**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-K**




(Mark
      One)




x
            **ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**




For
      the
      Fiscal Year Ended March
      31, 2008




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




For
      the
      transition period from __________________ to __________________




Commission
      file number: 0-9587




**HUDSON
      HOLDING CORPORATION**


(Exact
      name of registrant as specified in its charter)





Delaware
            
            20-3766053(State
                or Other Jurisdiction of Incorporation or Organization)
            
            (I.R.S.
                Employer Identification No.)111
                Town Square Place; Suite 1500A
              Jersey
                City, New Jersey
            
            07310(Address
                of Principal Executive Offices)
            
            (Zip
                Code)





Registrant’s
                telephone number, including area code: (201)
                216-0100




Securities
      registered pursuant to Section 12(b) of the Act: None




Securities
      registered pursuant to Section 12 (g) of the Act: Common Stock, par value $0.001
      per share




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o No x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes o No x




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




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      definitions of "large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large
      accelerated filer o Accelerated filer o




Non-accelerated
      filer o (Do not
      check if a smaller reporting company)     Smaller reporting company x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act):  Yes o No x




The
      aggregate market value of the voting common equity held by non-affiliates of
      the
      registrant was approximately $5,432,902 as of June 20, 2008, based upon the
      closing price on the OTC Bulletin Board reported for such date. Shares of common
      stock held by each officer and director and by each person who owns 10% or
      more
      of the outstanding Common Stock have been excluded in that such persons may
      be
      deemed to be affiliates. This determination of affiliate status is not
      necessarily a conclusive determination for other purposes.




As
      of
      June 20, 2008, the Registrant had 45,125,185 outstanding shares of its Common
      Stock, $0.001 par value.







**HUDSON
      HOLDING CORPORATION**


**FORM
      10-K**





**TABLE
      OF CONTENTS**





**PART
                I**FORWARD-LOOKING
                STATEMENTS
            1ITEM
                1.
            DESCRIPTION
                OF BUSINESS
            1ITEM
                2.
            DESCRIPTION
                OF PROPERTY
            11ITEM
                3.
            LEGAL
                PROCEEDINGS
            12ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            12**PART
                II**ITEM
                5.
            MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERSAND
                ISSUER PURCHASES OF EQUITY SECURITIES
            13ITEM
                6.
            SELECTED
                FINANCIAL DATA
            14ITEM
                7
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND
                RESULTS OF OPERATIONS
            14ITEM
                8.
            FINANCIAL
                STATEMENTS AND SUPPLEMENTARY DATA
            18ITEM
                9.
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING
                AND FINANCIAL DISCLOSURE
            19ITEM
                9A(T).
            CONTROLS
                AND PROCEDURES
            19ITEM
                9B.
            OTHER
                INFORMATION
            19**PART
                III**ITEM
                10.
            DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE;COMPLIANCE
                WITH SECTION 16(A) OF THE EXCHANGE ACT
            20ITEM
                11.
            EXECUTIVE
                COMPENSATION
            22ITEM
                12.
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT
                AND RELATED STOCKHOLDER MATTERS
            24ITEM
                13.
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS,AND
                DIRECTOR INDEPENDENCE
            26ITEM
                14.
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            26ITEM
                15.
            EXHIBITS,
                FINANCIAL STATEMENT SCHEDULES
            27SIGNATURES
            29FINANCIAL
                STATEMENTS
            30










**PART
      I**




**INTRODUCTORY
      NOTE**




**FORWARD-LOOKING
      STATEMENTS**




Information
      included or incorporated by reference in this Annual Report may contain
      forward-looking statements. This information may involve known and unknown
      risks, uncertainties and other factors which may cause our actual results,
      performance or achievements to be materially different from the future results,
      performance or achievements expressed or implied by any forward-looking
      statements. Forward-looking statements, which involve assumptions and describe
      our future plans, strategies and expectations, are generally identifiable by
      use
      of the words "may," "should," "expect," "anticipate," "estimate," "believe,"
      "intend" or "project" or the negative of these words or other variations on
      these words or comparable terminology.




This
      Form
      10-K Annual Report contains forward-looking statements, including statements
      regarding, among other things, (a) our projected revenues and profitability,
      (b)
      our growth strategies, (c) anticipated trends in our industry, (d) our future
      financing plans and (e) our anticipated needs for working capital. These
      statements may be found under "Management's Discussion and Analysis or Plan
      of
      Operation" and "Description of Business," as well as in other sections of this
      Annual Report generally. Actual events or results may differ materially from
      those discussed in forward-looking statements as a result of various factors,
      including, without limitation, the risks outlined under "Risk Factors" and
      matters described in this Annual Report generally. In light of these risks
      and
      uncertainties, there can be no assurance that the forward-looking statements
      contained in this Annual Report will in fact occur.




**Item
      1. Description of Business**





**Our
      Business**





**General**





Hudson
      Holding Corporation (“Holding”) is a holding company and is the parent of its
      wholly owned subsidiaries, namely Hudson Securities, Inc. (“Hudson”) and Hudson
      Technologies, Inc. (“Technologies”), (collectively the “Company”). Hudson is a
      registered broker-dealer under the Securities Exchange Act of 1934 and is a
      member of the Financial Industry Regulatory Authority ("FINRA"). The Company
      has
      offices in New Jersey and Florida. Technologies was formed for the purpose
      of
      providing software development and technology services for Hudson and for third
      parties.





On
      June 30, 2004, Hudson’s current management team consummated the purchase of
      all of the outstanding shares of the predecessor broker-dealer’s common stock.
      Subsequently, on July 21, 2004, the predecessor broker-dealer formed a
      wholly owned subsidiary named Hudson Capital Markets, Inc. ("HCMI"), which
      was
      organized in the state of Delaware. On July 31, 2004, the predecessor
      broker-dealer was merged into HCMI, with HCMI becoming the survivor ("HCMI
      Merger") and the name was changed to Hudson Securities, Inc.





In
      December 2004, Hudson entered into an Agreement and Plan of Merger (the
      "Agreement") with Health Outcomes Management, Inc. ("HOM"), a non-operating
      public company. On May 3, 2005, under the terms of the Agreement, Hudson's
      stockholders exchanged all of their shares of common stock and warrants for
      shares of HOM common stock (the "Exchange"). The HOM shares that were issued
      to
      Hudson stockholders in the merger represented 94% of HOM's outstanding interest
      at the time of this exchange. In connection with the legal form of this
      transaction, Hudson became a wholly owned subsidiary of HOM. On September 6,
      2005, HOM changed its name to Hudson Holding Corporation and effectuated a
      one
      for eight reverse stock split for all stockholders of record as of the close
      of
      business on June 13, 2005. For financial reporting purposes, the Exchange
      represents a capital transaction of Hudson or a "reverse merger" rather than
      a
      business combination.





**Operations**




Hudson
      is
      a member of FINRA and is insured by the Securities Investor Protection
      Corporation. Hudson is a market maker trading more than 9,000 NASDAQ, non-NASDAQ
      OTC, listed and foreign securities, and specializes in providing liquidity
      in
      mid cap, small cap and micro cap stocks. Hudson has been in business since
      1984.





As
      a
      market maker, Hudson provides its customers with order executions. When
      customers come to Hudson seeking to buy or sell securities, the firm works
      to
      satisfy the customers’ needs, either by finding counterparties willing to trade
      with the customers (obtaining liquidity) or, where appropriate, by taking the
      other side of the trades, thereby providing liquidity for its customers by
      purchasing or selling the securities itself. In a sense, liquidity is the
      product that Hudson sells to its customers.





Hudson’s
      customers are firms that require liquidity to complete stock trades, funds
      whose
      investment decisions call for shifts into or out of certain stocks, retail
      customers, professional traders who want to establish or liquidate their
      positions, and other retail brokerage firms whose individual investor clients
      wish to buy or sell securities. By trading with Hudson, its customers are able
      to obtain liquidity.




1


Providing
      trade executions generates two types of revenue for Hudson, commissions and
      fee
      revenue and trading revenue.





Commissions
      and fee revenue comes from the fees that Hudson charges its customers for
      executing their orders, generally a fixed price per share traded. Revenue may
      vary with the number and size of Hudson’s customers and with their level of
      trading activity. Commissions and fee revenue is free of market risk for Hudson
      since Hudson either transacts as an agent or on a riskless principal
      basis.





Trading
      revenue is derived from the profit and loss associated with purchases and sales
      of securities for Hudson’s trading account, for securities in which Hudson makes
      markets. In doing so, the firm itself is at risk to changes in stock prices.
      Trading profits are obtained by paying less to buy shares for its own account
      than the firm receives for selling those shares. Because the price for which
      the
      firm is willing to purchase shares (its “bid” price) is always less than the
      price at which it would then sell those shares (its “ask” price), trading with a
      customer presents a market maker with an opportunity to capture the difference
      between these prices (the “bid-ask spread”) provided it can find a contra-party
      with whom to trade in the same security before the stock price moves against
      the
      trader. Finding a counterparty to take the other side of a trade can be
      challenging, and failure to find a counterparty at the right price or time
      can
      lead to a loss.





**Competitive
      Advantages**





Hudson
      believes that it differentiates itself by the stocks it trades and by the
      customers it serves. While many of the firm’s competitors emphasize NASDAQ
      National Market stocks, Hudson focuses on providing liquidity in
      difficult-to-trade stocks, including shares quoted on the OTC Bulletin Board
      and
      Pink Sheets and second tier and Small-Cap NASDAQ stocks. Hudson’s strategy is to
      maintain and grow existing relationships with retail firms while seeking to
      attract new customers from among other retailers that the firm’s competitors
      neglect as well as targeted institutions.





**Technology**





Hudson
      maintains a multi-tier connectivity network to receive customers’ orders, to
      monitor the markets, and to communicate with trading partners. Hudson’s traders
      have the ability to trade all U.S. equities, using Sungard’s BRASS order
      management system to process incoming orders and its UMA market access system
      and the NASDAQ Level III system to enter orders. These systems interface with
      Goldman Sachs Execution & Clearing, L.P. (Hudson’s clearing broker) to
      ensure trades are processed. The firm’s Jersey City, Tinton Falls and Boca Raton
      offices are in constant communication and can serve as back-up for one another
      in case of system failures.





Hudson
      has migrated to Sungard’s “dedicated complex” on which Hudson can run its BRASS
      servers. The facility is capable of executing trades at peak rates of
      approximately triple the previous average rate. Its complete implementation
      has
      allowed Sungard to be more responsive to Hudson’s needs, provided the ability to
      make changes to the system during trading hours, and facilitated the addition
      of
      a dedicated FIX-protocol communications server, which simplified the setup
      of
      new customer connections.





Technologies
      is the hardware and software technology division of the Company. Technologies
      creates and develops software to enhance the trading environment of Hudson
      and
      to meet customers’ needs for customized services. To date, Technologies has
      created applications that advance the base functionality of BRASS, a Sungard
      Order Management System. The profit and loss system developed by Technologies
      is
      a tool for equities sales traders of Hudson which on a nightly basis calculates
      what they have earned based on their customer order flow. The system also
      creates a management report, as well as several other customer reports to
      enhance the value of Hudson to its clients. To the extent that these programs
      may be useful for other brokerage firms, Technologies may sell or license these
      programs to others.





Technologies,
      through its value added vendor relationships, has created several modules using
      the BRASS OAPI, (an open application programming interface which allows Hudson
      to write code to the application) which will be able to provide added
      functionality for the traders of Hudson. Technologies also operates a carrier
      neutral co-location data center where customers can rent cabinets, paying
      Technologies a monthly fee. Technologies also generates revenues by providing
      co-location customers with remote hands support.





**Future
      Products and Services**





Hudson
      is
      actively seeking to expand into complementary businesses, both by developing
      new
      product/service offerings that will be valuable to the firm’s existing customers
      and by entering into strategic partnerships with related businesses that can
      increase its number of new customers. There can be no assurance that we will
      meet our goal. Strategic partnership candidates include boutique investment
      banking and money management firms. It may be necessary to acquire new
      businesses or hire experienced personnel to effectuate expansion plans in these
      areas. Recently Hudson hired a capital placement team which specializes in
      raising funds for hedge funds, venture funds and private equity
      funds.





**The
      Market**





Hudson
      focuses on attracting orders from retail brokerage firms and buy-side
      institutions, such as mutual funds, hedge funds and trusts. Hudson’s business
      has a tendency to be strongest during the first calendar quarter of the year
      and
      weakest during the summer months.




2


Market
      makers’ main customers are retail brokers and institutions that require order
      executions for varieties of stocks, from widely traded issues, like those of
      S&P 500 and NASDAQ 100 companies, to less liquid securities such as NASDAQ
      Small-Cap, Bulletin Board, and Pink Sheet stocks.





While
      offering liquidity across a broad range of stocks to both institutional and
      retail brokerage customers, Hudson intends to focus its resources on increasing
      the firm’s market share as a liquidity provider to retail brokerage firms and
      institutions, plus on specializing in less liquid issues.





Management
      believes that retail order-entry firms are being neglected in the increasing
      competition among market makers for institutional customers, offering the firm
      an opportunity to increase its presence in that segment. Meanwhile, particularly
      as large competitors decrease their commitment to the market making business
      in
      light of recent “lean years,” lucrative retail brokerage customers may be
      interested in investigating alternative relationships, presenting Hudson with
      an
      opportunity to attract such customers. By establishing a large pool of retail
      orders, management believes that the firm will ultimately be better positioned
      to attract buy-side institutional firms in search of liquidity.





By
      focusing on less liquid stocks, the firm avoids some of the fiercest competition
      among market makers and other liquidity providers such as Electronic
      Crossing/Communication Networks (ECN’s). At the same time, Hudson provides a
      less available service, finding a firm willing to fill an order for little-known
      pink sheet stocks. However, trading less liquid issues exposes firms to greater
      price volatility and thus greater risk. There is less investor interest in
      trading such securities, but the wider spreads have greater profit potential.
      Hudson trades many of the most active NASDAQ National Market stocks, and by
      focusing on smaller issues management hopes to appeal to retail brokers in
      need
      of liquidity while maximizing the firm’s profit potential.




**Industry
      Analysis**





Historically,
      a handful of market makers have accounted for most of the shares traded on
      the
      NASDAQ, OTC Bulletin Board and Pink Sheets. Retail brokers and institutions
      prefer to have relationships with (and communication links to) more than one
      market-maker. This engenders competition among market makers, inducing them
      to
      offer fast executions, favorable prices, payment for order flow, liquidity,
      research, convenience, and trustworthiness.





**Industry
      Participants**





Over
      the
      last several years there has been a rapid consolidation in the market making
      industry, as global financial corporations that entered the business near the
      height of the market in the late 1990’s subsequently scaled back, as the market
      (and trading volumes and profits) retreated. While 200+ “market makers” are
      currently registered to trade bulletin board stocks*, we believe that many
      choose to register as market makers for technical reasons, and only a handful
      of
      these firms (including Hudson) actively compete to fill orders from retail
      brokers’ customers. Historically, two of the largest market makers, Knight
      Equity Markets and UBS Securities, dominate the market, accounting for a
      majority of NASDAQ, OTC Bulletin Board and Pink Sheet volume.





*according
      to http://www.otcbb.com/dynamic/tradingdata/MarketMakersPositions/MMakersdata.htm




**Competition**





Market
      making can be viewed by some as a commodity business, with participants all
      offering prompt executions of customer orders. But in an industry where everyone
      sells (or buys) identical shares of stock, there are criteria whereby market
      makers manage to distinguish themselves from their competition. Factors on
      which
      market makers compete include execution quality (speed and price), payment
      for
      orderflow, securities traded and available liquidity, research, service, ease
      of
      use and relationships.





Many
      of
      our competitors have greater financial, technical and personnel resources than
      Hudson. We compete with over 200 market makers, and specifically with Knight
      Trading Group and UBS Securities, two of the largest market makers. Our ability
      to continue to compete with other market makers will depend on our financial
      resources, trading ability, and our ability to provide other complementary
      services to our clients.





To
      help
      attract new customers, the firm is striving to increase the list of securities
      available for trading. Since the beginning of 2003, Hudson began making markets
      in additional NASDAQ stocks. In addition, the firm now trades securities which
      are listed on certain US and foreign exchanges. Management is committed to
      expanding the list even more going forward, particularly with the future
      expanded deployment of the firm’s automated trading system.




3


**Future
      Growth**





In
      addition to growing its market making business, the firm also intends to enter
      other (related) business lines, as discussed below. Management believes that
      entering other related businesses will help reduce earnings fluctuations. In
      addition, management hopes that the introduction of related business lines
      will
      help the firm to attract new customers to its market making business. The firm
      intends to pursue both organic growth and acquisitions to meet this goal,
      although there can be no assurance that management will meet these
      goals.




**Government
      Regulation**




The
      securities industry in the United States is subject to extensive regulation
      under both federal and state laws. Hudson is registered as a broker-dealer
      with
      the U.S. Securities and Exchange Commission (“SEC”) and certain state securities
      divisions. Much of the regulation of broker-dealers has been delegated to
      self-regulated organizations, principally FINRA, Nasdaq and national securities
      exchanges. These self-regulatory organizations adopt rules (subject to approval
      by the SEC) that govern the industry and conduct regular and periodic
      examinations of our operations. Securities firms are also subject to regulation
      by state securities administrators in those states in which they conduct
      business. The Company is also subject to oversight by the U.S. Department of
      Labor in connection with our benefit plans.





Significant
      legislation, rule-making and market structure changes have occurred over the
      last few years that have had an impact on the Company. First, decimalization
      was
      introduced in January 2001 in NYSE and AMEX listed securities, and in Nasdaq
      markets in April 2001. Decimalization, combined with the one-penny minimum
      price
      increment, has had a dramatic reduction in average spreads, which in turn has
      had a profound effect on our profitability. Second, in 2002 Nasdaq launched
      SuperMontage, a Nasdaq routing and execution system. SuperMontage transformed
      Nasdaq from a quote-driven market to a full-order-driven market as quotes and
      orders are treated the same. Under SuperMontage, market makers and ECNs are
      able
      to show trading interest at five different price levels, allowing investors
      to
      see individual and aggregated interest across all market participants at the
      National Best Bid or Offer (“NBBO”) and four additional layers above or below
      the NBBO. Third, the introduction of SuperMontage, which is not used by all
      market participants, and the increase in trading of Nasdaq-listed securities
      by
      other exchanges has created market fragmentation. This lack of linkage between
      market centers has resulted in an increase in locked and crossed markets,
      fragmented liquidity pools and different market centers using different sets
      of
      regulatory rules and regulations. Fourth, the U.S. Patriot Act of 2001, enacted
      in response to the terrorist attacks on September 11, 2001, contains anti-money
      laundering and financial transparency laws and mandates the implementation
      of
      various new regulations applicable to broker-dealers and other financial
      services companies, including standards for verifying client identification
      at
      account opening, and obligations to monitor client transactions and report
      suspicious activities. The increased obligations of financial institutions
      to
      identify their customers, watch for and report suspicious transactions, respond
      to requests for information by regulatory authorities and law enforcement
      agencies, and to share information with other financial institutions, requires
      the implementation and maintenance of internal practices, procedures and
      controls which will increase our costs and may subject us to regulatory
      inquiries, claims or penalties. Lastly, the Sarbanes-Oxley Act of 2002 has
      led
      to sweeping changes in corporate governance. This far reaching legislation
      has
      significantly affected public companies by enacting provisions covering
      corporate governance, board of directors and audit committee structure,
      management and control structure, new disclosure requirements, oversight of
      the
      accounting profession and auditor independence. The SEC also responded by,
      among
      other things, requiring chief executive officers and chief financial officers
      of
      public companies to certify the accuracy of certain financial reports and
      certain other SEC filings.





The
      regulatory environment in which we operate is subject to constant change. Our
      business, financial condition and operating results may be adversely affected
      as
      a result of new or revised legislation or regulations imposed by the U.S.
      Congress, the SEC, other U.S. and state governmental regulatory authorities,
      or
      FINRA. Our business, financial condition and operating results also may be
      adversely affected by changes in the interpretation or enforcement of existing
      laws and rules by these governmental authorities. Currently, new regulations
      are
      being discussed related to the over the counter market place which, if adopted,
      could have negative implications for the profitability of making markets in
      OTC
      Bulletin Board and Pink Sheet securities.





Additional
      regulation, changes in existing laws and rules, or changes in interpretations
      or
      enforcement of existing laws and rules often directly affect the method of
      operation and profitability of regulated broker-dealers.





**FINRA
      and Net Capital Requirements**





Regulatory
      bodies, including FINRA, are charged with safeguarding the integrity of the
      securities industry and with protecting the interests of investors participating
      in those markets. Broker-dealers are subject to regulations covering all aspects
      of the securities business, including sales methods, trade practices among
      broker-dealers, use and safekeeping of clients’ funds and securities, capital
      structure, record keeping and the conduct of directors, officers and
      employees.





The
      SEC,
      FINRA and various other regulatory agencies have rigid rules, including the
      maintenance of specific levels of net capital by securities brokers and dealers
      pursuant to the SEC’s Uniform Net Capital Rule 15c3-1 with which the Company
      must comply. As of March 31, 2008, the Company had total net capital of
      $4,870,737, which is $3,870,737 in excess of the Company’s minimum net capital
      requirement of $1,000,000.




4


Additionally,
      the Company is subject to periodic, routine finance and operations reviews
      by
      SEC and FINRA staff, plus state securities divisions. It should be noted that
      the Company has a disciplinary record with FINRA and fines have been levied
      against the Company for violations that occurred during the tenure of the prior
      management. Given FINRA’s policy of progressive disciplinary actions, this prior
      record could adversely impact the Company if we are cited for additional
      violations. A regulatory investigation is currently underway. On May 5, 2008,
      Hudson received a letter from FINRA alleging a failure to supervise and
      implement written supervisory procedures related to trading and market making
      and anti-money laundering rules. There is no indication of what amount of fines
      or sanctions FINRA may demand in connection with these allegations. On June
      16,
      2008, Hudson submitted a response to FINRA. Hudson intends to contest this
      matter vigorously. Although there can be no assurances that such matters will
      not have a material adverse effect on the results of operations or financial
      condition of the Company in any future period, depending in part on the results
      for such period, in the opinion of the Company’s management, the ultimate
      resolution of the regulatory investigation will have no material adverse effect
      on the Company's financial condition.





**Employees**





As
      of
      June 20, 2008, we employed 95 permanent individuals, of which 91 are full-time
      employees.  Of the 95 employees, 7 are in management; 24 are in
      trading; 37 are in sales; 2 are in compliance; 2 are product specialists; 7
      are
      in technology and 16 are in administration.  We believe our relations with
      our employees are good.  None of our employees are represented by a union
      or any collective bargaining agreements.




**Corporate
      Information**





Our
      principal offices are located at 111 Pavonia Avenue, Suite 1500A, Jersey City,
      New Jersey 07310 and our telephone number is (201) 216-0100. Our corporate
      website is http://www.hudsonholdingcorp.com . The
      information on our website is not incorporated by reference to this annual
      report. We file reports and other information with the SEC. The SEC maintains
      an
      internet site that contains reports, proxy, information statements and other
      information at http://www.sec.gov .





**Risk
      Factors**





An
      investment in our securities is extremely risky. You should carefully consider
      the following risks, in addition to the other information presented in this
      annual report before deciding to purchase or to sell our securities. If any
      of
      the following risks actually materialize, our business and prospects could
      be
      seriously harmed, the price and value of our securities could decline and you
      could lose all or part of your investment. ****





**Risks
      Related to Our Business**





*Stock
      market volatility and other securities industry risks could adversely affect
      our
      business.*





Substantially
      all of our revenues are derived from securities market activities. As a result,
      we are directly affected by economic and political conditions, broad trends
      in
      business and finance and changes in volume and price levels of securities
      transactions. In recent years, the U.S. securities markets have been very
      volatile, which has reduced trading volume and net revenues. The tightening
      of
      credit, the terrorist attacks in the United States on September 11, 2001, the
      invasion of lraq in 2003 and other events have also resulted in substantial
      market volatility and accompanying reductions in trading volume and net
      revenues. In addition, any general economic downturn would adversely affect
      trading volumes and net revenues. Severe market fluctuations or weak economic
      conditions could reduce our trading volume and net revenues and adversely affect
      our profitability.





*We
      are subject to market exposure and could be adversely affected by a decrease
      in
      the price of securities which we hold in our trading accounts.*





We
      conduct our market-making activities predominantly as principal, which subjects
      our capital to significant risks. These activities involve the purchase, sale
      or
      short sale of securities for our own account and, accordingly, involve risks
      of
      price fluctuations and illiquidity, or rapid changes in the liquidity of markets
      that may limit or restrict our ability to either resell securities we purchase
      or to repurchase securities we sell in such transactions. From time to time,
      we
      may have large position concentrations in securities of a single issuer or
      issuers engaged in a specific industry, which might result in higher trading
      losses than would occur if our positions and activities were less concentrated.
      Further, we trade on margin, which permits us to borrow funds from our clearing
      broker in order to take positions for our own account that exceed the available
      funds that we have deposited with our clearing broker, which might result in
      higher trading losses than would occur if our positions and activities were
      restricted to our funds on deposit. The success of our market-making activities
      primarily depends upon our ability to attract order flow, the skill of our
      personnel, general market conditions, the amount of, and volatility in, our
      quantitative market-making and program trading portfolios, effective hedging
      strategies, the price volatility of specific securities and the availability
      of
      capital. To attract order flow, we must be competitive on price, size of
      securities positions traded, liquidity, order execution, technology, reputation
      and client relationships and service. In our role as a market maker, we attempt
      to derive a profit from the difference between the prices at which we buy and
      sell securities. However, competitive forces often require us to match the
      quotes other market makers display and to hold varying amounts of securities
      in
      inventory. By having to maintain inventory positions, we are subject to a high
      degree of risk. There can be no assurance that we will be able to manage such
      risk successfully or that we will not experience significant losses from such
      activities.




5


*There
      is a risk that our future operating results may fluctuate
      significantly.*





We
      may
      experience significant variation in our future results of operations. These
      fluctuations may result from, among other things:





·
            introductions
                of or enhancements to market-making services by us or our
                competitors;·
            the
                value of our securities positions and our ability to manage the risks
                attendant thereto;·
            the
                volume of our market-making activities;·
            the
                dollar value of securities traded;·
            volatility
                in the securities markets;·
            our
                market share with institutional clients;·
            our
                ability to manage personnel, overhead and other expenses, including
                our
                occupancy expenses under our office leases and legal fees relating
                to
                legal and regulatory proceedings;·
            the
                strength of our client relationships; the amount of, and volatility
                in,
                our quantitative market-making and program trading
                portfolios;·
            changes
                in payments for order flow and clearing costs;·
            the
                addition or loss of executive management and sales, trading and technology
                professionals;·
            compensation
                expenses associated with recruiting new employees;·
            legislative,
                legal and regulatory changes;·
            legal
                and regulatory matters;·
            geopolitical
                risk;·
            the
                amount and timing of capital expenditures and
                divestitures;·
            the
                incurrence of costs associated with acquisitions and
                dispositions;·
            investor
                sentiment;·
            technological
                changes and events;·
            seasonality;
                and·
            competition
                and market and economic conditions.




If
      demand
      for our services declines due to any of the above factors, and we are unable
      to
      timely adjust our cost structure, our operating results could be materially
      and
      adversely affected.





*Our
      traders may take larger risks than permitted which could result in large
      losses.*





Although
      we require our traders to adhere to certain position limits (generally no more
      than $500,000 in total positions for the most experienced traders), sometimes
      a
      trader takes a position beyond these limits and subjects our company to greater
      risks. We have established procedures to guard against this, including real-time
      position monitoring which should promptly alert management to any excessive
      risks. However, there can be no assurance that management will be able to guard
      against all risks taken by each employee.





*We
      are dependent on our clearing broker, which may go out of business or charge
      us
      for a default by a counterparty to a trade.*





As
      a
      market maker, the majority of our securities transactions are conducted as
      principal with broker-dealer and institutional counterparties located in the
      United States. We clear our securities transactions through an unaffiliated
      clearing broker. Under the terms of the agreement between us and our clearing
      broker, the clearing broker has the right to charge us for losses that result
      from a counterparty's failure to fulfill its contractual obligations. No
      assurance can be given that any such counterparty will not default on its
      obligations, which default could have a material adverse effect on our business,
      financial condition and operating results. In addition, at any time, a
      substantial portion of our assets are held by our clearing broker and,
      accordingly, we are subject to credit risk with respect to such clearing broker.
      Consequently, we are reliant on the ability of our clearing broker to adequately
      discharge its obligations on a timely basis. We are also dependent on the
      solvency of such clearing broker. Any failure by the clearing broker to
      adequately discharge its obligations on a timely basis, or failure by the
      clearing broker to remain solvent, or any event adversely affecting the clearing
      broker, could have a material adverse effect on our business, financial
      condition and operating results. If our clearing broker was to go out of
      business or decide not to continue to act as our clearing broker, our operating
      results would be adversely affected until we could replace them.





*Reduced
      market volume, price and liquidity can impact our revenues.*





Our
      revenues may decrease in the event of a decline in market volume, prices or
      liquidity. Declines in the volume of securities transactions and in market
      liquidity generally result in lower revenues from market-making activities.
      Lower price levels of securities may also result in reduced revenue capture,
      and
      thereby reduced revenues from market-making transactions, as well as result
      in
      losses from declines in the market value of securities held in inventory. Sudden
      sharp declines in market values of securities can result in illiquid markets,
      declines in the market values of securities held in inventory, the failure
      of
      buyers and sellers of securities to fulfill their obligations and settle their
      trades, and increases in claims and litigation. Any decline in market volume,
      price or liquidity or any other of these factors could have a material adverse
      effect on our business, financial condition and operating results.




6


*We
      operate in a highly regulated industry and compliance failures could adversely
      affect our business.*





The
      securities industry is subject to extensive regulation covering all aspects
      of
      the securities business. The various governmental authorities and industry
      self-regulatory organizations that supervise and regulate us generally have
      broad enforcement powers to censure, fine, issue cease-and-desist orders or
      suspend or expel us or any of our officers or employees who violate applicable
      laws or regulations. We may also be subject to an enforcement action for failure
      to supervise if any of our employees or traders violates applicable laws or
      regulations. Our ability to comply with all applicable laws and rules is largely
      dependent on our establishment and maintenance of compliance and reporting
      systems, as well as our ability to attract and retain qualified compliance
      and
      other personnel. If we do not comply with the rules and regulations established,
      we could be subject to disciplinary or other regulatory or legal actions in
      the
      future. In addition, it is possible that any past noncompliance could subject
      us
      to future civil lawsuits, the outcome of which could have a material adverse
      effect on our financial condition and operating results.





We
      are
      required to keep accurate books and records. There is considerable fluctuation
      during any year and from year-to-year in the volume of transactions we must
      process. We record security transactions and post our books daily. Operations
      personnel monitor operations to determine compliance with applicable laws,
      rules
      and regulations. Failure to keep current and accurate books and records can
      render us liable to disciplinary action by governmental and self-regulatory
      authorities, as well as to claims by our clients.





*We
      have a prior disciplinary record with FINRA, which could have an adverse effect
      on our ability to operate if we become subject to additional FINRA disciplinary
      action.*





During
      the period from approximately 1990 through July 31, 2004, primarily while our
      operating subsidiary Hudson was owned by and supervised by the prior management
      of the prior owners and operating under a different name, we were cited by
      FINRA
      for violations of FINRA's Rules of Fair Practice and Marketplace Rules on at
      least 20 occasions and were fined amounts ranging from $250 to $82,500. The
      total amount of such fines was approximately $405,000. The existence of such
      prior violations could have an adverse effect on us should such violations
      recur
      under the supervision of current management. To date,
      no additional fines have been assessed. A regulatory investigation is currently
      underway. On May 5, 2008, Hudson received a letter from FINRA alleging a failure
      to supervise and implement written supervisory procedures related to trading
      and
      market making and anti-money laundering rules. There is no indication of what
      amount of fines or sanctions FINRA may demand in connection with these
      allegations. On June 16, 2008, Hudson submitted a response to FINRA. Although
      there can be no assurances that such matters will not have a material adverse
      effect on the results of operations or financial condition of the Company in
      any
      future period, depending in part on the results for such period, in the opinion
      of the Company’s management, the ultimate resolution of the regulatory
      investigation will have no material adverse effect on the Company's financial
      condition.





*We
      face substantial competition that could reduce our market share and harm our
      financial performance.*





All
      aspects of our business are highly competitive. We compete directly with
      national and regional full service broker-dealers and, to a lesser extent,
      with
      discount brokers, investment advisors and certain commercial banks. The
      financial services industry has become considerably more concentrated as
      numerous securities firms have either ceased operations or have been acquired
      by
      or merged into other firms. These mergers and acquisitions have increased
      competition from these firms, many of which have significantly greater capital
      and financial and other resources than we have. With respect to retail brokerage
      activities, certain regional firms with which we compete have operated in
      certain markets longer than we have and have established long-standing client
      relationships. We also compete with others in the financial services industry
      in
      recruiting registered representatives and new employees as well as retaining
      current personnel, and we could be adversely affected in the event we were
      to
      lose registered representatives who either individually or in the aggregate
      accounted for a significant percentage of our revenues.





*We
      may not be able to grow as planned.*





As
      part
      of our long-term growth strategy, we intend to recruit individual registered
      representatives and to evaluate the acquisition of other firms or assets that
      would complement or expand our business in attractive service markets or that
      would broaden our customer relationships. We cannot assure you that we will
      be
      successful in our recruiting efforts or that we will be able to identify
      suitable acquisition candidates available for sale at reasonable prices or
      that
      we will be able to consummate any acquisition. Further, future acquisitions
      may
      further increase our leverage or, if we issue equity securities to pay for
      the
      acquisitions, our stockholders could suffer dilution of their
      interests.





We
      also
      plan to expand into complementary businesses, both by developing new
      product/service offerings that will be valuable to our existing customers and
      by
      entering into strategic partnerships with related businesses that can bring
      new
      customers. In addition, we plan to explore creating a retail brokerage division.
      There can be no assurance that any of the new products or services will be
      developed. If we are unable to raise adequate capital, we will not have the
      available funds to create new products.




7


*If
      we
      lose senior management and key personnel or are unable to attract and retain
      skilled employees when needed, we may not be able to operate our business
      successfully.*





We
      are
      particularly dependent on the services of Mark Leventhal (Executive Vice
      President), Martin Cunningham and Keith Knox. The loss of any of these
      individuals would have a significant negative effect on our business. In
      addition, we believe that our success will depend in large part upon our
      continued ability to attract and retain skilled traders and other employees,
      which is difficult because the market for the services of such individuals
      is
      very competitive. On January 4, 2007, the Company entered into five year
      employment agreements, effective as of January 1, 2007, as amended May 19,
      2008,
      with Mr. Martin C. Cunningham and Mr. Keith R. Knox, whereby each will continue
      in their present positions, Chief Executive Officer and President,
      respectively.





*If
      we
      lose certain key personnel, we may incur a charge as a result of unrecoverable
      prepaid compensation.*





If
      we
      lose certain ** key
      personnel to whom we have advanced compensation as a recruiting incentive,
      we
      are entitled to recover some or all of the funds advanced if they leave before
      predetermined dates or terminated for cause. However, collection could be
      subject to disputes or may require legal action in order to enforce the
      contract.





Currently,
      one employee has indicated that he disputes certain terms of his contract which
      would permit us to recover the prepaid compensation, if he terminated employment
      or if he was terminated for cause. At this juncture, this employee remains
      actively employed with the Company. We believe that the executed agreement
      represents a binding contract. However, if the employment agreement was
      terminated at a time that the employee is obligated to return or repay to us
      the
      funds that we advanced, there can be no assurance that we will be successful
      in
      recovering the funds advanced.





*We
      need to comply with stringent capital requirements and therefore if we suffer
      significant losses we would be below our net capital
      requirement.*





Many
      of
      the regulatory agencies, securities exchanges and other industry self-regulatory
      organizations that regulate us have stringent rules with respect to the
      maintenance of specific levels of net capital by securities broker-dealers.
      Net
      capital is the net worth of a broker or dealer, less deductions for certain
      types of assets. Currently, we are required to maintain net capital of at least
      $1,000,000. As of March 31, 2008, we had net capital of $4,870,737 and excess
      net capital (that is, net capital less required net capital) of $3,870,737.
      We
      intend to maintain such funds as are necessary to operate our business and
      to
      maintain compliance with regulatory net capital requirements. Changes to our
      business may require us to maintain higher net capital levels than currently.
      If
      we fail to maintain the required net capital, we may be subject to suspension
      or
      revocation of our licenses. If such net capital rules are changed or expanded,
      or if there is an unusually large charge against our net capital, we might
      be
      required to limit or discontinue those portions of our business that require
      the
      intensive use of capital. A large operating loss or charge against net capital
      could adversely affect our ability to expand or even maintain our present levels
      of business.





*Our
      exposure to possible litigation and regulatory proceedings could adversely
      affect our business.*





The
      Company has been named as a defendant in various actions relating to its
      activities as a broker-dealer including a civil action and a regulatory
      investigation. From time to time, we are engaged in arbitrations and proceedings
      be self-regulatory organizations. Many aspects of the securities brokerage
      business involve substantial risks of liability. In recent years, there has
      been
      an increasing incidence of litigation involving the securities brokerage
      industry, including class action and other suits that generally seek substantial
      damages, including in some cases punitive damages. Any such litigation brought
      in the future could have a material adverse effect on our business, financial
      condition and operating results.





From
      time
      to time, we may also be engaged in various legal proceedings not related to
      securities. We currently maintain various types of insurance, including
      employment practices liability insurance, the proceeds of which may help to
      reduce the amount we may otherwise be required to pay with respect to certain
      types of claims. However, there can be no assurance that we will be able to
      obtain such insurance in the future. If it can be obtained, the price for such
      insurance may be unreasonable. Even if such insurance is in force, the amount
      of
      any award may exceed the maximum coverage provided by such insurance, in which
      case we will be required to pay any uncovered portion.




8


**Risks
      Associated with our Securities**




*Our
      Common Stock is not actively traded, so you may be unable to sell at or near
      ask
      prices or at all if you need to sell your Shares to raise money or otherwise
      desire to liquidate your Shares.*




Our
      Common Stock has historically been sporadically traded on the OTC Bulletin
      Board, meaning that the number of persons interested in purchasing our Common
      Stock at or near ask prices at any given time has been, and may continue to
      be,
      relatively small or non-existent. This situation is attributable to a number
      of
      factors, including the fact that we are a small company which is relatively
      unknown to stock analysts, stock brokers, institutional investors and others
      in
      the investment community that generate or influence sales volume, and that
      even
      if we came to the attention of such persons, they tend to be risk-adverse and
      would be reluctant to purchase or recommend the purchase of our shares until
      such time as we became more seasoned and viable. As a consequence, there may
      be
      periods of several days or more when trading activity in our shares is minimal
      or non-existent, as compared to a seasoned issuer which has a large and steady
      volume of trading activity that will generally support continuous sales without
      an adverse effect on share price. We cannot assure you that a broader or more
      active public trading market for our Common Stock will develop or be sustained,
      or that current trading levels will be sustained or not diminish.




*The
      application of the "penny stock" rules to our Common Stock could limit the
      trading and liquidity of the Common Stock, adversely affect the market price
      of
      our Common Stock and increase your transaction costs to sell those
      shares.*




As
      long
      as the trading price of our Common Stock is below $5.00 per share, the
      open-market trading of our Common Stock will be subject to the "penny stock"
      rules. The "penny stock" rules impose additional sales practice requirements
      on
      broker-dealers who sell securities to persons other than established customers
      and accredited investors (generally those with assets in excess of $1,000,000
      or
      annual income exceeding $200,000 or $300,000 together with their spouse). These
      regulations require the delivery, prior to any transaction involving a penny
      stock, of a disclosure schedule explaining the penny stock market and the
      associated risks. Under these regulations, certain brokers who recommend such
      securities to persons other than established customers or certain accredited
      investors must make a special written suitability determination regarding such
      a
      purchaser and receive such purchaser's written agreement to a transaction prior
      to sale. These regulations have the effect of limiting the trading activity
      of
      the Common Stock, reducing the liquidity of an investment in the Common Stock
      and increasing the transaction costs for sales and purchases of our Common
      Stock
      as compared to other securities.





*The
      market price for our Common Stock is particularly volatile given our status
      as a
      relatively unknown company with a small and thinly traded public float, limited
      operating history and variable profitability which could lead to wide
      fluctuations in our share price. You may be unable to sell your Common Stock
      at
      or above your purchase price, which may result in substantial losses to
      you.*




The
      market for our Common Stock is characterized by significant price volatility
      when compared to seasoned issuers, and we expect that our share price will
      continue to be more volatile than a seasoned issuer for the indefinite future.
      The volatility in our share price is attributable to a number of factors. First,
      as noted above, our Common Stock is sporadically and thinly traded. As a
      consequence of this lack of liquidity, the trading of relatively small
      quantities of shares by our stockholders may disproportionately influence the
      price of those shares in either direction. The price for our Shares could,
      for
      example, decline precipitously in the event that a large number of shares of
      our
      Common Stock are sold on the market without commensurate demand, as compared
      to
      a seasoned issuer which could better absorb those sales without adverse impact
      on its share price. Secondly, we are a speculative or "risky" investment due
      to
      our limited operating history, and uncertainty of future market acceptance
      for
      our services. As a consequence of this enhanced risk, more risk adverse
      investors may, under the fear of losing all or most of their investment in
      the
      event of negative news or lack of progress, be more inclined to sell their
      shares on the market more quickly and at greater discounts than would be the
      case with the stock of a seasoned issuer.





Many
      of
      these factors are beyond our control and may decrease the market price of our
      Common Stock, regardless of our operating performance. We cannot make any
      predictions or projections as to what the prevailing market price for our Common
      Stock will be at any time, including as to whether our Common Stock will sustain
      its current market price, or as to what effect that the sale of shares or the
      availability of Common Stock for sale at any time will have on the prevailing
      market price.





In
      addition, the market price of the Common Stock could be subject to wide
      fluctuations in response to:




·
            quarterly
                variations in our revenues and operating expenses;·
            fluctuations
                in interest rates;·
            the
                operating and stock price performance of other companies that investors
                may deem comparable to us; and·
            news
                reports relating to trends in our markets or general economic
                conditions.





The
      stock
      market in general and the market prices for brokerage-related companies in
      particular, have experienced volatility that often has been unrelated to the
      operating performance of such companies. These broad market and industry
      fluctuations may adversely affect the price of our stock, regardless of our
      operating performance.





Stockholders
      should be aware that, according to SEC Release No. 34-29093, the market for
      penny stocks has suffered in recent years from patterns of fraud and abuse.
      Such
      patterns include (1) control of the market for the security by one or a few
      broker-dealers that are often related to the promoter or issuer; (2)
      manipulation of prices through prearranged matching of purchases and sales
      and
      false and misleading press releases; (3) boiler room practices involving
      high-pressure sales tactics and unrealistic price projections by inexperienced
      sales persons; (4) excessive and undisclosed bid-ask differential and markups
      by
      selling broker-dealers; and (5) the wholesale dumping of the same securities
      by
      promoters and broker-dealers after prices have been manipulated to a desired
      level, along with the resulting inevitable collapse of those prices and with
      consequent investor losses. The occurrence of these patterns or practices could
      increase the volatility of our share price.




9


*We
      do
      not intend to pay dividends to our stockholders.*





We
      do not
      have any current plans to pay dividends to our stockholders. We currently intend
      to retain any future earnings for funding growth and, therefore, do not expect
      to pay any dividends in the foreseeable future.





*Four
      employees control approximately 37% of the voting capital stock of our
      company.*





Our
      three
      executive officers and Steven Winkler, our NASDAQ trading manager at the
      Company’s wholly-owned broker-dealer subsidiary, each own approximately 7-11% of
      our common stock. In the event that these individuals vote together on any
      or
      all issues, you will have no effective voice in our management. Accordingly,
      these four individuals could substantially influence the outcome of any matters
      submitted to a vote of our stockholders and have the ability to determine all
      management policy and financing decisions.




*Future
      sales of our Common Stock could put downward selling pressure on our shares,
      and
      adversely affect the stock price. There is a risk that this downward pressure
      may make it impossible for a stockholder to sell its shares at any reasonable
      price, if at all.*




Future
      sales of substantial amounts of our Common Stock in the public market, or the
      perception that such sales could occur, could put downward selling pressure
      on
      our shares, and adversely affect the market price of our Common
      Stock.




*The
      large number of recently issued shares to investors and shares issuable upon
      exercise of warrants could have an adverse affect on our stock
      price.*




In
      a
      November 2006 private placement, the Company issued 9,575,325 shares of Common
      Stock, 4,787,664 investor warrants with an exercise price of $0.85 and 574,520
      placement agent warrants with an exercise price of $0.60. In addition, another
      1,760,590 warrants with an exercise price of $1.0494 remain outstanding.
      Subsequent to the private placement, 7,908,655 shares of Common Stock and
      3,954,329 shares of Common Stock issuable upon exercise of warrants with an
      exercise price of $0.85 were registered by the Company. Given the effectiveness
      of the Registration Statement, such investors now have the ability to sell
      such
      shares without any volume restrictions.





In
      a June
      2008 private placement, the Company issued 8,000,000 shares of Common Stock
      and
      a warrant to purchase 4,000,000 shares at an exercise price of $0.75 per share.
      The securities were sold subject to a registration rights agreement which
      mandates that the Company use its commercially reasonable efforts to file a
      registration statement within 30 days of the closing and to obtain effectiveness
      within 90 days after the closing (120 days if the SEC reviews the registration
      statement).+





The
      price
      of our common stock could significantly decline if such investors elect to
      sell
      their shares in the market at times when there are not a corresponding number
      of
      investors willing to purchase such shares. In addition, the large number of
      outstanding warrants will likely cause an overhang on the market and prevent
      the
      market price of the Common Stock from rising above the warrant exercise
      price.




*There
      are limitations in connection with the availability of quotes and order
      information on the OTC Bulletin Board*




Trades
      and quotations on the Over the Counter Bulletin Board (the "OTCBB") involve
      a
      manual process, and the market information for such securities cannot be
      guaranteed. In addition, quote information, or even firm quotes, may not be
      available. The manual execution process may delay order processing and
      intervening price fluctuations may result in the failure of a limit order to
      execute or the execution of a market order at a significantly different price.
      Execution of trades, execution reporting and the delivery of legal trade
      confirmation may be delayed significantly. Consequently, one may not be able
      to
      sell shares of our Common Stock at the optimum trading prices.





*There
      are delays in order communication on the OTCBB.*





Electronic
      processing of orders is not available for securities traded on the OTCBB and
      high order volume and communication risks may prevent or delay the execution
      of
      one's OTCBB trading orders. This lack of automated order processing may affect
      the timeliness of order execution reporting and the availability of firm quotes
      for shares of our Common Stock. Heavy market volume may lead to a delay in
      the
      processing of OTCBB security orders for shares of our Common Stock, due to
      the
      manual nature of the market. Consequently, one may not able to sell shares
      of
      our Common Stock at the optimum trading prices.




*There
      is limited liquidity on the OTCBB.*





When
      fewer shares of a security are being traded on the OTCBB, volatility of prices
      may increase and price movement may outpace the ability to deliver accurate
      quote information. Due to lower trading volumes in shares of our Common Stock,
      there may be a lower likelihood of one's orders for shares of our Common Stock
      being executed, and current prices may differ significantly from the price
      one
      was quoted by the OTCBB at the time of one's order entry.





10




*There
      is a limitation in connection with the editing and canceling of orders on the
      OTCBB.*





Orders
      for OTCBB securities may be canceled or edited like orders for other securities.
      All requests to change or cancel an order must be submitted to, received and
      processed by the OTCBB. Due to the manual order processing involved in handling
      OTCBB trades, order processing and reporting may be delayed, and one may not
      be
      able to cancel or edit one's order. Consequently, one may not able to sell
      shares of our Common Stock at the optimum trading prices.





*The
      large number of restricted stock shares and options to purchase shares that
      have
      been granted, and may continue to be granted, to new and existing employees
      may
      dilute the ownership interest of existing shareholders and may adversely affect
      the stock price.*





As
      of
      March 31, 2008, options to purchase 3,495,000 shares of common stock are
      outstanding, 8,361,666 shares of unvested restricted stock have been issued
      and
      an additional 12,143,334 shares are available for issuance as awards under
      the
      2005 Plan and 2007 Plan. The 2005 Plan and 2007 Plan have been registered.
      Given
      the effectiveness of the Registration Statement, the holders have the ability
      to
      sell the shares upon exercise of the options or the vesting of restricted stock.
      The price of our common stock could significantly decline if such investors
      elect to sell their shares in the market at times when there are not a
      corresponding number of investors willing to purchase such shares. In addition,
      the large number of outstanding options will likely cause an overhang on the
      market and prevent the market price of the Common Stock from rising above the
      option exercise prices.





*Increased
      dealer compensation could adversely affect the stock price.*





The
      dealer's spread (the difference between the bid and ask prices) may be large
      and
      may result in substantial losses to the seller of shares of our Common Stock
      on
      the OTCBB if the stock must be sold immediately. Further, purchasers of shares
      of our Common Stock may incur an immediate "paper" loss due to the price spread.
      Moreover, dealers trading on the OTCBB may not have a bid price for shares
      of
      our Common Stock on the OTCBB. Due to the foregoing, demand for shares of our
      Common Stock on the OTCBB may be decreased or eliminated.





*Shares
      eligible for future sale may adversely affect the market.*





In
      addition, from time to time, certain of our stockholders may be eligible to
      sell
      all or some of their shares of common stock by means of ordinary brokerage
      transactions in the open market pursuant to Rule 144, promulgated under the
      Securities Act of 1933, as amended, which we refer to herein as the Securities
      Act, subject to certain limitations. Approximately 11,673,000 shares held for
      more than 6 months by non-affiliates shares may be available for public sale
      without regard to volume limitations and by means of ordinary brokerage
      transactions in the open market pursuant to Rule 144.





In
      general, pursuant to Rule 144, after satisfying a six-month holding period:
      (i)
      affiliated stockholder (or stockholders whose shares are aggregated) may, under
      certain circumstances, sell within any three-month period a number of securities
      which does not exceed the greater of 1% of the then outstanding shares of common
      stock or the average weekly trading volume of the class during the four calendar
      weeks prior to such sale and (ii) non-affiliated stockholders may sell without
      such limitations, provided we are current in our public reporting obligations.
      Rule 144 also permits the sale of securities by non-affiliates that have
      satisfied a one-year holding period without any limitation or restriction.
      Any
      substantial sale of our common stock pursuant to Rule 144 or pursuant to any
      resale prospectus may have a material adverse effect on the market price of
      our
      securities.




**Item
      2. Description of Property**





Our
      corporate headquarters are located in 26,875 square feet of office space at
      111
      Pavonia Avenue in Jersey City, New Jersey, which incorporates a state-of-the-art
      trading floor that was abandoned by a competitor. This lease expires in August
      30, 2012 and our initial monthly base rent is $33,594. We believe that our
      new
      headquarters space is more than adequate to support our existing business,
      plus
      any intermediate term business expansion. In addition, we maintain trading
      and sales offices in Tinton Falls, New Jersey and Boca Raton, Florida. Our
      offices include a total of 176 trading stations: 140 at headquarters in New
      Jersey, 16 in Tinton Falls and 20 in Florida.




11




**Item
      3. Legal Proceedings**




The
      Company has been named as a defendant in various actions relating to its
      activities as a broker-dealer including a civil action and a regulatory
      investigation. On May 5, 2008, Hudson received a letter from FINRA alleging
      a
      failure to supervise and implement written supervisory procedures related to
      trading and market making and anti-money laundering rules. There is no
      indication of what amount of fines or sanctions FINRA may demand in connection
      with these allegations. On June 16, 2008, Hudson submitted a response to FINRA.
      Hudson intends to contest this matter vigorously. From time to time, the Company
      is also involved in arbitrations and proceedings by self-regulatory
      organizations. Although the ultimate outcome of these matters involving the
      Company cannot be predicted with certainty, management believes it has
      meritorious defenses to all such actions and intends to defend each of these
      actions vigorously. Although there can be no assurances that such matters will
      not have a material adverse effect on the results of operations or financial
      condition of the Company in any future period, depending in part on the results
      for such period, in the opinion of the Company's management the ultimate
      resolution of such actions against the Company will have no material adverse
      effect on the Company's financial condition.




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




On
      February 13, 2008, our Board of Directors adopted and approved an increase
      in
      the number of shares of the Company's Common Stock reserved for issuance under
      the 2007 Long-Term Incentive Compensation Plan (“2007 Plan”) from 10,000,000
      shares to 22,000,000 shares. On March 4, 2008, a majority of consenting
      stockholders adopted and approved the increase in the 2007 Plan authorized
      shares pursuant to the Written Consent. After giving effect to this increase,
      as
      of March 31, 2008, there were 12,143,334 shares available for issuance as awards
      under the 2007 Plan.




12




**PART
      II**




**Item
      5. Market for Common Equity and Related Stockholder Matters and Issuer Purchases
      of Equity Securities**




**Market
      for Common Equity**





Our
      common stock has been listed and quoted on the OTC Bulletin Board under the
      symbol “HDHL.OB” since September 5, 2005, and prior to that date, our common
      stock traded under the symbol “HOMI”. All prices reflected herein have been
      adjusted to reflect the 1-for-8 reverse split of our common stock that was
      effected on September 6, 2005.




We
      have
      286 holders of record of our common stock as of June 20, 2008.




The
      following table sets forth the high and low sales prices for our common stock
      for the periods indicated, as reported by the OTC Bulletin Board:




High
            
            LowFiscal
                Year 2007First
                Quarter
            
            $
            2.00
            
            $
            1.46Second
                Quarter
            
            
            1.60
            
            
            0.93Third
                Quarter
            
            
            1.00
            
            
            0.70Fourth
                Quarter
            
            
            1.15
            
            
            0.70Fiscal
                Year 2008First
                Quarter
            
            $
            0.80
            
            $
            0.45Second
                Quarter
            
            
            0.55
            
            
            0.35Third
                Quarter
            
            
            0.45
            
            
            0.28Fourth
                Quarter
            
            
            0.75
            
            
            0.40




The
      high
      and low sales prices as reported on the OTC Bulletin Board on June 20, 2008
      were
      both $0.45.




We
      have
      not declared or paid any cash dividends on our common stock and do not
      anticipate declaring or paying any cash dividends in the foreseeable future.
      We
      currently expect to retain future earnings, if any, for the development of
      our
      business. Dividends may be paid on our common stock only if and when declared
      by
      our board of directors.




**Securities
      Authorized for Issuance under Equity Compensation Plans**


Number of securities to
                be issued upon exercise
                of outstanding options,
                warrants and rights
                (a)
              
              Weighted-average exercise
                price of outstanding
                options, warrants and rights
                (b)
              
              Number of securities
                remaining available for
                future issuance under
                equity compensation plans
                (excluding securities
                reflected in column (a))Equity
                  compensation plans approved by security holders
              
              
              3,495,000
              
              $
              0.90
              
              
              12,143,334Equity
                  compensation plans not approved by security holders
              
              
              7,122,774
              
              
              0.88
              
              
              -Total
              
              
              10,617,774
              
              $
              0.89
              
              
              12,143,334




The
      table
      above reflects the status of the Company's equity compensation plans as of
      March
      31, 2008.




**Recent
      Sales of Unregistered Securities**




During
      the period covered by this report, we did not issue any securities that were
      not
      registered under the Securities Act of 1933, as amended, (the “Securities Act”)
      except as previously reported in a quarterly report on Form 10-QSB or on a
      current report on Form 8-K.




13




**Recent
      Repurchases of Common Stock**




There
      were no repurchases of our common stock during the fourth quarter of the fiscal
      year covered by this report.




**Item
      6. Selected Financial Data**




Pursuant
      to Item 301 (c) of Regulation S-K, we are not required to provide information
      under this item.




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




The
      following discussion of results of operations and financial condition is based
      upon, and should be read in conjunction with, our consolidated financial
      statements and accompanying notes thereto included elsewhere
      herein.




**Results
      of Operations – Quarter Ended March 31, 2008 Compared to Quarter Ended March 31,
      2007**





Consolidated
                Statement of
            
            Quarter Ended
            
            Quarter
                EndedOperations
                Data:
            
            March 31, 2008
            
            March 31, 2007(unaudited)
            
            (unaudited)Commissions
                and fees
            
            $
            4,930,306
            
            $
            966,085Trading
                gains, net
            
            
            4,541,806
            
            
            4,308,707Interest
                and other
            
            
            397,023
            
            
            121,840Total
                revenues
            
            $
            9,869,135
            
            $
            5,396,632Net
                income (loss)
            
            $
            381,516
            
            $
            (391,294
            )




We
      had
      overall revenues consisting of net trading gains, commission and fee revenue,
      plus interest and other income of approximately $9.9 million for the 2008 fourth
      quarter, as compared to approximately $5.4 million for the 2007 fourth quarter.
      Commission and fee revenues increased to $4.9 million from $1.0 million during
      the prior fiscal year, due to a significant expansion of our institutional
      sales
      effort. The increase in commission revenues is consistent with an increase
      in
      the number of sales personnel from 29 to 37. Net trading gains increased to
      approximately $4.5 million from approximately $4.3 million during the prior
      year
      fourth quarter. Other revenues increased to $0.4 million for the three months
      ended March 31, 2008 from $0.1 million during the three months ended March
      31,
      2007, primarily due to an increase in referral fees from introducing
      brokers.





We
      had
      overall expenses of approximately $9.2 million for the 2008 fourth quarter,
      as
      compared to approximately $6.0 million for the 2007 fourth quarter. Salaries
      and
      related costs increased to $1.9 million from $1.0 million during the prior
      year
      fourth quarter, primarily due to an increase in salaried technology, trading,
      marketing and sales personnel, salary increases, recruiting incentives, plus
      an
      increase in stock-based compensation expense. Trader and salesperson commissions
      were $4.5 million (45% of revenues) for the 2008 fourth quarter compared to
      $2.4
      million (45% of revenues) for the 2007 fourth quarter, an increase of $2.1
      million or 84%. Execution and clearance charges of $0.5 million (5% of revenues)
      for the three months ended March 31, 2008 increased compared to $0.4 million
      (7%
      of revenues) for the three months ended March 31, 2007, an increase of $0.1
      million or 25%. Communications costs were flat for the three months ended March
      31, 2008 and 2007, with each costing $1.3 million. Occupancy expenses remained
      relatively the same for the three months ended March 31, 2008 and 2007, with
      each costing approximately $0.3 million. Professional fees increased to
      approximately $0.3 million from approximately $0.2 million during the prior
      year
      fourth quarter. Business development expenses increased to approximately $0.2
      million from approximately $0.1 million during the prior year fourth quarter.
      Other expenses increased to $0.3 million for the three months ended March 31,
      2008 from $0.2 million during the three months ended March 31,
      2007.





We
      had a
      pre-tax profit of $0.7 million for the 2008 fourth quarter, as compared to
      a
      $0.6 million pre-tax loss for the 2007 fourth quarter, primarily as a result
      of
      the increase in revenues. Income taxes are an expense of $0.3 million during
      the
      2008 fourth quarter, as compared to a benefit of $0.2 million during the 2007
      fourth quarter, primarily due to the increase in the pre-tax results. We had
      net
      income of $0.4 million during three months ended March 31, 2008 compared to
      a
      net loss of $0.4 million during the three months ended March 31, 2007.




14


**Results
      of Operations – Fiscal Year Ended March 31, 2008 Compared to Fiscal Year Ended
      March 31, 2007**





Consolidated
                Statement of
            
            Year
                Ended
            
            Year
                EndedOperations
                Data:
            
            March 31, 2008
            
            March 31, 2007Commissions
                and fees
            
            $
            10,070,068
            
            $
            2,665,437Trading
                gains, net
            
            
            15,541,702
            
            
            17,924,177Interest
                and other
            
            
            1,157,073
            
            
            261,905Total
                revenues
            
            $
            26,768,843
            
            $
            20,851,519Net
                loss
            
            $
            (1,602,290
            )
            $
            (383,108
            )





We
      had
      overall revenues consisting of net trading gains, commission and fee revenue,
      plus interest and other income of approximately $26.8 million for fiscal 2008,
      as compared to approximately $20.9 million for fiscal 2007. Commission and
      fee
      revenues increased to $10.1 million from $2.7 million during the prior fiscal
      year, due to a significant expansion of our institutional sales effort. The
      increase in commission revenues is consistent with an increase in the number
      of
      sales personnel from 29 to 37. Net trading gains decreased to approximately
      $15.5 million from approximately $17.9 million during the prior fiscal year,
      primarily due to an approximately $600,000 loss associated with a
      single trading error, other proprietary trading losses and a general
      decline in market activity associated with recent market turbulence. Other
      revenues increased to $1.2 million from $0.3 million during fiscal 2008,
      primarily due to an increase in referral fees from introducing
      brokers.




Our
      cost
      structure consists of both variable costs, such as commissions, execution and
      clearing charges, and fixed costs, such as salaries and related costs (including
      payroll taxes and benefits), communications (quote, trading, order management
      and telecommunication services), occupancy (rent, electricity, maintenance
      and
      real estate taxes) professional fees (attorneys and auditors), business
      development (travel, entertainment and advertising) and other operating costs.
      From a compensation perspective, roughly 45% of our employees are salaried,
      while most of our traders and salespersons receive revenue-based commission
      payments.




Despite
      the increase in overall revenues, we had a pre-tax loss of $2.6 million as
      compared to a $0.5 million pre-tax loss during the prior year, as expenses
      increased by $8.0 million, primarily as a result of a $4.3 million increase
      in
      commission costs (commissions, execution, and clearing costs) and a $1.8 million
      increase in salaries and related costs, primarily due to an increase in salaried
      technology, trading, marketing and sales personnel, salary increases, recruiting
      incentives, plus an increase in stock-based compensation expense. Trader
      and salesperson commissions were $12.7 million (48% of revenues) in the current
      fiscal year compared to $8.6 million (41% of revenues) in the prior fiscal
      year,
      an increase of $4.1 million or 47%, primarily due to the increase in the revenue
      mix toward higher-payout riskless commission revenues. Execution and clearance
      charges of $2.0 million (8% of revenues) in the current fiscal year increased
      compared to $1.8 million (9% of revenues) in the prior fiscal year, an increase
      of $0.2 million or 12%, primarily due to the impact of proprietary trading
      losses. Communication
      costs were $5.0 million in the year ending March 31, 2008 compared to $4.5
      million in the prior fiscal year. Professional fees were $1.1 million compared
      to $0.5 million in the prior year, primarily due to the outsourcing of certain
      functions plus an increase in professional services devoted to regulatory
      compliance requirements. Business development expenses were $0.7 million in
      the
      year ending March 31, 2008 compared to $0.4 million in the prior year, due
      to an
      expansion of our marketing efforts. Other expenses were $1.1 million in the
      year
      ending March 31, 2008 compared to $0.8 million in the prior year, due to
      increased amortization costs associated with our internally developed software
      and the timing of certain regulatory assessments.




We
      had a
      net loss of $1.6 million during fiscal 2008 compared to a net loss of $0.4
      million during the prior year. Income taxes are a benefit of $1.0 million during
      fiscal 2008, as compared to a benefit of $0.1 million during the prior year,
      primarily due to the decline in the pre-tax results.




15


**Liquidity
      and Capital Resources**





As
                of
            
            As
                ofConsolidated
                Balance Sheet Data:
            
            March 31, 2008
            
            March 31, 2007Working
                capital
            
            $
            6,637,690
            
            $
            11,089,549Total
                assets
            
            $
            17,323,538
            
            $
            23,033,286Total
                liabilities
            
            $
            5,248,140
            
            $
            9,769,771Stockholders'
                equity
            
            $
            12,075,398
            
            $
            13,263,515




*Recent
      Developments*





On
      June
      20, 2008, the Company closed on a private placement of $4 million of securities,
      with net proceeds to Holding of $3.9 million after deducting offering costs.
      In
      connection with the private placement, the Company issued 8,000,000 shares
      of
      common stock and delivered a warrant to purchase an aggregate of 4,000,000
      shares of our common stock. The warrant entitles the holder to purchase shares
      of the Company’s common stock for a period of five years from the date of
      issuance at an exercise price of $0.75 per share.




The
      Company intends to use the proceeds to enhance working capital reserves in
      order
      to pursue various strategic opportunities as they arise, including the
      acquisition of complementary businesses and the recruitment of additional proven
      producers.




The
      discussion below does not reflect the addition of this additional
      capital.




*Working
      Capital*




During
      the past fiscal year, our working capital (current assets less current
      liabilities) declined to $6.6 million from $11.1 million, primarily as a result
      of $3.0 of incentives provided to new recruits, $0.8 million used for capital
      expenditures and $0.6 million associated with our net loss ($1.6 million),
      after
      adjusting for non-cash items ($1.0 million). We have not declared and paid,
      nor
      do we expect to declare and pay in the intermediate future, any dividends on
      our
      common stock. Current assets include cash and cash equivalents, receivable
      from
      clearing broker (cash on deposit with our clearing broker), marketable
      securities owned, income taxes receivable, and certain other assets. Current
      liabilities include securities sold but not purchased, commissions payable
      and
      accrued expenses.




We
      currently do not have any outstanding bank borrowings or long-term debt. On
      April 20, 2006, we deposited a $225,000 letter of credit with the landlord
      associated with our new headquarters space, after depositing $225,000 of
      collateral with the issuing financial institution in the form of an
      automatically renewable fourteen-month time deposit.




Our
      requirement for funding is, and will be, driven by both working capital and
      regulatory net capital requirements associated with current operations,
      recruiting incentives, the enhancement of our technology, software development,
      and by potential future expansion into related activities and possible
      acquisition opportunities. See Note K to the consolidated financial statements
      for additional details related to regulatory net capital requirements. We expect
      that any significant expansion or acquisition opportunities will require
      additional subordinated debt or common stock issuances in order to maintain
      the
      required levels of working capital or net capital. There can be no assurance
      that we will be successful in attracting such funding.




Technologies
      was formed as a Delaware corporation on May 22, 2006 and was funded with a
      total
      of $550,000 during the fiscal year ended March 31, 2007, in order to accommodate
      an initial expense budget of approximately $25,000 per month, which is now
      running at a rate of approximately $50,000 per month. The purpose of
      Technologies is to perform software development and technology services, both
      for the Company and for customers. Our contractual commitments consist primarily
      of office and equipment leases, plus certain employment agreements (see the
      table on the next page).




Our
      cash
      position increased by $1.1 million to $6.2 million during the fiscal year ended
      March 31, 2008, after increasing by $4.6 million during the fiscal year ended
      March 31, 2007. However, it should be noted that our cash position is primarily
      a function of how much of our funds are invested in marketable securities or
      on
      deposit with our clearing broker.




*Operating
      Activities*




Net
      cash
      provided by operating activities was $1.8 million during fiscal 2008, primarily
      due to a $6.3 million decrease in net securities positions and a $0.2 million
      decrease in the current income tax receivable, partially offset by a $1.5
      million increase in the receivable from clearing broker balance and $0.6 million
      generated from our net loss ($1.6 million), after adjusting for non-cash items
      ($1.0 million). Net cash used in operating activities was $0.2 million during
      fiscal 2007, primarily due to a $2.6 million increase in net securities
      positions and a $1.2 million increase in the current income tax receivable,
      partially offset by a $3.9 million decrease in the receivable from clearing
      broker balance and $0.1 million generated from our net loss ($0.4 million),
      after adjusting for non-cash items ($0.5 million).




16




*Investing
      Activities*




Net
      cash
      used in investing activities was $0.8 million and $0.7 million during fiscal
      years 2008 and 2007, respectively. During fiscal 2008 and 2007, the usage of
      cash included the purchase of $0.2 million and $0.2 million of furniture,
      equipment, and leasehold improvements, and $0.6 million and $0.2 million of
      capitalized software expenditures plus in fiscal 2007 another $0.2 million
      was
      set aside as restricted cash in order to collateralize the letter of credit
      issued in favor of the landlord of the new headquarters space,
      respectively.




*Financing
      Activities*




Net
      cash
      provided by financing activities was $5.5 million during fiscal 2007, due to
      private placements of common stock and warrants. Most of the stock sold during
      fiscal 2007 was subject to registration rights and a registration statement
      went
      effective on April 5, 2007 related to 7,908,655 common shares plus 3,954,329
      common shares underlying warrants.





**Contractual
      Obligations**





In
      connection with our operating activities, we enter into certain contractual
      obligations. Our future cash payments associated with our contractual
      obligations are summarized below:





Payments
                due inFor
                the years ended March 31,
            
            2009
            
            2010-2011
            
            2012-2013
            
            Thereafter
            
            TotalOffice
                leases
            
            $
            489,000
            
            $
            1,046,000
            
            $
            786,000
            
            $
            -
            
            $
            2,321,000Equipment
                leases
            
            
            78,000
            
            
            18,000
            
            
            -
            
            
            -
            
            
            96,000Employment
                agreements
            
            
            2,250,000
            
            
            800,000
            
            
            300,000
            
            
            -
            
            
            3,350,000$
            2,817,000
            
            $
            1,864,000
            
            $
            1,086,000
            
            $
            -
            
            $
            5,767,000




**Off-Balance
      Sheet Arrangements**




As
      of
      March 31, 2008, we did not have any off-balance sheet arrangements, as defined
      in Item 303(c)(2) of SEC Regulation S-B. On April 20, 2006, a financial
      institution issued a one-year, automatically renewable, irrevocable $225,000
      standby letter of credit, on our behalf, to the landlord associated with our
      new
      office space lease as a security deposit. The Company is obligated to maintain
      the letter of credit until sixty days after the August 30, 2012 expiration
      of
      the lease. The Company deposited $225,000 with the financial institution in
      the
      form of an automatically renewable fourteen-month time deposit, in order to
      collateralize the letter of credit.




**Critical
      Accounting Policies**




Hudson
      Holding Corporation's significant accounting policies, including the assumptions
      and judgments underlying them, are more fully described in our "Notes to
      Consolidated Financial Statements" included in this Form 10-K. Some of our
      accounting policies require the application of significant judgment by
      management in the preparation of the consolidated financial statements, and
      as a
      result, they are subject to a greater degree of uncertainty. In applying these
      policies, management uses its judgment to determine the appropriate assumptions
      to be used in calculating estimates that affect the reported amounts of assets,
      liabilities, revenues and expenses. Management bases its estimates and
      assumptions on historical experience and on various other factors that are
      believed to be reasonable under the circumstances. Hudson Holding Corporation
      has identified certain of its accounting policies as being most important to
      our
      consolidated financial condition and results of operations and which require
      management to make its most difficult and subjective judgments, often as a
      result of the need to make estimates of matters that are inherently uncertain.




Hudson
      Holding Corporation's critical accounting policies include the
      following:




**Securities
      transactions**




The
      Company records transactions in securities and the related revenue and expenses
      on a trade-date basis.




Commissions
      and fees include agency commissions and fees earned on riskless principal
      trades. Riskless principal trades are transacted through the firm’s proprietary
      account with a customer order in hand, resulting in no market risk to the
      firm.




17


Securities
      owned and securities sold, but not yet purchased, are stated at market value
      with the resulting unrealized gains and losses reflected in trading gains,
      net.





Securities
      which do not have a readily ascertainable market value are valued at their
      estimated fair value as determined by management .




**Goodwill**




The
      Company accounts for its goodwill in accordance with Statement of Financial
      Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS
      No.
      142"). Under SFAS No. 142, goodwill is not subject to amortization, but rather
      an assessment of impairment, by applying a fair value based test. The Company
      reviews goodwill for impairment annually, during the fourth quarter of each
      year, and also between annual tests upon the occurrence of trigger events.
      The
      reviews are performed at the Hudson level, generally by using the market
      capitalization of the Company as an indicator of fair value, since Hudson
      currently represents the most significant component of the consolidated entity.
      Impairment is potentially indicated when the carrying value of Hudson, including
      goodwill, exceeds its fair value. If potential impairment were indicated, the
      fair value of Hudson would be measured against the fair value of its underlying
      assets and liabilities, excluding goodwill, to estimate an implied fair value
      of
      Hudson’s goodwill. If the fair value was less than the carrying value of
      goodwill, an impairment would be recorded. As a result of its assessment, the
      Company has determined no such potential impairment was indicated during the
      year ended March 31, 2008.




**Income
      taxes**




The
      Company accounts for income taxes in accordance with the provisions of Statement
      of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
      No. 109"). SFAS No. 109 requires that the Company recognize deferred tax
      liabilities and assets for the expected future tax consequences of items that
      have been included or excluded in the financial statements or tax returns.
      Under
      this method, deferred tax liabilities and assets are determined on the basis
      of
      the difference between the tax basis of liabilities and assets and their
      respective financial reporting amounts ("temporary differences") at enacted
      tax
      rates in effect for the years in which the temporary differences are expected
      to
      reverse. The Company records an estimated valuation allowance on its deferred
      income tax assets if it is not more than likely that these deferred income
      tax
      assets will be realized. As of March 31, 2008, the Company has a $113,000
      valuation allowance related to certain state net operating loss carryforwards
      which expire in 2011, 2013 and 2014.




**Stock-based
      compensation**





Commencing
      with the first issuance of stock options on May 26, 2006, the Company accounts
      for stock options issued under the recognition and measurement principles of
      Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based
      Payment”, (“SFAS 123(R)”). Under the provisions of SFAS 123(R), the Company is
      required to measure the cost of services received in exchange for an award
      of
      equity instruments based on the fair value of the award. For employees and
      directors, the award is measured on the grant date and for non-employees, the
      award is generally remeasured on interim financial reporting dates until the
      service period is complete, in accordance with EITF Issue No.
      96-18
      , “Accounting for Equity Instruments That Are Issued to Other Than Employees for
      Acquiring, or in Conjunction with Selling, Goods or Services”. The fair value
      amount is then recognized over the period during which services are required
      to
      be provided in exchange for the award, usually the vesting
      period.





The
      Company has computed the fair value of options granted using the Black-Scholes
      option pricing model. Option valuation models require the input of highly
      subjective assumptions, including the expected term of the options and the
      expected volatility of the underlying common stock, which can materially affect
      the fair value estimate. Given that the Company’s shares have only been publicly
      traded since May 3, 2005, the Company developed an expected volatility figure
      based on a review of the historical volatilities, over a period of time,
      equivalent to the expected life of these options, of similarly positioned public
      companies within its industry, during the early stages of their life as a public
      company.





**Internally
      developed software**





During
      April 2006, the Company began capitalizing certain costs incurred in connection
      with developing or obtaining internal use software pursuant to statement of
      Position 98-1, “Accounting for the Costs of Computer Software Developed or
      Obtained for Internal Use”. Unamortized capitalized software development costs
      of approximately $536,672 represents software in service which is being
      amortized over its estimated useful life and is being carried in furniture,
      equipment capitalized software and leasehold improvements in the Consolidated
      Statement of Financial Condition as of March 31, 2008. In addition, $87,781
      of
      unamortized capitalized software development costs represents software that
      is
      still in development and is not being amortized.




**Item
      8. Financial Statements and Supplementary Data**




Our
      consolidated financial statements and the related notes begin on Page F-1,
      which
      are included in this Annual Report on Form 10-K.




18






**Item
      9. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure**




None.




**Item
      9A(T). Controls and Procedures**




**Disclosure
      Controls and Procedures**




Disclosure
      controls are procedures that are designed with the objective of ensuring that
      information required to be disclosed in our reports filed under the Securities
      Exchange Act of 1934, as amended (the "Exchange Act"), such as this annual
      report, is recorded, processed, summarized and reported within the time periods
      specified in the SEC's rules and forms. Disclosure controls are also designed
      with the objective of ensuring that such information is accumulated and
      communicated to our management, including the CEO and CFO, as appropriate to
      allow timely decisions regarding required disclosure. Internal controls are
      procedures which are designed with the objective of providing reasonable
      assurance that (1) our transactions are properly authorized, recorded and
      reported; and (2) our assets are safeguarded against unauthorized or improper
      use, to permit the preparation of our consolidated financial statements in
      conformity with United States generally accepted accounting
      principles.




As
      of the
      end of the period covered by this annual report, we carried out an evaluation
      of
      the effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in Exchange Act Rule 13a- -15(e) and 15d-15(e)). Based
      upon that evaluation, our Chief Executive Officer ("CEO") and Chief Financial
      Officer ("CFO") concluded that, as of the end of the period covered by this
      annual report on Form 10-K, our disclosure controls and procedures were
      adequate.





**Management’s
      Report on Internal Control over Financial Reporting**




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rule 13a-15(f) under the Exchange
      Act. Internal control over financial reporting refers to a process designed
      by,
      or under the supervision of, our Chief Executive Officer and Chief Financial
      Officer and effected by our Board, management and other personnel, to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles, including those policies and
      procedures that:





·
            pertain
                to the maintenance of records that, in reasonable detail, accurately
                and
                fairly reflect the transactions and dispositions of our assets;





·
            provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles, and that our receipts and expenditures are
                being
                made only in accordance with authorizations of our management and
                directors; and





·
            provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of our assets that could
                have
                a material effect on our consolidated financial statements.





Because
      of its inherent limitations, internal control over financial reporting cannot
      provide absolute assurance of the prevention or detection of misstatements.
      In
      addition, projections of any evaluation of effectiveness to future periods
      are
      subject to the risk that controls may become inadequate because of changes
      in
      conditions, or that the degree of compliance with the policies or procedures
      may
      deteriorate.




In
      connection with the preparation of this Annual Report on Form 10-K for the
      year
      ended March 31, 2008, management, with the participation of our Chief Executive
      Officer and Chief Financial Officer, has evaluated the effectiveness of our
      internal controls over financial reporting, pursuant to Rule 13a-15 under the
      Exchange Act. Our Chief Executive Officer and Chief Financial Officer have
      concluded that the design and operation of our internal controls and procedures
      are effective as of March 31, 2008. There were no significant changes in our
      internal controls over financial reporting that occurred during the fourth
      fiscal quarter that have materially affected, or are reasonably likely to
      materially affect, our internal controls over financial reporting.





This
      Annual Report on Form 10-K does not include an attestation report of Eisner
      LLP,
      our independent registered public accounting firm, regarding internal control
      over financial reporting. Management's report was not subject to attestation
      by
      our registered public accounting firm pursuant to temporary rules of the
      Securities and Exchange Commission that permit us to provide only management's
      report in this Annual Report on Form 10-K.




**Item
      9B. Other Information**




None.




19




**PART
      III**




**Item
              10.**
            **Directors,
                Executive Officers****and
                Corporate Governance****;**
              **Compliance
                with Section 16(a) of the Exchange
                Act**




The
      following table sets forth information regarding the members of our board of
      directors and our executive officers.




Name
            
            Age
            
            PositionMartin
                C. Cunningham
            
            48
            
            Chairman
                of the Board of Directors
              and
                Chief Executive OfficerKeith
                R. Knox
            
            49
            
            President,
                Secretary and DirectorMark
                Leventhal
            
            52
            
            Executive
                Vice President and DirectorMark
                Bisker
            
            53
            
            DirectorPeter
                J. Zugschwert
            
            42
            
            DirectorJoanne
                V. Landau
            
            53
            
            DirectorCarmine
                V. Chiusano
            
            66
            
            Director




The
      principal occupations for the past five years (and, in some instances, for
      prior
      years) of each of our directors and officers are as follows:




Martin
      Cunningham has been a director of Holding and has served as its Chief Executive
      Officer since 2004. From August 2003 until joining Hudson, Mr. Cunningham was
      an
      employee of Wien Securities, Inc. From February 2003 until August 2003, Mr.
      Cunningham was President of Wien Securities, Inc. From 1996 to December 2002,
      Mr. Cunningham was Senior Vice President and Head of Equity Trading at Schwab
      Capital Markets (formerly Mayer & Schweitzer).




Keith
      Knox has been a director of Holding and has served as its President since 2004.
      From January 2003 until joining Hudson, Mr. Knox was a Vice President of Wien
      Securities, Inc. From 1984 to December 2002, Mr. Knox was a trader with Schwab
      Capital Markets (formerly Mayer & Schweitzer).




Mark
      Leventhal has been a director of Holding and has served as its Executive Vice
      President since 2004. From January 2003 until joining Hudson, Mr. Leventhal
      was
      a Vice President of Wien Securities, Inc. From 1989 to December 2002, Mr.
      Leventhal was manager of NASDAQ Trading at Schwab Capital Markets (formerly
      Mayer & Schweitzer).




Mark
      Bisker has been a director of the Company since September 2007. Mr. Bisker
      has
      been the Senior Vice President of Banking and Financial Services of EPAM
      Systems, which provides technology consulting services to the Company, since
      2007. From 2003 to 2007, he was the Chief Executive Officer of B2BITS, which
      provided technology consulting services to the Company. In these roles, Mr.
      Bisker serves as the Company’s Chief Technology Officer.




Peter
      J.
      Zugschwert has been a director of the Company since October 1997, served as
      President of the Company from December 1997 through May 2005 and served as
      CEO
      of the Company from September 1997 to May 2005. Mr. Zugschwert has been a
      Private Equity Consultant since 1997.




Joanne
      V.
      Landau has been a Director since May 2006. Ms. Landau has been the President
      of
      Kurtsam Realty Corp. since 2003. From 2000 to 2002, she was Senior Vice
      President, Head of Strategic Marketing and Communications with Zurich Scudder
      -
      Deutsche Asset Management/Investments and from 1990 to 1999, Ms. Landau was
      with
      The Citibank Private Bank/Investments, a subsidiary of Citigroup, most recently
      as Vice President, Head of Global Marketing and Communications.




Carmine
      V. Chiusano has been a Director since May 2006. In 2004, Mr. Chiusano retired
      from Schwab Capital Markets (formerly Mayer & Schweitzer) where he was
      employed since 1968, most recently as Senior Vice President, Chief Operating
      Officer.




All
      directors hold office until the next annual meeting of stockholders and the
      election and qualification of their successors. Three of our seven directors
      are
      considered "independent" under the SEC's new independence standards. Officers
      are elected annually by the board of directors and serve at the discretion
      of
      the board.





There
      are
      no family relationships among our directors and executive officers. No director
      or executive officer has been a director or executive officer of any business
      which has filed a bankruptcy petition or had a bankruptcy petition filed against
      it. No director or executive officer has been convicted of a criminal offense
      or
      is the subject of a pending criminal proceeding. No director or executive
      officer has been the subject of any order, judgment or decree of any court
      permanently or temporarily enjoining, barring, suspending or otherwise limiting
      his involvement in any type of business, securities or banking activities.
      No
      director or officer has been found by a court to have violated a federal or
      state securities or commodities law.




20




None
      of
      our directors or executive officers or their respective immediate family members
      or affiliates is indebted to us. As of the date of this filing, there is no
      material proceeding to which any of our directors, executive officers or
      affiliates is a party or has a material interest adverse to us.




**Board
      Committees**




Our
      board
      of directors has three standing committees to assist it with its
      responsibilities. These committees are described below.




The
      Audit
      Committee, which was established in May 2006, is comprised solely of directors
      who satisfy the SEC and American Stock Exchange audit committee membership
      requirements, is governed by a board-approved charter, which is incorporated
      by
      reference as Exhibit 10.7, that contains, among other things, the committee's
      membership requirements and responsibilities. The audit committee oversees
      our
      accounting, financial reporting process, internal controls and audits, and
      consults with management and the independent registered public accounting firm
      (the "independent auditors") on, among other items, matters related to the
      annual audit, the quarterly financial statements and the application of United
      States generally accepted accounting principles. As part of its duties, the
      audit committee appoints, evaluates and retains our independent auditors. It
      maintains direct responsibility for the compensation, termination and oversight
      of our independent auditors and evaluates the independent auditors'
      qualifications, performance and independence. The committee also monitors
      compliance with our policies on ethical business practices and reports on these
      items to the board. The audit committee has established policies and procedures
      for the pre-approval of all services provided by the independent auditors.
      Our
      audit committee is comprised of Ms. Landau and Messrs. Zugschwert and Chiusano,
      and Mr. Zugschwert is the chairman of the committee.




The
      board
      has determined that Mr. Zugschwert, who currently is a member of the board
      of
      directors and chairman of the audit committee, is the audit committee financial
      expert, as defined under the Securities Exchange Act of 1934, as amended (the
      "Exchange Act"). In addition, the board has determined that Mr. Zugschwert
      is an
      independent director as that term is defined in Item 7(d)(3)(iv) of Schedule
      14A
      under the Exchange Act. The board made a qualitative assessment of Mr.
      Zugschwert's level of knowledge and experience based on a number of factors,
      including his formal education, including an MBA in Finance, and experience
      as a
      Chief Financial Officer for more than ten years.




The
      Compensation Committee, which was established in May 2006, is comprised solely
      of independent directors, determines all compensation for our Chief Executive
      Officer; reviews and approves corporate goals relevant to the compensation
      of
      our Chief Executive Officer and evaluates our Chief Executive Officer's
      performance in light of those goals and objectives; reviews and approves
      objectives relevant to other executive officer compensation; reviews and
      approves the compensation of other executive officers in accordance with those
      objectives; advises our board regarding our stock option plans; approves
      severance arrangements and other applicable agreements for executive officers;
      and consults generally with management on matters concerning executive
      compensation and on pension, savings and welfare benefit plans where board
      or
      stockholder action is contemplated with respect to the adoption of or amendments
      to such plans. The compensation committee is governed by a Board-approved
      charter, which is incorporated by reference as Exhibit 10.8. Our compensation
      committee is comprised of Ms. Landau and Messrs. Zugschwert and Chiusano, and
      Mr. Chiusano is the chairman of the committee.




The
      Nominating and Corporate Governance Committee, which was established in May
      2006, considers and makes recommendations on matters related to the practices,
      policies and procedures of the board and takes a leadership role in shaping
      our
      corporate governance. The committee is governed by a Board-approved charter,
      which is incorporated by reference as Exhibit 10.9. As part of its duties,
      the
      committee assesses the size, structure and composition of the board and board
      committees, coordinates evaluation of board performance and reviews board
      compensation. The committee also acts as a screening and nominating committee
      for candidates considered for election to the board. In this capacity it
      concerns itself with the composition of the board with respect to depth of
      experience, balance of professional interests, required expertise and other
      factors. The committee evaluates prospective nominees identified on its own
      initiative or referred to it by other board members, management, stockholders
      or
      external sources and all self-nominated candidates. The committee uses the
      same
      criteria for evaluating candidates nominated by stockholders and self-nominated
      candidates as it does for those proposed by other board members, management
      and
      search companies. Our nominating committee is comprised of Ms. Landau and
      Messrs. Zugschwert and Chiusano, and Ms. Landau is the chairman of the
      committee.




**Code
      of Business Conduct and Ethics**




We
      have
      adopted a Code of Business Conduct and Ethics applying to our directors,
      officers and employees. The Code is reasonably designed to deter wrongdoing
      and
      promote (i) honest and ethical conduct, including the ethical handling of actual
      or apparent conflicts of interest between personal and professional
      relationships, (ii) full, fair, accurate, timely and understandable disclosure
      in reports and documents filed with, or submitted to, the SEC and in other
      public communications made by us, (iii) compliance with applicable governmental
      laws, rules and regulations, (iv) the prompt internal reporting of violations
      of
      the code to appropriate persons identified in the code, and (v) accountability
      for adherence to the Code. The Code is incorporated by reference as Exhibit
      14.
      In addition, we undertake to provide copies of the Code to any person, at no
      charge, upon receipt of a written request addressed to Mr. Keith Knox,
      President, Hudson Holding Corporation, 111 Town Square Place, Suite 1500A,
      Jersey City, New Jersey 07310.




21




**Compliance
      with Section 16(a) of the Exchange Act**





Section
      16(a) of the Exchange Act requires our executive officers and directors, and
      persons who own more than 10% of any publicly traded class of our equity
      securities, to file reports of ownership and changes in ownership of our equity
      securities with the SEC. Officers, directors, and greater than ten percent
      stockholders are required by SEC regulation to furnish the Company with copies
      of all Section 16(a) forms that they file.





Based
      solely on the reports received and on the representations of the reporting
      persons, we believe that these persons have complied with all applicable filing
      requirements of Section 16(a) of the Exchange Act during fiscal 2007, except
      for
      (1) the following individuals that inadvertently filed late reports, including
      Mark Bisker (1 Form 3), Steven L. Winkler (4 Form 4), Peter J. Zugschwert (1
      Form 4), Carmine V. Chiusano (1 Form 4), and Joanne V. Landau (1 Form
      4).





**Item
      11. Executive Compensation**





Summary
      Compensation Table





Name and Principal
              Position
            
            Fiscal
              Year
              Ended
              March
              31,
            
            Salary
            
            Bonus
            
            Stock
              Awards
            
            Option
              Awards
            
            All Other
              Compensation (1)
            
            TotalMartin
                C. Cunningham,
              Chairman
                and Chief Executive Officer
            
            
            2008
              2007
            
            $
              $
            200,000
              185,000
            
            $
              $
            -
              -
            
            $
              $
            -
              -
            
            $
              $
            -
              -
            
            $
              $
            36,236
              23,792
            
            $
              $
            236,236
              208,792Keith
                R. Knox,
              President
                and Secretary
            
            
            2008
              2007
            
            $
              $
            200,000
              185,000
            
            $
              $
            -
              -
            
            $
              $
            -
              -
            
            $
              $
            -
              -
            
            $
              $
            35,763
              23,005
            
            $
              $
            235,763
              208,005Mark
                Leventhal,
              Executive
                Vice President
            
            
            2008
              2007
            
            $
              $
            180,000
              180,000
            
            $
              $
            -
              -
            
            $
              $
            -
              -
            
            $
              $
            -
              -
            
            $
              $
            35,957
              32,538
            
            $
              $
            215,957
              212,538





(1)
            Amount
                represents health, dental, life and disability insurance benefits as well
                as vehicle allowances and parking fees, as
                applicable.





**Employment
      and Consulting Arrangements and Change in Control
      Arrangements**





The
      Compensation Committee of our board of directors have approved the terms of
      each
      of the employment agreements, as amended, described below. As of January 1,
      2007, we entered into the employment agreements described below, as amended
      on
      May 19, 2008, with each of the following persons.





**Martin
      Cunningham** as
      our
      Chief Executive Officer. The agreement, as amended, provides for an initial
      term
      of five years, an annual salary to Mr. Cunningham of $200,000 and an annual
      bonus based on a formula of 5% of the firm’s net profits before taxes, payable
      quarterly, provided that net profits in such fiscal quarter is equal to or
      exceeds $750,000. Our board of directors may increase the amount of the bonus.
      The agreement also provides for the executive’s ability to participate in our
      health insurance program and a car allowance of $1,000 per month. In the event
      that Mr. Cunningham’s employment is terminated by the Company, other than with
      good cause, he will receive any bonus payment due through his termination date,
      all remaining salary payments, plus certain health insurance benefits.





**Keith
      Knox** as our
      President. The agreement, as amended, provides for an initial term of five
      years, an annual salary to Mr. Knox of $200,000 and an annual bonus, based
      on a
      formula of 4% of the firm’s net profits before taxes, payable quarterly,
      provided that net profits in such fiscal quarter is equal to or exceeds
      $750,000. Our board of directors may increase the amount of the bonus. The
      agreement also provides for the executive’s ability to participate in our health
      insurance program and a car allowance of $1,000 per month. In the event that
      Mr.
      Knox’s employment is terminated by the Company, other than with good cause, he
      will receive any bonus payment due through his termination date, all remaining
      salary payments, plus certain health insurance benefits.





**2005
      Stock Option Plan**




The
      2005
      Stock Option Plan (the "2005 Plan"), which was approved by the stockholders
      on
      July 26, 2005, is administered by the Board of Directors. The 2005 Plan is
      available for the issuance of awards of up to an aggregate of 2,000,000 shares
      of common stock to our employees, officers, directors and consultants, in the
      form of either non-qualified stock options or incentive stock options. The
      purpose of the 2005 Plan is to provide additional incentive to those persons
      who
      are responsible for the management and growth of the Company.




22




As  of
      March
      31, 2008, there were 2,000,000 options outstanding under the 2005 Plan and
      no
      options remained available for issuance under the plan.





**2007
      Long-Term Incentive Plan**




The
      2007
      Stock Option Plan (the "2007 Plan"), which was approved by the stockholders
      on
      July 26, 2005, is administered by the Board of Directors. The 2007 Plan is
      available for the issuance of awards of up to an aggregate of 22,000,000 shares
      of common stock to our employees, officers, directors and consultants, in the
      form of either non-qualified stock options or incentive stock options, following
      a 12,00,000 share increase to the authorized shares being approved by the Hudson
      Board on February 13, 2008 and by a majority of Hudson’s shareholders on March
      4, 2008. The purpose of the 2007 Plan is to provide additional incentive to
      those persons who are responsible for the management and growth of the
      Company.





As  of
      March
      31, 2008, there were 1,495,000 options and 8,361,666 shares of restricted stock
      outstanding under the 2007 Plan and 12,143,334 shares remained available for
      issuance under the plan.





**Outstanding
      Equity Awards at Fiscal Year End**




No
      option, stock appreciation right or long-term incentive plan awards were granted
      to or exercised by any of the Named Executive Officers during the fiscal year
      ended March 31, 2008 and no such awards are currently outstanding.





**Director
      Compensation**





Directors
      were not compensated for their service during the fiscal year ended March 31,
      2006. On August 15, 2006, the board of directors resolved that compensation
      for
      each of the independent directors for the ensuing year would be $600 per month,
      plus immediately vested, five -year options to purchase 10,000 shares of the
      Company’s common stock with an exercise price equal to the market price of the
      Company’s common stock on the August 15, 2006 grant date. On June 28, 2007 the
      board of directors resolved that compensation for each of the independent
      directors would be increased to $800 per month, effective immediately. On July
      19, 2007 the board of directors resolved that each of the independent directors
      would be granted immediately vested, five-year options to purchase 25,000 shares
      of the Company’s common stock with an exercise price equal to the market price
      of the Company’s common stock on the July 19, 2007 grant date. On May 5, 2008,
      each of the four outside directors were granted 100,000 shares of immediately
      vested common stock of the Company.





Director
      Compensation Table




Name
            
            Year
            
            Fees Earned or
              Paid in
              Cash
            
            Stock
              Awards
            
            Option
              Awards
            
            (3)
              All Other
              Compensation
            
            TotalCarmine
                Chiusano
            
            
            2008
            
            $
            9,000
            
            $
            -
            
            $
            5,000
            (1)
            $
            -
            
            $
            14,0002007
            
            $
            4,200
            
            $
            -
            
            $
            5,800
            (1)
            $
            9,846
            
            $
            19,846Joanne
                Landau
            
            
            2008
            
            $
            9,000
            
            $
            -
            
            $
            5,000
            (1)
            $
            -
            
            $
            14,0002007
            
            $
            4,200
            
            $
            -
            
            $
            5,800
            (1)
            $
            -
            
            $
            10,000Peter
                Zugschwert
            
            
            2008
            
            $
            9,000
            
            $
            -
            
            $
            5,000
            (1)
            $
            -
            
            $
            14,0002007
            
            $
            4,200
            
            $
            -
            
            $
            5,800
            (1)
            $
            -
            
            $
            10,000Mark
                Bisker
            
            
            2008
            
            $
            -
            
            $
            -
            
            $
            85,000
            (2)
            $
            -
            (4)
            $
            85,000




(1)
            Amounts
                represent the value of 25,000 and 10,000 stock options granted to
                each of
                the independent members of the Board of Directors during the fiscal
                years
                ended March 31, 2008 and 2007, respectively. The options were valued
                using the Black-Sholes pricing model (For assumptions used in this
                calculation, See Note B[9] in the consolidated financial statements,
                included within this annual report). These are the only options granted
                to
                these directors which are outstanding at March 31,
                2008.




23




(2)
            Amount
                represents the value of 250,000 stock options granted to Mark Bisker
                in
                his role as a consultant to the Company during the fiscal year ended
                March
                31, 2008. The options were valued using the Black-Sholes pricing
                model (For assumptions used in this calculation, See Note B[9] in
                the
                consolidated financial statements, included within this annual report).
                These are the only options granted to Mr. Bisker which are outstanding
                at
                March 31, 2008.(3)
            Amount
                represents compensation paid, primarily during the period from April
                1,
                2006 to May 15, 2006.(4)
            Mr.
                Bisker provides consulting services to the Company via EPAM Systems
                and
                formerly via B2BITS. Mr. Bisker receives compensation from those
                firms and
                he previously held a 31.5% ownership interest in
                B2BITS.




**Item
      12. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**




**Securities
      Authorized for Issuance under Equity Compensation Plans**




Number of securitiesNumber of securities to
            
            
            
            remaining available forbe issued upon exercise
            
            Weighted-average exercise
            
            future issuance underof outstanding options,
            
            price of outstanding
            
            equity compensation planswarrants and rights
            
            options, warrants and rights
            
            (excluding securities(a)
            
            (b)
            
            reflected in column (a))Equity
                compensation plans approved by security holders
            
            
            3,495,000
            
            $
            0.90
            
            
            12,143,334Equity
                compensation plans not approved by security holders
            
            
            7,122,774
            
            
            0.88
            
            
            -Total
            
            
            10,617,774
            
            $
            0.89
            
            
            12,143,334





The
      table
      above reflects the status of the Company's equity compensation plans as of
      March
      31, 2008.




**Security
      Ownership of Certain Beneficial Owners**




The
      following table sets forth information regarding the number of shares of our
      common stock beneficially owned on June 20, 2008 by:




o
      each
      person who is known by us to beneficially own 5% or more of our common
      stock;




o
      each of
      our directors and executive officers; and




o
      all of
      our directors and executive officers, as a group.




Except
      as
      otherwise set forth below, the address of each of the persons listed below
      is
      Hudson Holding Corporation, 111 Pavonia Avenue, Suite 1500A, Jersey City, New
      Jersey 07310.




24


**Number of Shares**
                **Beneficially**
              
              **Percentage of Shares****Name
                  and Address of Beneficial Owner**
              
              **Owned (1)**
              
              **Beneficially Owned (2)**Directors
                  and Executive Officers:Martin
                  C. Cunningham
              
              
              5,003,565
              
              
              11.1
              %Keith
                  R. Knox
              
              
              3,353,565
              
              
              7.4
              %Mark
                  Leventhal
              
              
              3,848,565
              
              
              8.5
              %Peter
                  J. Zugschwert (3)
              
              
              349,356
              
              
              *Joanne
                  V. Landau (3)
              
              
              135,000
              
              
              *Carmine
                  V. Chiusano (3)
              
              
              135,000
              
              
              *Mark
                  Bisker (4)
              
              
              183,333
              
              
              *All
                  executive officers and directors as a group (7 persons)
              
              
              13,008,384
              
              
              28.5
              %Other
                  5% or Greater Stockholders:Kenneth
                  D. Pasternak (5)
              
              
              9,081,789
              
              
              19.8
              %Steven
                  L. Winkler (6)
              
              
              4,383,564
              
              
              9.7
              %South
                  Ferry #2 LP (7)
              
              
              3,375,000
              
              
              7.3
              %Seaport
                  Hudson LLC (8)
              
              
              12,000,000
              
              
              24.4
              %




*
      Less
      than 1% of outstanding shares




(1)
      Unless otherwise indicated, includes shares owned by a spouse, minor children
      and relatives sharing the same home, as well as entities owned or controlled
      by
      the named person.




(2)
      Based
      upon 45,125,185 shares of our common stock outstanding on June 20,
      2008.




(3)
      Includes 35,000 shares of Common Stock issuable upon exercise of Stock options
      to these directors




(4)
      Includes 83,333 shares of Common Stock issuable upon exercise of stock options
      to this director




(5)
      Includes 833,335 shares of Common Stock issuable upon exercise of Warrants.
      The
      address for Mr. Pasternak is 111 E. Saddle River Road, Saddle River, N.J.
      07458.




(6)
      Mr.
      Winkler is employed by Hudson Securities, Inc., a wholly-owned subsidiary of
      Hudson Holding Corporation, as Nasdaq Trading Manager.





(7)  Includes
      1,125,000 shares of common stock issuable upon exercise of warrants. Aaron
      Wolfson and Abraham Wolfson are the General Partners of South Ferry #2 LP,
      however, all of the voting and dispositive power over South Ferry #2’s portfolio
      has been delegated to Morris Wolfson, its portfolio manager. Aaron Wolfson,
      Abraham Wolfson and Morris Wolfson each disclaim beneficial ownership over
      the
      shares owned by South Ferry #2 LP. The address for South Ferry #2 LP is One
      State Street Plaza, 29th Floor, New York, New York 10004.





(8)
      Includes 4,000,000 shares of Common Stock issuable upon exercise of Warrants.
      Seaport Hudson LLC is not otherwise affiliated with Hudson Holding Corporation
      or its subsidiaries. The address for Seaport Hudson LLC is c/o The Seaport
      Group
      LLC, 360 Madison Avenue, 22 nd Floor,
      New York, NY 10017.




25




**Item
      13. Certain Relationships and Related Transactions, and Director
      Independence**





The
      Chief
      Technology Officer (as a consultant) and Director (since September 2007) of
      Hudson, was the Chief Executive Officer and a Director of a consulting firm
      that
      provided information technology management and software development services
      to
      the Company and its affiliates, an entity in which he held a 31.5% ownership
      interest, until November 29, 2007 when the consulting firm was sold to a third
      party. Through November 29, 2007, services valued at $235,064 were provided
      to
      the Company and its affiliates by this consulting firm during the year ended
      March 31, 2008. Of these amounts, none remained unpaid as of March 31, 2008.
      Mr.
      Bisker received, and continues to receive, compensation from the independent
      firms, which provide technology consulting services to the Company.





Three
      of
      our seven directors are considered "independent" under the SEC's new
      independence standards. ****





**Item
      14. Principal Accountant Fees and Services**





*Audit
      Fees*





The
      aggregate fees billed for professional services rendered was $136,000 and
      $142,697 for the audits of the Company's annual consolidated financial
      statements for the fiscal years ended March 31, 2008 and 2007, respectively,
      which services include the cost of the audits of the consolidated financial
      statements included in the Company’s annual Forms 10-K for each respective
      year and the reviews of the related quarterly Form 10-QSB’s.





*Audit-Related
      Fees*





The
      principal accountant billed $11,200 related to the review of a registration
      statement, the review of a response to an SEC comment letter and Sarbanes-Oxley
      project discussions during the fiscal year ended March 31, 2008 and $7,600
      related to the review of a registration statement during the fiscal year ended
      March 31, 2007.





*Tax
      Fees*





For
      the
      years ended March 31, 2008 and 2007, the principal accountant billed $29,750
      and
      $54,500, respectively, for tax compliance. The billing for the fiscal year
      ended
      March 31, 2007 included services related to tax returns for three
      periods.




*All
      Other Fees*





The
      principal accountant billed $28,728 related to several audits of anti-money
      laundering procedures during the fiscal year ended March 31, 2007.





*Audit
      Committee Policies and Procedures*





Effective
      with the formation of our Audit Committee, all auditing services and permitted
      non-audit services (including the fees and terms thereof) to be performed for
      the Company by its independent auditors will be pre-approved, subject to the
      de-minimus exceptions for non-audit services described in Section 10A(i)(1)(B)
      of the Securities Exchange Act of 1934, which should be nonetheless be approved
      by the Board of Directors prior to the completion of the audit. At the beginning
      of the fiscal year, the Audit Committee will evaluate other known potential
      engagements of the independent auditor, including the scope of work proposed
      to
      be performed and the proposed fees, and approve or reject each service, taking
      into account whether the services are permissible under applicable law and
      the
      possible impact of each non-audit service on the independent auditor's
      independence from management. At each such subsequent meeting, the auditor
      and
      management may present subsequent services for approval. Typically, these would
      be services such as due diligence for an acquisition, that would not have been
      known at the beginning of the year.




26


**Item
      15. Exhibits, Financial Statement Schedules**





(1)
      Consolidated Financial Statements.


See
      Table
      of Contents to Consolidated Financial Statements.





(2)
      Financial Statement Schedules.


See
      Table
      of Contents to Consolidated Financial Statements.





(3)
      Exhibits


See
      below.





**Exhibit
                No.**
            
            **Description**2.1
            
            Agreement
                and Plan of Merger, dated June 13, 2005, among Health Outcomes Management,
                Inc. and Hudson Holding Corporation (1)2.2
            
            Agreement
                and Plan of Merger, dated December 22, 2004, among Health Outcomes
                Management, Inc., Hudson Acquisition Inc. and Hudson Securities,
                Inc.
                (2)3.1
            
            Certificate
                of Incorporation of Hudson Holding Corporation (1)3.2
            
            Bylaws
                of Hudson Holding Corporation (1)4.1
            
            Rights
                of Dissenting Shareholders (1)4.2
            
            Form
                of Warrant (3)4.3
            
            Warrant
                to purchase shares of common stock in the Company, issued to Investor,
                dated as of June 20, 2008 (10)10.1
            
            Subscription
                Agreement, dated January 10, 2006, between Kenneth Pasternak
              and
                Hudson Holding Corporation (4)10.2
            
            2005
                Stock Option Plan (1)10.3
            
            Form
                of Securities Purchase Agreement (3)10.4
            
            Form
                of Registration Rights Agreement (3)10.5
            
            Employment
                Agreement, effective as of January 1, 2007, by and between Hudson
                Holding
                Corporation and Martin C. Cunningham (5)10.6
            
            Employment
                Agreement, effective as of January 1, 2007, by and between Hudson
                Holding
                Corporation and Keith R. Knox (5)10.7
            
            Audit
                Committee Charter (6)10.8
            
            Compensation
                Committee Charter (6)10.9
            
            Nominating
                and Corporate Governance Committee Charter (6)10.10
            
            Complaint
                Procedures for Accounting, Internal Accounting Control, and Auditing
                Matters (6)10.11
            
            2007
                Long-Term Incentive Plan (7)10.12
            
            Employment
                Agreement, effective as of November 28, 2007, by and between Hudson
                Securities, Inc. and Vincent Pelosi (8)10.13
            
            Employment
                Agreement, effective as of November 28, 2007, by and between Hudson
                Securities, Inc.
              and
                Dana Pascucci (8)


10.14
            
            Employment
                Agreement, effective as of January 10, 2008, by and between Hudson
                Securities, Inc. and David Scialabba
                (9)




27




10.15
            
            Amendment
                No. 1 to the Employment Agreement, dated as of May 19, 2008, by and
                between Hudson Holding Corporation and Martin C.
                Cunningham10.16
            
            Amendment
                No. 1 to the Employment Agreement, dated as of May 19, 2008, by and
                between Hudson Holding Corporation and Keith R. Knox10.17
            
            Securities
                Purchase Agreement, entered into by and between the Company and Investor,
                dated as of June 20, 2008 (10)10.18
            
            Form
                of Registration Rights Agreement, entered into by and between the
                Company
                and Investor, dated as of June 20, 2008 (10)14
            
            Code
                of Business Conduct and Ethics and Compliance Program
                (6)21
            
            Subsidiaries
                of Hudson Holding Corporation23.1
            
            Consent
                of Eisner LLP31.1
            
            Certification
                of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley
                Act of 200231.2
            
            Certification
                of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley
                Act of 200232.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                *32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                *99.1
            
            Press
                Release No. 1 Related to Hudson Holding Corporation's Earnings for
                the
                Year Ended March 31, 200899.2
            
            Press
                Release No. 2 Related to Hudson Holding Corporation's Earnings for
                the
                Year Ended March 31, 2008





*
      These
      Exhibits attached to this Form 10-K shall not be deemed "filed" for purposes
      of
      Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or
      otherwise subject to liability under that section, nor shall it be deemed
      incorporated by reference in any filing under the Securities Act of 1933, as
      amended, or the Exchange Act, except as expressly set forth by specific
      reference in such filing.





(1) Incorporated
        by reference to the exhibits included with our Definitive Proxy Statement
        on
        Schedule 14A, filed with the SEC on July 1, 2005.




(2) Incorporated
        by reference to the exhibits included with our Current Report on Form 8-K
        filed
        with the SEC on December 28, 2004.




(3) Incorporated
        by reference to the exhibits included with our Current Report on Form 8-K
        filed
        with the SEC on December 1, 2006, as amended.





(4) Incorporated
        by reference to the exhibits included with our Current Report on Form 8-K
        filed
        with the SEC on January 19, 2006, as amended.




(5) Incorporated
        by reference to the exhibits included with our Current Report on Form 8-K
        filed
        with the SEC on January 4, 2007, as amended.




(6) Incorporated
          by reference to the exhibits included with our Form 10-KSB filed with the
          SEC on
          June 29, 2006.





(7) Incorporated
          by reference to the exhibits included with our Definitive Proxy Statement
          on
          Schedule 14A, filed with the SEC on July 20, 2007.





(8) Incorporated
          by reference to the exhibits included with our Current Report on Form 8-K
          filed
          with the SEC on December 4, 2007.





(9) Incorporated
          by reference to the exhibits included with our Form 10-QSB filed with the
          SEC on
          February 14, 2008.





(10) Incorporated
          by reference to the exhibits included with our Current Report on Form 8-K
          filed
          with the SEC on June 24, 2008.





28





**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the
      registrant caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized.




**HUDSON
      HOLDING CORPORATION**




Dated:
                June 26, 2008
            By:
                /s/ Martin C. CunninghamMartin
                C. CunninghamChairman
                of the BoardChief
                Executive Officer and Director(Principal
                Executive Officer)Dated:
                June 26, 2008
            By:
                /s/ Keith R. KnoxKeith
                R. KnoxPresident,
                Secretary and Director(Principal
                Financial and Accounting Officer)





Signatures
            
            Title
            
            Date/s/
                Martin C. Cunningham
            
            
            Chairman
                of the Board,
            
            June
                26, 2008Martin
                C. Cunningham
            
            
            Chief
                Executive Officer and Director(principal
                executive officer)/s/
                Keith R. Knox
            
            
            President,
                Secretary and Director
            
            June
                26, 2008Keith
                R. Knox
            
            
            (principal
                financial and accounting officer)/s/
                Mark Leventhal
            
            
            Executive
                Vice President and Director
            
            June
                26, 2008Mark
                Leventhal/s/
                Mark Bisker
            
            
            Director
            
            June
                26, 2008Mark
                Bisker/s/
                Peter J. Zugschwert
            
            
            Director
            
            June
                26, 2008Peter
                J. Zugschwert/s/
                Joanne V. Landau
            
            
            Director
            
            June
                26, 2008Joanne
                V. Landau/s/
                Carmine V. Chiusano
            
            
            Director
            
            June
                26, 2008Carmine
                V. Chiusano





29




**HUDSON
      HOLDING CORPORATION AND SUBSIDIARIES**





**Table
      of Contents to Consolidated Financial Statements**





**Page(s)**Report
                of Independent Registered Public Accounting Firm
            F-1Consolidated
                Balance Sheets as of March 31, 2008 and 2007
            F-2Consolidated
                Statements of Operations for the Years Ended March 31, 2008 and
                2007
            F-3Consolidated
                Statements of Stockholders' Equity for the Years Ended March 31,
                2008 and
                2007
            F-4Consolidated
                Statements of Cash Flows for the Years Ended March 31, 2008 and
                2007
            F-5Notes
                to Consolidated Financial Statements
            F-6




30





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors


Hudson
      Holding Corporation




We
      have
      audited the consolidated statements of financial condition of Hudson Holding
      Corporation (the "Company") and subsidiaries as of March 31, 2008 and 2007,
      and the related consolidated statements of operations, changes in stockholders'
      equity and cash flows for the years ended March 31, 2008 and 2007. These
      financial statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. We were not engaged
      to
      perform an audit of the Company’s internal control over financial reporting. Our
      audits include consideration of internal control over financial reporting as
      a
      basis for designing audit procedures that are appropriate in the circumstances,
      but not for the purpose of expressing an opinion on the effectiveness of the
      Company’s internal control over financial reporting. Accordingly, we express no
      such opinion. An audit includes examining, on a test basis, evidence supporting
      the amounts and disclosures in the financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of Hudson Holding
      Corporation as of March 31, 2008 and 2007, and the consolidated results of
      its operations and its cash flows for the years ended March 31, 2008 and
      2007 in conformity with U.S. generally accepted accounting
      principles.




/s/
      Eisner LLP




New
      York,
      New York


June
      26,
      2008




F-1




**HUDSON
      HOLDING CORPORATION AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF FINANCIAL CONDITION**





**As of March 31,****2008**
            
            **2007****ASSETS**Cash
                and cash equivalents
            
            $
            6,172,348
            
            $
            5,112,275Cash-restricted
            
            
            245,505
            
            
            235,837Receivable
                from clearing broker
            
            
            2,475,575
            
            
            945,031Securities
                owned, at fair value
            
            
            2,423,257
            
            
            14,188,748Income
                taxes receivable
            
            
            419,041
            
            
            613,266Furniture,
                equipment, capitalized software and leasehold improvements,
                net
            
            
            959,733
            
            
            478,077Deferred
                tax assets
            
            
            705,000
            
            
            79,000Other
                assets
            
            
            409,289
            
            
            269,873Prepaid
                compensation
            
            
            2,402,611
            
            
            -Goodwill
            
            
            1,111,179
            
            
            1,111,179$
            17,323,538
            
            $
            23,033,286**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Liabilities:Securities
                sold, but not yet purchased, at fair value
            
            $
            2,778,081
            
            $
            8,266,395Commissions
                payable
            
            
            1,070,511
            
            
            628,088Accrued
                expenses and other liabilities
            
            
            1,399,548
            
            
            875,288Total
                liabilities
            
            
            5,248,140
            
            
            9,769,771Commitments
                and contingencies (Note J)Stockholders'
                equity:Preferred
                stock, $0.001 par value, 1,000,000 shares authorized, none
                issued
            
            
            -
            
            
            -Common
                stock, $0.001 par value; 100,000,000 shares authorized; 45,086,851
                shares
                issued (includes 8,361,666 unvested restricted shares) and 36,725,185
                shares outstanding
            
            
            36,725
            
            
            36,725Additional
                paid-in capital
            
            
            12,631,300
            
            
            12,217,127(Accumulated
                deficit) retained earnings
            
            
            (592,627
            )
            
            1,009,663Total
                stockholders' equity
            
            
            12,075,398
            
            
            13,263,515$
            17,323,538
            
            $
            23,033,286





See
      notes
      to these consolidated financial statements.




F-2





**HUDSON
      HOLDING CORPORATION AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**Year Ended March 31,****2008**
            
            **2007****Revenues:**Trading
                gains, net
            
            $
            15,541,702
            
            $
            17,924,177Commissions
                and fees
            
            
            10,070,068
            
            
            2,665,437Interest
                and other income
            
            
            1,157,073
            
            
            261,90526,768,843
            
            
            20,851,519**Expenses:**Salaries
                and related costs
            
            
            5,266,839
            
            
            3,457,888Commissions,
                execution and clearing charges
            
            
            14,781,058
            
            
            10,461,863Communications
            
            
            5,012,413
            
            
            4,450,497Occupancy
            
            
            1,388,005
            
            
            1,215,463Professional
                fees
            
            
            1,063,603
            
            
            549,792Business
                development
            
            
            729,043
            
            
            393,850Other
            
            
            1,100,451
            
            
            794,70429,341,412
            
            
            21,324,057**Loss
                before income tax benefit**
            
            
            (2,572,569
            )
            
            (472,538
            )Income
                tax benefit
            
            
            (970,279
            )
            
            (89,430
            )**Net
                loss**
            
            $
            (1,602,290
            )
            $
            (383,108
            )Loss
                per share - basic and diluted
            
            $
            (0.04
            )
            $
            (0.01
            )Weighted
                average number of shares outstanding - basic and diluted
            
            
            36,725,185
            
            
            30,393,959





See
      notes
      to these consolidated financial statements.




F-3





**HUDSON
      HOLDING CORPORATION AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY**





**Common Stock**
            
            **Additional**
              **Paid-in**
            
            **Retained**
              **Earnings**
              **(Accumulated****Shares**
            
            **Amount**
            
            **Capital**
            
            **Deficit)**
            
            **Total**Balance,
                March 31, 2006
            
            
            27,149,860
            
            $
            27,150
            
            $
            6,672,761
            
            $
            1,392,771
            
            $
            8,092,682Sale
                of common stock and warrants
            
            
            9,575,325
            
            
            9,575
            
            
            5,471,123
            
            
            -
            
            
            5,480,698Stock-based
                compensation - employees
            
            
            -
            
            
            -
            
            
            55,843
            
            
            -
            
            
            55,843Stock-based
                compensation - directors
            
            
            -
            
            
            -
            
            
            17,400
            
            
            -
            
            
            17,400Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (383,108
            )
            
            (383,108
            )Balance,
                March 31, 2007
            
            
            36,725,185
            
            $
            36,725
            
            $
            12,217,127
            
            $
            1,009,663
            
            $
            13,263,515Stock-based
                compensation - employees
            
            
            -
            
            
            -
            
            
            161,232
            
            
            -
            
            
            161,232Stock-based
                compensation - directors
            
            
            -
            
            
            -
            
            
            15,000
            
            
            -
            
            
            15,000Stock-based
                compensation - consultants
            
            
            -
            
            
            -
            
            
            8,405
            
            
            -
            
            
            8,405Restricted
                stock grants - employees
            
            
            -
            
            
            -
            
            
            229,536
            
            
            -
            
            
            229,536Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,602,290
            )
            
            (1,602,290
            )Balance,
                March 31, 2008
            
            
            36,725,185
            
            $
            36,725
            
            $
            12,631,300
            
            $
            (592,627
            )
            $
            12,075,398





See
      notes
      to these consolidated financial statements.




F-4




**HUDSON
      HOLDING CORPORATION AND SUBSIDIARIES**




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**For the Years Ended**
              **March 31,****2008**
            
            **2007****Cash
                flows from operating activities:**Net
                loss
            
            $
            (1,602,290
            )
            $
            (383,108
            )Adjustments
                to reconcile net loss to net cash provided by (used in) operating
                activities:Depreciation
                and amortization
            
            
            292,274
            
            
            141,947Stock-based
                compensation
            
            
            414,173
            
            
            73,243Commissions
                receivable reserve provision
            
            
            152,360
            
            
            160,269Prepaid
                compensation amortization
            
            
            616,389
            
            
            -Deferred
                rent
            
            
            125,322
            
            
            78,030Deferred
                taxes
            
            
            (626,000
            )
            
            44,000Changes
                in:Receivable
                from clearing broker
            
            
            (1,530,544
            )
            
            3,921,519Securities
                owned
            
            
            11,765,491
            
            
            (10,453,351
            )Prepaid
                compensation
            
            
            (3,019,000
            )
            
            -Income
                taxes receivable/payable
            
            
            194,225
            
            
            (1,194,800
            )Commissions
                receivable
            
            
            (152,360
            )
            
            (160,269
            )Other
                assets
            
            
            (139,416
            )
            
            107,757Securities
                sold, but not yet purchased
            
            
            (5,488,314
            )
            
            7,847,807Commissions
                payable
            
            
            442,423
            
            
            (566,055
            )Accrued
                expenses and other liabilities
            
            
            398,938
            
            
            218,336Net
                cash provided by (used in) operating activities
            
            
            1,843,671
            
            
            (164,675
            )**Cash
                flows from investing activities:**Purchases
                of furniture and equipment, capitalized software and leasehold
                improvements
            
            
            (773,930
            )
            
            (444,460
            )Cash
                subject to restrictions
            
            
            (9,668
            )
            
            (235,837
            )Net
                cash used in investing activities
            
            
            (783,598
            )
            
            (680,297
            )**Cash
                flows from financing activities:**Proceeds
                from issuance of common stock  and warrants, net of issuance
                costs
            
            
            -
            
            
            5,480,698Net
                cash provided by financing activities
            
            
            -
            
            
            5,480,698**Net
                increase in cash**
            
            
            1,060,073
            
            
            4,635,726Cash
                and cash equivalents - beginning of year
            
            
            5,112,275
            
            
            476,549**Cash
                and cash equivalents - end of year**
            
            $
            6,172,348
            
            $
            5,112,275**Supplemental
                disclosures of cash flow information:**Cash
                paid during the year for:Income
                taxes
            
            $
            5,500
            
            $
            1,114,060Non-cash
                operating activities:Commissions
                and note receivable written-off against reserve
            
            $
            227,782
            
            $
            137,521





See
        notes
        to these consolidated financial statements.
  F-5


**HUDSON
      HOLDING CORPORATION AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      A - ORGANIZATION, OPERATIONS AND BASIS OF PRESENTATION**




The
      consolidated financial statements include the accounts of Hudson Holding
      Corporation ("Holding") and its wholly-owned subsidiaries, Hudson Securities,
      Inc. ("Hudson") and Hudson Technologies, Inc. (“Technologies”) (collectively the
      "Company"). Holding was formed in 1987, is currently incorporated in the State
      of Delaware, and is a holding company. Hudson was formed in 1984, is a
      registered broker-dealer under the Securities Exchange Act of 1934 and is a
      member of the Financial Industry Regulatory Authority ("FINRA"). Hudson is
      a
      market maker specializing in providing liquidity in less liquid, difficult
      to
      trade stocks. Hudson is an introducing broker and clears all transactions
      through a clearing organization on a fully disclosed basis. Accordingly, Hudson
      is exempt from rule 15c3-3 of the Securities Exchange Act of 1934. On May 22,
      2006, Technologies was formed as a Delaware corporation for the purpose of
      providing software development and technology services for Hudson and for third
      parties. As of March 31, 2008, Technologies had total assets of $775,456 and
      for
      the years ended March 31, 2008 and 2007, Technologies had revenues of $140,841
      and $62,281 and net income (loss) of $(9,005) and $19,950, respectively. All
      significant intercompany transactions among the companies have been eliminated.
      The Company has offices in New Jersey and Florida.




On
      June
      30, 2004, an investor group purchased all of the outstanding common stock of
      the
      broker-dealer which was the predecessor to Hudson for a purchase price of
      approximately $7,136,000. As a result, the predecessor broker-dealer recorded
      goodwill of approximately $1,111,000, which represented the excess of the
      purchase price over the estimated fair value of the assets acquired and
      liabilities assumed.




On
      July
      21, 2004, the predecessor broker-dealer formed a wholly-owned subsidiary named
      Hudson Capital Markets, Inc. ("HCMI"), which was organized in the state of
      Delaware. HCMI was authorized to issue 30,000,000 shares of common stock with
      a
      par value of $.001 per share. On July 31, 2004, the predecessor broker-dealer
      was merged into HCMI, with HCMI becoming the survivor ("HCMI Merger") and the
      name was changed to Hudson Securities, Inc. In connection with this merger,
      the
      stockholders of the predecessor broker-dealer received 83,333.33 shares of
      Hudson for each share of the predecessor broker-dealer shares owned. The
      historical capital accounts were retroactively adjusted to reflect the
      equivalent number of shares issued by HCMI in the HCMI Merger, while the
      predecessor broker-dealer historical retained earnings were carried forward.





In
      December 2004, Hudson entered into an agreement and Plan of Merger (the
      "Agreement") with Health Outcomes Management, Inc. ("HOM"), a non-operating
      public company. On May 3, 2005, under the terms of the Agreement, Hudson’s
      stockholders exchanged all 10,967,000 shares of their common stock for
      19,334,084 post reverse-split shares of HOM common stock, and Hudson’s warrant
      holders exchanged 998,667 warrants with an exercise price of $1.85 for 1,760,590
      post reverse-split warrants to purchase HOM common stock at $1.0494 per share
      (the "Exchange"). The HOM shares that were issued represent 94% of HOM's
      outstanding interest at the time of this exchange. In connection with the legal
      form of this transaction, Hudson became a wholly owned subsidiary of HOM. On
      September 6, 2005 HOM was reincorporated in Delaware, and changed its name
      to Hudson Holding Corporation. For financial reporting purposes, the Exchange
      represents a capital transaction of Hudson Securities, Inc., or a "reverse
      merger" rather than a business combination. Accordingly, the historical
      stockholders equity of Hudson Securities, Inc. was adjusted to give effect
      to
      the shares cancelled in connection with the HOM Merger, while the historical
      retained earnings were carried forward. On March 2, 2007, the Company issued
      10,966,999 shares of common stock to Hudson.





**NOTE
      B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**[1]
      Securities transactions:**




Hudson
      records transactions in securities and the related revenue and expenses on
      a
      trade-date basis. Commissions and fees include agency commissions and fees
      earned on riskless principal trades. Riskless principal trades are transacted
      through the firm’s proprietary account with a customer order in hand, resulting
      in no market risk to the firm. Securities owned and securities sold, but not
      yet
      purchased, are stated at fair value with any resulting unrealized gains and
      losses reflected in trading gains, net. Securities which do not have a readily
      ascertainable market value are valued at their estimated fair value as
      determined by management. Because of the inherent uncertainty of valuation
      estimates, the management determined values may differ significantly from values
      that would have been used had a ready market for these securities existed and
      the differences could be material.




F-6




**[2]
      Income taxes:**




The
      Company accounts for income taxes in accordance with the provisions of Statement
      of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
      No. 109"). SFAS No. 109 requires that the Company recognize deferred tax
      liabilities and assets for the expected future tax consequences of items that
      have been included or excluded in the financial statements or tax returns.
      Under
      this method, deferred tax liabilities and assets are determined on the basis
      of
      the difference between the tax basis of liabilities and assets and their
      respective financial reporting amounts ("temporary differences") at enacted
      tax
      rates in effect for the years in which the temporary differences are expected
      to
      reverse. The Company records an estimated valuation allowance on its deferred
      income tax assets if it is not more than likely that these deferred income
      tax
      assets will be realized. The Company has elected an accounting policy whereby
      interest and penalties assessed by jurisdictions, if any, would be classified
      as
      an operating expense.




**[3]
      Furniture, equipment, leasehold improvements, capitalized software and
      depreciation and amortization** :




Furniture,
      equipment and leasehold improvements are recorded at cost. Depreciation and
      amortization is computed using the straight-line method over the estimated
      useful life of the related asset or, in the case of leasehold improvements,
      over
      the shorter of its estimated useful life or the lease term.





During
      April 2006, the Company began capitalizing certain costs incurred in connection
      with developing or obtaining internal use software pursuant to Statement of
      Position 98-1, Accounting for the Costs of Computer Software Developed or
      Obtained for Internal Use. Unamortized capitalized software development costs
      of
      approximately $536,672 represents software in service which is being amortized
      over its estimated useful life and is being carried in furniture, equipment,
      capitalized software and leasehold improvements in the Consolidated Statement
      of
      Financial Condition as of March 31, 2008. In addition, $87,781 of unamortized
      capitalized software development costs represents software that is still in
      development and is not being amortized.




**[4]
      Use of estimates** :




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amount of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amount of income and expenses during
      the reporting period. Actual results could differ from those estimates.




**[5]
      Concentrations of credit risk:**




Hudson
      is
      engaged in trading on a principal and/or agency basis with and for primarily
      other securities broker-dealers and institutional investors such as mutual
      funds, hedge funds, banks and similar businesses. Counterparties to Hudson's
      business activities include broker-dealers and clearing organizations, and
      can
      include banks and other financial institutions. Hudson uses one clearing broker
      to process transactions and maintain customer accounts. The clearing broker
      extends credit to Hudson's clientele which is secured by cash and securities
      in
      the clients' account. Hudson's exposure to credit risk associated with the
      non-performance by its customers and counterparties in fulfilling their
      contractual obligations can be directly impacted by volatile or illiquid trading
      markets, which may impair the ability of customers and counterparties to satisfy
      their obligations to Hudson. Additionally, Hudson has agreed to indemnify the
      clearing broker for losses it incurs while extending credit to Hudson's clients.
      Amounts due from customers that are considered uncollectible are charged back
      to
      Hudson by the clearing broker when such amounts become
      determinable.





In
      the
      normal course of business, Hudson enters into transactions in various derivative
      instruments for trading purposes. These transactions include securities sold
      short, but not yet purchased, and option and warrant contracts.





Securities
      sold short, but not yet purchased, represent obligations of Hudson to deliver
      the underlying securities sold; and option and warrant contracts written
      represent obligations of Hudson to purchase or deliver the specified security
      at
      the contracted price. Hudson's ultimate obligation on such instruments may
      exceed the amount recognized in the statement of financial condition. Hudson
      monitors its positions continuously to reduce the risk of the potential loss
      due
      to changes in market value or failure of counterparties to perform.





Substantially
      all of Hudson's cash and security positions are deposited with its clearing
      broker for safekeeping purposes. Hudson maintains cash in bank accounts, which,
      at times, may exceed federally insured limits. Hudson has not experienced any
      losses in such accounts and believes it is not exposed to any significant credit
      risk on cash .




F-7




**[6]
      Cash and cash equivalents** :




The
      Company considers all highly liquid investments purchased with an original
      maturity of three months or less to be a cash equivalent. Restricted cash
      represents an automatically renewable, fourteen month time deposit which
      collateralizes a letter of credit (see Note J [3]).




**[7]
      Goodwill**




The
      Company accounts for its goodwill in accordance with Statement of Financial
      Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS
      No.
      142"). Under SFAS No. 142, goodwill is not subject to amortization, but rather
      an assessment of impairment, by applying a fair value based test. The Company
      reviews goodwill for impairment annually, during the fourth quarter of each
      year, and also between annual tests upon the occurrence of trigger events.
      The
      reviews are performed at the Hudson level, generally by using the market
      capitalization of the Company as an indicator of fair value, since Hudson
      currently represents the most significant component of the consolidated entity.
      Impairment is potentially indicated when the carrying value of Hudson, including
      goodwill, exceeds its fair value. If a potential impairment is indicated, the
      fair value of Hudson would be measured against the fair value of its underlying
      assets and liabilities, excluding goodwill, to estimate an implied fair value
      of
      Hudson’s goodwill. If that fair value was less than the carrying value of
      goodwill, impairment would be recorded. As a result of its assessment, the
      Company has determined that no such potential impairment was indicated during
      the year ended March 31, 2008.




**[8]
      Commissions receivable reserve** :




Commissions
      receivable represent cumulative draws and benefits provided to traders and
      salespersons in excess of cumulative commissions earned. The Company will
      collect these receivables if future earned commissions exceed future draws
      and
      benefits. The Company establishes reserves as an offset to the receivable
      balance on the basis of historical collections and estimates of future
      collections. As of March 31, 2008, the Company had $84,847 of commissions
      receivable offset by a reserve of the same amount.





**[9]
      Stock based compensation:**





Commencing
      with the first issuance of stock options on May 26, 2006, the Company accounts
      for stock options issued under the recognition and measurement principles of
      Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based
      Payment” (“SFAS 123(R)”). Under the provisions of SFAS 123(R), the Company is
      required to measure the cost of services received in exchange for an award
      of
      equity instruments based on the fair value of the award. For employees and
      directors, the award is measured on the grant date and for non-employees, the
      award is generally remeasured on interim financial reporting dates until the
      service period is complete, in accordance with EITF Issue No. 96-18, “Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, goods or Services”. The fair value amount is then
      recognized over the period during which services are required to be provided
      in
      exchange for the award, usually the vesting period.





**[10]
      Reclassifications** :





Certain
      fiscal 2007 amounts have been reclassified to conform with the fiscal 2008
      presentation.





**[11]
      Loss per share:**





Basic
      loss per share ("EPS") has been calculated by dividing net loss by the weighted
      average shares of common stock outstanding during the year. Diluted EPS reflects
      the change in EPS, using the treasury stock method to reflect the impact of
      common share equivalents as if dilutive securities such as stock options or
      warrants were exercised or converted into common stock.





F-8




The
      following is a reconciliation of the numerators and denominators of the basic
      and diluted loss per share computations for the years ended March 31, 2008
      and
      2007:




Year EndedMarch 31, 2008
            
            March 31, 2007Numerator/
              Net Loss
            
            Denominator/
              Shares
            
            Numerator/
              Net Loss
            
            Denominator/
              SharesNet
                loss and shares used in basic calculation
            
            $
            (1,602,290
            )
            
            36,725,185
            
            $
            (383,108
            )
            
            30,393,959Effect
                of dilutive securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                loss and shares used in diluted calculation
            
            $
            (1,602,290
            )
            
            36,725,185
            
            $
            (383,108
            )
            
            30,393,959Loss
                per share - basic and diluted
            
            $
            (0.04
            )
            
            
            
            $
            (0.01
            )




At
      March
      31, 2008, 8,361,666 shares of unvested restricted stock, outstanding stock
      options to purchase 3,495,000 shares of common stock and warrants to purchase
      7,122,774 shares of common stock were excluded from the calculation of diluted
      earnings per share because their impact would have been
      anti-dilutive.





**[12]
      Recently issued accounting standards** :





In
      June
      2006,  the Financial Accounting Standards Board (“FASB”) issued 
FASB  Interpretation  No. 48,  "Accounting  for Uncertainty
      in Income Taxes - an  interpretation  of FASB Statement No. 109" ("FIN
      48"),  for which adoption was required for fiscal years beginning
      after December 15, 2006. This interpretation was issued to clarify the
      accounting for uncertainty in income taxes recognized in the
      financial statements by prescribing a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return.  FIN 48 requires
      that the Company determine whether the benefits of tax positions are more likely
      than not of being sustained upon audit based on the technical merits of the
      tax
      position. For tax positions that are more likely than not of being sustained
      upon audit, the Company recognizes the largest amount of the benefit that is
      greater than 50% likely of being realized upon ultimate settlement in the
      financial statements. For tax positions that are not more likely than not of
      being sustained upon audit, the Company does not recognize any portion of the
      benefit in the financial statements. The Company adopted this interpretation
      effective April 1, 2007. The adoption did not have any effect on the Company’s
      consolidated financial statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      157,
“Fair Value Measurements” (“SFAS 157”). SFAS 157 requires the use of a fair
      value hierarchy that prioritizes the inputs to valuation techniques used to
      measure fair value into three levels: quoted market prices in active markets
      for
      identical assets and liabilities (Level 1), inputs other than quoted market
      prices that are observable for the asset or liability, either directly or
      indirectly (Level 2), and unobservable inputs for the asset or liability (Level
      3). SFAS 157 is effective for the Company’s financial statements issued for the
      fiscal year beginning April 1, 2008. Adoption of SFAS 157 is not expected
      to have a material impact on the Company's financial
      statements.





In
      February 2007, the FASB issued Statement of Financial Accounting
      Standard 159, “The Fair Value Option for Financial Assets and Financial
      Liabilities – Including an amendment of FASB Statement No. 115” (“SFAS 159”).
      SFAS 159 permits entities to choose to measure many financial instruments
      and certain other items at fair value that are not currently required to be
      measured at fair value. SFAS 159 is effective for the Company’s fiscal year
      beginning April 1, 2008. Adoption of SFAS 159 is not expected to have a
      material impact on the Company’s financial statements.


F-9


In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements – An Amendment of ARB No. 51” (SFAS
      160). SFAS 160 establishes accounting and reporting standards for the
      noncontrolling interest in a subsidiary (previously referred to as minority
      interests). SFAS 160 also requires that a retained noncontrolling interest
      upon
      the deconsolidation of a subsidiary be initially measured at its fair value.
      Upon adoption of SFAS 160, companies will be required to report noncontrolling
      interests as a separate component of stockholders’ equity. Companies will also
      be required to present net income allocable to noncontrolling interests and
      net
      income attributable to stockholders separately in their statements of income.
      Currently, minority interests are reported as a liability or temporary equity
      on
      the balance sheet and the related income attributable to the minority interests
      is reflected as an expense in arriving at net income (loss). SFAS 160 is
      effective for fiscal years, and interim periods within those fiscal years,
      beginning on or after December 15, 2008. SFAS 160 requires retroactive adoption
      of the presentation and disclosure requirements for existing minority interests.
      All other requirements of SFAS 160 shall be applied prospectively. The Company
      does not currently have any noncontrolling interests in subsidiaries. SFAS
      160
      would only have an impact on subsequent acquisitions of noncontrolling
      interests.




In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business
      Combinations” (SFAS 141R), which replaces SFAS No. 141, “Business Combinations.”
SFAS 141R establishes principles and requirements for determining how an
      enterprise recognizes and measures the fair value of certain assets and
      liabilities acquired in a business combination, including noncontrolling
      interests, contingent consideration, and certain acquired contingencies. SFAS
      141R also requires acquisition-related transaction expenses and restructuring
      costs be expensed as incurred rather than capitalized as a component of the
      business combination. SFAS 141R will be applicable prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15, 2008. SFAS
      141R
      would only have an impact on accounting for any businesses acquired after the
      effective date of this pronouncement.





In
      March
      2008, the FASB issued Statement of Financial Accounting Standards No. 161,
      “Disclosures about Derivative Instruments and Hedging Activities – an
      amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 changes the
      disclosure requirements for derivative instruments and hedging activities.
      Entities are required to provide enhanced disclosures about (a) how and why
      an
      entity uses derivative instruments, (b) how derivative instruments and related
      hedged items are accounted for under SFAS No. 133 and its related
      interpretations, and (c) how derivative instruments and related hedged items
      affect an entity’s financial position, financial performance and cash flow. The
      guidance in SFAS 161 is effective for financial statements issued for fiscal
      years and interim periods beginning after November 15, 2008, with early
      application encouraged. This Statement encourages, but does not require,
      comparative disclosures for earlier periods at initial adoption. At this time
      management is evaluating the implications of SFAS 161 and its impact on the
      financial statements has not yet been determined.





**NOTE
      C - RECEIVABLE FROM CLEARING BROKER**




At
      March
      31, 2008, the receivable from clearing broker amount in the consolidated
      statement of financial condition represents the Company's cash balance with
      its
      clearing broker.





**NOTE
      D - SECURITIES OWNED AND SECURITIES SOLD, BUT NOT YET
      PURCHASED**





Securities
      owned and securities sold, but not yet purchased, at March 31, 2008 and
      2007 consist of:





2008
            
            2007Securities
                Owned:Equity
                securities - marketable at fair value
            
            $
            2,423,257
            
            $
            14,188,748Equity
                securities - not readily marketable, at estimated fair
                value
            
            
            -
            
            
            -Equity
                securities - total
            
            $
            2,423,257
            
            $
            14,188,748Securities
                Sold, but not yet Purchased:Equity
                securities - marketable at fair value
            
            $
            2,661,629
            
            $
            8,266,395Equity
                securities - not readily marketable, at estimated fair
                value
            
            
            116,452
            
            
            -Equity
                securities - total$
            2,778,081
            
            $
            8,266,395




F-10


**NOTE
      E – PREPAID COMPENSATION**





During
      the year ended March 31, 2008, Hudson has loaned $3,019,000 to employees as
      an
      incentive for affiliating with the Company. The employees signed employment
      agreements and promissory notes with Hudson bearing interest at rates ranging
      from 4% to 5%. The employment agreements specify that Hudson will forgive the
      loans, or a portion thereof, if the employees remain employed with Hudson for
      a
      certain duration. The loans are being amortized on a straight-line basis over
      the period specified in the employment agreement. Loan amortization charged
      to
      salaries and related costs in the statements of operations was $616,389 for
      the
      year ended March 31, 2008.




**NOTE
      F - FURNITURE, EQUIPMENT, CAPITALIZED SOFTWARE AND LEASEHOLD
      IMPROVEMENTS**





A
      summary
      of the furniture, equipment, and leasehold improvement activity is as
      follows:





Furniture &
              Equipment
            
            Leasehold
              Improvements
            
            Software
            
            TotalBalance,
                March 31, 2007
            
            $
            2,126,367
            
            $
            113,005
            
            $
            218,000
            
            $
            2,457,372Additions
            
            
            217,135
            
            
            28,349
            
            
            528,446
            
            
            773,930Disposals
            
            
            (1,701,872
            )
            
            (45,781
            )
            
            -
            
            
            (1,747,653
            )Balance,
                March 31, 2008
            
            $
            641,630
            
            $
            95,573
            
            $
            746,446
            
            $
            1,483,649




A
      summary
      of the accumulated depreciation activity is as follows:





Furniture &
              Equipment
            
            Leasehold
              Improvements
            
            Capitalized
              Software
            
            TotalBalance,
                March 31, 2007
            
            $
            1,941,907
            
            $
            37,387
            
            $
            -
            
            $
            1,979,295Depreciation
            
            
            135,871
            
            
            34,409
            
            
            121,993
            
            
            292,274Disposals
            
            
            (1,701,872
            )
            
            (45,781
            )
            
            -
            
            
            (1,747,653
            )Balance,
                March 31, 2008
            
            $
            375,907
            
            $
            26,016
            
            $
            121,993
            
            $
            523,916




**NOTE
      G - STOCKHOLDERS' EQUITY**




**[1]
      Private placements** :





**(a)
      January 2006 private placement**





On
      January 10, 2006, the Company sold 6,581,784 shares of its common stock for
      $2,000,000. There were no underwriting discounts or commissions paid in
      connection with the sale of the common stock.





**(b)
      November 2006 private placement**





On
      November 28, 2006, the Company sold securities at a purchase price of $.60
      per
      unit. The units consisted of common stock and warrants to purchase shares of
      common stock (the "Warrants"). The Company sold an aggregate of 9,575,325 shares
      of common stock and delivered Warrants to purchase an aggregate of 4,787,664
      shares of our common stock, in exchange for gross proceeds of $5,745,190,
      pursuant to a private placement agreement (“Agency Agreement”) dated October 24,
      2006. The Warrants entitle the holders to purchase shares of the Company’s
      common stock for a period of five years from the date of issuance at an exercise
      price of $.85 per share. The Warrants are redeemable by us on terms specified
      in
      the warrant agreement.


F-11


Under
      the
      terms of the Agency Agreement, the placement agent received, among other
      compensation, a cash commission fee of four percent (4%; or approximately
      $229,808) of the gross proceeds to the Company of the securities sold. In
      addition, pursuant to the terms of the Agency Agreement, the Company agreed
      to
      issue to the placement agent warrants to purchase common stock during a period
      of five years in an amount equal to six percent (6%) of the Shares sold in
      the
      private placement (the "Placement Agent Warrants"). The 574,520 Placement Agent
      Warrants are exercisable at $.60 per share.





The
      Company’s net proceeds from the private placement were $5,480,698, after
      deducting the placement agent cash commission plus $32,185 of legal fees and
      $2,500 of transfer agent fees associated with the private
      placement.




**[2]
      Warrants:**





The
      Company has 1,760,590 warrants outstanding, in addition to the Warrants issued
      in connection with the private placement described above, which are
      exercisable for common stock at an exercise price of $1.0494 per share and
      expire in 2009. The warrants may be redeemed by the Company at $.01 per
      redeemable warrant, upon not less than thirty days written notice, if the
      average of the closing sale price of the common stock is at least $2.10 for
      a
      period of 20 consecutive days ending on the third day prior to the date of
      the
      notice of redemption. Any right to exercise the warrant expires on the business
      day immediately preceding the date of redemption.





A
      summary
      of the Company's warrants and related information for the years ended March
      31,
      2008 and 2007 is as follows:





Number of
            
            Weighted AverageWarrants
            
            Exercise PriceOutstanding
                at March 31, 2006
            
            
            1,760,590
            
            $
            1.0494Granted
            
            
            5,362,184
            
            
            0.8232Exercised
            
            
            -
            
            
            -Outstanding
                at March 31, 2007
            
            
            7,122,774
            
            $
            0.8791Granted
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Outstanding
                at March 31, 2008
            
            
            7,122,774
            
            $
            0.8791Weighted
                average remaining months of contractual life at March 31, 2008
            
            
            38




**[3]
      Stock plans:**





The
      2005
      Stock Option Plan (the "2005 Plan"), which was approved by the Hudson Board
      on
      June 8, 2005 and by Hudson’s shareholders on July 26, 2005, provides for the
      granting of incentive and/or nonqualified stock options to purchase up to an
      aggregate of 2,000,000 shares of Hudson’s common stock. The 2007 Long-Term
      Incentive Compensation Plan (the "2007 Plan"), which was approved by the Hudson
      Board on June 28, 2007 and by Hudson’s shareholders on August 14, 2007, provided
      for the granting of incentive and/or nonqualified stock options, stock
      appreciation rights, restricted stock awards, performance units and performance
      bonuses to purchase up to an aggregate of 10,000,000 shares of the Company’s
      common stock. A 12,000,000 share increase to the authorized shares of the 2007
      Plan, to 22,000,000 shares, was approved by the Hudson Board on February 13,
      2008 and by a majority of Hudson’s shareholders on March 4, 2008. Under both
      plans (collectively the “Plans”), (1) awards may be granted to employees,
      consultants, independent contractors, officers and directors; (2) the maximum
      term of any award shall be ten years from the date of grant; (3) the exercise
      price of any award shall not be less than the fair value on the date of grant;
      and (4) awards will typically result in the issuance of new common
      shares.




**[4]
      Stock option grants:**





The
      Company recognized $161,232 and $55,843 of compensation expense during the
      years
      ended March 31, 2008 and 2007, respectively, related to employee stock option
      grants, which is reflected as salaries and related costs in the Statement of
      Operations. As of March 31, 2008, there was $356,309 of unrecognized employee
      stock-based compensation expense related to stock option grants that will be
      amortized over a weighted average period of 1.7 years.




F-12




In
      addition, the Company recognized $15,000 and $17,400 during the years ended
      March 31, 2008 and 2007, respectively, of professional fees expense in the
      consolidated condensed statement of operations, related to immediately vested
      director stock option grants.





On
      May 2,
      2007, the Company granted options to a consultant to purchase an aggregate
      of
      250,000 shares of the Company’s common stock at an exercise price of $0.80 per
      share under the 2005 Plan. The options, which expire on November 2, 2010, vest
      equally on each of the first three anniversaries of the date of grant.
      Consultant options are revalued based on the Black-Scholes option pricing model
      on financial reporting dates during the service period. The Company recognized
      stock-based compensation expense of $8,405 as professional fees expense for
      the
      year ended March 31, 2008. The Company will record additional expense relating
      to these options during their vesting period with a final adjustment based
      on
      the options’ fair value on the vesting dates.





The
      Company has computed the fair value of options granted using the Black-Scholes
      option pricing model. Under SFAS 123(R) forfeitures are estimated at the time
      of
      valuation and reduce expense ratably over the vesting period. This
      estimate will be adjusted periodically based on the extent to which
      actual forfeitures differ, or are expected to differ, from the previous
      estimate, when it’s material.  The expected term of options granted
      represents the estimated period of time that options granted are expected to
      be
      outstanding. Given that the Company’s shares have only been publicly traded
      since May 3, 2005, the Company developed an expected volatility figure based
      on
      a review of the historical volatilities, over a period of time, equivalent
      to
      the expected life of these options, of similarly positioned public companies
      within its industry, during the early stages of their life as a public company.
      The risk-free interest rate was determined from the implied yields from U.S.
      Treasury zero-coupon bonds with a remaining term consistent with the expected
      term of the options.





In
      applying the Black-Scholes option pricing model, the Company used the following
      weighted average assumptions:





For the year ended
              March 31, 2008
            
            For the year ended
              March 31, 2007Risk
                free interest rate
            
            
            3.45%
            
            
            4.82%Expected
                term (years)
            
            
            2.0
            
            
            2.5Expected
                volatility
            
            
            65%
            
            
            65%Expected
                dividends
            
            
            —
            
            
            —





The
      weighted average estimated fair value of the stock options granted during the
      years ended March 31, 2008 and 2007 was $0.10 and $0.38 per share,
      respectively.





As
      of
      March 31, 2006, the Company had not issued any options under the Plans. A
      summary of the status of the options issued under the Plans during the years
      ended March 31, 2008 and 2007, is presented in the table below:




WeightedWeighted
            
            AverageAverage
            
            RemainingNumber of
            
            Exercise
            
            Contractual
            
            IntrinsicOptions
            
            Price
            
            Term
            
            ValueBalance,
                March 31, 2006
            
            
            -
            
            $
            -Granted
            
            
            1,540,000
            
            
            1.00Exercised
            
            
            -
            
            
            -Forfeited
            
            
            (185,000
            )
            
            1.01Balance,
                March 31, 2007
            
            
            1,355,000
            
            
            1.00Granted
            
            
            2,240,000
            
            
            0.86Exercised
            
            
            -
            
            
            -Forfeited
            
            
            (100,000
            )
            
            1.18Balance,
                March 31, 2008
            
            
            3,495,000
            
            $
            0.90
            
            
            2.8
            
            $
            27,050Exercisable,
                March 31, 2008
            
            
            513,337
            
            $
            0.91
            
            
            2.6
            
            $
            7,500





F-13




The
      following table presents information related to stock options at March 31,
      2008:





Options
                Outstanding
            
            Options
                ExercisableWeightedAverageExercise
            
            Number of
            
            Remaining Life
            
            Number ofPrice
            
            Options
            
            In Years
            
            Options$
            0.35
            
            
            110,000
            
            
            -
            
            
            -0.40
            
            
            75,000
            
            
            4.3
            
            
            75,0000.49
            
            
            305,000
            
            
            -
            
            
            -0.80
            
            
            250,000
            
            
            -
            
            
            -0.90
            
            
            450,000
            
            
            2.3
            
            
            149,9981.00
            
            
            2,225,000
            
            
            2.1
            
            
            241,6711.15
            
            
            30,000
            
            
            3.4
            
            
            30,0001.46
            
            
            50,000
            
            
            1.7
            
            
            16,6683,495,000
            
            
            
            
            
            513,337




**[5]
      Restricted stock grants:**





The
      Company recognized $229,536 during the year ended March 31, 2008 of compensation
      expense related to employee restricted stock option grants, which is reflected
      as salaries and related costs in the consolidated statement of operations.
      As of
      March 31, 2008, there was $3,215,085 of unrecognized employee stock-based
      compensation expense related to restricted stock grants that will be amortized
      over a weighted average period of 3.6 years.





A
      summary
      of restricted stock activity for the year ended March 31, 2008 is presented
      in
      the table below:





WeightedAverage
            
            TotalNumber of
            
            Grant Date
            
            Grant DateShares
            
            Fair Value
            
            Fair ValueNon-vested,
                March 31, 2007
            
            
            -
            
            $
            -
            
            $
            -Granted
            
            
            8,361,666
            
            
            0.39
            
            
            3,250,350Vested
            
            
            -
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            -Non-vested,
                March 31, 2008
            
            
            8,361,666
            
            $
            0.39
            
            $
            3,250,350




F-14




**NOTE
      H - INCOME TAXES**





The
      Company files a federal income tax return on a consolidated basis with its
      wholly-owned subsidiaries, as well as state income tax returns in certain
      jurisdictions. The Company is subject to minimum taxes at the state and local
      level which are based on measures other than income. If these minimum taxes
      exceed the amounts based on income, such amounts have been included
      below.





The
      income tax provision (benefit) consists of the following:





Years Ended March 31,2008
            
            2007Federal:Current
            
            $
            (413,599
            )
            $
            (162,790
            )Deferred
            
            
            (424,500
            )
            
            37,000State
                and local:Current
            
            
            68,909
            
            
            29,360Deferred
            
            
            (201,089
            )
            
            7,000$
            (970,279
            )
            $
            (89,430
            )




For
      the
      years ended March 31, 2008 and 2007, the expected tax expense based on the
      statutory rate is reconciled with actual tax expense as follows:





Year
                Ended March 31,2008
            
            2007Expected
                tax expense
            
            
            34.0
            %
            
            34.0
            %State
                income tax,net
                of federal income tax effect
            
            
            4.5
            
            
            (1.3
            )Non-deductible
                items
            
            
            (2.1
            )
            
            (7.3
            )Other
            
            
            1.3
            
            
            (6.5
            )Actual
                tax expense
            
            
            37.7
            %
            
            18.9
            %





F-15




The
      principal components of the net deferred tax asset at March 31, 2008 are as
      follows:





March 31,2008Deferred
                taxes:Net
                operating loss carryforwards (Federal and State)
            
            $
            290,000State
                minimum tax carryforward credits
            
            
            67,000Reserve
                for commissions receivable and bad debts
            
            
            55,000Prepaid
                compensation amortization
            
            
            252,000Contributions
                carryforward deductions
            
            
            17,000Deferred
                rent
            
            
            93,000Stock-based
                compensation
            
            
            193,000Excess
                of tax over book basis of fixed assets
            
            
            63,000Total
                gross deferred tax assets
            
            
            1,030,000Excess
                of book over tax basisof
                capitalized software
            
            
            (212,000
            )Net
                deferred taxes before valuation allowance
            
            
            818,000Valuation
                allowance
            
            
            (113,000
            )Net
                deferred tax asset
            
            $
            705,000





The
      Company files a consolidated federal income tax return, as well as state income
      tax returns in certain jurisdictions. Federal and state income tax returns,
      beginning with those filed for the ten months ended October 31, 2004 and the
      twelve months ended December 31, 2003, respectively, and through March 31,
      2007,
      remain subject to exam. For the year ended March 31, 2008, the Company had
      approximately $1,603,000 of federal net operating losses (“NOLs”) of which (a)
      approximately $1,231,000 is eligible to be carried back against prior period
      taxable income and for which the Company has recognized approximately $419,000
      of current income tax receivables; plus (b) approximately $372,000 represent
      federal NOL carryforwards which expire in 2028. In addition, the Company has
      approximately $2,763,000 of state NOL carryforwards, which expire in 2011,
      2013
      and 2014. A valuation allowance has been established to offset a portion of
      the
      deferred tax asset to the extent the Company has not determined that it was
      more
      likely than not that the future tax benefits will be realized. During the year
      ended March 31, 2008, the valuation allowance increased by $41,500.





**NOTE
      I - SALARY REDUCTION RETIREMENT PLAN**




The
      Company sponsors a 401(k) Savings Plan (the "Savings Plan") which covers all
      eligible employees. Participants may contribute no less than 1% and up to the
      maximum allowable per the Internal Revenue Service regulations. In addition,
      the
      Company may make discretionary contributions to the Savings Plan, subject to
      certain limitations. For the years ended March 31, 2008 and 2007, the Company
      made no matching contributions.


**NOTE
      J - COMMITMENTS AND CONTINGENCIES:**




**[1]
      Leases**





The
      Company currently leases office space in Jersey City, New Jersey and two
      satellite locations. On April 4, 2006, Hudson entered into an agreement to
      sublease 26,875 rentable square feet of office space in Jersey City, New Jersey.
      The sublease is guaranteed by Holding. The lease commenced on June 21, 2006
      and
      expires on August 30, 2012. The Company occupied the new Jersey City
      headquarters location during September 2006. Initially, the Company maintained
      the original Jersey City office space as a back-up site. During September 2007,
      the Company eliminated network connectivity at the site and recognized a lease
      abandonment charge of approximately $75,000, representing the Company’s
      remaining lease commitments, in preparation for the November 30, 2007 lease
      expiration. On February 1, 2007, the Company entered into an agreement to
      sublease an additional 2,744 rentable square feet of office space in Tinton
      Falls, New Jersey. The lease commenced on March 1, 2007 and expires on March
      31,
      2010.




F-16




As
      of
      March 31, 2008, the Company had a deferred lease liability of $233,764 which
      represents the excess of rent expense recognized on a straight-line basis over
      the term of the leases as compared to cash rental payments and is included
      in
      accrued expenses and other liabilities on the statement of financial
      condition.





Future
      minimum commitments related to non-cancelable operating leases as of March
      31,
      2008 are as follows :





**Years
                Ended**
            
            **Office**
            
            **Equipment****March
                31,**
            
            **Leases**
            
            **Leases**
            
            **Total**2009
            
            $
            489,000
            
            $
            78,000
            
            $
            567,0002010
            
            
            559,000
            
            
            12,000
            
            
            571,0002011
            
            
            487,000
            
            
            6,000
            
            
            493,0002012
            
            
            551,000
            
            
            -
            
            
            551,0002013
            
            
            235,000
            
            
            -
            
            
            235,000$
            2,321,000
            
            $
            96,000
            
            $
            2,417,000





Rent
      expense, net of sublease income, was approximately $1,388,000 and $1,215,000
      for
      the years ended March 31, 2008 and 2007, respectively.





**[2]
      Employment agreements:**





On
      January 4, 2007, Hudson entered into five year employment agreements, effective
      as of January 1, 2007, with Mr. Martin C. Cunningham and Mr. Keith R. Knox,
      whereby each will continue in their present positions, Chief Executive Officer
      and President, respectively. Mr. Cunningham and Mr. Knox are key employees
      of
      the Company and these employment agreements are deemed to be commitments of
      the
      Company. The agreements, as amended, provide that each shall receive a salary
      of
      $200,000 per year, plus a formula-based annual bonus. In addition, the Company
      entered into a two year employment agreement with another key employee,
      effective as of December 1, 2006, which provides that the employee shall receive
      a salary of $150,000 per year.





The
      Company has outstanding employee loan commitments of $1,750,000, which were
      provided as an incentive for affiliating with the Company and will be funded
      in
      installments between May and September 2008. Employee loans are evidenced by
      promissory notes, bear interest at rates of 4-5%, are forgiven over contractual
      service periods and are amortized on a straight-line basis over the same service
      period.





Future
      minimum salary commitments pursuant to these employment agreements are as
      follows:








**Years**
              **Ended****March
                31,**2009
            
            $
            2,250,0002010
            
            
            400,0002011
            
            
            400,0002012
            
            
            300,000$
            3,350,000




**[3]
      Letter of credit:**




In
      connection with the new Jersey City office lease, on April 20, 2006 Hudson
      deposited a one-year $225,000 irrevocable standby letter of credit with the
      landlord as security, which automatically renews for additional one-year terms,
      unless sixty days written notice is provided. Pursuant to the lease agreement,
      Hudson is required to maintain the letter of credit until sixty days following
      the expiration of the lease. On April 5, 2006, Hudson deposited $225,000 with
      the issuing financial institution in the form of an automatically renewable,
      fourteen-month time deposit, in order to collateralize the letter of credit.
      The
      time deposit, plus accrued interest, is included in cash-restricted on the
      accompanying statement of financial condition.




F-17


**[4]
      Contingencies:**





The
      Company has been named as a defendant in various actions relating to its
      activities as a broker-dealer including a civil action and a regulatory
      investigation. On May 5, 2008, Hudson received a letter from FINRA alleging
      a
      failure to supervise and implement written supervisory procedures related to
      trading and market making and anti-money laundering rules. There is no
      indication of what amount of fines or sanctions FINRA may demand in connection
      with these allegations. On June 16, 2008, Hudson submitted a response to FINRA.
      Hudson intends to contest this matter vigorously. From time to time, the Company
      is also involved in arbitrations and proceedings by self-regulatory
      organizations. Although the ultimate outcome of these matters involving the
      Company cannot be predicted with certainty, management believes it has
      meritorious defenses to all such actions and intends to defend each of these
      actions vigorously. Although there can be no assurances that such matters will
      not have a material adverse effect on the results of operations or financial
      condition of the Company in any future period, depending in part on the results
      for such period, in the opinion of the Company’s management, the ultimate
      resolution of such actions against the Company will have no material adverse
      effect on the Company's financial condition.





**NOTE
      K - NET CAPITAL REQUIREMENT**





Hudson
      is
      subject to various regulatory requirements, including the SEC's Uniform Net
      Capital Rule (SEC rule 15c3-1), which is intended to ensure the general
      financial soundness and liquidity of broker-dealers by requiring the maintenance
      of minimum levels of net capital. These regulations place limitations on certain
      transactions, such as repaying subordinated borrowings, paying cash dividends,
      and making loans to its parent, affiliates or employees. Broker-dealers are
      prohibited from such transactions which would result in a reduction of its
      total
      net capital to less than 120% of its required minimum net capital. Moreover,
      broker-dealers are required to notify the SEC before entering into such
      transactions which, if executed, would result in a reduction of 30% or more
      of
      its excess net capital (net capital less the minimum requirement). The SEC
      has
      the ability to prohibit or restrict such transactions if the result is
      detrimental to the financial integrity of the broker-dealer.





At
      March
      31, 2008, Hudson had net capital of $4,870,737 under the alternative method,
      which was $3,870,737 in excess of its required net capital of
      $1,000,000.





**NOTE
      L - RELATED PARTY TRANSACTIONS**





Mark
      Bisker, Chief Technology Officer (as a consultant) and Director (effective
      September 2007) of the Company, was the Chief Executive Officer and a Director
      of a consulting firm that provides information technology management and
      software development services to the Company, an entity in which he held a
      31.5%
      ownership interest, until November 29, 2007 when the consulting firm was sold
      to
      a third party. During his term as a Director and through November 29, 2007,
      services valued at $235,064 were provided to the Company by this consulting
      firm, most of which has been capitalized as internally developed software and
      has been fully paid as of March 31, 2008 (see Note B[3]).





**NOTE
      M - SUBSEQUENT EVENTS**




**[1]
      June 2008 private placement:**





On
      June
      20, 2008, the Company closed on a private placement of $4 million of securities,
      with net proceeds to Holding of $3.9 million after deducting offering costs.
      In
      connection with the private placement, the Company issued 8,000,000 shares
      of
      common stock and delivered a warrant to purchase an aggregate of 4,000,000
      shares of our common stock. The warrant entitles the holder to purchase shares
      of the Company’s common stock for a period of five years from the date of
      issuance at an exercise price of $0.75 per share.





**[2]
      Stock option grants:**





On
      May 6,
      May 19, and June 2, 2008, the Company granted options to purchase an aggregate
      of 1,365,000 shares of common stock at exercise prices ranging from $0.60 to
      $0.75 to new and existing employees, pursuant to the 2007 Plan. The options
      expire after three and a half years. The $201,050 grant date fair value will
      be
      amortized over the three year vesting period.





**[3]
      Restricted stock grants:**





On
      May 5,
      2008, the Company granted 100,000 shares of immediately vested restricted stock
      to each of four non-employee directors, pursuant to the 2007 Plan, for a total
      of 400,000 shares at a market value of $0.41. Accordingly, the $164,000 grant
      date fair value of the grants will result in an immediate charge to the
      statement of operations, pursuant to SFAS 123(R).





F-18