##### 



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 September 30, 2001

OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ______________ to _____________

Commission file number 0-31049

TradeStation Group, Inc.(Exact name of registrant as specified in its charter)

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

8700 West Flagler Street, Miami, Florida 33174

---





(305) 485-7000(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 [   ]

As of November 6, 2001 there were 44,521,624 shares of the Registrants
Common Stock outstanding.



---



##### 



TRADESTATION GROUP, INC.

INDEX

|          |  |                                                                                                            |  |     
|--------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----
|          |  |                                                                                                            |  | Page
|          |  |                                                                                                            |  |     
|PART I    |  | FINANCIAL INFORMATION                                                                                      |  |     
|         
|         
|         
|         
|         
|Item 1.   |  | Financial Statements:                                                                                      |  |     
|         
|         
|         
|         
|         
|          |  | Consolidated Balance Sheets,
September 30, 2001 (unaudited) and December 31, 2000                          |  | 3   
|         
|         
|         
|         
|         
|          |  | Consolidated Statements of Operations,
Three and nine months ended September 30, 2001 and 2000 (unaudited) |  | 4   
|         
|         
|         
|         
|         
|          |  | Consolidated Statements of Cash Flows,
Nine months ended September 30, 2001 and 2000 (unaudited)           |  | 5   
|         
|         
|         
|         
|         
|          |  | Notes to Consolidated Financial Statements                                                                 |  | 6   
|         
|         
|         
|         
|         
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations                      |  | 10  
|         
|         
|         
|         
|         
|Item 3.   |  | Quantitative and Qualitative Disclosures about Market Risk                                                 |  | 18  
|         
|         
|         
|         
|         
|PART II   |  | OTHER INFORMATION                                                                                          |  |     
|         
|         
|         
|         
|         
|Item 1.   |  | Legal Proceedings                                                                                          |  | 19  
|         
|         
|         
|         
|         
|Item 2.   |  | Changes in Securities and Use of Proceeds                                                                  |  | 19  
|         
|         
|         
|         
|         
|Item 6.   |  | Exhibits and Reports on Form 8-K                                                                           |  | 19  
|         
|         
|         
|         
|         
|Signature |  |                                                                                                            |  | 20  

2



---



##### 



PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                       |                                                                                                                                                                         |                                            |   |               |            |              |   |             |            | 
|-------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ------------- | ---------- | ------------ | - | ----------- | ---------- | 
|                                       |                                                                                                                                                                         |                                            |   | September 30, |            | December 31,
|                                       |                                                                                                                                                                         |                                            |   | 2001          |            | 2000        
|                                       |                                                                                                                                                                         |                                            |   |               |            |             
|                                       |                                                                                                                                                                         |                                            |   | (Unaudited)   |            |              |   |            
|ASSETS:                                |                                                                                                                                                                         |                                            |   |               |            |              |   |            
|                                      
|                                      
|                                      
|                                      
|                                       | Cash and cash equivalents                                                                                                                                               |                                            | $ | 20,126,044    |            |              | $ | 18,394,996  |           
|                                      
|                                      
|                                      
|                                      
|                                       | Securities owned, at market value                                                                                                                                       |                                            |   | 625,998       |            |              |   | 249,423     |           
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts receivable, net                                                                                                                                                |                                            |   | 570,100       |            |              |   | 644,200     |           
|                                      
|                                      
|                                      
|                                      
|                                       | Other receivables                                                                                                                                                       |                                            |   | 3,199,457     |            |              |   | 1,028,920   |           
|                                      
|                                      
|                                      
|                                      
|                                       | Income tax receivable                                                                                                                                                   |                                            |   |              |            |              |   | 8,542,413   |           
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred income taxes                                                                                                                                                   |                                            |   | 4,805,651     |            |              |   | 4,805,651   |           
|                                      
|                                      
|                                      
|                                      
|                                       | Property and equipment, net                                                                                                                                             |                                            |   | 3,234,704     |            |              |   | 2,651,057   |           
|                                      
|                                      
|                                      
|                                      
|                                       | Goodwill, net                                                                                                                                                           |                                            |   | 850,521       |            |              |   | 1,156,709   |           
|                                      
|                                      
|                                      
|                                      
|                                       | Other intangible assets, net                                                                                                                                            |                                            |   | 7,704,200     |            |              |   | 11,850,148  |           
|                                      
|                                      
|                                      
|                                      
|                                       | Other assets                                                                                                                                                            |                                            |   | 1,896,630     |            |              |   | 1,030,631   |           
|                                       |                                                                                                                                                                         |                                            |   |               |            |              |   |            
|                                       |                                                                                                                                                                         | Total assets                               |   | $             | 43,013,305 |              |   | $           | 50,354,148 | 
|                                       |                                                                                                                                                                         |                                            |   |               |            |              |   |            
|LIABILITIES AND SHAREHOLDERS EQUITY:  |                                                                                                                                                                         |                                            |   |               |            |              |   |            
|                                      
|                                      
|                                      
|                                      
|LIABILITIES:                           |                                                                                                                                                                         |                                            |   |               |            |              |   |            
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts payable and accrued expenses                                                                                                                                   |                                            | $ | 10,972,745    |            |              | $ | 9,289,504   |           
|                                      
|                                      
|                                      
|                                      
|                                       | Income taxes payable                                                                                                                                                    |                                            |   | 124,972       |            |              |   | 1,003,912   |           
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred revenue                                                                                                                                                        |                                            |   | 609,195       |            |              |   | 821,593     |           
|                                      
|                                      
|                                      
|                                      
|                                       | Capital lease obligations                                                                                                                                               |                                            |   | 1,278,720     |            |              |   | 214,069     |           
|                                       |                                                                                                                                                                         |                                            |   |               |            |              |   |            
|                                       |                                                                                                                                                                         | Total liabilities                          |   |               | 12,985,632 |              |   |             | 11,329,078 | 
|                                       |                                                                                                                                                                         |                                            |   |               |            |              |   |            
|COMMITMENTS AND CONTINGENCIES (Note 7) |                                                                                                                                                                         |                                            |   |               |            |              |   |            
|                                      
|                                      
|                                      
|                                      
|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, 44,521,493 and 44,476,501
issued and outstanding at September 30, 2001 and
December 31, 2000, respectively |                                            |   | 445,215       |            |              |   | 444,765     |           
|                                      
|                                      
|                                      
|                                      
|                                       | Additional paid-in capital                                                                                                                                              |                                            |   | 51,459,680    |            |              |   | 51,272,899  |           
|                                      
|                                      
|                                      
|                                      
|                                       | Accumulated deficit                                                                                                                                                     |                                            |   | (21,877,222   | )          |              |   | (12,692,594 | )         
|                                       |                                                                                                                                                                         |                                            |   |               |            |              |   |            
|                                       |                                                                                                                                                                         | Total shareholders equity                 |   |               | 30,027,673 |              |   |             | 39,025,070 | 
|                                       |                                                                                                                                                                         |                                            |   |               |            |              |   |            
|                                       |                                                                                                                                                                         | Total liabilities and shareholders equity |   | $             | 43,013,305 |              |   | $           | 50,354,148 | 
|                                       |                                                                                                                                                                         |                                            |   |               |            |              |   |            

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

3



---



##### 



TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

|                               |                                                |          |                          |           |                    |            |                   |           |            |            |         |            |            |            |         |            |            |            |  
|------------------------------ | ---------------------------------------------- | -------- | ------------------------ | --------- | ------------------ | ---------- | ----------------- | --------- | ---------- | ---------- | ------- | ---------- | ---------- | ---------- | ------- | ---------- | ---------- | ---------- | -
|                               |                                                |          |                          |           | Three Months Ended |            | Nine Months Ended
|                               |                                                |          |                          |           | September 30,      |            | September 30,    
|                               |                                                |          |                          |           |                    |            |                  
|                               |                                                |          |                          |           | 2001               |            | 2000              |           | 2001       |            | 2000   
|                               |                                                |          |                          |           |                    |            |                   |           |            |            |        
|REVENUES:                      |                                                |          |                          |           |                    |            |                   |           |            |            |         |            |            |            |         |           
|                              
|                              
|                              
|                              
|                               | Brokerage fees                                 |          | $                        | 3,596,515 |                    |            | $                 | 3,797,187 |            |            | $       | 12,141,870 |            |            | $       | 11,810,833 |           
|                              
|                              
|                              
|                              
|                               | Subscription fees                              |          |                          | 2,353,528 |                    |            |                   | 2,562,336 |            |            |         | 7,752,085  |            |            |         | 5,472,961  |           
|                              
|                              
|                              
|                              
|                               | Licensing fees                                 |          |                          | 915,958   |                    |            |                   | 4,099,930 |            |            |         | 4,432,839  |            |            |         | 14,948,460 |           
|                              
|                              
|                              
|                              
|                               | Other                                          |          |                          | 2,309,202 |                    |            |                   | 2,205,680 |            |            |         | 7,549,040  |            |            |         | 7,198,481  |           
|                               |                                                |          |                          |           |                    |            |                   |           |            |            |         |            |            |            |         |           
|                               |                                                |          | Total revenues           |           |                    | 9,175,203  |                   |           |            | 12,665,133 |         |            |            | 31,875,834 |         |            |            | 39,430,735 |  
|                               |                                                |          |                          |           |                    |            |                   |           |            |            |         |            |            |            |         |           
|OPERATING EXPENSES:            |                                                |          |                          |           |                    |            |                   |           |            |            |         |            |            |            |         |           
|                              
|                              
|                              
|                              
|                               | Clearing and other transaction costs           |          |                          | 1,075,674 |                    |            |                   | 919,859   |            |            |         | 4,011,869  |            |            |         | 3,227,918  |           
|                              
|                              
|                              
|                              
|                               | Data delivery and related costs                |          |                          | 1,410,603 |                    |            |                   | 1,195,939 |            |            |         | 4,086,284  |            |            |         | 2,767,018  |           
|                              
|                              
|                              
|                              
|                               | Technology development                         |          |                          | 3,018,505 |                    |            |                   | 2,013,731 |            |            |         | 8,847,188  |            |            |         | 6,145,048  |           
|                              
|                              
|                              
|                              
|                               | Sales and marketing                            |          |                          | 2,665,448 |                    |            |                   | 5,571,079 |            |            |         | 8,890,149  |            |            |         | 21,450,606 |           
|                              
|                              
|                              
|                              
|                               | Inventory and handling costs                   |          |                          | 16,134    |                    |            |                   | 99,096    |            |            |         | 132,055    |            |            |         | 1,153,001  |           
|                              
|                              
|                              
|                              
|                               | General and administrative                     |          |                          | 3,777,753 |                    |            |                   | 2,868,656 |            |            |         | 10,967,620 |            |            |         | 8,411,774  |           
|                              
|                              
|                              
|                              
|                               | Amortization of goodwill and other
intangibles |          |                          | 1,541,961 |                    |            |                   | 1,499,308 |            |            |         | 4,602,136  |            |            |         | 4,482,924  |           
|                               |                                                |          |                          |           |                    |            |                   |           |            |            |         |            |            |            |         |           
|                               |                                                |          | Total operating expenses |           |                    | 13,506,078 |                   |           |            | 14,167,668 |         |            |            | 41,537,301 |         |            |            | 47,638,289 |  
|                               |                                                |          |                          |           |                    |            |                   |           |            |            |         |            |            |            |         |           
|                               |                                                |          | Loss from operations     |           |                    | (4,330,875 | )                 |           |            | (1,502,535 | )       |            |            | (9,661,467 | )       |            |            | (8,207,554 | )
|                              
|                              
|                              
|                              
|OTHER INCOME, net              |                                                |          | 83,007                   |           |                    |            | 281,131           |           |            |            | 484,248 |            |            |            | 973,847 |           
|                               |                                                |          |                          |           |                    |            |                   |           |            |            |         |            |            |            |         |           
|                               |                                                |          | Loss before income taxes |           |                    | (4,247,868 | )                 |           |            | (1,221,404 | )       |            |            | (9,177,219 | )       |            |            | (7,233,707 | )
|                              
|                              
|                              
|                              
|INCOME TAX (BENEFIT) PROVISION |                                                |          | (9,233                   | )         |                    |            | 315,888           |           |            |            | 7,409   |            |            |            | 894,636 |           
|                               |                                                |          |                          |           |                    |            |                   |           |            |            |         |            |            |            |         |           
|                               |                                                | Net loss |                          | $         | (4,238,635         | )          |                   | $         | (1,537,292 | )          |         | $          | (9,184,628 | )          |         | $          | (8,128,343 | )         
|                               |                                                |          |                          |           |                    |            |                   |           |            |            |         |            |            |            |         |           
|NET LOSS PER SHARE (Note 4):   |                                                |          |                          |           |                    |            |                   |           |            |            |         |            |            |            |         |           
|                              
|                              
|                              
|                              
|                               | Basic and diluted                              |          | $                        | (0.10     | )                  |            | $                 | (0.03     | )          |            | $       | (0.21      | )          |            | $       | (0.19      | )         
|                               |                                                |          |                          |           |                    |            |                   |           |            |            |         |            |            |            |         |           

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

4



---



##### 



TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

|                                                          |                                                    |                                                                                           |                                             |                                                     |            |                   |            |         |            |            |             |  
|--------------------------------------------------------- | -------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------- | --------------------------------------------------- | ---------- | ----------------- | ---------- | ------- | ---------- | ---------- | ----------- | -
|                                                          |                                                    |                                                                                           |                                             |                                                     |            | Nine Months Ended
|                                                          |                                                    |                                                                                           |                                             |                                                     |            | September 30,    
|                                                          |                                                    |                                                                                           |                                             |                                                     |            |                  
|                                                          |                                                    |                                                                                           |                                             |                                                     |            | 2001              |            | 2000   
|                                                          |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                     |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    | Net loss                                                                                  |                                             | $                                                   | (9,184,628 | )                 |            | $       | (8,128,343 | )         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    | Adjustment for change in fiscal year end of pooled company                                |                                             |                                                     |           |                   |            |         | (36,683    | )         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    | Adjustments to reconcile net loss to net cash provided by
(used in) operating activities: |                                             |                                                     |            |                   |            |         |            |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    |                                                                                           | Depreciation and amortization               |                                                     |            | 5,829,683         |            |         |            | 5,673,322  |            
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    |                                                                                           | Provision for bad debts                     |                                                     |            | 714,286           |            |         |            |           |            
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    |                                                                                           | Compensation expense on stock option grants |                                                     |            | 112,770           |            |         |            | 115,257    |            
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    |                                                                                           | Deferred income tax provision               |                                                     |            |                  |            |         |            | 10,458,000 |            
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    |                                                                                           | (Increase) decrease in:                     |                                                     |            |                   |            |         |            |            |            
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    |                                                                                           |                                             | Securities owned  trading only                     |            |                   |           |         |            |            | (156,491    | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    |                                                                                           |                                             | Accounts receivable                                 |            |                   | (640,186   | )       |            |            | 1,282,000   |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    |                                                                                           |                                             | Other receivables                                   |            |                   | (2,170,537 | )       |            |            | 169,862     |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    |                                                                                           |                                             | Income tax receivable                               |            |                   | 8,542,413  |         |            |            | (10,458,000 | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    |                                                                                           |                                             | Other assets                                        |            |                   | (865,999   | )       |            |            | (717,310    | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    |                                                                                           | Increase (decrease) in:                     |                                                     |            |                   |            |         |            |            |            
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    |                                                                                           |                                             | Accounts payable and accrued expenses               |            |                   | 1,683,241  |         |            |            | 926,186     |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    |                                                                                           |                                             | Income taxes payable                                |            |                   | (878,940   | )       |            |            | (145,663    | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    |                                                                                           |                                             | Deferred revenue                                    |            |                   | (212,398   | )       |            |            | 591,091     |  
|                                                          |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|                                                          |                                                    |                                                                                           |                                             | Net cash provided by (used in) operating activities |            |                   | 2,929,705  |         |            |            | (426,772    | )
|                                                          |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                     |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    | Capital expenditures                                                                      |                                             |                                                     | (515,071   | )                 |            |         | (908,009   | )         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    | Purchases of securities owned                                                             |                                             |                                                     | (1,436,103 | )                 |            |         | (3,992,060 | )         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    | Redemption of/proceeds from maturity of securities owned                                  |                                             |                                                     | 1,059,528  |                   |            |         | 1,695,304  |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    | Acquisition of intangibles                                                                |                                             |                                                     | (150,000   | )                 |            |         | (15,000    | )         
|                                                          |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|                                                          |                                                    |                                                                                           |                                             | Net cash used in investing activities               |            |                   | (1,041,646 | )       |            |            | (3,219,765  | )
|                                                          |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                     |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    | Proceeds from issuance of common stock                                                    |                                             |                                                     | 74,461     |                   |            |         | 346,130    |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                    | Repayment of capital lease obligations                                                    |                                             |                                                     | (231,472   | )                 |            |         | (57,465    | )         
|                                                          |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|                                                          |                                                    |                                                                                           |                                             | Net cash (used in) provided by financing activities |            |                   | (157,011   | )       |            |            | 288,665     |  
|                                                          |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS      |                                                    |                                                                                           | 1,731,048                                   |                                                     |            |                   | (3,357,872 | )      
|                                                         
|                                                         
|                                                         
|                                                         
|CASH AND CASH EQUIVALENTS, beginning of period            |                                                    |                                                                                           | 18,394,996                                  |                                                     |            |                   | 17,303,642 |        
|                                                          |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|CASH AND CASH EQUIVALENTS, end of period                  |                                                    | $                                                                                         | 20,126,044                                  |                                                     |            | $                 | 13,945,770 |        
|                                                          |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:         |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Cash paid for interest                             |                                                                                           | $                                           | 231,359                                             |            |                   | $          | 38,276  |           
|                                                          |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|                                                          | Cash paid for income taxes                         |                                                                                           | $                                           | 900,354                                             |            |                   | $          | 897,009 |           
|                                                          |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES: |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Equipment acquired under capital lease obligations |                                                                                           | $                                           | 1,296,123                                           |            |                   | $          | 180,450 |           
|                                                          |                                                    |                                                                                           |                                             |                                                     |            |                   |            |        

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

5



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##### 



TRADESTATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All notes and related disclosures applicable to
the three and nine months ended September 30, 2001 and 2000 are unaudited)

TradeStation Group, Inc. was formed in connection with the December 29,
2000 combination by merger of TradeStation Technologies, Inc. (formerly known
as Omega Research, Inc.) and TradeStation Securities, Inc. (formerly known as
onlinetradinginc.com corp.). The accompanying 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, Inc. for the year ended December 31, 2000. In the opinion
of management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position as of September
30, 2001, the results of operations for the three and nine months ended
September 30, 2001 and 2000 and cash flows for the nine months ended September
30, 2001 and 2000 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.

1. Goodwill and Other Intangible Assets, Net

Goodwill and other intangible assets, net, consist of the following as of
September 30, 2001 and December 31, 2000:

|                         |                               |  |                 |  |               |   |              |            |       |   |            |            | 
|------------------------ | ----------------------------- |  | --------------- |  | ------------- | - | ------------ | ---------- | ----- | - | ---------- | ---------- | 
|                         |                               |  |                 |  |               |   | As of        |            | As of
|                         |                               |  | Amortization    |  | September 30, |   | December 31,
|                         |                               |  | Period In Years |  | 2001          |   | 2000        
|                         |                               |  |                 |  |               |   |             
|Goodwill                 |                               |  | 4               |  |               | $ | 1,633,000    |            |       | $ | 1,633,000  |           
|                        
|                        
|                        
|                        
|Accumulated amortization |                               |  |                 |  |               |   | (782,479     | )          |       |   | (476,291   | )         
|                         |                               |  |                 |  |               |   |              |            |       |   |            |           
|                         | Goodwill, net                 |  |                 |  |               |   | $            | 850,521    |       |   | $          | 1,156,709  | 
|                         |                               |  |                 |  |               |   |              |            |       |   |            |           
|Purchased technology     |                               |  | 3               |  |               | $ | 9,600,000    |            |       | $ | 9,600,000  |           
|                        
|                        
|                        
|                        
|Workforce                |                               |  | 3               |  |               |   | 2,000,000    |            |       |   | 2,000,000  |           
|                        
|                        
|                        
|                        
|Trade names and patents  |                               |  | 3               |  |               |   | 1,500,000    |            |       |   | 1,500,000  |           
|                        
|                        
|                        
|                        
|Customer lists           |                               |  | 3-5             |  |               |   | 3,714,000    |            |       |   | 3,714,000  |           
|                        
|                        
|                        
|                        
|Non-compete agreements   |                               |  | 4-5             |  |               |   | 1,100,000    |            |       |   | 1,100,000  |           
|                        
|                        
|                        
|                        
|Data rights              |                               |  | 1-5             |  |               |   | 507,900      |            |       |   | 357,900    |           
|                        
|                        
|                        
|                        
|Domain name              |                               |  | 15              |  |               |   | 65,000       |            |       |   | 65,000     |           
|                         |                               |  |                 |  |               |   |              |            |       |   |            |           
|                         | Total other intangible assets |  |                 |  |               |   |              | 18,486,900 |       |   |            | 18,336,900 | 
|                        
|                        
|                        
|                        
|Accumulated amortization |                               |  |                 |  |               |   | (10,782,700  | )          |       |   | (6,486,752 | )         
|                         |                               |  |                 |  |               |   |              |            |       |   |            |           
|                         | Other intangible assets, net  |  |                 |  |               |   | $            | 7,704,200  |       |   | $          | 11,850,148 | 
|                         |                               |  |                 |  |               |   |              |            |       |   |            |           

2. Other Receivables

Other receivables are comprised of a receivable from the brokerages
clearing organization and, as of September 30, 2001, a $2.7 million receivable
from the Companys insurance carrier relating to a trading error made with
respect to a clients account. While no assurances can be given, we expect the
insurance claim to be fully paid by the carrier.

6



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##### 



3. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following as of
September 30, 2001 and December 31, 2000:

|                 |  |               |            |              |  |   |           | 
|---------------- |  | ------------- | ---------- | ------------ |  | - | --------- | 
|                 |  | As of         |            | As of       
|                 |  | September 30, |            | December 31,
|                 |  | 2001          |            | 2000        
|                 |  |               |            |             
|Accounts payable |  | $             | 1,697,111  |              |  | $ | 3,579,962 | 
|                
|                
|                
|                
|Accrued expenses |  |               | 9,275,634  |              |  |   | 5,709,542 | 
|                 |  |               |            |              |  |   |           | 
|                 |  | $             | 10,972,745 |              |  | $ | 9,289,504 | 
|                 |  |               |            |              |  |   |           | 

Accrued expenses are comprised of payroll and related expenses, including
severance, uninsured loss reserves, data and exchange fees, consulting and
professional fees, lease and event termination fees, merger expenses and other
accrued expenses.

4. Net Loss Per Share

Weighted average shares outstanding for the three and nine months ended
September 30, 2001 and 2000 are calculated as follows:

|                                                                                                                              |  |                      |            |                     |  |      |            |      |  |  |            |  |  |  |            | 
|----------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ---------- | ------------------- |  | ---- | ---------- | ---- |  |  | ---------- |  |  |  | ---------- | 
|                                                                                                                              |  | For the Three Months |            | For the Nine Months
|                                                                                                                              |  | Ended September 30,  |            | Ended September 30,
|                                                                                                                              |  |                      |            |                    
|                                                                                                                              |  | 2001                 |            | 2000                |  | 2001 |            | 2000
|                                                                                                                              |  |                      |            |                     |  |      |            |     
|Weighted average shares outstanding (basic)                                                                                   |  |                      | 44,520,498 |                     |  |      | 44,049,327 |      |  |  | 44,437,688 |  |  |  | 43,908,178 | 
|                                                                                                                             
|                                                                                                                             
|                                                                                                                             
|                                                                                                                             
|Impact of diluted options after applying
the treasury stock method                                                            |  |                      |           |                     |  |      |           |      |  |  |           |  |  |  |           | 
|                                                                                                                              |  |                      |            |                     |  |      |            |      |  |  |            |  |  |  |            | 
|Weighted average shares outstanding (diluted)                                                                                 |  |                      | 44,520,498 |                     |  |      | 44,049,327 |      |  |  | 44,437,688 |  |  |  | 43,908,178 | 
|                                                                                                                              |  |                      |            |                     |  |      |            |      |  |  |            |  |  |  |            | 
|                                                                                                                             
|                                                                                                                             
|                                                                                                                             
|                                                                                                                             
|Options outstanding which are not included
in the calculation of diluted loss per share
because their impact is antidilutive  |  |                      | 5,923,756  |                     |  |      | 5,168,004  |      |  |  | 5,923,756  |  |  |  | 5,168,004  | 
|                                                                                                                              |  |                      |            |                     |  |      |            |      |  |  |            |  |  |  |            | 
|Warrants outstanding which are not included
in the calculation of diluted loss per share
because their impact is antidilutive |  |                      | 386,370    |                     |  |      | 386,370    |      |  |  | 386,370    |  |  |  | 386,370    | 
|                                                                                                                              |  |                      |            |                     |  |      |            |      |  |  |            |  |  |  |            | 

In February 1998, a former officer of TradeStation Securities received
763,199 shares of common stock in connection with his employment, subject to
repurchase by TradeStation Securities in the event of his resignation or
termination for cause prior to February 28, 2001. The redemption provision
with respect to two thirds of these shares expired on February 29, 2000, and
the remaining one third expired on February 28, 2001. Prior to the expiration
of the relative redemption provisions, the shares were excluded from basic and
diluted weighted average shares outstanding as they were antidilutive.

5. Comprehensive Income

Comprehensive income 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 foreign currency translation adjustments
and unrealized gains or losses on available-for-sale securities. It includes
all changes in equity during a period except those resulting from investments
by, or distributions to, owners. Comprehensive loss is equal to net loss for
all periods presented.

7



---



##### 



6. Recently Issued Accounting Standards

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations.SFAS No. 141 addresses financial accounting and reporting for
business combinations and supersedes Accounting Principles Board Opinion
(APB) No. 16, Business Combinations,and SFAS No. 38, Accounting for
Preacquisition Contingencies of Purchased Enterprises. All business
combinations in the scope of SFAS No. 141 are to be accounted for under the
purchase method. The adoption of SFAS No. 141 in July 2001 did not have an
impact on our financial position, results of operations or cash flows.

In July 2001, the FASB also issued SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 addresses financial accounting and reporting
for intangible assets acquired individually or with a group of other assets
upon their acquisition. SFAS No. 142 also addresses financial accounting and
reporting for goodwill and other intangible assets subsequent to their
acquisition. With the adoption of SFAS No. 142, goodwill is no longer subject
to amortization. Rather, goodwill will be subject to at least an annual
assessment for impairment by applying a fair value-based test. The impairment
loss is the amount, if any, by which the implied fair value of goodwill is less
than the carrying or book value. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. Impairment loss for goodwill arising from
the initial application of SFAS No. 142 is to be reported as resulting from a
change in accounting principle. We are currently assessing the impact of
adopting SFAS No. 142 and plan to complete this assessment as of December 31,
2001.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.SFAS No. 144 supercedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed ofand APB No. 30, Reporting the Results of Operations 
Reporting the Effects of the Disposal of a Segment Business and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions.SFAS No. 144
establishes a single accounting model for assets to be disposed of by sale
whether previously held and used or newly acquired. SFAS No. 144 retains the
provisions of APB No. 30 for presentation of discontinued operations in the
income statement, but broadens the presentation to include a component of an
entity. SFAS No. 144 is effective for fiscal years beginning after December
15, 2001 and the interim periods within. We do not believe that the adoption
of SFAS No. 144 will have a material impact on our financial position, results
of operations or cash flows.

7. Commitments and Contingencies

Letters of Credit

The Company has two stand-by letters of credit securing equipment leases.
Approximately $1.3 million of cash and securities secure these letters of
credit and an additional $200,000 of securities secure a credit card clearing
agreement.

Litigation

The Company is engaged in litigation incidental to, and part of the
ordinary course of, its business. The Company does not believe that the
results of any such pending litigation will have a material adverse effect on
its financial position or results of operations.

8



---



##### 



8. Segment and Related Information

For the three and nine months ended September 30, 2001 and 2000,
TradeStation Group operated in two principal business segments: (1) brokerage
services and (2) software products and services. The performance of the
segments is based on revenue and operating income (loss). The brokerage
services segment represents the operations of TradeStation Securities and the
software products and services segment represents the operations of
TradeStation Technologies.

|          |                                |   |                      |           |                     |   |            |           |      |   |            |            |  |   |            |            | 
|--------- | ------------------------------ | - | -------------------- | --------- | ------------------- | - | ---------- | --------- | ---- | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|          |                                |   | For the Three Months |           | For the Nine Months
|          |                                |   | Ended September 30,  |           | Ended September 30,
|          |                                |   |                      |           |                    
|          |                                |   | 2001                 |           | 2000                |   | 2001       |           | 2000
|          |                                |   |                      |           |                     |   |            |           |     
|Revenues: |                                |   |                      |           |                     |   |            |           |      |   |            |            |  |   |            |           
|         
|         
|         
|         
|          | Brokerage services             |   | $                    | 3,936,895 |                     |   | $          | 4,116,906 |      |   | $          | 13,129,729 |  |   | $          | 12,354,343 | 
|         
|         
|         
|         
|          | Software products and services |   |                      | 5,238,308 |                     |   |            | 8,548,227 |      |   |            | 18,746,105 |  |   |            | 27,076,392 | 
|          |                                |   |                      |           |                     |   |            |           |      |   |            |            |  |   |            |           
|          |                                | $ | 9,175,203            |           |                     | $ | 12,665,133 |           |      | $ | 31,875,834 |            |  | $ | 39,430,735 |           
|          |                                |   |                      |           |                     |   |            |           |      |   |            |            |  |   |            |           

|                               |                                |   |                      |            |                     |   |            |            |      |   |            |            |   |   |            |            |  
|------------------------------ | ------------------------------ | - | -------------------- | ---------- | ------------------- | - | ---------- | ---------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                               |                                |   | For the Three Months |            | For the Nine Months
|                               |                                |   | Ended September 30,  |            | Ended September 30,
|                               |                                |   |                      |            |                    
|                               |                                |   | 2001                 |            | 2000                |   | 2001       |            | 2000
|                               |                                |   |                      |            |                     |   |            |            |     
|(Loss) income from operations: |                                |   |                      |            |                     |   |            |            |      |   |            |            |   |   |            |           
|                              
|                              
|                              
|                              
|                               | Brokerage services             |   | $                    | (626,864   | )                   |   | $          | 565,793    |      |   | $          | 135,211    |   |   | $          | 1,396,131  |  
|                              
|                              
|                              
|                              
|                               | Software products and services |   |                      | (3,704,011 | )                   |   |            | (2,068,328 | )    |   |            | (9,796,678 | ) |   |            | (9,603,685 | )
|                               |                                |   |                      |            |                     |   |            |            |      |   |            |            |   |   |            |           
|                               |                                | $ | (4,330,875           | )          |                     | $ | (1,502,535 | )          |      | $ | (9,661,467 | )          |   | $ | (8,207,554 | )         
|                               |                                |   |                      |            |                     |   |            |            |      |   |            |            |   |   |            |           

|                     |                                |   |               |            |              |   |            |            |  |  |  |  | 
|-------------------- | ------------------------------ | - | ------------- | ---------- | ------------ | - | ---------- | ---------- |  |  |  |  | 
|                     |                                |   | As of         |            | As of       
|                     |                                |   | September 30, |            | December 31,
|                     |                                |   | 2001          |            | 2000        
|                     |                                |   |               |            |             
|Identifiable assets: |                                |   |               |            |              |   |            |           
|                    
|                    
|                    
|                    
|                     | Brokerage services             |   | $             | 21,521,088 |              |   | $          | 22,461,748 | 
|                    
|                    
|                    
|                    
|                     | Software products and services |   |               | 21,492,217 |              |   |            | 27,892,400 | 
|                     |                                |   |               |            |              |   |            |           
|                     |                                | $ | 43,013,305    |            |              | $ | 50,354,148 |           
|                     |                                |   |               |            |              |   |            |           

9



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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 may not give a true indication of results for
the year, or for any subsequent period.

Recent Developments

On June 27, 2001, we launched TradeStation 6 (formerly known as the
TradeStation Platform and TradeStation Pro), an electronic trading platform
that enables customers to design, test and automate, through direct-access
order execution, their own trading strategies. Accordingly, we believe our
results of operations prior to June 30, 2001 have limited relevance to our
prospects. During the 2001 third quarter, without engaging in any significant
media advertising or direct marketing, we commenced efforts to convert our
TradeStation 6 software subscribers into TradeStation 6 brokerage clients. We
currently intend to increase direct marketing efforts to our software and
subscription customers during the 2001 fourth quarter, and to commence
significant media advertising in 2002.

Results of Operations

The results of operations for the three and nine months ended September
30, 2000 have been restated to reflect the December 29, 2000 merger of
TradeStation Technologies and TradeStation Securities under the
pooling-of-interests method of accounting. The merger combined two companies
that conduct independent businesses: brokerage services and software products
and services. Accordingly, we deemed it appropriate to report results of
operations as two operating segments. The following table presents, for the
periods indicated, certain items in our consolidated statements of operations
broken down by segment (in thousands):

|                    |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |       |        |  
|------------------- | ---------------------------------------------- | ----------------------------- | - | ------------------ | ----- | ------------------ | - | -------- | ------ | -------- | - | --------- | ------ | ----- | - | ----- | ----- | -------- | - | ----- | ------ | - | - | ----- | ------ | -
|                    |                                                |                               |   | Three Months Ended |       | Three Months Ended
|                    |                                                |                               |   | September 30, 2001 |       | September 30, 2000
|                    |                                                |                               |   |                    |       |                   
|                    |                                                |                               |   |                    |       |                    |   | Software |        |          |   |           |        |       |   |       |       | Software |   |       |        |  
|                    |                                                |                               |   |                    |       |                    |   | Products |        |          |   |           |        |       |   |       |       | Products |   |       |        |  
|                    |                                                |                               |   | Brokerage          |       | And                |   |          |        |          |   | Brokerage |        | And   |   |       |       |         
|                    |                                                |                               |   | Services           |       | Services           |   | Total    |        | Services |   | Services  |        | Total
|                    |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |      
|Revenues:           |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |      
|                   
|                   
|                   
|                   
|                    | Brokerage fees                                 |                               | $ | 3,597              |       |                    | $ |         |        |          | $ | 3,597     |        |       | $ | 3,797 |       |          | $ |      |        |   | $ | 3,797 |       
|                   
|                   
|                   
|                   
|                    | Subscription fees                              |                               |   |                   |       |                    |   | 2,353    |        |          |   | 2,353     |        |       |   |      |       |          |   | 2,562 |        |   |   | 2,562 |       
|                   
|                   
|                   
|                   
|                    | Licensing fees                                 |                               |   |                   |       |                    |   | 916      |        |          |   | 916       |        |       |   |      |       |          |   | 4,100 |        |   |   | 4,100 |       
|                   
|                   
|                   
|                   
|                    | Other                                          |                               |   | 340                |       |                    |   | 1,969    |        |          |   | 2,309     |        |       |   | 320   |       |          |   | 1,886 |        |   |   | 2,206 |       
|                    |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |      
|                    |                                                | Total revenues                |   |                    | 3,937 |                    |   |          | 5,238  |          |   |           | 9,175  |       |   |       | 4,117 |          |   |       | 8,548  |   |   |       | 12,665 |  
|                    |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |      
|Operating expenses: |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |      
|                   
|                   
|                   
|                   
|                    | Clearing and other transaction costs           |                               |   | 1,076              |       |                    |   |         |        |          |   | 1,076     |        |       |   | 920   |       |          |   |      |        |   |   | 920   |       
|                   
|                   
|                   
|                   
|                    | Data delivery and related costs                |                               |   |                   |       |                    |   | 1,411    |        |          |   | 1,411     |        |       |   |      |       |          |   | 1,196 |        |   |   | 1,196 |       
|                   
|                   
|                   
|                   
|                    | Technology development                         |                               |   | 99                 |       |                    |   | 2,919    |        |          |   | 3,018     |        |       |   | 252   |       |          |   | 1,762 |        |   |   | 2,014 |       
|                   
|                   
|                   
|                   
|                    | Sales and marketing                            |                               |   | 1,990              |       |                    |   | 675      |        |          |   | 2,665     |        |       |   | 1,444 |       |          |   | 4,127 |        |   |   | 5,571 |       
|                   
|                   
|                   
|                   
|                    | Inventory and handling costs                   |                               |   |                   |       |                    |   | 16       |        |          |   | 16        |        |       |   |      |       |          |   | 99    |        |   |   | 99    |       
|                   
|                   
|                   
|                   
|                    | General and administrative                     |                               |   | 1,247              |       |                    |   | 2,531    |        |          |   | 3,778     |        |       |   | 800   |       |          |   | 2,069 |        |   |   | 2,869 |       
|                   
|                   
|                   
|                   
|                    | Amortization of goodwill and other intangibles |                               |   | 152                |       |                    |   | 1,390    |        |          |   | 1,542     |        |       |   | 135   |       |          |   | 1,364 |        |   |   | 1,499 |       
|                    |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |      
|                    |                                                | Total operating expenses      |   |                    | 4,564 |                    |   |          | 8,942  |          |   |           | 13,506 |       |   |       | 3,551 |          |   |       | 10,617 |   |   |       | 14,168 |  
|                    |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |      
|                    |                                                | (Loss) income from operations |   | $                  | (627  | )                  |   | $        | (3,704 | )        |   | $         | (4,331 | )     |   | $     | 566   |          |   | $     | (2,069 | ) |   | $     | (1,503 | )
|                    |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |      

10



---



##### 



|                    |                                                |                               |   |                    |        |                    |   |          |        |          |   |           |        |       |   |        |        |          |   |        |        |   |   |        |        |  
|------------------- | ---------------------------------------------- | ----------------------------- | - | ------------------ | ------ | ------------------ | - | -------- | ------ | -------- | - | --------- | ------ | ----- | - | ------ | ------ | -------- | - | ------ | ------ | - | - | ------ | ------ | -
|                    |                                                |                               |   | Nine Months Ended  |        | Nine Months Ended 
|                    |                                                |                               |   | September 30, 2001 |        | September 30, 2000
|                    |                                                |                               |   |                    |        |                   
|                    |                                                |                               |   |                    |        |                    |   | Software |        |          |   |           |        |       |   |        |        | Software |   |        |        |  
|                    |                                                |                               |   |                    |        |                    |   | Products |        |          |   |           |        |       |   |        |        | Products |   |        |        |  
|                    |                                                |                               |   | Brokerage          |        | And                |   |          |        |          |   | Brokerage |        | And   |   |        |        |         
|                    |                                                |                               |   | Services           |        | Services           |   | Total    |        | Services |   | Services  |        | Total
|                    |                                                |                               |   |                    |        |                    |   |          |        |          |   |           |        |      
|Revenues:           |                                                |                               |   |                    |        |                    |   |          |        |          |   |           |        |       |   |        |        |          |   |        |        |   |   |       
|                   
|                   
|                   
|                   
|                    | Brokerage fees                                 |                               | $ | 12,142             |        |                    | $ |         |        |          | $ | 12,142    |        |       | $ | 11,811 |        |          | $ |       |        |   | $ | 11,811 |       
|                   
|                   
|                   
|                   
|                    | Subscription fees                              |                               |   |                   |        |                    |   | 7,752    |        |          |   | 7,752     |        |       |   |       |        |          |   | 5,473  |        |   |   | 5,473  |       
|                   
|                   
|                   
|                   
|                    | Licensing fees                                 |                               |   |                   |        |                    |   | 4,433    |        |          |   | 4,433     |        |       |   |       |        |          |   | 14,948 |        |   |   | 14,948 |       
|                   
|                   
|                   
|                   
|                    | Other                                          |                               |   | 988                |        |                    |   | 6,561    |        |          |   | 7,549     |        |       |   | 544    |        |          |   | 6,655  |        |   |   | 7,199  |       
|                    |                                                |                               |   |                    |        |                    |   |          |        |          |   |           |        |       |   |        |        |          |   |        |        |   |   |       
|                    |                                                | Total revenues                |   |                    | 13,130 |                    |   |          | 18,746 |          |   |           | 31,876 |       |   |        | 12,355 |          |   |        | 27,076 |   |   |        | 39,431 |  
|                    |                                                |                               |   |                    |        |                    |   |          |        |          |   |           |        |       |   |        |        |          |   |        |        |   |   |       
|Operating expenses: |                                                |                               |   |                    |        |                    |   |          |        |          |   |           |        |       |   |        |        |          |   |        |        |   |   |       
|                   
|                   
|                   
|                   
|                    | Clearing and other transaction costs           |                               |   | 4,012              |        |                    |   |         |        |          |   | 4,012     |        |       |   | 3,228  |        |          |   |       |        |   |   | 3,228  |       
|                   
|                   
|                   
|                   
|                    | Data delivery and related costs                |                               |   |                   |        |                    |   | 4,086    |        |          |   | 4,086     |        |       |   |       |        |          |   | 2,767  |        |   |   | 2,767  |       
|                   
|                   
|                   
|                   
|                    | Technology development                         |                               |   | 126                |        |                    |   | 8,721    |        |          |   | 8,847     |        |       |   | 569    |        |          |   | 5,576  |        |   |   | 6,145  |       
|                   
|                   
|                   
|                   
|                    | Sales and marketing                            |                               |   | 5,383              |        |                    |   | 3,507    |        |          |   | 8,890     |        |       |   | 4,304  |        |          |   | 17,147 |        |   |   | 21,451 |       
|                   
|                   
|                   
|                   
|                    | Inventory and handling costs                   |                               |   |                   |        |                    |   | 132      |        |          |   | 132       |        |       |   |       |        |          |   | 1,153  |        |   |   | 1,153  |       
|                   
|                   
|                   
|                   
|                    | General and administrative                     |                               |   | 3,019              |        |                    |   | 7,949    |        |          |   | 10,968    |        |       |   | 2,452  |        |          |   | 5,960  |        |   |   | 8,412  |       
|                   
|                   
|                   
|                   
|                    | Amortization of goodwill and other intangibles |                               |   | 455                |        |                    |   | 4,147    |        |          |   | 4,602     |        |       |   | 406    |        |          |   | 4,077  |        |   |   | 4,483  |       
|                    |                                                |                               |   |                    |        |                    |   |          |        |          |   |           |        |       |   |        |        |          |   |        |        |   |   |       
|                    |                                                | Total operating expenses      |   |                    | 12,995 |                    |   |          | 28,542 |          |   |           | 41,537 |       |   |        | 10,959 |          |   |        | 36,680 |   |   |        | 47,639 |  
|                    |                                                |                               |   |                    |        |                    |   |          |        |          |   |           |        |       |   |        |        |          |   |        |        |   |   |       
|                    |                                                | Income (loss) from operations |   | $                  | 135    |                    |   | $        | (9,796 | )        |   | $         | (9,661 | )     |   | $      | 1,396  |          |   | $      | (9,604 | ) |   | $      | (8,208 | )
|                    |                                                |                               |   |                    |        |                    |   |          |        |          |   |           |        |       |   |        |        |          |   |        |        |   |   |       

Three Months Ended September 30, 2001 and 2000

Overall

Total revenues were $9.2 million for the three months ended September 30,
2001, as compared to $12.7 million for the same period in 2000, a decrease of
$3.5 million, or 28%, due primarily to the expected decrease in licensing fees.

Loss from operations was $4.3 million for the three months ended September
30, 2001, as compared to $1.5 million for the same period in 2000, an increase
of $2.8 million, or 188%, resulting primarily from lower revenues, higher
technology development expenses and higher general and administrative expenses,
partially offset by lower sales and marketing expenses.

Brokerage Services Segment

Revenues

Total Revenues. Total revenues were $3.9 million for the three months
ended September 30, 2001, as compared to $4.1 million for the same period in
2000, a decrease of $180,000, or 4%.

Brokerage Fees. Brokerage fees are comprised primarily of commission
income earned from brokerage transactions. Brokerage fees were $3.6 million
for the three months ended September 30, 2001, as compared to $3.8 million for
the same period in 2000, a decrease of $200,000, or 5%, due to more
lower-priced transactions during the three months ended September 30, 2001 as
compared to the same period during the prior year.

Other Revenues. Other revenues consist primarily of interest earned from
an interest-revenue sharing arrangement with the brokerages clearing firm.
Other revenues were $340,000 for the three months ended September 30, 2001, as
compared to $320,000 for the three months ended September 30, 2000, an increase
of $20,000, or 6%.

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Operating Expenses

Clearing and Other Transaction Costs.Clearing and other transaction
costs are the costs of executing and clearing customer trades, including
commissions paid to third-party broker-dealers. These costs were $1.1 million
for the three months ended September 30, 2001, as compared to $920,000 for the
same period in 2000, an increase of $156,000, or 17%, primarily as a result of
an increased number of trades during the three months ended September 30, 2001,
as compared to the same period during the prior year. Clearing and other
transaction costs as a percentage of brokerage fees revenue increased from 24%
for the three months ended September 30, 2000 to 30% for the three months ended
September 30, 2001 due to more lower-priced transactions during the three
months ended September 30, 2001 as compared to the same period during the prior
year.

Technology Development. Technology development expenses for the current
year consist of personnel costs associated with product management of
TradeStation 6. Such costs totaled $99,000 for the three months ended
September 30, 2001. Technology development expenses for the three months ended
September 30, 2000 were $252,000, consisting of personnel costs and consulting
and professional fees for the pre-merger joint development of our order
execution technology. See Software Products and Services Segment  Technology
Development.

Sales and Marketing. Sales and marketing expenses consist primarily of
brokers commissions, other personnel costs for order desk and customer support
centers, marketing programs, including advertising, brochures, direct mail
programs and account opening kits, and data and information tools used by sales
and brokerage personnel. Sales and marketing expenses were $2.0 million for
the three months ended September 30, 2001, as compared to $1.4 million for the
three months ended September 30, 2000, an increase of $546,000, or 38%. This
increase was due primarily to increased advertising and promotion costs of
$310,000 associated with the promotion of TradeStation 6 and increased
personnel and related expenses of $274,000. Sales and marketing expenses, as a
percentage of total revenues, was 51% for the three months ended September 30,
2001, as compared to 35% for the three months ended September 30, 2000. We
believe that the absolute dollar amount of sales and marketing expenses in the
future will increase as we continue to market the TradeStation 6 brokerage
platform. The level of such increase will depend on the extent to which such
brokerage services are aggressively marketed and the rate of customer account
growth.

General and Administrative. General and administrative expenses consist
primarily of: employee-related costs for administrative personnel such as
executive, finance 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 September
30, 2001, as compared to $800,000 for the same period in 2000, an increase of
$447,000, or 56%, due primarily to an increase in uninsured loss reserves of
$580,000, partially offset by a decrease in personnel and related costs of
$185,000 resulting from a decrease in the number of general and administrative
employees after the merger.

Amortization of Goodwill and Other Intangibles.Amortization of goodwill
and other intangibles includes amortization of intangible assets from the
December 1999 acquisition of the customer accounts of Newport Discount
Brokerage, which was accounted for under the purchase method of accounting and
is being amortized over a period of five years, and amortization of a domain
name. Amortization of goodwill and other intangibles was $152,000 and $135,000
for the three months ended September 30, 2001 and 2000, respectively.

Software Products and Services Segment

Revenues

Total Revenues. Total revenues were $5.2 million for the three months
ended September 30, 2001, as compared to $8.5 million for the same period in
2000, a decrease of $3.3 million, or 39%, due primarily to a decrease in
licensing fees.

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Subscription Fees. Subscription fees represent monthly fees earned for
providing streaming real-time, Internet-based trading analysis software and
data services. Subscription fees were $2.4 million for the three months ended
September 30, 2001, as compared to $2.6 million for the three months ended
September 30, 2000, a decrease of $209,000, or 8%, due primarily to a
decreasing subscriber base. As a result of our focus on increasing revenue
from the brokerage business, we have not actively marketed subscription
services and we have no plan to do so in the future. Accordingly, we expect
that subscription fees will continue to decrease quarter over quarter.

Licensing Fees. Licensing fees are derived from sales of client software
products, principally the recognition of licensing fee installment payments
from sales initiated in prior quarters. Licensing fees were $916,000 for the
three months ended September 30, 2001, as compared to $4.1 million for the same
period in 2000, a decrease of $3.2 million, or 78%, due primarily to our
discontinuation in May 2000 of active marketing of client software products.
As a result of this discontinuation, and our focus on our brokerage business,
it is expected that licensing fees will continue to decrease quarter over
quarter.

Other Revenues. Other revenues consist primarily of royalties and
commissions received from third parties whose customers use our products, and,
to a lesser extent, income from our conference that is designed to highlight
the benefits of trading strategy development. Other revenues were $2.0 million
for the three months ended September 30, 2001, as compared to $1.9 million for
the same period in 2000, an increase of $83,000, or 4%. The increase was due
primarily to an increase in minimum royalties under the license agreement with
Telerate, Inc., partially offset by decreases in end-of-day data vendor
royalties. In February 2001, Telerate filed for Chapter 11 bankruptcy and, in
October 2001, the assets of Telerate were sold to MoneyLine Network, Inc.
Effective October 17, 2001, we entered into a new royalty agreement with
MoneyLine that expires December 31, 2002, under which the guaranteed royalty
minimums for the 2001 fourth quarter are $230,000 per month (as compared to the
$666,667 per month minimum payments under the Telerate agreement that was
rejected in the bankruptcy). There will be no guaranteed royalty minimums in
2002. Beginning in January 2002, royalties will be based on actual usage only.

Operating Expenses

Data Delivery and Related Costs. Data delivery and related costs
represent expenses related to the operation, maintenance and support of our
data server farms. These expenses consist primarily of rent for facilities,
rent or depreciation for servers, and data distribution and exchange fees.
Data delivery and related costs for the three months ended September 30, 2001
were $1.4 million, as compared to $1.2 million for the three months ended
September 30, 2000, an increase of $215,000, or 18%. The increase is due
primarily to increased server farm infrastructure costs (rent and depreciation
for additional facilities and servers) necessary to build redundancy for our
data server farms, partially offset by lower data distribution and exchange
fees associated with a lower subscriber base and reduced data distribution fee
rates.

Technology Development. Technology development expenses include expenses
associated with: the development of new products, services and technology;
enhancements to existing products, services and technology; testing of products
and services; and the creation of documentation and other user education
materials. Technology development expenses consist primarily of personnel
costs, depreciation of computer and related equipment, facility expenses,
uninsured loss reserves, and consulting fees. The TradeStation Technologies
subsidiary owns all intellectual property rights relating to our businesses,
including, but not limited to, all order execution technology. Technology
development expenses were $2.9 million for the three months ended September 30,
2001, as compared to $1.8 million for the three months ended September 30,
2000, an increase of $1.2 million, or 66%, due primarily to increased uninsured
loss reserves of $600,000 and increased personnel and related expenses of
$330,000.

Sales and Marketing. Sales and marketing expenses consist primarily of:
marketing programs, including advertising, brochures, and direct mail programs;
sales commissions; personnel costs for marketing and customer support centers;
and Website maintenance and administration costs. Sales and marketing expenses
were $675,000 for the three months ended September 30, 2001, as compared to
$4.1 million for the same period in 2000, a decrease of $3.5 million, or 84%,
due primarily to decreased advertising and promotion costs

13



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of $2.5 million and
decreased personnel and related costs of $756,000. Sales and marketing
expenses as a percentage of total revenues decreased to 13% for the three
months ended September 30, 2001, as compared to 48% for the three months ended
September 30, 2000. Sales and marketing expenses are expected to continue to
decrease as all future marketing efforts will be focused on the brokerage
services segment. See Brokerage Services Segment  Sales and Marketing
above.

Inventory and Handling Costs. Inventory and handling costs consist
primarily of costs related to shipping of client software products, product
media, and packaging and storage of inventory. Inventory and handling costs
were $16,000 for the three months ended September 30, 2001, as compared to
$99,000 for the same period in 2000, a decrease of $83,000, or 84%, due to
reduced shipments as a result of the discontinuation in May 2000 of active
marketing of client software products.

General and Administrative. General and administrative expenses consist
primarily of: employee-related costs for administrative personnel such as
executive, human resources, finance and information technology employees;
professional fees; telecommunications; rent; other facility expenses; and
provision for bad debts. General and administrative expenses were $2.5 million
for the three months ended September 30, 2001, as compared to $2.1 million for
the same period in 2000, an increase of $462,000, or 22%, due primarily to
increases in consulting and professional fees of $348,000 and facility expenses
of $101,000.

Amortization of Goodwill and Other Intangibles.Amortization of goodwill
and other intangibles includes amortization related to the October 1999
acquisition of Window On WallStreet Inc. accounted for under the purchase
method of accounting and being amortized over periods ranging from three to
four years, and also includes amortization of data rights. Amortization of
goodwill and other intangibles was $1.4 million for each of the three months
ended September 30, 2001 and 2000.

Nine Months Ended September 30, 2001 and 2000

Overall

Total revenues were $31.9 million for the nine months ended September 30,
2001, as compared to $39.4 million for the same period in 2000, a decrease of
$7.6 million, or 19%, due primarily to a decrease in licensing fees, partially
offset by increases in subscription fees and, to a lesser extent, brokerage
fees and other revenues.

Loss from operations was $9.7 million for the nine months ended September
30, 2001, as compared to $8.2 million for the same period in 2000, an increase
of $1.5 million, or 18%. This increase related primarily to lower revenues,
higher technology development expenses and higher general and administrative
expenses, partially offset by lower sales and marketing expenses.

Brokerage Services Segment

Revenues

Total Revenues. Total revenues were $13.1 million for the nine months
ended September 30, 2001, as compared to $12.4 million for the same period in
2000, an increase of $775,000, or 6%.

Brokerage Fees. Brokerage fees were $12.1 million for the nine months
ended September 30, 2001, as compared to $11.8 million for the same period in
2000, an increase of $ 331,000, or 3%, due primarily to increased trading
volume.

Other Revenues. Other revenues were $988,000 for the nine months ended
September 30, 2001, as compared to $544,000 for the nine months ended September
30, 2000, an increase of $444,000, or 82%. The increase was due primarily to
an increase of customer balances being maintained by the clearing firm.

14



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Operating Expenses

Clearing and Other Transaction Costs.Clearing and other transaction
costs were $4.0 million for the nine months ended September 30, 2001, as
compared to $3.2 million for the same period in 2000, an increase of $784,000,
or 24%, primarily as a result of increased trading volume and commissions paid
to third-party broker-dealers. Clearing and other transaction costs as a
percentage of brokerage fees revenue increased from 27% for the nine months
ended September 30, 2000 to 33% for the nine months ended September 30, 2001
due to the increased commissions paid to third-party broker-dealers and more
lower-priced transactions during the nine months ended September 30, 2001 as
compared to the same period during the prior year.

Technology Development. Technology development expenses for the current
year consist of personnel costs associated with product management of
TradeStation 6, which total $126,000 for the nine months ended September 30,
2001. Technology development expenses for the nine months ended September 30,
2000 were $569,000, consisting of consulting and professional fees and
personnel expenses. See Three Months Ended September 30, 2001 and 2000-
Software Products and Services Segment  Technology Development above.

Sales and Marketing. Sales and marketing expenses were $5.4 million for
the nine months ended September 30, 2001, as compared to $4.3 million for the
nine months ended September 30, 2000, an increase of $1.1 million, or 25%.
This increase was due primarily to increased personnel and related costs of
$707,000 and increased advertising and promotion costs of $308,000. Sales and
marketing expenses, as a percentage of total revenues, was 41% for the nine
months ended September 30, 2001, as compared to 35% for the nine months ended
September 30, 2000. We believe that the absolute dollar amount of sales and
marketing expenses in the future will increase as we continue to market the
TradeStation 6 brokerage platform. The level of such increase will depend on
the extent to which such brokerage services are aggressively marketed and the
rate of customer account growth.

General and Administrative. General and administrative expenses were $3.0
million for the nine months ended September 30, 2001, as compared to $2.5
million for the same period in 2000, an increase of $567,000, or 23%, due
primarily to an increase in uninsured loss reserves and related professional
fees of $1.0 million, partially offset by a decrease in personnel and related
costs of $495,000 related to reduced general and administrative expenses after
the merger.

Amortization of Goodwill and Other Intangibles.Amortization of goodwill
and other intangibles was $455,000 and $406,000 for the nine months ended
September 30, 2001 and 2000, respectively.

Software Products and Services Segment

Revenues

Total Revenues. Total revenues were $18.7 million for the nine months
ended September 30, 2001, as compared to $27.1 million for the same period in
2000, a decrease of $8.3 million, or 31%, due primarily to a decrease in
licensing fees, partially offset by an increase in subscription fees.

Subscription Fees. Subscription fees were $7.8 million for the nine
months ended September 30, 2001, as compared to $5.5 million for the nine
months ended September 30, 2000, an increase of $2.3 million, or 42%, due
primarily to an increased subscriber base related to WindowOnWallStreet.com,
which was launched January 25, 2000, and TradeStation 6,which was launched
December 6, 2000. As a result of our focus on our brokerage business, we have
not actively marketed subscription services during 2001 and we have no plan to
do so in the future. Accordingly, we expect that subscription fees will
continue to decrease quarter over quarter.

Licensing Fees. Licensing fees were $4.4 million for the nine months
ended September 30, 2001, as compared to $14.9 million for the same period in
2000, a decrease of $10.5 million, or 70%, due primarily to our discontinuation
in May 2000 of active marketing of client software products. As a result of
this discontinuation, and our focus on our brokerage business, it is expected
that licensing fees will continue to decrease quarter over quarter.

15



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Other Revenues. Other revenues were $6.6 million for the nine months
ended September 30, 2001, as compared to $6.7 million for the same period in
2000, a decrease of $94,000 or 1%. The decrease was due primarily to decreases
in end-of-day data vendor royalties and the cancellation this year of our
annual trading strategy conference, partially offset by higher minimum
royalties under the license agreement with Telerate. See Three Months Ended
September 30, 2001 and 2000- Software Products and Services Segment  Other
Revenues above for further discussion of the Telerate agreement.

Operating Expenses

Data Delivery and Related Costs. Data delivery and related costs for the
nine months ended September 30, 2001 were $4.1 million, as compared to $2.8
million for the nine months ended September 30, 2000, an increase of $1.3
million, or 48%. The increase is due primarily to increased data distribution
and exchange fees as well as increased server farm infrastructure costs (rent
and depreciation for additional facilities and servers) associated with the
increase in the number of subscribers to WindowOnWallStreet.comand
TradeStation 6.

Technology Development. Technology development expenses were $8.7 million
for the nine months ended September 30, 2001, as compared to $5.6 million for
the nine months ended September 30, 2000, an increase of $3.1 million, or 56%,
due primarily to increased uninsured loss reserves of $1.4 million and
increased personnel and related expenses of $1.4 million. We anticipate that
the absolute dollar amount of technology development expenses will increase for
the foreseeable future as we continue to develop new products and services and
enhance our products and services.

Sales and Marketing. Sales and marketing expenses were $3.5 million for
the nine months ended September 30, 2001, as compared to $17.1 million for the
same period in 2000, a decrease of $13.6 million, or 80%, due primarily to
decreased advertising and promotion costs of $9.0 million, decreased personnel
and related costs of $3.3 million (as a result of a decrease in sales and
marketing personnel related to the restructuring of the sales team at the end
of the first quarter of 2000 and the transfer of substantially all remaining
sales personnel to the brokerage services segment during the first quarter of
2001), and, to a lesser extent, decreased travel costs of $826,000. Sales and
marketing expenses as a percentage of total revenues decreased to 19% for the
nine months ended September 30, 2001, as compared to 63% for the nine months
ended September 30, 2000.

Inventory and Handling Costs. Inventory and handling costs were $132,000
for the nine months ended September 30, 2001, as compared to $1.2 million for
the same period in 2000, a decrease of $1.0 million, or 89%, due to decreased
shipments of client software during 2001 as compared to the prior year as a
result of the discontinuation in May 2000 of active marketing of client
software products.

General and Administrative. General and administrative expenses were
approximately $8.0 million for the nine months ended September 30, 2001, as
compared to $6.0 million for the same period in 2000, an increase of $2.0
million, or 33%, due primarily to increased personnel and related costs of $1.0
million, a $714,000 provision for bad debt recognized in the first quarter of
2001 and increased consulting and professional fees of $342,000. The provision
for bad debt relates to the portion of the 2001 Telerate royalty receivable
that was part of the pre-petition estate in Telerates Chapter 11 bankruptcy,
which was filed in February 2001, and will not be paid as a result of the
rejection of that agreement in those bankruptcy proceedings. See Three Months
Ended September 30, 2001 and 2000- Software Products and Services Segment 
Other Revenues above.

Amortization of Goodwill and Other Intangibles.Amortization of goodwill
and other intangibles, consisting substantially of amortization related to the
October 1999 acquisition of Window On WallStreet, was $4.1 million for each of
the nine months ended September 30, 2001 and 2000.

16



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Income Taxes

Prior to December 29, 2000, the effective time of the merger of
TradeStation Technologies and TradeStation Securities, TradeStation
Technologies and TradeStation Securities were separate tax-paying entities.
For the three and nine months ended September 30, 2000, a valuation allowance
was recognized to offset the entire tax benefit associated with TradeStation
Technologies losses for such periods. For the three and nine months ended
September 30, 2000, TradeStation Securities recorded a provision for income
taxes of $316,000 and $895,000, respectively.

For the three and nine months ended September 30, 2001, taxes were only
provided for certain state and local income taxes where our net operating loss
carryforwards could not be utilized, resulting in a tax benefit of $9,000 and a
tax expense of $7,000, respectively. A valuation allowance was recorded to
offset the tax benefit of all other net operating losses generated during such
periods. We believe that the net deferred tax asset as of September 30, 2001
is realizable based upon our projections of future taxable income during the
carryforward period.

Variability of Results

The operating results for any quarter are not necessarily indicative of
results for any future period or for the full year, particularly given recent
world events, current market conditions and the recent launch of our new
business model. Our quarterly revenues and operating results have varied in
the past, and are likely to vary even more from quarter to quarter in the
future. Such fluctuations may result in volatility in the price of our common
stock. As forecasted in our 2001 Business Outlook for the fourth quarter (as
revised), expenses are based upon expected revenues. If actual revenues are
below managements expectations, then results of operations are likely to be
adversely affected because a large amount of our expenses do not vary with
revenues. In addition, operating results may fluctuate based upon the timing,
level and rate of acceptance of the release of new products and services,
including TradeStation 6, and/or enhancements, increased competition,
lower-than-expected customer acquisition, trading volume and/or trading
frequency, variations in the revenue mix, and announcements of new products and
services and/or enhancements by us or our competitors, market conditions, and
other factors. Such fluctuations may result in volatility in the price of our
common stock.

Liquidity and Capital Resources

As of September 30, 2001, we had cash and cash equivalents of $20.1
million and securities owned, primarily certificates of deposit, of $626,000.
Of these amounts, approximately $1.5 million is restricted, held to support two
stand-by letters of credit securing equipment leases and for a credit card
clearing agreement.

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 nine months ended
September 30, 2001 totaled $2.9 million, compared to cash used of $427,000 in
the comparable period of 2000. The increase in net cash provided by operating
activities in 2001 was primarily due to the collection of income tax
receivables of $8.5 million in April 2001 and increases in accounts payable and
accrued expenses, partially offset by increases in receivables and a decrease
in income taxes payable.

Investing activities used cash of $1.0 million and $3.2 million during the
nine months ended September 30, 2001 and 2000, respectively. The principal
uses of cash in investing activities for the nine months ended September 30,
2001 and 2000 were primarily for purchases of securities, net of maturities,
and capital expenditures.

Financing activities used cash of $157,000 in the nine months ended
September 30, 2001, compared to cash provided of $289,000 in the nine months
ended September 30, 2000. For the nine months ended September 30, 2001 and
2000, proceeds from the issuance of common stock from the exercise of stock
options under our Incentive Stock Plan were $74,000 and $346,000, respectively,
and repayments of capital lease obligations were $231,000 and $57,000,
respectively.

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Recently Issued Accounting Standards

In July 2001, the FASB issued SFAS No. 141, Business Combinations.SFAS
No. 141 addresses financial accounting and reporting for business combinations
and supersedes APB No. 16, Business Combinations,and SFAS No. 38, Accounting
for Preacquisition Contingencies of Purchased Enterprises. All business
combinations in the scope of SFAS No. 141 are to be accounted for under the
purchase method. The adoption of SFAS No. 141 in July 2001 did not have an
impact on our financial position, results of operations or cash flows.

In July 2001, the FASB also issued SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 addresses financial accounting and reporting
for intangible assets acquired individually or with a group of other assets
upon their acquisition. SFAS No. 142 also addresses financial accounting and
reporting for goodwill and other intangible assets subsequent to their
acquisition. With the adoption of SFAS No. 142, goodwill is no longer subject
to amortization. Rather, goodwill will be subject to at least an annual
assessment for impairment by applying a fair value-based test. The impairment
loss is the amount, if any, by which the implied fair value of goodwill is less
than the carrying or book value. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. Impairment loss for goodwill arising from
the initial application of SFAS No. 142 is to be reported as resulting from a
change in accounting principle. We are currently assessing the impact of
adopting SFAS No. 142 and plan to complete its assessment as of December 31,
2001.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.SFAS No. 144 supercedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed ofand APB No. 30, Reporting the Results of Operations 
Reporting the Effects of the Disposal of a Segment Business and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions.SFAS No. 144
establishes a single accounting model for assets to be disposed of by sale
whether previously held and used or newly acquired. SFAS No. 144 retains the
provisions of APB No. 30 for presentation of discontinued operations in the
income statement, but broadens the presentation to include a component of an
entity. SFAS No. 144 is effective for fiscal years beginning after December
15, 2001 and the interim periods within. We do not believe that the adoption
of SFAS No. 144 will have a material impact on our financial position, results
of operations or cash flows.

Forward-Looking Statements

This report contains statements that are forward-looking and 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, contemplates,
may, will, should, could, upcoming, potential and similar
expressions, if and to the extent used, are intended to identify
forward-looking statements. All forward-looking statements are based largely
on current expectations and beliefs concerning future events that are subject
to substantial risks and uncertainties. Actual results may differ materially
from the results suggested in this report. Factors that may cause or
contribute to the various potential differences include, but are not limited
to, the risks and uncertainties indicated in our Annual Report on Form 10-K for
the year ended December 31, 2000, as well as our recent press releases.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Reference is made to
Item 1 of our Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2001 for a discussion of the settlement of an
arbitration involving certain claims by a customer of TradeStation Securities
against, among others, TradeStation Securities.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(c) Sales of Unregistered Securities

During the three months ended September 30, 2001, we issued to three
employees options to purchase an aggregate of 35,000 shares of common stock.
Such options vest ratably in annual increments over a five-year period and are
exercisable at prices ranging from $1.88 to $3.48 per share, which was the fair
market value of our common stock on the respective dates on which 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. Other
than as described above, we did not issue or sell any unregistered securities
during the three months ended September 30, 2001.

(d) Use of Proceeds

TradeStation Securities (then known as onlinetradinginc.com corp.)
effected an initial public offering pursuant to a Registration Statement on
Form SB-2 (File No. 333-75119), which was declared effective by the Securities
and Exchange Commission on September 11, 1999. For a description of the use of
proceeds from such offering through October 31, 2000, see Item 2 in Part II of
onlinetradinginc.com corp.s Quarterly Report on Form 10-QSB for the fiscal
quarter ended October 31, 2000. In addition, since October 31, 2000, $1.8
million was used to pay merger costs and $3.3 million was used for working
capital. The balance of $4.7 million continues to be invested in money market
funds.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(b)  Reports on Form 8-K

No Current Report on Form 8-K was filed during the quarter ended September
30, 2001.

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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                                                                                                                                                        
|                       
|                       
|                       
|                       
|                       
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|Date: November 13, 2001 |  | By: /s/ David
H. Fleischman                                                                                                                                                                
|                        |  |                                                                                                                                                                                            
|                        |  | David H. Fleischman                                                                                                                                                                        
|                       
|                       
|                       
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|                        |  | Chief Financial Officer, Vice President of
Finance and Treasurer
(Signing both in his capacity as an authorized
officer and as Principal Financial and
Accounting Officer of the Registrant

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