The following discussion and analysis of Hudson Holding Corporation and Subsidiaries' (the "Company") consolidated condensed financial condition and results of operations should be read in conjunction with the consolidated condensed financial statements and notes thereto appearing elsewhere herein.

This report contains various forward-looking statements made pursuant to the safe harbor provisions under the Private Securities Litigation Reform Act of 1995 (the "Reform Act") and information that is based on management's beliefs as well as assumptions made by and information currently available to management. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, the Company can give no assurance that such expectations will prove to be correct. When used in this report, the words "anticipate", "believe", "estimate", "expect", "predict", "project", and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements which speak only as of the date hereof, and should be aware that the Company's actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including business conditions, growth in the overall market for the Company's services, general economic conditions, lower than expected customer transactions, competitive factors including increased competition, changes in the mix of business, and resource constraints and other statements under "Risk Factors" set forth in our Form 10-K for the year ended March 31, 2008 and other filings with the Securities and Exchange Commission (the "SEC"). Any forward-looking statements regarding industry trends, product development and liquidity and future business activities should be considered in light of these factors. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Business Environment

We, like other securities firms, are directly affected by economic and political conditions, broad trends in business and finance, changes in volume and price levels of securities transactions, and changes in interest rates, all of which can affect our profitability. The current financial crisis has had the near term impact of increasing market volatility, thereby increasing our trading volume. However, weak economic conditions could ultimately reduce our trading volume and net revenues and adversely affect our profitability. In periods of reduced market activity, our profitability may also be affected because certain expenses, such as salaries, certain communications costs, and occupancy remain relatively fixed.

Results of Operations

Three months ended September 30, 2008 compared to three months ended
September 30, 2007

       Consolidated Statement of    Three Months Ended     Three Months Ended
       Operations Data:             September 30, 2008     September 30, 2007
                                       (unaudited)            (unaudited)

       Trading gains, net          $          6,116,833   $          3,520,244
       Commissions and fees                   3,242,767                988,529
       Interest and other                       352,270                354,900
       Total revenues              $          9,711,870   $          4,863,673

       Net income (loss)           $           (123,826 ) $           (933,294 )

We had overall revenues consisting of commission and fee revenues, net trading gains, plus interest and other income of $9,711,870 for the three months ended September 30, 2008 as compared to $4,863,673 for the three months ended September 30, 2007, an increase of $4,848,197 or 100%. Net trading gains were $6,116,833 compared to $3,520,244 during the same period in the prior year, an increase of $2,596,589 or 74%, due to the addition of trading-focused sales traders. Commission and fee revenues were $3,242,767 compared to $988,529 during the same period last year, an increase of $2,254,238 or 228%, due to a significant expansion of our institutional sales effort. Interest and other income were $325,270 compared to $354,900 during the comparable period last year, a decrease of $2,630, or 1%, primarily due to an increase in interest earned on employee loans, offset by a decrease in fees from introducing brokers and reduced clearing broker interest expense.

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.

Commission payouts were $4,509,540 (46% of revenues) in the three months ended September 30, 2008 compared to $2,584,866 (53% of revenues) in the comparable prior year period, an increase of $1,924,674 or 75%. The commission payouts declined as a percentage of revenues, primarily due to the shift in the revenue mix toward lower-payout trading revenues. Execution and clearance charges were $821,459 (8% of revenues) in the three months ended September 30, 2008 as compared to $355,920 (7% of revenues) in the three months ended September 30, 2007, an increase of $465,539 or 131%, primarily due the increase in revenues. Communication costs were $1,410,571 in the quarter ending September 30, 2008 compared to $1,321,562 in the same quarter last year, an increase of $89,009 or 7%, primarily due to additional equipment and services required for new hires. Occupancy costs were $319,482 in the quarter ending September 30, 2008 compared to $470,618 in the same quarter last year, a decrease of $151,136 or 32%, due to the expiration of our lease at our former headquarters location.

Salaries and related costs were $2,009,988 compared to $1,044,794 in the comparable quarter in the prior year, an increase of $965,194 or 92%, primarily due to an increase in stock-based compensation expense and other recruiting incentives. Professional fees were $216,287 compared to $193,953 in the comparable quarter in the prior year, an increase of $22,334 or 12%, primarily due to an increase in legal and accounting services. Business development expenses were $220,865 in the quarter ending September 30, 2008 compared to $109,563 in the prior period quarter, an increase of $111,302 or 102%, due to an expansion of our marketing efforts. Other expenses were $399,931 in the quarter ending September 30, 2008 compared to $312,715 in the prior period quarter, an increase of $87,217 or 28%, primarily due to increased software amortization and maintenance expense, regulatory costs and insurance expense, partially offset by a decrease in bad debt expense.

The pre-tax loss was $196,253 for the three months ended September 30, 2008, compared to a pre-tax loss of $1,530,318 for the three months ended September 30, 2007. The pre-tax loss decreased, primarily due to the increase in revenues, partially offset by increased recruiting incentives. There was a net loss of $123,826 for the three months ended September 30, 2008 as compared to a net loss of $933,294 during the same quarter last year. The income tax benefit was $72,427 for the three months ended September 30, 2008, compared to the income tax benefit of $597,024 for the three months ended September 30, 2007, primarily due to the smaller pre-tax loss.

Six months ended September 30, 2008 compared to six months ended September 30,

2007

      Consolidated Statement of     Six Months Ended        Six Months Ended
      Operations Data:             September 30, 2008      September 30, 2007
                                       (unaudited)            (unaudited)

      Trading gains, net          $           9,634,720   $          8,918,206
      Commissions and fees                    7,488,220              1,894,055
      Interest and other                        652,623                476,813
      Total revenues              $          17,775,563   $         11,289,074

      Net income (loss)           $            (966,481 ) $         (1,088,712 )

We had overall revenues consisting of commission and fee revenues, net trading gains, plus interest and other income of $17,775,563 for the six months ended September 30, 2008 as compared to $11,289,074 for the six months ended September 30, 2007, an increase of $6,486,489 or 58%. Net trading gains were $9,634,720 compared to $8,918,206 during the same period in the prior year, an increase of $716,514 or 8%, due to the addition of trading-focused sales traders. Commission and fee revenues were $7,488,220 compared to $1,894,055 during the same period last year, an increase of $5,594,165 or 295%, due to a significant expansion of our institutional sales effort. Interest and other income were $652,623 compared to $476,813 during the comparable period last year, an increase of $175,810, or 37%, primarily due to an increase in interest on employee loans and reduced clearing broker interest expense.

Commission payouts were $8,461,251 (48% of revenues) in the six months ended September 30, 2008 compared to $5,450,294 (48% of revenues) in the comparable prior year period, an increase of $3,010,957 or 55%. The commission payouts declined as a percentage of revenues, primarily due to the shift in the revenue mix toward lower-payout trading revenues. Execution and clearance charges were $1,331,326 (7% of revenues) in the six months ended September 30, 2008 as compared to $780,478 (7% of revenues) in the six months ended September 30, 2007, an increase of $550,847 or 71%, primarily due to the increase in revenues. Communication costs were $2,781,936 in the six months ending September 30, 2008 compared to $2,553,774 in the same period last year, an increase of $228,162 or 9%, primarily due to additional equipment and services required for new hires. Occupancy costs were $596,739 in the six months ending September 30, 2008 compared to $837,080 in the same period last year, a decrease of $240,341 or 292%, due to the expiration of our lease at our former headquarters location.

Salaries and related costs were $4,171,547 compared to $2,162,700 in the comparable period in the prior year, an increase of $2,008,847 or 93%, primarily due to an increase in stock-based compensation expense, bonus payments, and other recruiting incentives. Professional fees were $789,801 compared to $462,784 in the comparable period in the prior year, an increase of $327,017 or 71%, primarily due to an increase in director stock-based compensation expense, plus expanded legal and accounting services. Business development expenses were $425,013 in the six months ending September 30, 2008 compared to $245,719 in the same period last year, an increase of $179,294 or 73%, due to an expansion of our marketing efforts. Other expenses were $740,072 in the six months ending September 30, 2008 compared to $521,872 in the same period last year, an increase of $218,200 or 42%, due to increased software amortization and maintenance expense and subscription expense, partially offset by a decline in bad debt expense.

The pre-tax loss was $1,522,121 for the six months ended September 30, 2008, compared to a pre-tax loss of $1,725,627 for the six months ended September 30, 2007. The pre-tax loss decreased, primarily due to the increase in revenues, partially offset by increased recruiting incentives. There was a net loss of $966,481 for the six months ended September 30, 2008 as compared to a net loss of $1,088,712 during the same period last year. The income tax benefit was $555,640 for the six months ended September 30, 2008, compared to the income tax benefit of $636,915 for the six months ended September 30, 2007, primarily due to the smaller pre-tax loss.

Liquidity and Capital Resources

                                               As of                As of
     Consolidated Balance Sheet Data:    September 30, 2008     March 31, 2008
                                             (unaudited)

     Working capital                    $          9,325,403   $      6,899,114
     Total assets                       $         20,779,527   $     17,323,538
     Total liabilities                  $          5,149,646   $      5,248,140
     Stockholders' equity               $         15,629,881   $     12,075,398

Working Capital

Our working capital (current assets less current liabilities) increased to $9.3 million at September 30, 2008 from $6.9 million at March 31, 2008, primarily as a result of the receipt of the $3.9 million net private placement proceeds, less $1.5 million of additional recruiting incentive payments. Current assets include cash, receivable from clearing broker (cash on deposit with our clearing broker), marketable securities, income taxes receivable and most other assets. All liabilities, except approximately $0.2 million of long-term deferred rent, are current liabilities.

We have not declared and paid, nor do we expect to declare and pay in the intermediate future, any dividends on our common stock. On November 13, 2008, our Board authorized the repurchase of up to 1,000,000 shares of our common stock, at the discretion of management.

We currently do not have any outstanding bank borrowings or long-term debt. On April 20, 2006, we provided a $225,000 letter of credit to the landlord associated with our new headquarters space, after depositing $225,000 of collateral with the issuing financial institution in the form of a 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, the enhancement of our technology, software development, and by potential future expansion into related activities (investment banking, fixed income, options, etc.) including possible synergistic acquisition opportunities. Such expansion could require the issuance of additional forgivable employee loans, restricted stock, stock options or other stock-based awards in order to recruit and retain experienced professionals (see Notes E and F to the consolidated condensed financial statements for additional details). See Note H to the consolidated condensed financial statements for additional details related to regulatory net capital requirements. We still expect that any further significant expansion or acquisition opportunities may require additional subordinated debt or equity 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.

Our contractual commitments consist primarily of office and equipment leases, plus commitments related to certain employment agreements (see Note G to the consolidated condensed financial statements for additional details). 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. The purpose of Technologies is to perform software development and technology services, both for the Company and for customers.

Our cash position decreased by $5,556,299 to $616,049 during the six months ended September 30, 2008, after decreasing by $4,385,031 to $727,244 during the six months ended September 30, 2007. However, it should be noted that our cash position is primarily a function of the extent to which our funds are deployed in marketable securities or on deposit with our clearing broker.

Operating Activities

Net cash used in operating activities was $9,077,502 during the six months ended September 30, 2008, primarily as a result of depositing an incremental $5,587,963 of cash with our clearing broker, a $3,249,117 increase in net securities positions and a $1,487,500 increase in prepaid compensation. Net cash used in operating activities was $4,023,815 during the six months ended September 30, 2007, primarily as a result of depositing an incremental $6,355,659 of cash with our clearing broker, the extension of a $1,019,000 forgivable loan to a new salesperson as a recruiting incentive, a loss after non-cash addbacks of $825,959 and a $377,319 increase in income tax receivables, partially offset by a $4,571,644 increase in cash due to a reduction of our net security positions.

Investing Activities

Net cash used in investing activities was $396,768 during the six months ended September 30, 2008 and $361,216 during the six months ended September 30, 2007, primarily due to the ongoing development of capitalized software.

Financing Activities

Net cash provided by financing activities was $3,917,972 during the six months ended September 30, 2008, due to the receipt of the net private placement proceeds. There was no net cash provided by financing activities during the six months ended September 30, 2007.

Off Balance Sheet Arrangements

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 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. As of September 30, 2008, we had no other off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Policies

There are no material changes from the critical accounting policies set forth in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the year ended March 31, 2008, except for the changes set forth below. Please refer to that section and the information below for disclosures regarding the critical accounting policies related to our business.

Fair Value Measurements

We adopted SFAS 157 in the first quarter of 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, we often utilize certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1 - Valued based on quoted prices at the measurement date for identical assets or liabilities trading in active markets. Financial instruments in this category generally include actively traded equity securities.

Level 2 - Valued based on (a) quoted prices for similar assets or liabilities in active markets; (b) quoted prices for identical or similar assets or liabilities in markets that are not active; (c) inputs other than quoted prices that are observable for the asset or liability; or (d) from market corroborated inputs. Financial instruments in this category include certain corporate equities that are not actively traded or are otherwise restricted. Financial instruments in this category include certain corporate equities that are not actively traded or are otherwise restricted.

Level 3 - Valued based on valuation techniques in which one or more significant inputs is not readily observable. Included in this category are certain corporate debt instruments, certain private equity investments, and certain commitments and guarantees.