pricing for futures and options trades, and (iv) increased costs for
futures clearing imposed by our former futures clearing firm.

Data Center Costs. Data center costs were $6.9 million for the six months
ended June 30, 2003, as compared to $3.6 million for the six months ended June
30, 2002, an increase of $3.3 million, or 94%, due primarily to the increased
number of brokerage accounts during 2003 as compared to 2002. See Software
Products and Services Segment  Revenues  Subscription Fees and - Operating
Expenses  Data Center Costs.

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Technology Development. Technology development expenses for the six
months ended June 30, 2003 were $692,000, as compared to $231,000 for the six
months ended June 30, 2002, an increase of $461,000, or 200%, due to increased
personnel and related costs as a result of an increased number of technology
development employees.

Sales and Marketing. Sales and marketing expenses were $5.0 million for
the six months ended June 30, 2003, as compared to $6.0 million for the six
months ended June 30, 2002, a decrease of $1.0 million, or 18%. This decrease
was due primarily to decreased advertising and promotional costs of $871,000
and decreased personnel and related costs of $241,000.

General and Administrative. General and administrative expenses were $2.3
million for the six months ended June 30, 2003, as compared to $2.8 million for
the six months ended June 30, 2002, a decrease of $486,000, or 17%. This
decrease is due primarily to a decrease in facility costs of $396,000 (mainly
related to the estimated loss on the sublease of facilities recorded during
2002 related to facilities that we no longer occupy), and, to a lesser extent,
a favorable settlement which resulted in a $98,000 reduction of our accrual for
uninsured loss reserves and related legal fees and a decrease in personnel and
related costs of $78,000. See Critical Accounting Policies and Estimates -
Sublease of Facilities and - Uninsured Loss Reserves.

Software Products and Services Segment

Revenues

Total Revenues. Total revenues were $11.3 million for the six months
ended June 30, 2003, as compared to $8.9 million for the six months ended June
30, 2002, an increase of $2.4 million, or 28%, due primarily to an increase in
subscription fees, partially offset by a decrease in other revenues (which
relate primarily to our legacy software business, which is no longer a primary
focus).

Subscription Fees. Subscription fees were $10.2 million for the six
months ended June 30, 2003, as compared to $6.7 million for the six months
ended June 30, 2002, an increase of $3.5 million, or 52%, due primarily to a
$3.3 million increase in Intercompany Subscription Fees which resulted from
increased brokerage accounts at TradeStation Securities. Excluding
Intercompany Subscription Fees, subscription fees were $3.4 million for the six
months ended June 30, 2003, as compared to $3.2 million for the six months
ended June 30, 2002, an increase of $212,000, or 7% as a result of
higher-priced subscription offerings during 2003. Subscription services have
not been actively marketed since December 2000.

Other Revenues. Other revenues were $1.1 million for the six months ended
June 30, 2003, as compared to $2.1 million for the six months ended June 30, 2002, a
decrease of $1.0 million, or 49%. This expected decrease is the result of no
longer offering legacy client software products domestically since September
2001. Other revenues are expected to continue to decrease in future quarters.

Operating Expenses

Data Center Costs. Data center costs for the six months ended June 30,
2003 were $2.0 million, as compared to $2.4 million for the six months ended
June 30, 2002, a decrease of $469,000, or 19%. The decrease is due primarily
to lower data distribution and exchange fees and lower server costs associated
with the conversion of certain operating leases to capital leases. The
decrease in data distribution and exchange fees resulted from approximately
$208,000 of credits received from data providers and increased recovery of
exchange fees from client accounts, partially offset by incremental costs
related to account growth.

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Technology Development. Technology development expenses were $3.0 million
for the six months ended June 30, 2003, as compared to $4.5 million for the six
months ended June 30, 2002, a decrease of approximately $1.5 million, or 32%,
due primarily to decreased personnel and related costs of $1.1 million (due to
24, or 28%, fewer employees at June 30, 2003 as compared to June 30, 2002),
decreased facility costs of $177,000 related to the June 2002 consolidation of
our facilities, and, to a lesser extent, decreases in communication costs and
consulting fees.

Sales and Marketing. Sales and marketing expenses were $331,000 for the
six months ended June 30, 2003, as compared to $708,000 for the six months
ended June 30, 2002, a decrease of $377,000, or 53%, due primarily to a
decrease in personnel and related costs of $283,000 and a favorable resolution
of an event cancellation dispute which resulted in a reduction of expenses
during the six months ended June 30, 2003 of $112,000.

General and Administrative. General and administrative expenses were $2.2
million for the six months ended June 30, 2003, as compared to $2.6 million for
the six months ended June 30, 2002, a decrease of $416,000, or 16%, due
primarily to decreases in professional fees of $271,000 and personnel and
related costs of $232,000.

Amortization of Intangible Assets. Amortization of intangible assets was
$105,000 for the six months ended June 30, 2003, as compared to $514,000 for
the six months ended June 30, 2002, a decrease of $409,000, or 80%. The
decrease was due primarily to certain Window On WallStreet intangible assets
becoming fully amortized in October 2002.

Variability of Quarterly Results

The operating results for any quarter are not necessarily indicative of
results for any future period or for the full year. Our quarterly revenues and
operating results have varied in the past, and are likely to vary in the
future. Such fluctuations may result in volatility in the price of our common
stock. See Issues, Uncertainties and Risk Factors below.

Income Taxes

During the three and six months ended June 30, 2003, we recorded an income
tax benefit, net of expense, of $714,000 and $801,000, respectively, comprised
of refunds related to prior year federal income tax returns (see below), and a
state income tax refund received during the 2003 first quarter for the
overpayment of a prior years income tax, partially offset by an increase to
the valuation allowance established for the amount due under the current years
alternative minimum tax calculation. Other than the increase to the valuation
allowance for the amount due under the current years alternative minimum tax
calculation, the income tax expense associated with net operating income
generated during the six months ended June 30, 2003 was totally offset by a
reduction to the previously established valuation allowance associated with
deferred tax assets, primarily net operating loss carryforwards.

In February 2003, in connection with an Internal Revenue Service (IRS)
audit of a prior years federal income tax return, we learned that we were
entitled to a $72,000 refund related to research and development tax credits.
We recorded that benefit in the 2003 first quarter. Also in conjunction with
the IRS audit, in late April 2003 we were advised that we were due a refund
relating to our 1997 income taxes paid. Accordingly, during the 2003 second
quarter, we recorded a benefit of approximately $802,000.

For the three and six months ended June 30, 2002, taxes totaling $326 were
provided for certain state and local income taxes where our net operating loss
carryforwards could not be utilized. A valuation allowance was recorded to
offset the tax benefit of all other net operating losses generated during the
three and six months ended June 30, 2002.

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Liquidity and Capital Resources

As of June 30, 2003, we had cash and cash equivalents of $23.1 million, of
which $2.8 million was restricted. Restricted cash supports a facility lease,
certain customer agreements, and a stand-by letter of credit securing an
equipment lease. In accordance with contractual agreements, during the third
and fourth quarters of 2003 restrictions of $243,000 and $26,000, respectively,
will be released. See Note 9 of Notes to Consolidated Financial Statements -
COMMITMENTS AND CONTINGENCIES  Restricted Cash.

A summary of our capital and operating leases (net of subleases) as of
June 30, 2003 is as follows:

|                        |       |             |               |         |           |       |            |            |  |   |            |            | 
|----------------------- | ----- | ----------- | ------------- | ------- | --------- | ----- | ---------- | ---------- |  | - | ---------- | ---------- | 
|                        |       |             | Capital Lease |         | Operating |       |            |            | 
|Year                    |       | Obligations |               | Leases  |           | Total
|                        |       |             |               |         |           |      
|Remainder of 2003       |       | $           | 371,697       |         |           | $     | 1,492,315  |            |  | $ | 1,864,012  |           
|2004                    |       |             | 205,357       |         |           |       | 2,655,028  |            |  |   | 2,860,385  |           
|2005                    |       |             | 8,213         |         |           |       | 2,304,957  |            |  |   | 2,313,170  |           
|2006                    |       |             |              |         |           |       | 2,201,036  |            |  |   | 2,201,036  |           
|2007                    |       |             |              |         |           |       | 1,923,974  |            |  |   | 1,923,974  |           
|Thereafter (cumulative) |       |             |              |         |           |       | 8,848,498  |            |  |   | 8,848,498  |           
|                        |       |             |               |         |           |       |            |            |  |   |            |           
|                        |       |             | 585,267       |         |           |       | 19,425,808 |            |  |   | 20,011,075 |           
|Less interest and taxes |       |             | (50,416       | )       |           |       |           |            |  |   | (50,416    | )         
|                        |       |             |               |         |           |       |            |            |  |   |            |           
|                        | Total |             | $             | 534,851 |           |       | $          | 19,425,808 |  |   | $          | 19,960,659 | 
|                        |       |             |               |         |           |       |            |            |  |   |            |           

Although as of June 30, 2003 we had no material purchase obligations, we
anticipate, in connection with the expected growth of our brokerage business,
capital expenditures of approximately $2.7 million for the remainder of 2003.
These expenditures are expected to be funded through operating cash flows.

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

Cash provided by operating activities during the six months ended June 30,
2003 totaled $5.4 million, compared to cash used in operating activities of
$1.1 million in the comparable period of 2002. Net cash provided by operating
activities during the six months ended June 30, 2003 was due primarily to net
income and a reduction in receivables from clearing firms, partially offset by
the recording of an income tax receivable and reductions in accrued expenses.
Net cash used in operating activities during the six months ended June 30, 2002
was due primarily to operating losses, an increase in receivables from clearing
firms, and an increase in other assets, partially offset by increases in
accounts payable and accrued expenses.

Investing activities provided cash of $72,000 and $1.1 million during the
six months ended June 30, 2003 and 2002, respectively. For the six months
ended June 30, 2003, cash provided by investing activities consisted primarily
of a decrease in restricted cash, and, to a lesser extent, proceeds from the
sale of investments, partially offset by capital expenditures. For the six
months ended June 30, 2002, cash provided by investing activities consisted
primarily of cash proceeds from the sale of certain legacy customer accounts
during the second quarter of 2002.

Financing activities provided cash of $1.8 million during the six months
ended June 30, 2003 and used cash of $526,000 during the six months ended June
30, 2002. Proceeds from issuance of common stock from our incentive stock
plans and employee stock purchase plan provided cash of $2.6 million and
$22,000 during the six months ended June 30, 2003 and 2002, respectively.
Repayment of capital lease obligations were $847,000 and $548,000 for the six
months ended June 30, 2003 and 2002, respectively.

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In connection with the initial public offering of the predecessor to
TradeStation Securities, warrants to purchase up to 225,000 shares of that
predecessor companys common stock, at an exercise price of $11.55, were
granted to the underwriters, with an expiration date of June 9, 2004. We
assumed such warrants in connection with the merger between TradeStation
Technologies and TradeStation Securities, and, based on the 1.7172 to 1 merger
conversion ratio, the underwriters may purchase up to 386,369 shares of the
companys common stock at an exercise price of $6.73. In July 2003, we filed a
registration statement (subject to completion) with the Securities and Exchange
Commission to register the warrants and the 386,369 shares of common stock
which will be issuable upon the exercise of such warrants. While we will not
receive any proceeds from the sale of the warrants or the shares of common
stock by the holders of the warrants, we will receive the exercise price
payable per share by each warrant holder in connection with the purchase of the
shares of common stock by such holders from the Company.

Off-Balance-Sheet Arrangements

The brokerages clients trade on either a cash or margin basis. In margin
transactions, the brokerage may be obligated to satisfy indebtedness extended
to clients by the brokerages clearing firms. Margin transactions are subject
to various regulatory and clearing firm margin requirements, and are
collateralized by cash and securities in the clients accounts. The brokerage
routinely executes client transactions involving the sale of securities not yet
purchased, on margin, subject to applicable regulations, its internal policies
and the policies of its clearing firms. Such transactions may expose the
brokerage to significant off-balance-sheet risk in the event brokerage clients
do not fully cover their margin obligations. In the event a client and the
collateral in the clients account fail to satisfy the clients margin
obligations, the brokerage may be required to do so.

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

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

Recently Issued Accounting Standards

In November 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others(FIN No.
45). FIN No. 45 elaborates on the disclosures to be made by a guarantor in
its financial statements about its obligations under certain guarantees that it
has issued. It also clarifies that a guarantor is required to recognize, at
the inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and initial
measurement provisions of FIN No. 45 should be applied only on a prospective
basis to guarantees issued or modified after December 31, 2002, irrespective of
the guarantors fiscal year end. The disclosure requirements were effective
for financial statements ending after December 15, 2002. The adoption of FIN
No. 45 did not have any impact on our consolidated financial position, results
of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities(FIN No. 46). FIN No. 46 clarifies the
application of Accounting Research Bulletin No. 51,

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Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated support from other parties. FIN No.
46 requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entitys activities or entitled to receive a majority of the entitys residual
returns or both. FIN No. 46 also requires disclosures about variable interest
entities that the company is not required to consolidate but in which it has a
significant variable interest. The consolidation requirements of FIN No. 46
apply immediately to variable interest entities created after January 31, 2003
and to existing variable interest entities in the first interim or annual
period beginning after June 15, 2003. We do not believe that the adoption of
FIN No. 46 will have a material impact on our consolidated financial position,
results of operations or cash flows.

In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. Most of the guidance in SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, applied prospectively.
We do not believe that the adoption of SFAS No. 149 will have a material impact
on our consolidated financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS No. 150 improves the accounting for certain financial instruments that,
under previous guidance, issuers could account for as equity. SFAS No. 150
requires that those instruments be classified as liabilities in statements of
financial position. Most of the guidance in SFAS No. 150 is effective for all
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. We do not believe that the adoption of SFAS No. 150 will
have a material impact on our consolidated financial position, results of
operations or cash flows.

Issues, Uncertainties and Risk Factors

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

This report also contains statements that are forward-looking within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. When used in this report, the words
believes, plans, estimates, expects, intends, designed,
anticipates, may, will, should, could, become, upcoming,
potential, pending, and similar expressions, if and to the extent used, are
intended to identify the forward-looking statements. All forward-looking
statements are based on current expectations and beliefs concerning future
events that are subject to risks and uncertainties, including the risks and
uncertainties described below and elsewhere in this report. Actual results may
differ materially from the results suggested in this report. Factors that may
cause or contribute to such differences, and our

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business risks and uncertainties generally, include, but are not limited to,
the items described below, as well as those described in other sections of this
report, our other public filings and our press releases.

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

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



| |  |  | the effect of changes to our commission pricing structure (since
the 2002 second quarter we have continuously reduced commission
pricing), and of additional price reductions that may be implemented in
the future (our most recent reduction was to our commission pricing for
futures and options trades effective March 31, 2003);              
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | market or competitive pressure to continue to lower commissions and
fees charged to customers;                                                                                                                                                                                                                                                      
|
| |  |  | the non-recurring effect in a quarter of federal and state tax
refunds or adjustments or of credits given by vendors;                                                                                                                                                                                                                               
|
| |  |  | the quality and success of, and potential continuous changes in,
sales or marketing strategies (which have undergone significant change
recently and are expected to continue to evolve) and the costs
allocated to marketing campaigns and the timing of those campaigns,
particularly our decision to reduce advertising expenditures during
2003;
|
| |  |  | the appeal of our products and services to the institutional trader
market (given our limited experience selling to that market);                                                                                                                                                                                                                   
|
| |  |  | variations from our expectations with respect to hiring and
retention of personnel, sales and marketing expenditures, product
development, customer account growth, customer trading activity and the
share volume of their trades, or other revenue or expense items;                                                                              
|
| |  |  | if revenues are lower than budgeted expectations, our inability to
make in a timely fashion commensurate expense reductions (as a large
amount of our expenses do not vary with revenues in the short term);                                                                                                                                        
|
| |  |  | the effect of enhancements to the TradeStation 7electronic trading
platform (and future versions);                                                                                                                                                                                                                                                  
|
| |  |  | changes in demand for our products and services due to the rapid
pace at which new technology is offered to customers in our industry;                                                                                                                                                                                                              
|
| |  |  | general economic and market factors that affect active trading,
including market volume, market volatility, market direction, the level
of confidence and trust in the markets, and seasonality (summer months
and holiday seasons typically being slower periods);                                                                                 
|
| |  |  | pending or potential third-party claims that turn out to be
significantly more (or less) costly, in terms of both judgment or
settlement amounts and legal expenses, than we currently estimate or
expect;                                                                                                                                          
|
| |  |  | costs or adverse financial consequences that may occur with respect
to regulatory compliance or other regulatory issues, particularly
relating to laws, rules or regulations that may be enacted with a focus
on the active trader market; and                                                                                                      
|
| |  |  | the size and frequency of any trading errors for which we may
ultimately suffer the economic burden, in whole or in part (including
losses from third party claims that may arise from time to time  as of
June 1, 2002, we have not carried errors or omissions insurance for
third party claims).                                                

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

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

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

The markets for online brokerage services, trading software tools, and
real-time market data services are intensely competitive and rapidly evolving,
and there has been substantial consolidation of those three products and
services occurring in the industry. We believe that competition from large
online and other large brokerage firms and smaller brokerage firms focused on
active traders, as well as consolidation, will substantially increase and
intensify in the future. Competition may be further intensified by the size of
the active trader market, which is generally thought to be comprised of less
than 10% of all online brokerage accounts. We believe our ability to compete
will depend upon many factors both within and outside our control. These
include: pricing and price pressure; the timing and market acceptance of new
products and services and enhancements developed by us and our competitors; our
ability to design and support efficient, materially error-free Internet-based
systems; market conditions, such as recession; the size of the active trader
market today and in the future; the extent to which institutional traders are
willing to use direct-access brokerage services from firms that have
traditionally served mostly retail clients; product and service functionality;
data availability and cost; clearing costs; ease of use; reliability; customer
service and support; and sales and marketing decisions and efforts.

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

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

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

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

The Nature Of Our Business Results In Potential Liability To Customers

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

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

Our business is currently dependent upon our ability to maintain contracts
with private market and news data vendors and clearing firms in order to
provide market data and news and clearing and account services, respectively,
to our customers. We obtain the market data and news pursuant to non-exclusive
licenses from private data vendors who in turn obtain the data from exchanges
and news sources, and the clearing and back-office account services are
obtained from established brokerage clearing firms. The

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data contracts typically provide for royalties based on usage or minimums, and
the clearing contracts provide for transactional clearing fees and charges.
There can be no assurance that we will be able to renew or maintain contracts
or acceptable price levels. In fact, we recently changed our futures clearing
firm in response to a substantial increase in our clearing costs recently
imposed by our former futures clearing firm.

If any of our relationships becomes unfavorable (like our former futures
clearing relationship did) or is terminated, or if we decide to provide data
services directly from the exchanges, which we may, in the not-too-distant
future, decide to do (we already are providing futures data directly via
interfaces with CME and CBOT), or self-clear client trades and carry client
accounts, which we currently contemplate doing with respect to active trader
equity trades and accounts by January 1, 2004, we then face significant
infrastructure expansion costs, and would be engaging in business operations in
which we have little or no prior experience. These risks and uncertainties
need to be considered when evaluating the potential cost-benefit and
operational efficiency and quality that our direct performance of such services
would provide. As a general matter, termination of our relationship with one
or more of these third parties could have a material adverse effect on our
business, financial condition, results of operations and prospects.

We Plan To Begin Self-Clearing Equity Trades For Active Trader Accounts

We plan to begin self-clearing equity trades for our active trader
accounts by January 1, 2004. Currently, all of our clients equity trades are
cleared through Bear Stearns, our clearing agent. There can be no assurance
that we will obtain all of the approvals and memberships required to conduct
self-clearing operations as a broker-dealer. In addition, there can be no
assurance that we will be successful in seamlessly converting the clearing of
active trader stock trades from Bear Stearns to self-clearing operations. We
have no self-clearing experience and the cost savings and efficiencies of
self-clearing may be less favorable than we expect as a result of unanticipated
increased fixed, infrastructure or incremental costs, mistakes or other
factors.

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

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

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

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

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We May Need Cash In The Foreseeable Future

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

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

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

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

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

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

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

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

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

We May Be Subject To Intellectual Property Litigation

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

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

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

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

As of July 29, 2003, affiliates of William R. Cruz and Ralph L. Cruz (the
Co-Chairmen and Co-Chief Executive Officers of our company) own 21,720,306
shares of our common stock, representing more than 50% of the outstanding
shares of our common stock. Therefore, the Cruzes control TradeStation Group.
Any and all decisions and votes of our shareholders (including the election of
our Board of Directors and any merger, consolidation or sale of all or
substantially all of TradeStation Groups assets) will be determined by the
Cruzes.

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Outstanding Options And Warrants To Purchase TradeStation Group Common
Stock May Adversely Affect The Market Price Of TradeStation Group Common Stock

TradeStation Group had outstanding as of July 29, 2003 options and
warrants to acquire up to 5,739,246 shares of common stock at an average
exercise price of $3.22. It is anticipated that the holders of the options and
warrants will, from time to time, exercise them to acquire shares of common
stock and then offer their shares in the public marketplace, which could
interfere with our ability to obtain future financing and could adversely
affect the market price of our common stock.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.




ITEM 4. CONTROLS AND PROCEDURES

As of the end of the
period covered by this quarterly report on Form 10-Q, an evaluation of the effectiveness of the design and
operation of the companys disclosure controls and procedures
was carried out by the company under the supervision and with the participation of the companys management,
including the Co-Chief Executive Officers and the Chief Financial Officer.
Based on that evaluation, the companys management, including the Co-Chief
Executive Officers and the Chief Financial Officer, concluded that the
companys disclosure controls and procedures have been designed
and are being operated in a manner that provides reasonable assurance
that the information required to be disclosed by the company in
reports filed under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported with the time periods
specified in the SECs rules and forms. A system of controls no
matter how well designed and operated, cannot provide absolute
assurance that the objectives of the system of controls are met, and
no evaluation of controls can provide absolute assurance that all
control issues and instance of fraud, if any, within a company have
been detected. There have been no changes in the companys
internal controls over financial reporting that occurred during the
most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the companys internal
controls over financial reporting.

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PART II  OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

On July 25, 2003, Benedict S. Gambino, a former principal of
onlinetradinginc.com corp. (the predecessor of TradeStation Securities) from
whom, as of October 18, 2002, the company purchased 2,417,000 shares of its
common stock (the Share Purchase) in a privately-negotiated transaction,
filed a lawsuit against the company and three of its executive officers,
William R. Cruz, Ralph L. Cruz and Marc J. Stone, in the Circuit Court of
Broward County, State of Florida. The lawsuit alleges violation of the Florida
Securities and Investor Protection Act, common law fraud, negligent
misrepresentations, breach of fiduciary duty and breach of contract in
connection with the Share Purchase and seeks rescission of the Share Purchase
or compensatory damages, plus interest, costs and attorneys fees. We believe
the allegations are baseless, intend to defend ourselves and the executives
vigorously in court and expect to prevail in the litigation.

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

On February 11, 2003, the plan administrator appointed under the
reorganization plan in the Chapter 11 bankruptcy of Bridge Information Systems,
Inc. and its affiliates filed an adversary complaint against TradeStation
Technologies and the company in the United States Bankruptcy Court for the
Eastern District of Missouri demanding that the company and TradeStation
Technologies return payments made to TradeStation Technologies by a Bridge
subsidiary in December 2000 and January 2001 totaling approximately $1.0
million, claiming such payments were preferences under the federal bankruptcy
code as a result of being made to TradeStation Technologies during the
ninety-day period immediately preceding the Chapter 11 bankruptcy filing. We
believe this claim to be without merit on various grounds and intend to
vigorously defend this claim.

We are also engaged in routine litigation or other dispute resolution
proceedings, such as arbitration, incidental to, and part of the ordinary
course of, our business (two arbitrations are currently pending, one claiming
$250,000 in actual damages and $250,000 in punitive damages, and another
claiming over $1.0 million in damages).

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

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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(c) Sales of Unregistered Securities

During the three months ended June 30, 2003, we issued to two employees
options to purchase an aggregate of 22,500 shares of common stock. Such
options vest ratably in annual increments over a five-year period and are
exercisable at prices ranging from $4.94 to $7.20 per share, which was the fair
market value (as defined in our Incentive Stock Plan) of our common stock on
the date the options were granted. All of the options were granted under our
Incentive Stock Plan in the ordinary course, and expire, if they remain
unexercised, on the tenth anniversary of the date on which they were granted.

All the foregoing options were issued by us in reliance upon the exemption
from registration available under Section 4(2) of the Securities Act of 1933,
as amended. Other than as described above, we did not issue or sell any
unregistered securities during the second quarter of 2003.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  The following exhibits are filed as part of this report:



| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.1 Remote Processing Agreement, dated June 10, 2003, with SunGard
Financial Systems, Inc. to provide the SunGard Phase3 System for the
processing, clearing and settlement of trades (pricing schedules
omitted).

|     |  |                                                                                                        
|---- |  | -------------------------------------------------------------------------------------------------------
|31.1 |  | Certifications of Co-Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|     |  |                                                                                                        
|31.2 |  | Certifications of Co-Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|     |  |                                                                                                        
|31.3 |  | Certifications of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.   
|     |  |                                                                                                        
|32.1 |  | Certification of Co-Chief Executive Officers Under 18 U.S.C. §1350.                                    
|     |  |                                                                                                        
|32.2 |  | Certification of Chief Financial Officer Under 18 U.S.C. §1350.                                        

(b) Reports on Form 8-K

|      |  |                                                                                                                                                                                                                                                                                                      
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   |  | On April 15, 2003, we filed a Current Report on Form 8-K for an
event that occurred on April 15, 2003, reporting in Item 9 (and Item
12) thereof the companys earnings for the first quarter of 2003.                                                                                               
|      |  |                                                                                                                                                                                                                                                                                                      
|(ii)  |  | On May 5, 2003, we filed a Current Report on Form 8-K for an event
that occurred on May 5, 2003, reporting in Item 5 thereof the companys
release of a 2003 business outlook.                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                      
|(iii) |  | On July 15, 2003, we filed a Current Report on Form 8-K for an
event that occurred on July 15, 2003, reporting in Items 12 and 9
thereof, respectively, the companys release of its financial results
for the second quarter and six months ended June 30, 2003 and a revised
2003 business outlook.

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SIGNATURE

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.

|                |  |                                                 
|--------------- |  | ------------------------------------------------
|                |  | TradeStation Group, Inc.
Registrant             
|               
|               
|August 12, 2003 |  | /s/ David H. Fleischman                         
|                |  |                                                 
|Date            |  | David H. Fleischman                             
|                |  | Chief Financial Officer,                        
|                |  | Vice President of Finance and Treasurer         
|                |  | (Signing both in his capacity as duly authorized
|                |  | officer and as Principal Financial and          
|                |  | Accounting Officer of the Registrant)           

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EXHIBIT INDEX

|            |  |                                                                                                                                                                                                               
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                               
|10.1        |  | Remote Processing Agreement, dated June 10, 2003, with SunGard
Financial Systems, Inc. to provide the SunGard Phase3 System for the
processing, clearing and settlement of trades (pricing schedules
omitted).
|            |  |                                                                                                                                                                                                               
|31.1        |  | Certifications of Co-Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                                                                                                       
|            |  |                                                                                                                                                                                                               
|31.2        |  | Certifications of Co-Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                                                                                                       
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|31.3        |  | Certifications of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.                                                                                                          
|            |  |                                                                                                                                                                                                               
|32.1        |  | Certification of Co-Chief Executive Officers Under 18 U.S.C. §1350.                                                                                                                                           
|            |  |                                                                                                                                                                                                               
|32.2        |  | Certification of Chief Financial Officer Under 18 U.S.C. §1350.