SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

|                                             |  |                                                                                         
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------
|(Mark One)                                   |  |                                                                                         
|[ X]                                         |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 
|                                            
|For the quarterly period ended June 30, 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
(Address of principal executive offices)
(Zip Code)

(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 August 6, 2001 there were 44,519,234 shares of the Registrants Common Stock outstanding.



---



TRADESTATION GROUP, INC.

INDEX

|          |  |                                                                                              |  |     
|--------- |  | -------------------------------------------------------------------------------------------- |  | ----
|          |  |                                                                                              |  | Page
|          |  |                                                                                              |  |     
|PART I.   |  | FINANCIAL INFORMATION                                                                        |  |     
|         
|         
|         
|         
|          |  |                                                                                              |  |     
|Item 1.   |  | Financial Statements:                                                                        |  |     
|          |  |                                                                                              |  |     
|          |  | Consolidated Balance Sheets       June 30, 2001 (unaudited) and December 31, 2000            |  | 3   
|          |  |                                                                                              |  |     
|          |  | Consolidated Statements of Operations                                                        |  |     
|          |  | Three and six months ended June 30, 2001 and 2000 (unaudited)                                |  | 4   
|          |  |                                                                                              |  |     
|          |  | Consolidated Statements of Cash Flows                                                        |  |     
|          |  | Six months ended June 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 |  | 9   
|          |  |                                                                                              |  |     
|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 4.   |  | Submission of Matters to a Vote of Security Holders                                          |  | 20  
|          |  |                                                                                              |  |     
|Item 6.   |  | Exhibits and Reports on Form 8-K                                                             |  | 21  
|          |  |                                                                                              |  |     
|Signature |  |                                                                                              |  | 22  

2



---



PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |             |            | 
|------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | - | ----------- | ---------- | ------------ | - | ----------- | ---------- | 
|                                      |                                                                                                                                                                    |                                            |   | June 30,    |            | December 31,
|                                      |                                                                                                                                                                    |                                            |   | 2001        |            | 2000        
|                                      |                                                                                                                                                                    |                                            |   |             |            |             
|                                      |                                                                                                                                                                    |                                            |   | (Unaudited) |            |              |   |            
|ASSETS:                               |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                     
|                                     
|                                     
|                                     
|                                      | Cash and cash equivalents                                                                                                                                          |                                            | $ | 19,357,519  |            |              | $ | 18,394,996  |           
|                                     
|                                     
|                                     
|                                     
|                                      | Securities owned, at market value                                                                                                                                  |                                            |   | 1,593,146   |            |              |   | 249,423     |           
|                                     
|                                     
|                                     
|                                     
|                                      | Accounts receivable, net                                                                                                                                           |                                            |   | 856,767     |            |              |   | 644,200     |           
|                                     
|                                     
|                                     
|                                     
|                                      | Other receivables                                                                                                                                                  |                                            |   | 3,085,254   |            |              |   | 1,028,920   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Income tax receivable                                                                                                                                              |                                            |   |            |            |              |   | 8,542,413   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Property and equipment, net                                                                                                                                        |                                            |   | 3,602,187   |            |              |   | 2,651,057   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Goodwill, net                                                                                                                                                      |                                            |   | 952,584     |            |              |   | 1,156,709   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Other intangible assets, net                                                                                                                                       |                                            |   | 9,119,098   |            |              |   | 11,850,148  |           
|                                     
|                                     
|                                     
|                                     
|                                      | Deferred income taxes                                                                                                                                              |                                            |   | 4,805,651   |            |              |   | 4,805,651   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Other assets                                                                                                                                                       |                                            |   | 2,008,763   |            |              |   | 1,030,631   |           
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                      |                                                                                                                                                                    | Total assets                               |   | $           | 45,380,969 |              |   | $           | 50,354,148 | 
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|LIABILITIES AND SHAREHOLDERS EQUITY: |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                     
|                                     
|                                     
|                                     
|LIABILITIES:                          |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                     
|                                     
|                                     
|                                     
|                                      | Accounts payable                                                                                                                                                   |                                            | $ | 1,755,953   |            |              | $ | 3,579,962   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Accrued expenses                                                                                                                                                   |                                            |   | 6,913,361   |            |              |   | 5,686,792   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Income taxes payable                                                                                                                                               |                                            |   | 134,205     |            |              |   | 1,003,912   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Deferred revenue                                                                                                                                                   |                                            |   | 887,275     |            |              |   | 821,593     |           
|                                     
|                                     
|                                     
|                                     
|                                      | Securities sold but not yet purchased, at market value                                                                                                             |                                            |   |            |            |              |   | 22,750      |           
|                                     
|                                     
|                                     
|                                     
|                                      | Capital lease obligations                                                                                                                                          |                                            |   | 1,466,824   |            |              |   | 214,069     |           
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                      |                                                                                                                                                                    | Total liabilities                          |   |             | 11,157,618 |              |   |             | 11,329,078 | 
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|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, 44,519,103 and 44,476,501
issued and outstanding at June 30, 2001 and
December 31, 2000, respectively |                                            |   | 445,191     |            |              |   | 444,765     |           
|                                     
|                                     
|                                     
|                                     
|                                      | Additional paid-in capital                                                                                                                                         |                                            |   | 51,416,747  |            |              |   | 51,272,899  |           
|                                     
|                                     
|                                     
|                                     
|                                      | Accumulated deficit                                                                                                                                                |                                            |   | (17,638,587 | )          |              |   | (12,692,594 | )         
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                      |                                                                                                                                                                    | Total shareholders equity                 |   |             | 34,223,351 |              |   |             | 39,025,070 | 
|                                      |                                                                                                                                                                    |                                            |   |             |            |              |   |            
|                                      |                                                                                                                                                                    | Total liabilities and shareholders equity |   | $           | 45,380,969 |              |   | $           | 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 |            | Six Months Ended
|                             |                                                |                          |         | June 30,           |            | June 30,        
|                             |                                                |                          |         |                    |            |                 
|                             |                                                |                          |         | 2001               |            | 2000             |         | 2001      |            | 2000
|                             |                                                |                          |         |                    |            |                  |         |           |            |     
|REVENUES:                    |                                                |                          |         |                    |            |                  |         |           |            |      |         |           |            |   |         |           
|                            
|                            
|                            
|                            
|                             | Brokerage fees                                 |                          | $       | 3,792,804          |            |                  | $       | 3,848,376 |            |      | $       | 8,545,355 |            |   | $       | 8,013,646  |           
|                            
|                            
|                            
|                            
|                             | Subscription fees                              |                          |         | 2,644,750          |            |                  |         | 2,007,791 |            |      |         | 5,398,557 |            |   |         | 2,910,625  |           
|                            
|                            
|                            
|                            
|                             | Licensing fees                                 |                          |         | 1,563,700          |            |                  |         | 5,001,534 |            |      |         | 3,516,881 |            |   |         | 10,848,530 |           
|                            
|                            
|                            
|                            
|                             | Other                                          |                          |         | 2,592,225          |            |                  |         | 2,999,542 |            |      |         | 5,239,838 |            |   |         | 4,992,801  |           
|                             |                                                |                          |         |                    |            |                  |         |           |            |      |         |           |            |   |         |           
|                             |                                                | Total revenues           |         |                    | 10,593,479 |                  |         |           | 13,857,243 |      |         |           | 22,700,631 |   |         |            | 26,765,602 |  
|                             |                                                |                          |         |                    |            |                  |         |           |            |      |         |           |            |   |         |           
|OPERATING EXPENSES:          |                                                |                          |         |                    |            |                  |         |           |            |      |         |           |            |   |         |           
|                            
|                            
|                            
|                            
|                             | Clearing and other transaction costs           |                          |         | 1,346,384          |            |                  |         | 1,084,773 |            |      |         | 2,936,195 |            |   |         | 2,308,059  |           
|                            
|                            
|                            
|                            
|                             | Data delivery and related costs                |                          |         | 1,311,068          |            |                  |         | 1,031,703 |            |      |         | 2,675,681 |            |   |         | 1,571,079  |           
|                            
|                            
|                            
|                            
|                             | Inventory and handling costs                   |                          |         | 33,735             |            |                  |         | 333,657   |            |      |         | 115,921   |            |   |         | 1,053,905  |           
|                            
|                            
|                            
|                            
|                             | Technology development                         |                          |         | 3,386,789          |            |                  |         | 2,096,362 |            |      |         | 5,828,683 |            |   |         | 4,131,317  |           
|                            
|                            
|                            
|                            
|                             | Sales and marketing                            |                          |         | 3,268,821          |            |                  |         | 7,321,874 |            |      |         | 6,224,701 |            |   |         | 15,879,527 |           
|                            
|                            
|                            
|                            
|                             | General and administrative                     |                          |         | 3,154,302          |            |                  |         | 2,972,214 |            |      |         | 7,189,867 |            |   |         | 5,543,118  |           
|                            
|                            
|                            
|                            
|                             | Amortization of goodwill and other
intangibles |                          |         | 1,541,963          |            |                  |         | 1,491,808 |            |      |         | 3,060,175 |            |   |         | 2,983,616  |           
|                             |                                                |                          |         |                    |            |                  |         |           |            |      |         |           |            |   |         |           
|                             |                                                | Total operating expenses |         |                    | 14,043,062 |                  |         |           | 16,332,391 |      |         |           | 28,031,223 |   |         |            | 33,470,621 |  
|                             |                                                |                          |         |                    |            |                  |         |           |            |      |         |           |            |   |         |           
|                             |                                                | Loss from operations     |         |                    | (3,449,583 | )                |         |           | (2,475,148 | )    |         |           | (5,330,592 | ) |         |            | (6,705,019 | )
|                            
|                            
|                            
|                            
|OTHER INCOME, net            |                                                |                          | 179,607 |                    |            |                  | 318,270 |           |            |      | 401,241 |           |            |   | 692,716 |           
|                             |                                                |                          |         |                    |            |                  |         |           |            |      |         |           |            |   |         |           
|                             |                                                | Loss before income taxes |         |                    | (3,269,976 | )                |         |           | (2,156,878 | )    |         |           | (4,929,351 | ) |         |            | (6,012,303 | )
|                            
|                            
|                            
|                            
|INCOME TAX PROVISION         |                                                |                          | 4,896   |                    |            |                  | 302,931 |           |            |      | 16,642  |           |            |   | 578,748 |           
|                             |                                                |                          |         |                    |            |                  |         |           |            |      |         |           |            |   |         |           
|                             |                                                | Net loss                 |         | $                  | (3,274,872 | )                |         | $         | (2,459,809 | )    |         | $         | (4,945,993 | ) |         | $          | (6,591,051 | )
|                             |                                                |                          |         |                    |            |                  |         |           |            |      |         |           |            |   |         |           
|NET LOSS PER SHARE (Note 3): |                                                |                          |         |                    |            |                  |         |           |            |      |         |           |            |   |         |           
|                            
|                            
|                            
|                            
|                             | Basic and diluted                              |                          | $       | (0.07              | )          |                  | $       | (0.06     | )          |      | $       | (0.11     | )          |   | $       | (0.15      | )         
|                             |                                                |                          |         |                    |            |                  |         |           |            |      |         |           |            |   |         |           

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

4



---



TRADESTATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

|                                                          |                                                                                 |   |                                             |                                           |   |                  |            |            |   |           |            |  
|--------------------------------------------------------- | ------------------------------------------------------------------------------- | - | ------------------------------------------- | ----------------------------------------- | - | ---------------- | ---------- | ---------- | - | --------- | ---------- | -
|                                                          |                                                                                 |   |                                             |                                           |   | Six Months Ended
|                                                          |                                                                                 |   |                                             |                                           |   | June 30,        
|                                                          |                                                                                 |   |                                             |                                           |   |                 
|                                                          |                                                                                 |   |                                             |                                           |   | 2001             |            | 2000      
|                                                          |                                                                                 |   |                                             |                                           |   |                  |            |           
|CASH FLOWS FROM OPERATING ACTIVITIES:                     |                                                                                 |   |                                             |                                           |   |                  |            |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Net loss                                                                        |   | $                                           | (4,945,993                                | ) |                  | $          | (6,591,051 | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Adjustment for change in fiscal year end of pooled company                      |   |                                             |                                          |   |                  |            | (36,683    | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Adjustments to reconcile net loss to net cash provided by
operating activities: |   |                                             |                                           |   |                  |            |            |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   | Depreciation and amortization               |                                           |   | 3,801,518        |            |            |   | 3,727,709 |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   | Provision for bad debts                     |                                           |   | 714,286          |            |            |   |          |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   | Compensation expense on stock option grants |                                           |   | 75,180           |            |            |   | 76,839    |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   | Deferred income tax provision               |                                           |   |                 |            |            |   | 8,431,000 |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   | (Increase) decrease in:                     |                                           |   |                  |            |            |   |           |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   |                                             | Securities owned  trading only           |   |                  |           |            |   |           | (13,857    | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   |                                             | Accounts receivable                       |   |                  | (926,853   | )          |   |           | 1,029,189  |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   |                                             | Other receivables                         |   |                  | (2,056,334 | )          |   |           | 133,342    |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   |                                             | Income tax receivable                     |   |                  | 8,542,413  |            |   |           | (8,431,000 | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   |                                             | Other assets                              |   |                  | (978,132   | )          |   |           | (696,466   | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   | Increase (decrease) in:                     |                                           |   |                  |            |            |   |           |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   |                                             | Accounts payable                          |   |                  | (1,824,009 | )          |   |           | 2,799,423  |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   |                                             | Accrued expenses                          |   |                  | 1,226,569  |            |   |           | 140,026    |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   |                                             | Income taxes payable                      |   |                  | (869,707   | )          |   |           | (289,611   | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   |                                             | Deferred revenue                          |   |                  | 65,682     |            |   |           | 728,706    |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                 |   |                                             | Securities sold but not yet purchased     |   |                  | (22,750    | )          |   |           | (25,938    | )
|                                                          |                                                                                 |   |                                             |                                           |   |                  |            |           
|                                                          |                                                                                 |   |                                             | Net cash provided by operating activities |   |                  | 2,801,870  |            |   |           | 981,628    |  
|                                                          |                                                                                 |   |                                             |                                           |   |                  |            |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                     |                                                                                 |   |                                             |                                           |   |                  |            |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Capital expenditures                                                            |   |                                             | (396,350                                  | ) |                  |            | (602,993   | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Purchases of securities owned                                                   |   |                                             | (1,436,103                                | ) |                  |            | (3,992,060 | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Redemption of/proceeds from maturity of securities owned                        |   |                                             | 92,380                                    |   |                  |            | 1,695,304  |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Acquisition of intangibles                                                      |   |                                             | (125,000                                  | ) |                  |            | (15,000    | )
|                                                          |                                                                                 |   |                                             |                                           |   |                  |            |           
|                                                          |                                                                                 |   |                                             | Net cash used in investing activities     |   |                  | (1,865,073 | )          |   |           | (2,914,749 | )
|                                                          |                                                                                 |   |                                             |                                           |   |                  |            |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                     |                                                                                 |   |                                             |                                           |   |                  |            |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Proceeds from issuance of common stock                                          |   |                                             | 69,094                                    |   |                  |            | 319,627    |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Repayment of capital lease obligations                                          |   |                                             | (43,368                                   | ) |                  |            | (36,923    | )
|                                                          |                                                                                 |   |                                             |                                           |   |                  |            |           
|                                                          |                                                                                 |   |                                             | Net cash provided by financing activities |   |                  | 25,726     |            |   |           | 282,704    |  
|                                                          |                                                                                 |   |                                             |                                           |   |                  |            |           
|NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS      |                                                                                 |   | 962,523                                     |                                           |   |                  | (1,650,417 | )         
|                                                         
|                                                         
|                                                         
|                                                         
|CASH AND CASH EQUIVALENTS, beginning of period            |                                                                                 |   | 18,394,996                                  |                                           |   |                  | 17,303,642 |           
|                                                          |                                                                                 |   |                                             |                                           |   |                  |            |           
|CASH AND CASH EQUIVALENTS, end of period                  |                                                                                 | $ | 19,357,519                                  |                                           |   | $                | 15,653,225 |           
|                                                          |                                                                                 |   |                                             |                                           |   |                  |            |           
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:         |                                                                                 |   |                                             |                                           |   |                  |            |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Cash paid for interest                                                          |   | $                                           | 54,872                                    |   |                  | $          | 24,990     |  
|                                                          |                                                                                 |   |                                             |                                           |   |                  |            |           
|                                                          | Cash paid for income taxes                                                      |   | $                                           | 900,354                                   |   |                  | $          | 725,069    |  
|                                                          |                                                                                 |   |                                             |                                           |   |                  |            |           
|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



---



TRADESTATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All notes and related disclosures applicable to
the three and six months ended June 30, 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 June 30,
2001, the results of operations for the three and six months ended June 30,
2001 and 2000 and cash flows for the six months ended June 30, 2001 and 2000
have been made. 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. 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.

2. Goodwill and Other Intangible Assets, Net

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

|                         |                               |  |                 |  |          |   |              |            |       |   |            |            | 
|------------------------ | ----------------------------- |  | --------------- |  | -------- | - | ------------ | ---------- | ----- | - | ---------- | ---------- | 
|                         |                               |  |                 |  |          |   | As of        |            | As of
|                         |                               |  | Amortization    |  | June 30, |   | December 31,
|                         |                               |  | Period In Years |  | 2001     |   | 2000        
|                         |                               |  |                 |  |          |   |             
|Goodwill                 |                               |  | 4               |  |          | $ | 1,633,000    |            |       | $ | 1,633,000  |           
|                        
|                        
|                        
|                        
|Accumulated amortization |                               |  |                 |  |          |   | (680,416     | )          |       |   | (476,291   | )         
|                         |                               |  |                 |  |          |   |              |            |       |   |            |           
|                         | Goodwill, net                 |  |                 |  |          |   | $            | 952,584    |       |   | $          | 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             |  |          |   | 482,900      |            |       |   | 357,900    |           
|                        
|                        
|                        
|                        
|Domain name              |                               |  | 15              |  |          |   | 65,000       |            |       |   | 65,000     |           
|                         |                               |  |                 |  |          |   |              |            |       |   |            |           
|                         | Total other intangible assets |  |                 |  |          |   |              | 18,461,900 |       |   |            | 18,336,900 | 
|                        
|                        
|                        
|                        
|Accumulated amortization |                               |  |                 |  |          |   | (9,342,802   | )          |       |   | (6,486,752 | )         
|                         |                               |  |                 |  |          |   |              |            |       |   |            |           
|                         | Other intangible assets, net  |  |                 |  |          |   | $            | 9,119,098  |       |   | $          | 11,850,148 | 
|                         |                               |  |                 |  |          |   |              |            |       |   |            |           

6



---



3. Net Loss Per Share

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

|                                                                                                                              |  |                      |            |                    |  |      |            |      |  |  |            |  |  |  |            | 
|----------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ---------- | ------------------ |  | ---- | ---------- | ---- |  |  | ---------- |  |  |  | ---------- | 
|                                                                                                                              |  | For the Three Months |            | For the Six Months
|                                                                                                                              |  | Ended June 30,       |            | Ended June 30,    
|                                                                                                                              |  |                      |            |                   
|                                                                                                                              |  | 2001                 |            | 2000               |  | 2001 |            | 2000
|                                                                                                                              |  |                      |            |                    |  |      |            |     
|Weighted average shares outstanding (basic)                                                                                   |  |                      | 44,485,540 |                    |  |      | 44,020,509 |      |  |  | 44,396,283 |  |  |  | 43,837,604 | 
|                                                                                                                             
|                                                                                                                             
|                                                                                                                             
|                                                                                                                             
|Impact of diluted options after applying
the treasury stock method                                                            |  |                      |           |                    |  |      |           |      |  |  |           |  |  |  |           | 
|                                                                                                                              |  |                      |            |                    |  |      |            |      |  |  |            |  |  |  |            | 
|Weighted average shares outstanding (diluted)                                                                                 |  |                      | 44,485,540 |                    |  |      | 44,020,509 |      |  |  | 44,396,283 |  |  |  | 43,837,604 | 
|                                                                                                                              |  |                      |            |                    |  |      |            |      |  |  |            |  |  |  |            | 
|Options outstanding which are not included
in the calculation of diluted loss per share
because their impact is antidilutive  |  |                      | 6,057,731  |                    |  |      | 5,236,725  |      |  |  | 6,057,731  |  |  |  | 5,236,725  | 
|                                                                                                                              |  |                      |            |                    |  |      |            |      |  |  |            |  |  |  |            | 
|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. The shares were excluded
from basic and diluted weighted average shares outstanding prior to the
expiration of the relative redemption provisions as they were antidilutive.

4. Other Receivables

Other receivables are comprised of a receivable from the brokerages
clearing organization and, as of June 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, the
Company expects the insurance claim to be fully paid by the carrier.

5. 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 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. SFAS No. 141 is effective July 1,
2001. The adoption of SFAS No. 141 will 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 by December 31,
2001.

7



---



6. Segment and Related Information

For the three and six months ended June 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. 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 Six Months
|                               |  | Ended June 30,       |            | Ended June 30,    
|                               |  |                      |            |                   
|                               |  | 2001                 |            | 2000               |  | 2001 |            | 2000
|                               |  |                      |            |                    |  |      |            |     
|Revenues:                      |  |                      |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|                              
|                              
|                              
|                              
|Brokerage services             |  | $                    | 4,110,868  |                    |  | $    | 4,029,353  |      |  | $ | 9,192,834  |   |  | $ | 8,237,437  |  
|                              
|                              
|                              
|                              
|Software products and services |  |                      | 6,482,611  |                    |  |      | 9,827,890  |      |  |   | 13,507,797 |   |  |   | 18,528,165 |  
|                               |  |                      |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|                               |  | $                    | 10,593,479 |                    |  | $    | 13,857,243 |      |  | $ | 22,700,631 |   |  | $ | 26,765,602 |  
|                               |  |                      |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|Income (loss) from operations: |  |                      |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|                              
|                              
|                              
|                              
|Brokerage services             |  | $                    | 178,597    |                    |  | $    | 488,761    |      |  | $ | 762,075    |   |  | $ | 830,338    |  
|                              
|                              
|                              
|                              
|Software products and services |  |                      | (3,628,180 | )                  |  |      | (2,963,909 | )    |  |   | (6,092,667 | ) |  |   | (7,535,357 | )
|                               |  |                      |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|                               |  | $                    | (3,449,583 | )                  |  | $    | (2,475,148 | )    |  | $ | (5,330,592 | ) |  | $ | (6,705,019 | )
|                               |  |                      |            |                    |  |      |            |      |  |   |            |   |  |   |            |  

|                               |  |          |            |              |  |   |            |  | 
|------------------------------ |  | -------- | ---------- | ------------ |  | - | ---------- |  | 
|                               |  | As of    |            | As of       
|                               |  | June 30, |            | December 31,
|                               |  | 2001     |            | 2000        
|                               |  |          |            |             
|Identifiable assets:           |  |          |            |              |  |   |            | 
|                              
|                              
|                              
|                              
|Brokerage services             |  | $        | 21,597,710 |              |  | $ | 22,461,748 | 
|                              
|                              
|                              
|                              
|Software products and services |  |          | 23,783,259 |              |  |   | 27,892,400 | 
|                               |  |          |            |              |  |   |            | 
|                               |  | $        | 45,380,969 |              |  | $ | 50,354,148 | 
|                               |  |          |            |              |  |   |            | 

8



---



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 the TradeStation Platform, 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. Fourth quarter 2001 results of operations should be the
first meaningful reflection of the implementation of the TradeStation Platform.

Results of Operations

The results of operations for the three and six months ended June 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 conducted independent
businesses, one that offers brokerage services and one that offers 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
|                    |                                                |                               |   | June 30, 2001      |       | June 30, 2000     
|                    |                                                |                               |   |                    |       |                   
|                    |                                                |                               |   |                    |       |                    |   | Software |        |          |   |           |        |       |   |       |       | Software |   |       |        |  
|                    |                                                |                               |   |                    |       |                    |   | Products |        |          |   |           |        |       |   |       |       | Products |   |       |        |  
|                    |                                                |                               |   | Brokerage          |       | And                |   |          |        |          |   | Brokerage |        | And   |   |       |       |         
|                    |                                                |                               |   | Services           |       | Services           |   | Total    |        | Services |   | Services  |        | Total
|                    |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |      
|Revenues:           |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |      
|                   
|                   
|                   
|                   
|                    | Brokerage fees                                 |                               | $ | 3,793              |       |                    | $ |         |        |          | $ | 3,793     |        |       | $ | 3,848 |       |          | $ |      |        |   | $ | 3,848 |       
|                   
|                   
|                   
|                   
|                    | Subscription fees                              |                               |   |                   |       |                    |   | 2,645    |        |          |   | 2,645     |        |       |   |      |       |          |   | 2,008 |        |   |   | 2,008 |       
|                   
|                   
|                   
|                   
|                    | Licensing fees                                 |                               |   |                   |       |                    |   | 1,564    |        |          |   | 1,564     |        |       |   |      |       |          |   | 5,002 |        |   |   | 5,002 |       
|                   
|                   
|                   
|                   
|                    | Other                                          |                               |   | 318                |       |                    |   | 2,274    |        |          |   | 2,592     |        |       |   | 181   |       |          |   | 2,818 |        |   |   | 2,999 |       
|                    |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |      
|                    |                                                | Total revenues                |   |                    | 4,111 |                    |   |          | 6,483  |          |   |           | 10,594 |       |   |       | 4,029 |          |   |       | 9,828  |   |   |       | 13,857 |  
|                    |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |      
|Operating expenses: |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |      
|                   
|                   
|                   
|                   
|                    | Clearing and other transaction costs           |                               |   | 1,346              |       |                    |   |         |        |          |   | 1,346     |        |       |   | 1,085 |       |          |   |      |        |   |   | 1,085 |       
|                   
|                   
|                   
|                   
|                    | Data delivery and related costs                |                               |   |                   |       |                    |   | 1,311    |        |          |   | 1,311     |        |       |   |      |       |          |   | 1,032 |        |   |   | 1,032 |       
|                   
|                   
|                   
|                   
|                    | Inventory and handling costs                   |                               |   |                   |       |                    |   | 34       |        |          |   | 34        |        |       |   |      |       |          |   | 334   |        |   |   | 334   |       
|                   
|                   
|                   
|                   
|                    | Technology development                         |                               |   | 28                 |       |                    |   | 3,359    |        |          |   | 3,387     |        |       |   | 90    |       |          |   | 2,006 |        |   |   | 2,096 |       
|                   
|                   
|                   
|                   
|                    | Sales and marketing                            |                               |   | 1,683              |       |                    |   | 1,586    |        |          |   | 3,269     |        |       |   | 1,427 |       |          |   | 5,895 |        |   |   | 7,322 |       
|                   
|                   
|                   
|                   
|                    | General and administrative                     |                               |   | 723                |       |                    |   | 2,431    |        |          |   | 3,154     |        |       |   | 803   |       |          |   | 2,169 |        |   |   | 2,972 |       
|                   
|                   
|                   
|                   
|                    | Amortization of goodwill and other intangibles |                               |   | 152                |       |                    |   | 1,390    |        |          |   | 1,542     |        |       |   | 135   |       |          |   | 1,356 |        |   |   | 1,491 |       
|                    |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |      
|                    |                                                | Total operating expenses      |   |                    | 3,932 |                    |   |          | 10,111 |          |   |           | 14,043 |       |   |       | 3,540 |          |   |       | 12,792 |   |   |       | 16,332 |  
|                    |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |      
|                    |                                                | Income (loss) from operations |   | $                  | 179   |                    |   | $        | (3,628 | )        |   | $         | (3,449 | )     |   | $     | 489   |          |   | $     | (2,964 | ) |   | $     | (2,475 | )
|                    |                                                |                               |   |                    |       |                    |   |          |        |          |   |           |        |       |   |       |       |          |   |       |        |   |   |      

9



---



|                    |                                                |                               |   |                  |       |                  |   |          |        |          |   |           |        |       |   |       |       |          |   |        |        |   |   |        |        |  
|------------------- | ---------------------------------------------- | ----------------------------- | - | ---------------- | ----- | ---------------- | - | -------- | ------ | -------- | - | --------- | ------ | ----- | - | ----- | ----- | -------- | - | ------ | ------ | - | - | ------ | ------ | -
|                    |                                                |                               |   | Six Months Ended |       | Six Months Ended
|                    |                                                |                               |   | June 30, 2001    |       | June 30, 2000   
|                    |                                                |                               |   |                  |       |                 
|                    |                                                |                               |   |                  |       |                  |   | Software |        |          |   |           |        |       |   |       |       | Software |   |        |        |  
|                    |                                                |                               |   |                  |       |                  |   | Products |        |          |   |           |        |       |   |       |       | Products |   |        |        |  
|                    |                                                |                               |   | Brokerage        |       | And              |   |          |        |          |   | Brokerage |        | And   |   |       |       |         
|                    |                                                |                               |   | Services         |       | Services         |   | Total    |        | Services |   | Services  |        | Total
|                    |                                                |                               |   |                  |       |                  |   |          |        |          |   |           |        |      
|Revenues:           |                                                |                               |   |                  |       |                  |   |          |        |          |   |           |        |       |   |       |       |          |   |        |        |   |   |       
|                   
|                   
|                   
|                   
|                    | Brokerage fees                                 |                               | $ | 8,545            |       |                  | $ |         |        |          | $ | 8,545     |        |       | $ | 8,014 |       |          | $ |       |        |   | $ | 8,014  |       
|                   
|                   
|                   
|                   
|                    | Subscription fees                              |                               |   |                 |       |                  |   | 5,399    |        |          |   | 5,399     |        |       |   |      |       |          |   | 2,911  |        |   |   | 2,911  |       
|                   
|                   
|                   
|                   
|                    | Licensing fees                                 |                               |   |                 |       |                  |   | 3,517    |        |          |   | 3,517     |        |       |   |      |       |          |   | 10,848 |        |   |   | 10,848 |       
|                   
|                   
|                   
|                   
|                    | Other                                          |                               |   | 648              |       |                  |   | 4,592    |        |          |   | 5,240     |        |       |   | 224   |       |          |   | 4,769  |        |   |   | 4,993  |       
|                    |                                                |                               |   |                  |       |                  |   |          |        |          |   |           |        |       |   |       |       |          |   |        |        |   |   |       
|                    |                                                | Total revenues                |   |                  | 9,193 |                  |   |          | 13,508 |          |   |           | 22,701 |       |   |       | 8,238 |          |   |        | 18,528 |   |   |        | 26,766 |  
|                    |                                                |                               |   |                  |       |                  |   |          |        |          |   |           |        |       |   |       |       |          |   |        |        |   |   |       
|Operating expenses: |                                                |                               |   |                  |       |                  |   |          |        |          |   |           |        |       |   |       |       |          |   |        |        |   |   |       
|                   
|                   
|                   
|                   
|                    | Clearing and other transaction costs           |                               |   | 2,936            |       |                  |   |         |        |          |   | 2,936     |        |       |   | 2,308 |       |          |   |       |        |   |   | 2,308  |       
|                   
|                   
|                   
|                   
|                    | Data delivery and related costs                |                               |   |                 |       |                  |   | 2,676    |        |          |   | 2,676     |        |       |   |      |       |          |   | 1,571  |        |   |   | 1,571  |       
|                   
|                   
|                   
|                   
|                    | Inventory and handling costs                   |                               |   |                 |       |                  |   | 116      |        |          |   | 116       |        |       |   |      |       |          |   | 1,054  |        |   |   | 1,054  |       
|                   
|                   
|                   
|                   
|                    | Technology development                         |                               |   | 28               |       |                  |   | 5,801    |        |          |   | 5,829     |        |       |   | 317   |       |          |   | 3,814  |        |   |   | 4,131  |       
|                   
|                   
|                   
|                   
|                    | Sales and marketing                            |                               |   | 3,392            |       |                  |   | 2,833    |        |          |   | 6,225     |        |       |   | 2,860 |       |          |   | 13,020 |        |   |   | 15,880 |       
|                   
|                   
|                   
|                   
|                    | General and administrative                     |                               |   | 1,772            |       |                  |   | 5,418    |        |          |   | 7,190     |        |       |   | 1,652 |       |          |   | 3,891  |        |   |   | 5,543  |       
|                   
|                   
|                   
|                   
|                    | Amortization of goodwill and other intangibles |                               |   | 303              |       |                  |   | 2,757    |        |          |   | 3,060     |        |       |   | 271   |       |          |   | 2,713  |        |   |   | 2,984  |       
|                    |                                                |                               |   |                  |       |                  |   |          |        |          |   |           |        |       |   |       |       |          |   |        |        |   |   |       
|                    |                                                | Total operating expenses      |   |                  | 8,431 |                  |   |          | 19,601 |          |   |           | 28,032 |       |   |       | 7,408 |          |   |        | 26,063 |   |   |        | 33,471 |  
|                    |                                                |                               |   |                  |       |                  |   |          |        |          |   |           |        |       |   |       |       |          |   |        |        |   |   |       
|                    |                                                | Income (loss) from operations |   | $                | 762   |                  |   | $        | (6,093 | )        |   | $         | (5,331 | )     |   | $     | 830   |          |   | $      | (7,535 | ) |   | $      | (6,705 | )
|                    |                                                |                               |   |                  |       |                  |   |          |        |          |   |           |        |       |   |       |       |          |   |        |        |   |   |       

Three Months Ended June 30, 2001 and 2000

Overall

Total revenues were $10.6 million for the three months ended June 30,
2001, as compared to $13.9 million for the same period in 2000, a decrease of
$3.3 million, or 24%, due primarily to a decrease in licensing fees.

Loss from operations was $3.4 million for the three months ended June 30,
2001, as compared to $2.5 million for the same period in 2000, an increase of
$974,000, or 39%, mainly as a result of the software products and services
segments decreased licensing fees and increased technology development
expenses, partially offset by decreased sales and marketing costs.

Brokerage Services Segment

Revenues

Total Revenues. Total revenues were $4.1 million for the three months
ended June 30, 2001, as compared to $4.0 million for the same period in 2000,
an increase of $82,000, or 2%.

Brokerage Fees. Brokerage fees, which are comprised primarily of
commission income earned from brokerage transactions, were $3.8 million for
both the three months ended June 30, 2001 and 2000. During the current quarter,
there was an increase in the number of trades, offset by lower-margin
transactions.

Other Revenues. Other revenues, which consist primarily of interest
earned from an interest-revenue sharing arrangement with the brokerages
clearing firm, were $318,000 for the three months ended June 30, 2001, as
compared to $181,000 for the three months ended June 30, 2000, an increase of
$137,000, or 76%. The increase was due primarily to the increase of customer
balances being maintained by the clearing firm.

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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 $1.3 million
for the three months ended June 30, 2001, as compared to $1.1 million for the
same period in 2000, an increase of $261,000, or 24%, primarily as a result of
the increase in the number of trades. Clearing and other transaction costs as
a percentage of brokerage fees revenue were 35% for the three months ended June
30, 2001, as compared to 28% for the three months ended June 30, 2000. This
increase was mainly due to a lower number of average shares per trade
increasing costs disproportionately to revenues.

Technology Development. Technology development expenses for the current
year are expected to consist of personnel costs associated with product
management of the new TradeStation Platform. Such costs totaled $28,000 for
the three months ended June 30, 2001. Technology development expenses for the
three months ended June 30, 2000 were $90,000, consisting of consulting and
professional fees. 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, and data and information tools used by sales and brokerage personnel.
Sales and marketing expenses were $1.7 million for the three months ended June
30, 2001, as compared to $1.4 million for the three months ended June 30, 2000,
an increase of $256,000, or 18%. This increase was primarily due to increased
personnel and related costs, including the increase in the number of sales and
marketing employees from 49 at June 30, 2000, to 69 at June 30, 2001 (including
the transfer of twelve employees from the software products and services
segment during the first quarter of 2001), partially offset by a decrease in
brokers commissions. Sales and marketing expenses, as a percentage of total
revenues, were 41% for the three months ended June 30, 2001, as compared to 35%
for the three months ended June 30, 2000. We believe that the absolute dollar
amount of sales and marketing expenses in the future will increase as we begin
to market the TradeStation 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. We currently intend to commence our direct
marketing campaign to our existing customer base in August 2001, and to
commence a media marketing campaign in September 2001.

General and Administrative. General and administrative expenses consist
primarily of: employee-related costs for executive, finance and administrative
employees; professional fees; telecommunications; rent; and other facility
expenses. General and administrative expenses were $723,000 for the three
months ended June 30, 2001, as compared to $803,000 for the same period in
2000, a decrease of $80,000, or 10%. This decrease relates primarily to lower
personnel and related costs 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 approximately
$152,000 and $135,000 for the three months ended June 30, 2001 and 2000,
respectively.

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Software Products and Services Segment

Revenues

Total Revenues. Total revenues were $6.5 million for the three months
ended June 30, 2001, as compared to $9.8 million for the same period in 2000, a
decrease of $3.3 million, or 34%, due primarily to a decrease in licensing fees
and, to a lesser extent, other revenues, partially offset by an increase in
subscription fees.

Subscription Fees. Subscription fees represent monthly fees earned for
providing streaming real-time, Internet-based trading analysis software and
data services. Subscription fees were $2.6 million for the three months ended
June 30, 2001, as compared to $2.0 million for the three months ended June 30,
2000, an increase of $637,000, or 32%, due primarily to an increased subscriber
base related to TradeStation Pro, which was launched December 6, 2000 and, to a
lesser extent, WindowOnWallStreet.com,which was launched January 25, 2000. As
a result of our focus on increasing the revenue of 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 begin 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 that were previously deferred. Licensing fees were $1.6 million for
the three months ended June 30, 2001, as compared to $5.0 million for the same
period in 2000, a decrease of $3.4 million, or 69%, due primarily to our
discontinuation in May 2000 of active marketing of client software products.

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 annual conference that is designed to highlight
the benefits of trading strategy development. Other revenues were $2.3 million
for the three months ended June 30, 2001, as compared to $2.8 million for the
same period in 2000, a decrease of $544,000, or 19%. The decrease was due
primarily to the cancellation this year of our annual conference, as compared to
revenues associated with that conference in the second quarter of 2000, and
decreases in end-of-day data vendor royalties, partially offset by minimum
royalties under the license agreement with Telerate, Inc. increasing $500,000.
For further discussion of the Telerate license agreement, see Six Months
Ended June 30, 2001 and 2000- Software Products and Services Segment  General
and Administrative below.

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 June 30, 2001 were
$1.3 million, as compared to $1.0 million for the three months ended June 30,
2000, an increase of $279,000, or 27%. The increase is due primarily to
increased server farm infrastructure costs (rent for additional facilities and
servers) associated with the increase in the number of subscribers to
WindowOnWallStreet.comand TradeStation Pro. Data delivery and related costs
as a percentage of subscription fees revenue improved to 50% for the three
months ended June 30, 2001, as compared to 51% for the three months ended June
30, 2000.

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 $34,000 for the three months ended June 30, 2001, as compared to $334,000
for the same period in 2000. This decrease of $300,000 is due to reduced
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.

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

12



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materials. 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 consist primarily
of personnel costs, depreciation of computer and related equipment, facility
expenses, insurance, and consulting fees. Technology development expenses were
$3.4 million for the three months ended June 30, 2001, as compared to $2.0
million for the three months ended June 30, 2000, an increase of $1.4 million,
or 67%, due primarily to increased insurance reserves of $750,000, and
increased personnel and related expenses of $577,000 mainly representing an
increase in average headcount. 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 those
products and services.

Sales and Marketing. Sales and marketing expenses consist primarily of:
marketing programs, including advertising, brochures, direct mail programs and
seminars to promote subscription services and client software products to
customers; sales commissions; personnel costs for marketing and customer
support centers; and Web site maintenance and administration costs. Sales and
marketing expenses were $1.6 million for the three months ended June 30, 2001,
as compared to $5.9 million for the same period in 2000, a decrease of $4.3
million, or 73%, due primarily to decreased advertising (primarily television
and financial periodicals) of $3.0 million, decreased personnel and related
costs of $825,000 (as a result of a 52% decrease in sales and marketing
personnel from 108 at June 30, 2000 to 52 at June 30, 2001 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 $484,000. Sales and marketing expenses as a
percentage of total revenues decreased to 24% for the three months ended June
30, 2001, as compared to 60% for the three months ended June 30, 2000. Sales
and marketing expenses are expected to decrease as substantially all future
marketing efforts will be focused on the brokerage services segment.
See Brokerage Services Segment Operating Expenses
 Sales and Marketing above.

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 $2.4 million
for the three months ended June 30, 2001, as compared to $2.2 million for the
same period in 2000, an increase of $262,000, or 12%, due primarily to
increased consulting and professional fees of $344,000 and personnel and
related costs of $123,000, partially offset by decreased supplies of $114,000
and facility costs of $96,000.

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 June 30, 2001 and 2000.

Six Months Ended June 30, 2001 and 2000

Overall

Total revenues were $22.7 million for the six months ended June 30, 2001,
as compared to $26.8 million for the same period in 2000, a decrease of $4.1
million, or 15%, due 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 $5.3 million for the six months ended June 30,
2001, as compared to $6.7 million for the same period in 2000, an improvement
of $1.4 million, or 20%, primarily related to the software products and
services segment, which had a significant decrease in sales and marketing
expenses, partially offset by reduced licensing fees.

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Brokerage Services Segment

Revenues

Total Revenues. Total revenues were $9.2 million for the six months ended
June 30, 2001, as compared to $8.2 million for the same period in 2000, an
increase of $1.0 million, or 12%.

Brokerage Fees. Brokerage fees were $8.5 million for the six months ended
June 30, 2001, as compared to $8.0 million for the same period in 2000, an
increase of $531,000, or 7%, due primarily to an increase in trading volume,
partially offset by a change in product mix to more lower-margin transactions.

Other Revenues. Other revenues were $648,000 for the six months ended
June 30, 2001, as compared to $224,000 for the six months ended June 30, 2000,
an increase of $424,000, or 189%. The increase was due primarily to the
increase of customer balances being maintained by the clearing firm.

Operating Expenses

Clearing and Other Transaction Costs.Clearing and other transaction
costs were $2.9 million for the six months ended June 30, 2001, as compared to
$2.3 million for the same period in 2000, an increase of $628,000, or 27%,
primarily as a result of an increase in commissions paid to third-party
broker-dealers, and increased trading volume, including a higher number of
trades. These increases also resulted in clearing and other transaction costs
as a percentage of brokerage fees revenue increasing from 29% for the six
months ended June 30, 2000 to 34% for the six months ended June 30, 2001.

Technology Development. Technology development expenses for the current
year are expected to consist of personnel costs associated with product
management of the new TradeStation Platform, which total $28,000 for the six
months ended June 30, 2001. Technology development expenses for the six months
ended June 30, 2000 were $317,000, consisting of consulting and professional
fees. See Three Months Ended June 30, 2001 and 2000- Software Products and
Services Segment  Technology Development above.

Sales and Marketing. Sales and marketing expenses were $3.4 million for
the six months ended June 30, 2001, as compared to $2.9 million for the six
months ended June 30, 2000, an increase of $532,000, or 19%. This increase was
primarily due to increased personnel and related costs, including the increase
in the number of sales and marketing employees from 49 at June 30, 2000, to 69
at June 30, 2001 (including the transfer of twelve employees from the software
products and services segment during the first quarter of 2001), partially
offset by a decrease in brokers commissions. Sales and marketing expenses, as
a percentage of total revenues, were 37% for the six months ended June 30,
2001, as compared to 35% for the six months ended June 30, 2000. We believe
that the absolute dollar amount of sales and marketing expenses in the future
will increase as we begin to market the new TradeStation 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 $1.8
million for the six months ended June 30, 2001, as compared to $1.7 million for
the same period in 2000, an increase of $120,000, or 7%, due primarily to an
increase in consulting and professional fees of $237,000 and insurance of
$187,000, partially offset by a decrease in personnel and related costs of
$310,000 related to reduced general and administrative expenses after the
merger.

Amortization of Goodwill and Other Intangibles.Amortization of goodwill
and other intangibles was approximately $303,000 and $271,000 for the six
months ended June 30, 2001 and 2000, respectively.

14



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Software Products and Services Segment

Revenues

Total Revenues. Total revenues were $13.5 million for the six months
ended June 30, 2001, as compared to $18.5 million for the same period in 2000,
a decrease of $5.0 million, or 27%, due primarily to a decrease in licensing
fees, partially offset by an increase in subscription fees.

Subscription Fees. Subscription fees were $5.4 million for the six months
ended June 30, 2001, as compared to $2.9 million for the six months ended June
30, 2000, an increase of $2.5 million, or 85%, due primarily to an increased
subscriber base related to WindowOnWallStreet.com,which was launched January
25, 2000, and TradeStation Pro, which was launched December 6, 2000. As a
result of our focus on increasing the revenue of 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 begin to
decrease quarter over quarter.

Licensing Fees. Licensing fees were $3.5 million for the six months ended
June 30, 2001, as compared to $10.8 million for the same period in 2000, a
decrease of $7.3 million, or 68%, 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 increasing the revenues of the brokerage
business, it is expected that licensing fees will continue to decrease quarter
over quarter.

Other Revenues. Other revenues were $4.6 million for the six months ended
June 30, 2001, as compared to $4.8 million for the same period in 2000, a
decrease of $177,000, or 4%. The decrease was due primarily to our annual
conference that highlights the benefits of trading strategy development not
being held this year as compared to revenues associated with that conference in
the second quarter of 2000 and decreases in end-of-day data vendor royalties,
partially offset by minimum royalties under the license agreement with Telerate.

Operating Expenses

Data Delivery and Related Costs. Data delivery and related costs for the
six months ended June 30, 2001 were $2.7 million, as compared to $1.6 million
for the six months ended June 30, 2000, an increase of $1.1
million, or 70%. The
increase is due primarily to increased data re-vending and exchange fees as
well as increased server farm infrastructure costs (rent for additional
facilities and servers) associated with the increase in the number of
subscribers to WindowOnWallStreet.comand TradeStation Pro. Data delivery and
related costs as a percentage of subscription fees revenue improved to 50% for
the six months ended June 30, 2001, as compared to 54% for the six months ended
June 30, 2000. The percentage was higher during the six months ended June 30,
2000 as a result of fixed costs related to the server farm during the first
quarter 2000 launch of WindowOnWallStreet.comand our being in the early stages
of the subscription service offerings.

Inventory and Handling Costs. Inventory and handling costs were $116,000
for the six months ended June 30, 2001, as compared to $1.1 million for the
same period in 2000. This decrease of $938,000 is due to reduced 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.

Technology Development. Technology development expenses were $5.8 million
for the six months ended June 30, 2001, as compared to $3.8 million for the six
months ended June 30, 2000, an increase of $2.0 million, or 52%, due primarily
to increased personnel and related expenses of $1.1 million, mainly
representing an increase in average headcount, and increased insurance reserves
of $750,000. 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 those products and services.

15



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Sales and Marketing. Sales and marketing expenses were $2.8 million for
the six months ended June 30, 2001, as compared to $13.0 million for the same
period in 2000, a decrease of $10.2 million, or 78%, due primarily to decreased
advertising (primarily television and financial periodicals) and promotion
costs of $6.6 million, decreased personnel and related costs of $2.5 million
(as a result of a 52% decrease in sales and marketing personnel from 108 at
June 30, 2000 to 52 at June 30, 2001 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
$762,000. Sales and marketing expenses as a percentage of total revenues
decreased to 21% for the six months ended June 30, 2001, as compared to 70% for
the six months ended June 30, 2000.

General and Administrative. General and administrative expenses were $5.4
million for the six months ended June 30, 2001, as compared to $3.9 million for
the same period in 2000, an increase of $1.5 million, or 39%, due primarily to
a $714,000 provision for bad debt recognized in the first quarter of 2001,
increased personnel and related costs of $534,000 and increased consulting and
professional fees of $444,000. The provision for bad debt relates to the
portion of the 2001 Telerate royalty receivable that is being treated by
Telerate as part of the pre-petition estate in Telerates Chapter 11
bankruptcy, which was filed in February 2001. All post-petition accounts
receivable have been paid when due, and, although no assurance can be given, we
have no reason to believe that future payments to us will not continue to be
made or that the agreement will not be assumed in the plan of reorganization.

Amortization of Goodwill and Other Intangibles.Amortization of goodwill
and other intangibles was $2.8 million and $2.7 million for the six months
ended June 30, 2001 and 2000, respectively.

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 six months ended June 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 six months ended June
30, 2000, TradeStation Securities recorded a provision for income taxes of
approximately $303,000 and $579,000, respectively.

For the three and six months ended June 30, 2001, taxes totaling
approximately $5,000 and $17,000, respectively, were provided for certain state
and local income taxes where our net operating loss carryforwards could not be
utilized. A valuation allowance was recorded to offset the tax benefit of all
other net operating losses generated during such periods.

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 that we
remain engaged in a transition to a 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 due to that transition to the new
business model. Such fluctuations may result in volatility in the price of our
common stock. As forecasted in our 2001 Business Outlook (as revised on July
25, 2001), expenses are based upon expected revenues, if actual revenues on a
quarterly basis are below managements expectations, then results of operations
are likely to be adversely affected because, in the short term, a large amount
of our expenses does 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 the new TradeStation Platform,
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, and other factors. Such fluctuations may result in
volatility in the price of our common stock.

16



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Liquidity and Capital Resources

As of June 30, 2001, we had cash and cash equivalents of $19.4 million and
securities owned, primarily certificates of deposit, of $1.6 million.

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

Cash provided by operating activities during the six months ended June 30,
2001 totaled $2.8 million, compared to approximately $982,000 in the comparable
period of 2000. The increase in net cash provided by operating activities in
2001 was primarily due to the receipt of income tax receivables of $8.5 million
in April 2001, partially offset by increases in receivables and a decrease in
accounts payable. See Note 4 of Notes to Consolidated Financial Statements.

Investing activities used cash of $1.9 million and $2.9 million during the
six months ended June 30, 2001 and 2000, respectively. The principal use of
cash in investing activities for both periods was primarily for purchases of
securities, net of maturities, and, to a lesser extent, capital expenditures
related to the acquisition of computer and related equipment and software
required to support expansion of our operations.

Financing activities provided cash of approximately $26,000 and $283,000
during the six months ended June 30, 2001, and 2000, respectively, primarily
from the issuance of common stock from the exercise of stock options under our
Incentive Stock Plan, net of repayment of capital lease obligations.

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 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. SFAS No. 141 is effective July 1,
2001. The adoption of SFAS No. 141 will 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 by December 31, 2001.

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

17



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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, Telerates rejection of its agreement with
TradeStation Technologies or refusal or inability to pay future royalty
payments, the ability to collect the large insurance claim receivable, and the
other 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,
particularly our July 25, 2001 press release.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

18



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PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On January 11, 2000, Robert A. Whigham, Jr. and Patricia F. Whigham filed
a civil action against TradeStation Securities (then named onlinetradinginc.com
corp.), Barry Goodman, Jan Bevivino, William L. Mark and Bear, Stearns
Securities Corp. Following a successful motion by the defendants to compel
arbitration, the defendants received notification from NASD Dispute Resolution,
Inc. that the Whighams had filed a statement of claim and initiated arbitration
against all parties named in the former civil action. The Whighams alleged
that, during the period from January 1999 through August 1999, their accounts
were serviced by an unregistered person, Barry Goodman, in violation of
Massachusetts General Laws c.110A and that TradeStation Securities aided and
abetted Mr. Goodman in violation of c.110A. The Whighams also made allegations
of excessive trading, excessive commissions, negligent supervision and fraud in
violation of 18 U.S.C. ss 1962. The Whighams alleged damages of $561,000 plus
interest, costs, fees and treble damages. On May 8, 2001, the Whighams agreed
to accept, and TradeStation Securities agreed to pay, $150,000 to settle all of
the Whighams claims against TradeStation Securities, Jan Bevivino, William L.
Mark and Bear, Stearns Securities Corp. The settlement has been completed and
the parties have exchanged general releases.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(c) Sales of Unregistered Securities

During the three months ended June 30, 2001, we issued to one employee
options to purchase 2,500 shares of common stock. Such options vest ratably in
annual increments over a five-year period and are exercisable at a price of
$2.70 per share, which was the fair market value of our common stock on the
date on which the options were granted. 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.

During the three months ended June 30, 2001, we also issued to two
non-employee directors options to purchase an aggregate of 32,000 shares of
common stock. Such options vest ratably in annual increments over a three-year
period and are exercisable at a price of $4.08 per share, which was the fair
market value of our common stock on the date on which the options were granted.
All of the options were granted under our Nonemployee Director Stock Option
Plan, and expire, if they remain unexercised, on the fifth 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 June 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 June 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.

19



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

(a) Meeting

On June 18, 2001, TradeStation Group held its 2001 Annual Meeting of
Shareholders (the Annual Meeting).

(b) Election of Board of Directors

At the Annual Meeting, an election was held for the Board of Directors of
TradeStation Group. All eight nominees to the Board of Directors were elected
(seven of whom were re-elected, with Charles F. Wright becoming a new director
of the company), receiving the number and percentage of votes for election and
abstentions as set forth next to the their respective names below:

|                     |  |              |            |             |  |        |      |            |  |  |         |  |  |  |     |  
|-------------------- |  | ------------ | ---------- | ----------- |  | ------ | ---- | ---------- |  |  | ------- |  |  |  | --- | -
|                     |  | For Election |            | Abstentions
|                     |  |              |            |            
|Nominee for Director |  | Number       |            | Percentage  |  | Number |      | Percentage
|                     |  |              |            |             |  |        |      |           
|William R. Cruz      |  |              | 41,580,715 |             |  |        | 98.4 | %          |  |  | 677,588 |  |  |  | 1.6 | %
|                    
|                    
|                    
|                    
|Ralph L. Cruz        |  |              | 41,580,715 |             |  |        | 98.4 | %          |  |  | 677,588 |  |  |  | 1.6 | %
|                    
|                    
|                    
|                    
|Lothar Mayer         |  |              | 41,580,715 |             |  |        | 98.4 | %          |  |  | 677,588 |  |  |  | 1.6 | %
|                    
|                    
|                    
|                    
|Stephen C. Richards  |  |              | 41,580,715 |             |  |        | 98.4 | %          |  |  | 677,588 |  |  |  | 1.6 | %
|                    
|                    
|                    
|                    
|Salomon Sredni       |  |              | 41,580,715 |             |  |        | 98.4 | %          |  |  | 677,588 |  |  |  | 1.6 | %
|                    
|                    
|                    
|                    
|Farshid Tafazzoli    |  |              | 41,580,715 |             |  |        | 98.4 | %          |  |  | 677,588 |  |  |  | 1.6 | %
|                    
|                    
|                    
|                    
|E. Steven zum Tobel  |  |              | 41,580,715 |             |  |        | 98.4 | %          |  |  | 677,588 |  |  |  | 1.6 | %
|                    
|                    
|                    
|                    
|Charles F. Wright    |  |              | 41,580,715 |             |  |        | 98.4 | %          |  |  | 677,588 |  |  |  | 1.6 | %

During July 2001, Lothar Mayer, E. Steven zum Tobel and Farshid Tafazzoli
resigned as directors.

(c) Other Voting Matters

Other matters voted upon at the Annual Meeting were the following:



| | (i) |  | A proposal to approve an increase in the number of shares of
TradeStation Groups common stock reserved for issuance under
the Nonemployee Director Stock Option Plan from 175,000 shares
to 350,000 shares, subject to any further antidilution
adjustments, and to increase the number of shares included in
the options automatically granted to a nonemployee director upon
each annual reelection from 3,000 shares to 7,000 shares was
approved, receiving the votes of the holders of the number of
shares of common stock voted in person or by proxy at the Annual
Meeting and the percentage of total votes cast as indicated
below:
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|           |  |         |         |            |  |  |        | 
|---------- |  | ------- | ------- | ---------- |  |  | ------ | 
|For        |  | Against |         | Abstention
|           |  |         |         |           
|41,398,954 |  |         | 831,206 |            |  |  | 28,143 | 
|          
|          
|          
|          
|97.9%      |  |         | 2.0%    |            |  |  | 0.1%   | 



| | (ii) |  | A proposal to ratify the selection of Arthur Andersen LLP as
independent public accountants for TradeStation Group for the
fiscal year ending December 31, 2001 was approved, receiving
the votes of the holders of the number of shares of common stock
voted in person or by proxy at the Annual Meeting and the
percentage of total votes cast as indicated below:
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|    |            |         |  |            |  |  |  |        | 
|--- | ---------- | ------- |  | ---------- |  |  |  | ------ | 
|For |            | Against |  | Abstention
|    |            |         |  |           
|    | 42,215,228 |         |  | 14,581     |  |  |  | 28,494 | 
|   
|   
|   
|   
|    | 99.9%      |         |  | 0.0%       |  |  |  | 0.1%   | 

20



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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 June 30,
2001.

21



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SIGNATURE

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

|                |  |                                                                                                                                                                                                                     
|--------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                |  | TradeStation Group, Inc.
Registrant                                                                                                                                                                                 
|               
|August 10, 2001 |  | /s/ David H. Fleischman                                                                                                                                                                                             
|                |  |                                                                                                                                                                                                                     
|Date            |  | David H. Fleischman
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)

22