content: <PAGE>
  
  
                         SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C. 20549
  
                                 ----------------
  
                                      FORM 8-K
                                   CURRENT REPORT
  
                       Pursuant to Section 13 or 15(d) of the
                          Securities Exchange Act of 1934
  
  Date of Report (Date of earliest event reported)   June 25, 1999
                                                   ----------------------------
  
                                  E*TRADE Group, Inc.
  --------------------------------------------------------------------------------
                 (Exact name of registrant as specified in charter)
  
  
          Delaware                   1-11921                   94-2844166
  ----------------------------------------------------------------------------
      (State or other
        jurisdiction               (Commission               (IRS Employer
     of incorporation)             File Number)            Identification No.)
  
  
  Four Embarcadero Place, 2400 Geng Road, Palo Alto, California       94303
  --------------------------------------------------------------------------------
  (Address of principal executive offices)                          (Zip Code)
  
  
  Registrant's telephone number, including area code:   (650) 842-2500
  --------------------------------------------------------------------------------
  
  
                                   Not Applicable
  --------------------------------------------------------------------------------
           (Former name or former address, if changed since last report.)
  <PAGE>
  
     This Form 8-K is being filed to present on a supplemental basis the Selected
  Financial Data, Management's Discussion and Analysis of Financial Conditions
  and Results of Operations and consolidated financial statements of E*TRADE
  Group, Inc. ("E*TRADE") as of September 30, 1998 and 1997 and for each of the
  three years in the period ended September 30, 1998, and as of March 31, 1999
  and for the six month periods ended March 31, 1999 and 1998, which gives
  retroactive effect to its merger with ClearStation, Inc. ("ClearStation"), on
  April 30, 1999 which was accounted for as a pooling of interests and for the
  two-for-one stock splits effective February 1, 1999 and May 21, 1999.
  
  Item 5 OTHER
  
      (a) Supplemental Annual Financial Information as of September 30, 1998
          and 1997 and for each of the three years in the period ended
          September 30, 1998.
  
        (1) Selected Supplemental Financial Data
  
        (2) Management's Discussion and Analysis of Financial Condition and
            Results of Operations
  
        (3) Quantitative and Qualitative Disclosures About Market Risk
  
        (4) Supplemental Consolidated Financial Statements and Supplementary
            Data
  
      (b) Supplemental Interim Financial Information as of March 31, 1999 and
          for the six month periods ended March 31, 1999 and 1998.
  
        (1) Management's Discussion and Analysis of Financial Condition and
            Results of Operations
  
        (2) Quantitative and Qualitative Disclosures About Market Risk
  
        (3) Supplemental Consolidated Financial Statements and Supplementary
            Data
  
  Item 7 FINANCIAL STATEMENTS AND EXHIBITS
  
      (c)Exhibit.
  
        The following document is filed as an exhibit to this Report:
  
        23.1 Consent of Independent Auditors
  
                                         2
  <PAGE>
  
  Selected Supplemental Financial Data
  
  <TABLE>
  <CAPTION>
                                           Years Ended September 30,
                                  ----------------------------------------------
                                     1998       1997     1996     1995    1994
                                  ----------  -------- --------  ------- -------
                                    (in thousands, except per share amounts)
  <S>                             <C>         <C>      <C>       <C>     <C>
  Consolidated Statement of
   Operations Data*:
  
  Revenues:
   Transaction revenues.........  $  162,097  $109,659 $ 44,178  $20,835 $ 9,548
   Interest, net of interest
    expense.....................      56,020    25,265    4,813    1,004     302
   International................       7,031     4,000       --       --      --
   Other........................      20,169    17,471   13,529    6,947   5,558
                                  ----------  -------- --------  ------- -------
    Net revenues................     245,317   156,395   62,520   28,786  15,408
                                  ----------  -------- --------  ------- -------
  Cost of services..............     111,888    73,381   38,027   14,683   8,485
                                  ----------  -------- --------  ------- -------
  Operating expenses:
   Selling and marketing........      71,447    28,160   10,944    4,204   2,372
   Technology development.......      33,699    13,547    4,699    2,265   1,181
   General and administrative...      31,048    16,847    8,238    3,022   2,724
                                  ----------  -------- --------  ------- -------
    Total operating expenses....     136,194    58,554   23,881    9,491   6,277
                                  ----------  -------- --------  ------- -------
    Total cost of services and
     operating expenses.........     248,082   131,935   61,908   24,174  14,762
                                  ----------  -------- --------  ------- -------
  Pre-tax income (loss).........      (2,765)   24,460      612    4,612     646
  Income tax expense (benefit)..        (953)    9,425     (555)   1,728    (541)
                                  ----------  -------- --------  ------- -------
  Net income (loss).............  $   (1,812) $ 15,035 $  1,167  $ 2,884 $ 1,187
                                  ==========  ======== ========  ======= =======
  Net income (loss) per share**:
   Basic........................  $    (0.01) $   0.12 $   0.01  $  0.04 $  0.02
                                  ==========  ======== ========  ======= =======
   Diluted......................  $    (0.01) $   0.10 $   0.01  $  0.03 $  0.01
                                  ==========  ======== ========  ======= =======
  Shares used in computation of
   net income (loss) per
   share**:
   Basic........................     169,791   129,408   78,564   68,068  65,944
   Diluted......................     169,791   143,496  119,728  111,028 109,784
  
  
  <CAPTION>
                                                 September 30,
                                  ----------------------------------------------
                                     1998       1997     1996     1995    1994
                                  ----------  -------- --------  ------- -------
                                                 (in thousands)
  <S>                             <C>         <C>      <C>       <C>     <C>
  Consolidated Balance Sheet
   Data*:
  Cash and equivalents..........  $   21,890  $ 23,234 $ 15,856  $10,985 $ 2,000
  Investment securities.........     502,534   191,958   35,563      560     560
  Brokerage receivables--net....   1,310,235   724,365  193,228    1,936     499
  Total assets..................   1,969,445   995,422  302,171   18,146   5,386
  Shareowners' equity...........     709,536   283,374   71,976   12,348     919
  </TABLE>
  --------
  * All amounts presented have been restated to reflect the acquisition of
    ShareData, Inc. in July 1998, and ClearStation, Inc. in April 1999, which
    were accounted for as pooling of interests (see Note 15 of the Supplemental
    Consolidated Financial Statements).
  ** Reflects the two-for-one stock splits effective February 1, 1999 and May
     21, 1999.
  
                                         3
  <PAGE>
  
  Management's Discussion and Analysis of Financial Condition and Results of
  Operations for the Years Ended September 30, 1998, 1997 and 1996
  
  Forward-Looking Statements
  
     The following discussion of the financial condition and results of
  operations of E*TRADE Group, Inc. ("E*TRADE" or the "Company") as restated for
  its merger with ClearStation, Inc. ("Clear Station") on April 30, 1999, which
  was accounted for as a pooling of interests should be read in conjunction with
  the supplemental consolidated financial statements and notes thereto included
  elsewhere herein. This discussion contains forward-looking statements,
  including statements regarding the Company's strategy, financial performance
  and revenue sources which involve risks and uncertainties. The Company's actual
  results may differ materially from those anticipated in these forward-looking
  statements as a result of certain factors, including, but not limited to, those
  set forth elsewhere herein.
  
  Overview
  
     A leading branded provider of online investing services, E*TRADE has
  established a popular destination Web site for self-directed investors. Founded
  in 1982, the Company operated initially as a service bureau, providing
  automated online securities transaction services to various brokerage firms,
  including Fidelity Brokerage Services, Inc., Quick and Reilly, Inc. and,
  through an agreement with Bank of America, Charles Schwab. In 1992, the Company
  formed E*TRADE Securities and began to offer retail investing services and
  account information 24 hours a day, seven days a week. The Company offers
  independent investors the convenience and control of automated stock, option,
  fixed income and mutual fund order placement at lower commission rates than
  traditional brokerage firms. In addition, E*TRADE has a suite of value-added
  products and services that can be customized and personalized, including
  portfolio tracking, Java-based charting and quote applications, real-time stock
  quotes, Smart Alerts, market commentary and analysis, news, investor community
  areas and other information services.
  
     Free resources available to the public on E*TRADE's Web site include
  breaking financial news, real-time stock and option price quotes, company
  financial information and news announcements, live market commentary,
  personalized investment portfolios, investor community areas, and search and
  filtering tools for mutual fund and fixed income products. E*TRADE's Web site
  services three levels of investors--visitors, members, and customers, with each
  successive group gaining access to additional value-added products and
  services. Visitors can view market information, headline news, stock quotes and
  charts, mutual fund information, and much more. By registering but not opening
  an account, a visitor becomes a member and receives free access to many
  advanced, customizable investment research tools, including free real-times
  quotes and secure email. Customers, those investors with E*TRADE accounts, have
  complete access to E*TRADE's trading engine and to all the investment research
  and management features, including Smart Alerts, and many sophisticated
  analytical and record keeping tools. Customers may also subscribe to E*TRADE's
  Professional Edge service and receive access to IPOs, institutional quality
  research reports, and other premium services.
  
     The Company's revenues consist principally of transaction revenues, which
  include securities brokerage commissions and payments based on order flow,
  interest and certain other fees related to the Company's product offerings. The
  Company has experienced substantial growth in its revenues since E*TRADE
  Securities was formed. At the end of fiscal 1992, the Company was processing
  slightly over 100 transactions per day. For the quarter ended September 30,
  1998, the Company's average daily transaction volume was 30,500, a 27% increase
  over the average daily transaction volume of 24,100 in the equivalent period in
  fiscal 1997. Although increases in the overall activity in the securities
  markets have contributed to the Company's growth, the Company believes that its
  growth has also been due to the success of its advertising campaigns in
  bringing brand name recognition to the E*TRADE name, the launch of Internet
  access to E*TRADE in February 1996, and the continuing successful integration
  of new product developments.
  
                                         4
  <PAGE>
  
     In December 1997, the Company acquired OptionsLink, a division of Hambrecht
  & Quist LLC. OptionsLink is an all-electronic Web-based and interactive voice
  response inquiry and order entry system for employee stock option and stock
  purchase plan services for corporate stock plan participants. The acquisition
  of OptionsLink demonstrates the Company's commitment to expand its products and
  services into the corporate financial services market.
  
     In July 1998, the Company acquired ShareData, Inc., a supplier of stock plan
  knowledge-based software for pre-IPO and public companies. This acquisition
  will enable the Company to extend its corporate services strategy, which began
  when the Company purchased OptionsLink. Corporate financial services represents
  a potential growth segment for the Company and provides an opportunity to
  diversify its revenue stream. The Company intends to provide an automated
  solution for stock plan management and company stock transaction capabilities
  to plan sponsors and their employees through combining the OptionsLink and
  ShareData, Inc. product offerings.
  
     On April 30, 1999, the Company acquired ClearStation, Inc.,
  ("ClearStation"). ClearStation is a financial media web site that integrates
  technical and fundamental analysis and discussion for investors. The Company
  issued 939,072 shares of common stock in exchange for all outstanding common
  stock of ClearStation. The Company also assumed all outstanding ClearStation
  options, which were converted to options to purchase approximately 112,000
  shares of the Company's common stock. The acquisition was accounted for as a
  pooling of interests, and accordingly, all prior financial data of the Company
  has been restated to include the historical operations of ClearStation from
  October 1997 (the date of ClearStation's inception). As a result of the
  acquisition, the Company incurred charges and direct transaction costs relating
  to the business combination of $250,000. These non-recurring costs have been
  charged to operations in the third quarter of fiscal 1999. Fiscal 1998 includes
  the results of ClearStation for the twelve months ended September 30, 1998. No
  adjustments were required to conform accounting policies of the entities. There
  were no significant intercompany transactions requiring elimination for any
  periods presented.
  
     The Company uses other broker-dealers to execute its customers' orders and,
  in recent years, has derived a significant portion of its revenues from these
  broker-dealers for such order flow. This practice of receiving payments for
  order flow is widespread in the securities industry. Under applicable SEC
  regulations, receipt of these payments requires disclosure of such payments by
  the Company to its customers. The revenues received by the Company under these
  arrangements for fiscal 1998, 1997 and 1996 amounted to 16%, 19% and 22% of
  total transaction revenues, respectively. There can be no assurance that the
  Company will be able to continue its present relationships and terms for such
  payments for order flow. In addition, there can be no assurance that payments
  for order flow will continue to be permitted by the SEC, the NASD or other
  regulatory agencies, courts or governmental units. Loss of any or all of these
  revenues could have a material adverse effect on the Company's business,
  financial condition and operating results.
  
     The Company is making significant investments in systems technology and has
  established technology centers in both Palo Alto and Rancho Cordova,
  California. These facilities support systems, network services, trading,
  customer service, transaction redundancy and backup between the two locations,
  thereby providing an operational system in the event of a service interruption
  at either facility. In fiscal 1998, the Company opened a new facility in
  Alpharetta, Georgia which will also support systems, network services, trading
  and customer service.
  
     The Company implemented self-clearing operations for equity securities in
  July 1996 and self-clearing operations for options in April 1997. Prior to July
  1996, the Company cleared all of its customer transactions as a fully-disclosed
  correspondent of Herzog, Heine, Geduld, Inc. ("Herzog"). Clearing services
  include the confirmation, receipt, settlement, custody and delivery functions
  involved in securities transactions. In the first quarter of fiscal 1996, the
  Company began hiring associates to perform these functions. As a consequence,
  the Company incurred significant costs associated with the hiring and training
  of its associates, and systems integration costs, while continuing to incur
  expenses for clearing operations performed by Herzog through June 1996. The
  conversion to self-clearing has allowed the Company to realize significant cost
  savings and revenue enhancement.
  
                                         5
  <PAGE>
  
     The Company assumes direct responsibility for the possession and control of
  customer securities and other customer assets and the clearing of customers'
  securities transactions. This responsibility requires the Company to record on
  its balance sheet the receivables and payables to the Company that are a result
  of customer margin loans (i.e., loans made to customers that are collateralized
  by securities held in the customers' accounts at the Company) and customer free
  credit balances (i.e., customer cash balances maintained by the Company),
  respectively. In addition, to the extent that the Company's customer debit
  balances exceed customer free credit balances, the Company may be required to
  obtain financing for any excess debit balance. The Company had receivables from
  customers, brokers, dealers and clearing organizations of $1.3 billion and
  payables to customers, brokers, dealers and clearing organizations of
  $1.2 billion as of September 30, 1998. The Company contracts with a third-party
  service bureau, BETA Systems, for its customer record keeping and data
  processing services.
  
     The Company has experienced substantial changes in, and expansion of, its
  business and operations since it began offering online investing services in
  1992 and Internet investing services in February 1996, and expects to continue
  to experience periods of rapid growth. The Company's past expansion has placed,
  and any future expansion would place, significant demands on the Company's
  administrative, operational, financial and other resources. Competition for
  highly qualified senior managers and technical personnel is intense. If the
  Company fails to attract, assimilate and retain such personnel, there could be
  a material adverse effect on the Company's business, financial condition and
  operating results.
  
     The securities industry is subject to extensive regulation under federal,
  state and applicable international laws. As a result, the Company is required
  to comply with many complex laws and rules and its ability to so comply is
  dependent in large part upon the establishment and maintenance of a qualified
  compliance system. The Company is aware of several instances of its non-
  compliance with applicable regulations. In particular, in fiscal 1997, the
  Company failed to comply with applicable advertising restrictions in one
  international jurisdiction and, due to a clerical oversight, failed to timely
  renew its registration as a broker-dealer in two states, Nebraska and Ohio. One
  of the states, Ohio, as a condition of renewing the Company's license as a
  broker-dealer in that state, required the Company to offer customers resident
  in that state the ability to rescind (for up to 30 days) certain securities
  transactions effected through the Company during the period January 1, 1997
  through April 15, 1997, the date the Company's license was renewed. For fiscal
  1997, the Company recorded a $4.3 million pre-tax charge against earnings in
  connection with this matter.
  
  Results of Operations
  
     The following table sets forth the percentage of net revenues represented by
  certain items on the Company's consolidated statements of operations for the
  periods indicated:
  
  <TABLE>
  <CAPTION>
                             Years Ended September 30,
                             -----------------------------
                               1998       1997      1996
                             --------   --------  --------
  <S>                        <C>        <C>       <C>
  Revenues:
   Transaction revenues.....     66.1%      70.1%     70.7%
   Interest, net of interest
    expense.................     22.8       16.2       7.7
   International............      2.9        2.5        --
   Other....................      8.2       11.2      21.6
                             --------   --------  --------
    Net revenues............    100.0      100.0     100.0
                             --------   --------  --------
  Cost of services..........     45.6       46.9      60.8
                             --------   --------  --------
  Operating expenses:
   Selling and marketing....     29.1       18.0      17.5
   Technology development...     13.7        8.7       7.5
   General and
    administrative..........     12.7       10.8      13.2
                             --------   --------  --------
    Total operating
     expenses...............     55.5       37.5      38.2
                             --------   --------  --------
    Total cost of services
     and operating
     expenses...............    101.1       84.4      99.0
                             --------   --------  --------
  Pre-tax income (loss).....     (1.1)      15.6       1.0
  Income tax expense
   (benefit)................     (0.4)       6.0      (0.9)
                             --------   --------  --------
  Net income (loss).........     (0.7)%      9.6%      1.9%
                             ========   ========  ========
  </TABLE>
  
                                         6
  <PAGE>
  
  Fiscal Years Ended September 30, 1998, 1997 and 1996
  
   Revenues
  
     The Company's revenues increased to $245.3 million in fiscal 1998, up 57%
  from $156.4 million in fiscal 1997, which was up from 150% from $62.5 million
  in fiscal 1996. Transaction revenues increased to $162.1 million in fiscal
  1998, up 48% from $109.7 million in fiscal 1997, which was up 148% from $44.2
  million in fiscal 1996. Transaction revenues consist of commission revenues and
  payments based on order flow. Commission revenues increased to $136.3 million,
  up 64% from $82.9 million in fiscal 1997, which was up 153% from $32.8 million
  in fiscal 1996. Transactions for fiscal 1998 totaled 7.0 million or an average
  of 27,600 transactions per day. This is an increase of 68% over the average
  daily transaction volume of 16,400 in fiscal 1997, which was up 169% from 6,100
  in fiscal 1996. Average commissions per transaction declined to $19.58 in
  fiscal 1998 from $20.00 in fiscal 1997 and $20.82 in fiscal 1996, due primarily
  to a change in product mix and the lowering of commissions on listed market
  orders from $19.95 to $14.95 in February 1996. Payments for order flow
  decreased to $25.8 million in fiscal 1998, down 4% from $26.8 million in fiscal
  1997, which had increased 135% from $11.4 million in fiscal 1996. The decrease
  in payments for order flow is reflective of a trend that the Company expects to
  continue as a result of the implementation by the SEC of new order handling
  rules in January 1997, the outcome of which was that the bid/ask spread was
  reduced thereby reducing market maker margins and limiting their ability to pay
  for order flow, and the loss of Roundtable earnings, which ended when
  Roundtable was reorganized as Knight/Trimark, Inc. and went public in July 1998
  (see Note 5 of the Supplemental Consolidated Financial Statements). Until its
  initial public offering, Knight/Trimark would allocate a portion of its
  earnings to its owners, including the Company, based on what percentage its
  owners contributed to Knight/Trimark's total order flow. The Company previously
  recorded the amounts it received under this allocation as payment for order
  flow revenue.
  
     Net interest revenues primarily represent interest earned by the Company on
  credit extended to its customers to finance their purchases of securities on
  margin, fees on its customer assets invested in money market accounts and
  interest earned on investment securities, offset by interest paid to customers
  on certain credit balances, interest paid to banks and interest paid to other
  broker-dealers through the Company's stock loan program. Net interest revenues
  increased to $56.0 million in fiscal 1998, up 122% from $25.3 million in fiscal
  1997, which was up 425% from $4.8 million in fiscal 1996. This increase was due
  primarily to growth in customer accounts and the opportunity that being self-
  clearing has given the Company to manage interest rates. This increase was also
  a result of average customer margin debit balances increasing 70% to
  $925 million, average customer credit balances increasing 12% to $244 million,
  average money market fund balances increasing 95% to $1.4 billion, and an
  increase in investment securities from fiscal 1997 to fiscal 1998.
  
     International revenues of $7.0 million represent international licensing
  fees and ongoing royalties from agreements signed as part of E*TRADE's
  continued international expansion effort. International alliances signed during
  this fiscal year cover a number of countries in Europe and Asia. These
  agreements grant the licensees the exclusive right to use E*TRADE's technology
  and offer online investing services under the E*TRADE name. In addition, the
  Company has established joint ventures with strategic partners in Japan and the
  U.K. E*TRADE's global network will extend to 32 countries and territories when
  fully implemented. These agreements provide that the Company will receive
  royalties based upon their transaction revenues. International revenues were
  $4.0 million in fiscal 1997, from licensing fees attributable to the Company's
  agreements with VERSUS in Canada and Nova Pacific in Australia. Prior to fiscal
  1997, there were no international revenues. The Company may, from time to time,
  seek to enter into similar licensing agreements with others as part of its
  international expansion strategy. There can be no assurance that any such
  future agreements will be consummated or that the terms thereof will be
  comparable to those of the aforementioned agreements or that the recognition of
  any licensing fees will occur during the period in which an arrangement is
  consummated.
  
     Other revenues increased to $20.2 million in fiscal 1998, up 15% from $17.5
  million in fiscal 1997, which was up 29% from $13.5 million in fiscal 1996.
  Other revenues increased primarily due to equity earnings from the Company's
  investment in Roundtable, broker-related fees for services, new revenue streams
  from
  
                                         7
  <PAGE>
  
  OptionsLink, growth in ShareData, Inc. licensing revenue, and increased
  revenues from mutual funds and advertising on the Company's Web site. As a
  result of the Knight/Trimark initial public offering, the Company will no
  longer recognize any equity income from the Company's investment in Roundtable
  in future quarters (see Note 5 of the Supplemental Consolidated Financial
  Statements).
  
   Cost of Services
  
     Total cost of services increased to $111.9 million in fiscal 1998, up 52%
  from $73.4 million in fiscal 1997, which was up 93% from $38.0 million in
  fiscal 1996. Cost of services includes expenses related to the Company's
  clearing operations and customer service activities, system maintenance and
  communication expenses, and clearing fees paid to the Company's former clearing
  broker. Cost of services as a percentage of total transaction revenues was 69%
  in fiscal 1998 compared to 67% in fiscal 1997 and 86% in fiscal 1996. Included
  in total cost of services for fiscal 1997 was a charge of $4.3 million, which
  resulted from a clerical oversight connected with the Company's failure to
  timely renew its registration as a broker-dealer in the state of Ohio. Included
  in total cost of services in fiscal 1996 were self-clearing start-up costs of
  $2.2 million. Cost of services, exclusive of the registration charge and self-
  clearing start-up costs, increased to $111.8 million in fiscal 1998, up 62%
  from $69.0 million in fiscal 1997, which was up 93% from $35.8 million in
  fiscal 1996. These increases reflect the overall increase in customer
  transactions processed by the Company, a related increase in customer service
  inquiries, and operations and maintenance costs associated with the technology
  centers in Palo Alto and Rancho Cordova, California.
  
   Operating Expenses
  
     Selling and marketing expenses increased to $71.4 million in fiscal 1998, up
  154% from $28.2 million in fiscal 1997, which was up 157% from $10.9 million in
  fiscal 1996. This increase reflects expenditures for advertising placements,
  creative development and collateral materials resulting from a variety of
  advertising campaigns directed at building brand name recognition, growing the
  customer base and market share, and maintaining customer retention rates.
  Beginning in the fourth quarter of fiscal 1998, the Company significantly
  expanded its marketing efforts including the launch of Destination E*TRADE,
  expanded national television advertising and new strategic marketing alliances
  with key business partners, such as AOL and Yahoo!. These increased expenditure
  levels are expected to continue in fiscal 1999.
  
     Technology development expenses increased to $33.7 million in fiscal 1998,
  up 149% from $13.5 million in fiscal 1997, which was up 188% from $4.7 million
  in fiscal 1996. The increased level of expenses was incurred to enhance the
  Company's existing product offerings, including maintenance of the Company's
  Web site, development efforts related to the launch of Destination E*TRADE and
  proprietary Stateless Architecture SM, and reflects the Company's continuing
  commitment to invest in new products and technologies.
  
     General and administrative expenses increased to $31.0 million in fiscal
  1998, up 84% from $16.8 million in fiscal 1997, which was up 105% from $8.2
  million in fiscal 1996. This increase is the result of personnel additions, the
  development of administrative functions resulting from the overall growth in
  the Company, acquisition costs and the costs associated with the opening of a
  new facility in Alpharetta, Georgia.
  
   Income Tax Expense (Benefit)
  
     Income tax expense (benefit) represents the provision for federal and state
  income taxes at an effective rate of (34.5%), 38.5% and (90.7%) for fiscal
  1998, 1997 and 1996, respectively. Prior to its merger with the Company,
  ShareData, Inc. was a Subchapter S corporation and was not subject to federal
  and state corporate income taxes. Additionally, the fiscal 1998 rate reflects
  expected tax benefits from tax-exempt interest income and certain nondeductible
  acquisition costs.
  
  Year 2000 Compatibility
  
     Many computer systems use only two digits to identify a specific year and
  therefore may not accurately recognize and handle dates beyond the year 1999.
  If not corrected, these computer applications could fail or
  
                                         8
  <PAGE>
  
  create erroneous results by or at the year 2000. The Company utilizes, and is
  dependent upon, data processing systems and software to conduct its business.
  The data processing systems and software include those developed and maintained
  by the Company's third-party data processing vendors and software which is run
  on in-house computer networks.
  
     Due to the Company's dependence on computer technology to conduct its
  business, and the dependence of the financial services industry on computer
  technology, the nature and impact of year 2000 processing failures on the
  Company's business, financial position, results of operations or cash flows
  could be material. During the first quarter of fiscal 1998, the Company
  initiated a review and assessment of all hardware and software to evaluate
  whether it will function properly in the year 2000 without material errors or
  interruptions.
  
     The Company believes that all year 2000 issues revealed as a result of that
  evaluation to date can be remedied in a timely manner, and therefore are not
  expected to create a material risk of disruption of operations. With respect to
  outside vendors, those vendors that have been contacted have indicated that
  their hardware or software is or will be year 2000 compatible in time frames
  that meet regulatory requirements. Evaluation of these issues is continuing and
  there is a risk that other problems, not presently known to the Company, will
  be discovered which could present a material risk of disruption to the
  Company's operations and result in material adverse consequences to the
  Company. Furthermore, there can be no assurance that the Company will not
  experience unexpected delays in remediation of any year 2000 issues that may be
  discovered. Any inability to remediate such issues in a timely manner could
  cause a material disruption of the Company's business. In addition, the method
  of trading employed by the Company is heavily dependent on the integrity of
  electronic systems outside of the Company's control, such as online and
  Internet service providers, and third-party software such as Internet browsers.
  A failure of any such system in the trading process, even for a short time,
  could cause interruption to the Company's business. The year 2000 issue could
  lower demand for the Company's services while increasing the Company's costs.
  These combining factors, while not quantified, could have a material adverse
  impact on the Company's financial results.
  
     Because systems critical to the Company's functioning other than its
  computer systems may be affected by the century change, the Company's year 2000
  efforts also encompass facilities and equipment which rely on date-dependent
  technology, such as, building equipment that contains embedded technology and
  the Company's third-party providers.
  
     At this time, it does not appear that the costs of addressing year 2000
  issues will have a material adverse impact on the Company's financial position.
  However, in the event that the Company and third parties upon which it relies
  are unable to address these issues in a timely manner, it could result in a
  material financial risk to the Company.
  
   Status of Year 2000 Efforts
  
     The Company's year 2000 efforts address all computer systems, equipment and
  business partner relationships considered essential to the Company's ability to
  conduct its business. The objective of the Company's year 2000 project is to
  identify the core business processes and associated computer systems and
  equipment that may be at risk due to the use of two-digit year dates. Once
  identified, the systems and equipment are rated for risk and are prioritized
  for conversion or replacement according to their impact on core business
  operations. The Company's year 2000 project follows a structured approach in
  analyzing and mitigating year 2000 issues. This approach consists of six
  phases: awareness, assessment, remediation, validation, implementation and
  industry-wide testing. The work associated with each phase may be performed
  simultaneously with other phases of the project, depending on the nature of the
  work to be performed and the technology and business requirements of the
  specific business unit. For example, awareness is an ongoing effort and occurs
  in each phase. As part of this project, the Company reviews its vendor
  relationships (suppliers, alliances and third-party providers) in an attempt to
  assess their ability to meet the year 2000 challenge. In addition, this plan
  seeks to ensure that all of the Company's business partners and service
  providers are also year 2000 ready. In addition, written contingency plans are
  being developed for all mission critical systems and many non-critical systems
  to address any unexpected year 2000 failures. However, there can be no
  assurance that contingency plans will adequately address all year 2000
  failures.
  
                                         9
  <PAGE>
  
     Currently, the Company's primary focus is the completion of remediation and
  testing, and on-going contingency planning and vendor management efforts.
  However, the Company is continuing to assess the impact of year 2000 issues on
  its products, internal information systems and third-party vendor relations.
  The Company has begun, and in many cases completed, corrective efforts in these
  areas. The Company does not anticipate that addressing year 2000 issues for its
  internal information systems and current and future products will have a
  material impact on its operations or financial results. However, there can be
  no assurance that these costs will not be greater than anticipated, or that
  corrective actions undertaken will be completed before year 2000 issues may
  arise.
  
     In March 1999, the Company completed its assessment phase on mission
  critical systems including a significant amount of the implementation and
  testing. The Company's primary focus remains on the successful remediation and
  testing of all critical systems, including systems owned by third parties.
  Additional focus will be placed on non-critical systems and written contingency
  plans in the later half of the third quarter of fiscal 1999. The Company
  anticipates that work on the awareness, contingency planning, and vendor
  management phases of the project will continue through the century change.
  
     The success of the Company's year 2000 efforts depends in part on the
  adequacy of compliance by vendors with their representations concerning their
  systems, and on parallel efforts being undertaken by vendors and other third
  parties with which the Company's systems interact and therefore, the Company is
  taking steps to determine the status of critical third parties' year 2000
  compatibility. The Company has implemented a vendor management program.
  Activities include creating an inventory of vendors, inquiring directly as to
  the status of vendors' year 2000 efforts, and continuing contacts with vendors
  to monitor the progress of vendors who may not yet be year 2000 capable. If
  these suppliers fail to adequately address year 2000 issues for the products
  and services they provide to the Company, this could have a material adverse
  impact on the Company's operations and financial results. The Company is still
  assessing the effect year 2000 issues will have on its suppliers and at this
  time, cannot determine the impact it will have. There can be no assurance that
  all third parties will provide accurate and complete information or that all
  their systems will be fully year 2000 capable. Third parties' year 2000
  processing failures may have a material adverse impact on the Company's systems
  and operations.
  
     As the year 2000 project continues, the Company may discover additional year
  2000 issues, may not be able to develop, implement, or test remediation or
  contingency plans, or may find that the costs of these activities exceed
  current expectations and become material. In many cases, the Company is relying
  on assurances from suppliers that new and upgraded information systems and
  other products will be year 2000 capable. The Company plans to test such third-
  party products, but cannot be sure that its tests will be adequate or that, if
  problems are identified, they will be addressed by the supplier in a timely and
  satisfactory way.
  
     Because the Company uses a variety of information systems and has additional
  systems embedded in its operations and infrastructure, the Company cannot be
  sure that all of its systems will work together in a year 2000-capable fashion.
  Furthermore, the Company cannot be sure that it will not suffer business
  interruptions, either because of its own year 2000 issues or those of its
  customers or suppliers whose year 2000 issues may make it difficult or
  impossible for them to fulfill their commitments to the Company. If the Company
  fails to satisfactorily resolve year 2000 issues related to its products in a
  timely manner, it could be exposed to liability to third parties.
  
     The Company is continuing to evaluate year 2000-related risks and corrective
  actions. However, the risks associated with the year 2000 may be pervasive and
  complex; they can be difficult to identify and to address, and can result in
  material adverse consequences to the Company. Even if the Company, in a timely
  manner, completes all of its assessments, identifies and tests remediation
  plans believed to be adequate, and develops contingency plans believed to be
  adequate, some issues may not be identified or corrected in time to prevent
  material adverse consequences to the Company.
  
                                         10
  <PAGE>
  
     The Company's plan may also be affected by regulatory changes, changes in
  industry customs and practices, and significant systems modifications unrelated
  to the year 2000 project including upgrades and additions to capacity, and the
  cost and continued availability of qualified personnel and other resources.
  
     The Company has spent approximately $1.8 million in fiscal 1998 and
  currently estimates that it will spend approximately an additional $5 million
  to ascertain that its core computer systems and those of its vendors are year
  2000 capable. These expenditures will consist primarily of compensation for
  information technology employees and contractors dedicated to this project and
  related hardware and software costs. This estimate excludes the time that may
  be spent by management and administrative staff in guiding and assisting the
  information technology effort described above or for making systems other than
  core brokerage computer systems year 2000 capable. The Company expects to fund
  all year 2000 related costs through operating cash flows. These costs are not
  expected to result in increased information technology expenditures because
  they will be funded through a reallocation of the Company's overall development
  spending. In accordance with generally accepted accounting principles, such
  expenditures will be expensed as incurred.
  
  Variability of Results
  
     The Company expects to experience significant fluctuations in future
  quarterly operating results that may be caused by many factors, including the
  following: the timing of introductions or enhancements to online investing
  services and products by the Company or its competitors; market acceptance of
  online investing services and products; the pace of development of the market
  for online commerce; changes in trading volume in securities markets; trends in
  securities markets; domestic and international regulation of the brokerage
  industry; changes in pricing policies by the Company or its competitors;
  changes in strategy; the success of or costs associated with acquisitions,
  joint ventures or other strategic relationships; changes in key personnel;
  seasonal trends; the extent of international expansion; the mix of
  international and domestic revenues; changes in the level of operating expenses
  to support projected growth; and general economic conditions.
  
     Because of the foregoing factors, in addition to other factors that affect
  the Company's operating results and financial position, investors should not
  consider past financial performance or management's expectations a reliable
  indicator of future performance, and not use historical trends to anticipate
  results or trends in future periods. In that regard, results of operations and
  financial condition could be adversely affected by a number of factors in
  addition to those discussed above, including overall economic conditions and
  lower than expected demand. Further, the Company's stock price is subject to
  volatility. Any of the factors discussed above could have an adverse effect on
  the Company's stock price. In addition, the Company's stock price could be
  adversely affected if the Company's revenues or earnings in any quarter fail to
  meet the investment community's expectations, or if there are broader, negative
  market trends. The Company does not undertake an obligation to update its
  forward-looking statements or risk factors to reflect future events or
  circumstances.
  
  Liquidity and Capital Resources
  
     In August 1996, the Company completed an initial public offering of its
  Common Stock, resulting in net proceeds to the Company of approximately $46.4
  million.
  
     In August 1997, the Company completed a secondary public offering of
  29,220,000 shares of the Company's Common Stock at a price of $6.88 per share.
  The proceeds to the Company from the offering, net of underwriting discounts
  and offering expenses of $14.8 million, were $188.8 million. The Company also
  has financed its activities through the private placement of Preferred Stock
  and, to a lesser extent, equipment financing.
  
     In July 1998, the Company entered into an agreement to issue and sell
  62,600,000 shares of its common stock to SOFTBANK CORP., a Japanese
  corporation, for an aggregate purchase price of $400 million. This investment
  represents a minority interest ownership of approximately 27.6% in the Company
  as of September 30, 1998.
  
                                         11
  <PAGE>
  
     In July 1996, the Company obtained financing facilities totaling $100
  million, to be collateralized by customer securities. There were no borrowings
  outstanding under these lines at September 30, 1998. At September 30, 1997,
  $9.4 million was outstanding under these lines, which was repaid on October 1,
  1997. In addition, the Company has entered into numerous agreements with other
  broker-dealers to provide financing under the Company's stock loan program.
  
     The Company currently anticipates that its available cash resources and
  credit facilities will be sufficient to meet its presently anticipated working
  capital and capital expenditure requirements for at least the next 12 months.
  However, the Company may need to raise additional funds in order to support
  more rapid expansion, develop new or enhanced services and products, respond to
  competitive pressures, acquire complementary businesses or technologies or take
  advantage of unanticipated opportunities. The Company's future liquidity and
  capital requirements will depend upon numerous factors, including costs and
  timing of expansion of research and development efforts and the success of such
  efforts, the success of the Company's existing and new service offerings and
  competing technological and market developments. The Company's forecast of the
  period of time through which its financial resources will be adequate to
  support its operations is a forward-looking statement that involves risks and
  uncertainties, and actual results could vary. The factors described earlier in
  this paragraph will impact the Company's future capital requirements and the
  adequacy of its available funds. If additional funds are raised through the
  issuance of equity securities, the percentage ownership of the shareowners of
  the Company will be reduced, shareowners may experience additional dilution in
  net book value per share or such equity securities may have rights, preferences
  or privileges senior to those of the holders of the Company's Common Stock.
  There can be no assurance that additional financing will be available when
  needed on terms favorable to the Company, if at all.
  
     If adequate funds are not available on acceptable terms, the Company may be
  unable to develop or enhance its services and products, take advantage of
  future opportunities or respond to competitive pressures, any of which could
  have a material adverse effect on the Company's business, financial condition
  and operating results.
  
     Cash used in operating activities was $30.1 million in fiscal 1998,
  primarily as a result of increases in brokerage-related assets in excess of
  related liabilities of $81.5 million, offset in part by depreciation and
  amortization of $12.6 million and increases in accounts payable, accrued and
  other liabilities in excess of other assets of $41.5 million. Cash used in
  operating activities in fiscal 1997 and 1996 was $8.1 million and $6.8 million,
  respectively. Such amounts primarily reflect net income for the respective
  periods, increases in brokerage-related assets in excess of related
  liabilities, and in fiscal 1997, the impact of depreciation and amortization
  and increases in accounts payable, accrued and other liabilities in excess of
  other assets.
  
     Cash used in investing activities was $381.0 million in fiscal 1998, $174.6
  million in fiscal 1997 and $46.4 million in fiscal 1996. In fiscal 1998, cash
  used in investing activities reflects the investment of proceeds from the
  common stock issuance to SOFTBANK CORP., investments in several companies and
  joint ventures, and property and equipment purchases. Cash used in investing
  activities in fiscal 1997 and 1996 primarily represent the investment of the
  proceeds from the Company's secondary public offering of Common Stock in August
  1997 and initial public offering of Common Stock in August 1996. Additionally,
  the Company made ongoing investments in its technological infrastructure and
  the second technology center in Rancho Cordova, and in fiscal 1997, a
  relocation loan to the Company's Chief Executive Officer (see Note 6 of the
  Supplemental Consolidated Financial Statements).
  
     Cash provided by financing activities was $409.7 million in fiscal 1998,
  compared with $190.2 million in fiscal 1997. In fiscal 1998, cash provided by
  financing activities primarily consisted of $400 million in proceeds from the
  common stock issuance to SOFTBANK CORP. and in fiscal 1997 the net proceeds
  from the Company's secondary public offering. Cash provided by financing
  activities in fiscal 1996 of $58.1 million reflects net proceeds from the
  Company's initial public offering of Common Stock in August 1996 and private
  sales of Preferred Stock.
  
                                         12
  <PAGE>
  
     The Company expects that it will incur approximately $75 million of capital
  expenditures for the 12 months ended September 30, 1999.
  
  Quantitative and Qualitative Disclosures About Market Risk
  
   Market Risk Disclosures
  
     The following discussion about the Company's market risk disclosures
  involves forward-looking statements. Actual results could differ materially
  from those projected in the forward-looking statements. The Company is exposed
  to market risk related to changes in interest rates and equity security price
  risk. The Company does not have derivative financial instruments for
  speculative or trading purposes.
  
   Interest Rate Sensitivity
  
     The Company maintains a short-term investment portfolio consisting mainly of
  income securities with an average maturity of less than two years. These
  available-for-sale securities are subject to interest rate risk and will fall
  in value if market interest rates increase. If market interest rates were to
  increase immediately and uniformly by 10 percent in levels at September 30,
  1998, the fair value of the portfolio would decline by an immaterial amount.
  The Company has the ability to hold its fixed income investments until
  maturity, and therefore the Company would not expect its operating results or
  cash flows to be affected to any significant degree by the effect of a sudden
  change in market interest rates on its securities portfolio.
  
   Equity Price Risk
  
     The Company holds a small portfolio of marketable-equity traded securities
  that are subject to market price volatility. Equity price fluctuations of plus
  or minus 15 percent would not have a material impact on the Company.
  
   Financial Instruments
  
     For its working capital and reserves which are required to be segregated
  under Federal or other regulations, the Company invests in money market funds,
  resale agreements, certificates of deposit, and commercial paper. Money market
  funds do not have maturity dates and do not present a material market risk. The
  other financial instruments are fixed rate investments with short maturities
  and do not present a material interest rate risk.
  
                                         13
  <PAGE>
  
  Supplemental Annual Financial Statements and Supplementary Data
  
  Index to Supplemental Consolidated Financial Statements
  
  <TABLE>
  <CAPTION>
                                                                             Page
                                                                             ----
     <S>                                                                     <C>
     Independent Auditors' Report..........................................   15
  
     Supplemental Consolidated Balance Sheets as of September 30, 1998 and
      1997.................................................................   16
  
     Supplemental Consolidated Statements of Operations for the Years Ended
      September 30, 1998, 1997 and 1996....................................   17
  
     Supplemental Consolidated Statements of Shareowners' Equity for the
      Years Ended September 30, 1998, 1997 and 1996........................   18
  
     Supplemental Consolidated Statements of Cash Flows for the Years Ended
      September 30, 1998, 1997 and 1996....................................   19
  
     Notes to Supplemental Consolidated Financial Statements...............   20
  </TABLE>
  
                                         14
  <PAGE>
  
                            Independent Auditors' Report
  
  To the Board of Directors and Shareowners of
  E*TRADE Group, Inc.:
  
     We have audited the accompanying supplemental consolidated balance sheets of
  E*TRADE Group, Inc. and subsidiaries (the "Company") as of September 30, 1998
  and 1997, and the related supplemental consolidated statements of operations,
  shareowners' equity and cash flows for each of the three years in the period
  ended September 30, 1998. 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. The supplemental consolidated
  financial statements give retroactive effect to the merger of ClearStation,
  Inc. with and into E*TRADE Group, Inc. on April 30, 1999, which has been
  accounted for as a pooling-of-interests as described in Note 15 to the
  supplemental consolidated financial statements. Generally accepted accounting
  principles proscribe giving effect to a consummated business combination
  accounted for by the pooling-of-interests method in financial statements that
  do not include the date of consummation. These financial statements do not
  extend through the date of consummation; however, they will become the
  historical consolidated financial statements of the Company after financial
  statements covering the date of consummation of the business combination have
  been issued.
  
     We conducted our audits in accordance with generally accepted auditing
  standards. Those standards require that we plan and perform the audit to obtain
  reasonable assurance about whether the financial statements are free of
  material misstatement. 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, such supplemental consolidated financial statements present
  fairly, in all material respects, the financial position of E*TRADE Group, Inc.
  and subsidiaries at September 30, 1998 and 1997, and the results of their
  operations and their cash flows for each of the three years in the period ended
  September 30, 1998 in conformity with generally accepted accounting principles
  applicable after the financial statements are issued for a period which
  includes the date of consummation of the business combination.
  
  DELOITTE & TOUCHE LLP
  
  San Jose, California
  November 23, 1998
  (June 1, 1999 as to Note 15)
  
                                         15
  <PAGE>
  
                        E*TRADE GROUP, INC. AND SUBSIDIARIES
  
                      Supplemental Consolidated Balance Sheets
                        (in thousands, except share amounts)
  
  <TABLE>
  <CAPTION>
                                                                 September 30,
                                                              -------------------
                                                                 1998      1997
                                                              ---------- --------
  <S>                                                         <C>        <C>
                            ASSETS
  
  Current assets:
   Cash and equivalents...................................... $   21,890 $ 23,234
   Cash and investments required to be segregated under
    Federal or other regulations.............................      5,000   15,001
   Investment securities.....................................    502,534  191,958
   Brokerage receivables--net................................  1,310,235  724,365
   Other assets..............................................     11,710    6,970
                                                              ---------- --------
    Total current assets.....................................  1,851,369  961,528
  Property and equipment--net................................     48,524   19,995
  Investments................................................     58,342    5,519
  Related party receivables..................................      3,719    3,259
  Other assets...............................................      7,491    5,121
                                                              ---------- --------
      Total assets........................................... $1,969,445 $995,422
                                                              ========== ========
              LIABILITIES AND SHAREOWNERS' EQUITY
  
  Liabilities:
   Brokerage payables........................................ $1,184,917 $681,106
   Bank loan payable.........................................         --    9,400
   Accounts payable, accrued liabilities and other...........     74,992   21,542
                                                              ---------- --------
    Total liabilities........................................  1,259,909  712,048
                                                              ---------- --------
  
  Commitments and contingencies (Notes 12 and 13)
  
  Shareowners' equity:
   Common stock, $.01 par: shares authorized, 300,000,000;
    shares issued and outstanding: 1998, 227,077,074; 1997,
    159,799,072..............................................      2,271    1,598
   Additional paid-in capital................................    680,319  265,754
   Retained earnings.........................................     14,210   16,022
   Cumulative translation adjustment.........................        210       --
   Unrealized gain on available-for-securities, net of tax...     12,526       --
                                                              ---------- --------
    Total shareowners' equity................................    709,536  283,374
                                                              ---------- --------
      Total liabilities and shareowners' equity.............. $1,969,445 $995,422
                                                              ========== ========
  </TABLE>
  
            See notes to supplemental consolidated financial statements.
  
                                         16
  <PAGE>
  
                        E*TRADE GROUP, INC. AND SUBSIDIARIES
  
                 Supplemental Consolidated Statements of Operations
                      (in thousands, except per share amounts)
  
  <TABLE>
  <CAPTION>
                                                     Years Ended September 30,
                                                     --------------------------
                                                       1998      1997    1996
                                                     --------  -------- -------
  <S>                                                <C>       <C>      <C>
  Revenues:
   Transaction revenues............................. $162,097  $109,659 $44,178
   Interest--net of interest expense (A)............   56,020    25,265   4,813
   International....................................    7,031     4,000      --
   Other............................................   20,169    17,471  13,529
                                                     --------  -------- -------
    Net revenues....................................  245,317   156,395  62,520
                                                     --------  -------- -------
  Cost of services..................................  111,888    73,381  38,027
                                                     --------  -------- -------
  Operating expenses:
   Selling and marketing............................   71,447    28,160  10,944
   Technology development...........................   33,699    13,547   4,699
   General and administrative.......................   31,048    16,847   8,238
                                                     --------  -------- -------
    Total operating expenses........................  136,194    58,554  23,881
                                                     --------  -------- -------
    Total cost of services and operating expenses...  248,082   131,935  61,908
                                                     --------  -------- -------
  Pre-tax income (loss).............................   (2,765)   24,460     612
  Income tax expense (benefit)......................     (953)    9,425    (555)
                                                     --------  -------- -------
  Net income (loss)................................. $ (1,812) $ 15,035 $ 1,167
                                                     ========  ======== =======
  Net income (loss) per share:
   Basic............................................ $  (0.01) $   0.12 $  0.01
                                                     ========  ======== =======
   Diluted.......................................... $  (0.01) $   0.10 $  0.01
                                                     ========  ======== =======
  Shares used in computation of net income (loss)
   per share:
   Basic............................................  169,791   129,408  78,564
   Diluted..........................................  169,791   143,496 119,728
  </TABLE>
  --------
  (A) Interest is presented net of interest expense of $39,714, $14,909 and
      $2,224 for fiscal years ended September 30, 1998, 1997 and 1996,
      respectively.
  
            See notes to supplemental consolidated financial statements.
  
                                         17
  <PAGE>
  
                        E*TRADE GROUP, INC. AND SUBSIDIARIES
  
            Supplemental Consolidated Statements of Shareowners' Equity
                                   (in thousands)
  
  <TABLE>
  <CAPTION>
                                                                                            Unrealized
                                                                                              gain on
                              Preferred                                                     available-
                                Stock      Common Stock    Additional           Cumulative   for-sale      Total
                            ------------- ---------------   paid-in   Retained  translation securities, shareowners'
                            Shares Amount Shares   Amount   capital   earnings  adjustment  net of tax     equity
                            ------ ------ -------  ------  ---------- --------  ----------- ----------- ------------
  <S>                       <C>    <C>    <C>      <C>     <C>        <C>       <C>         <C>         <C>
  BALANCE, OCTOBER 1,
   1995...................    100   $ 1    64,740  $  647   $  9,457  $ 2,243      $ --       $    --     $ 12,348
  Net income..............                                              1,167                                1,167
  Issuance of Series B
   preferred stock, net of
   issuance costs.........     20                              2,837                                         2,837
  Issuance of Series C
   preferred stock, net of
   issuance costs.........     11                              8,950                                         8,950
  Initial public
   offering...............                 20,108     201     46,201                                        46,402
  Conversion of preferred
   stock..................   (131)   (1)   31,564     316       (315)                                           --
  Exercise of stock
   warrants, including tax
   benefit................                  1,612      16        274                                           290
  Exercise of stock
   options, including tax
   benefit................                  5,404      54        465                                           519
  Issuance of common stock
   for services...........                     28                 20                                            20
  Cash dividends--
   ShareData..............                                               (518)                                (518)
  Other employee stock
   transactions...........                    (68)               (39)                                          (39)
                             ----   ---   -------  ------   --------  -------      ----       -------     --------
  BALANCE, SEPTEMBER 30,
   1996...................     --    --   123,388   1,234     67,850    2,892        --            --       71,976
  Net income..............                                             15,035                               15,035
  Adjustment for ShareData
   earnings...............                                               (746)                                (746)
  Issuance of common
   stock, net of issuance
   costs..................                 29,220     292    188,533                                       188,825
  Exercise of stock
   options, including tax
   benefit................                  7,068      71      8,521                                         8,592
  Employee Stock Purchase
   Plan...................                    296       3        685                                           688
  Cash dividends--
   ShareData..............                                             (1,159)                              (1,159)
  Other employee stock
   transactions...........                   (173)     (2)       165                                           163
                             ----   ---   -------  ------   --------  -------      ----       -------     --------
  BALANCE, SEPTEMBER 30,
   1997...................     --    --   159,799   1,598    265,754   16,022        --            --      283,374
  Net loss................                                             (1,812)                              (1,812)
  Issuance of common
   stock, net of issuance
   costs..................                 63,264     633    398,825                                       399,458
  Exercise of stock
   options, including tax
   benefit................                  3,549      36     14,391                                        14,427
  Employee Stock Purchase
   Plan...................                    416       4      1,190                                         1,194
  Foreign currency
   translation............                                                          210                        210
  Unrealized gain on
   available-for-sale
   securities, net of
   tax....................                                                                     12,526       12,526
  Other employee stock
   transactions...........                     49                159                                           159
                             ----   ---   -------  ------   --------  -------      ----       -------     --------
  BALANCE, SEPTEMBER 30,
   1998...................     --   $--   227,077  $2,271   $680,319  $14,210      $210       $12,526     $709,536
                             ====   ===   =======  ======   ========  =======      ====       =======     ========
  </TABLE>
  
            See notes to supplemental consolidated financial statements.
  
                                         18
  <PAGE>
  
                        E*TRADE GROUP, INC. AND SUBSIDIARIES
  
                 Supplemental Consolidated Statements of Cash Flows
                                   (in thousands)
  
  <TABLE>
  <CAPTION>
                                                  Years Ended September 30,
                                               ---------------------------------
                                                  1998        1997       1996
                                               -----------  ---------  ---------
  <S>                                          <C>          <C>        <C>
  CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)..........................  $    (1,812) $  15,035  $   1,167
  Non-cash items included in net income
   (loss):
   Deferred income taxes.....................          573      1,704       (487)
   Depreciation and amortization.............       12,553      3,793        901
   Income from equity investment.............       (1,198)    (1,785)      (228)
   Other.....................................         (219)      (179)       107
  Net effect of changes in brokerage related
   assets and liabilities:
   Cash and investments required to be
    segregated under Federal or other
    regulations..............................       10,001     20,499    (35,500)
   Brokerage receivables.....................     (585,870)  (531,137)  (191,292)
   Brokerage payables........................      503,811    461,623    219,483
   Bank loan payable.........................       (9,400)     9,400         --
  Other changes, net:
   Other assets..............................       (8,269)    (1,897)    (5,850)
   Accounts payable, accrued liabilities and
    other....................................       49,746     14,797      4,937
                                               -----------  ---------  ---------
  Net cash used in operating activities......      (30,084)    (8,147)    (6,762)
                                               -----------  ---------  ---------
  CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment.........      (35,765)   (15,742)    (9,474)
  Purchase of investments....................      (32,278)        --     (2,000)
  Purchase of investment securities..........   (3,237,731)  (993,282)  (337,073)
  Sale/maturity of investment securities.....    2,924,167    836,877    302,070
  Related party transactions.................           --     (3,147)        --
  Acquisition of OptionsLink.................       (3,500)        --         --
  Distributions received from equity
   investment................................        4,108        658         44
                                               -----------  ---------  ---------
  Net cash used in investing activities......     (380,999)  (174,636)   (46,433)
                                               -----------  ---------  ---------
  CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of common stock, net
   of issuance costs.........................      399,458    188,825     46,402
  Proceeds from issuance of preferred stock,
   net of issuance costs.....................           --         --     11,787
  Proceeds from exercise of stock options....        4,917      1,627        310
  Proceeds from exercise of stock warrants...           --         --        113
  Proceeds from Employee Stock Purchase
   Plan......................................        1,194        688         --
  Proceeds from long-term note payable.......           --         --      2,500
  Repayment of long-term note payable........           --         --     (2,500)
  Cash dividends--ShareData..................           --     (1,159)      (518)
  Other......................................        4,170        180        (28)
                                               -----------  ---------  ---------
  Net cash provided by financing activities..      409,739    190,161     58,066
                                               -----------  ---------  ---------
  INCREASE (DECREASE) IN CASH AND
   EQUIVALENTS...............................       (1,344)     7,378      4,871
  CASH AND EQUIVALENTS--Beginning of period..       23,234     15,856     10,985
                                               -----------  ---------  ---------
  CASH AND EQUIVALENTS--End of period........  $    21,890  $  23,234  $  15,856
                                               ===========  =========  =========
  SUPPLEMENTAL DISCLOSURES:
  Cash paid for interest.....................  $    37,714  $  13,440  $   2,013
                                               ===========  =========  =========
  Cash paid for income taxes.................  $        --  $   1,235  $   1,025
                                               ===========  =========  =========
  Non-cash financing activities:
   Tax benefit on exercise of stock options
    and warrants.............................  $     9,430  $   6,926  $     352
                                               ===========  =========  =========
   Unrealized gain on investment securities
    and investments..........................  $    21,156  $      --  $      --
                                               ===========  =========  =========
  </TABLE>
  
            See notes to supplemental consolidated financial statements.
  
                                         19
  <PAGE>
  
                        E*TRADE GROUP, INC. AND SUBSIDIARIES
  
              Notes to Supplemental Consolidated Financial Statements
  
  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  
     Basis of Presentation--The supplemental consolidated financial statements
  include E*TRADE Group, Inc. and its subsidiaries (collectively, the "Company"),
  including E*TRADE Securities, Inc. ("E*TRADE Securities"), a securities broker-
  dealer. The supplemental consolidated financial statements of the Company have
  been prepared to give retroactive effect to the acquisition of ShareData, Inc.
  ("ShareData") in July 1998 and ClearStation, Inc. ("Clear-Station") in April
  1999, both of which were accounted for as poolings of interests (see Note 15).
  All significant intercompany accounts and transactions have been eliminated.
  
     Transaction Revenues--The Company derives revenues from commissions related
  to customer transactions in equity and debt securities, options and, to a
  lesser extent, payments from other broker-dealers for order flow. Securities
  transactions are recorded on a trade date basis and are executed by independent
  broker-dealers. Through June 1996, the Company did not receive or hold
  customers' securities or funds. The Company implemented self-clearing
  operations and took custody of securities and funds in customer accounts in
  July 1996.
  
     Interest, Net of Interest Expense--Prior to July 1996, these amounts
  represent the Company's participation in the interest differential on its
  customer debit and credit balances through a contractual agreement with its
  former clearing broker, and fees on its customer assets invested in money
  market accounts. Subsequent to the implementation of self-clearing operations
  in July 1996, these amounts primarily represent interest earned by the Company
  on credit extended to its customers to finance their purchases of securities on
  margin, fees on its customer assets invested in money market accounts and
  interest earned on investment securities, offset by interest paid to customers
  on certain credit balances, interest paid to banks and interest paid to other
  broker-dealers through the Company's stock loan program.
  
     International Revenue--International revenue represents fees from the
  licensing of rights which allow foreign licensees to offer on-line investing
  services using the E*TRADE brand name in their respective countries and ongoing
  royalty payments based on transaction volume.
  
     Other Revenue--Other revenue primarily represents ShareData software
  licensing and maintenance fee revenue, broker-related fees for services,
  revenues from advertising on the Company's Web site, equity earnings from the
  Company's investment in Roundtable until its public offering in July 1998 (see
  Note 5), and mutual fund fees.
  
     Foreign Currency Translation--Assets and liabilities of operations outside
  of the United States are translated into U.S. dollars using the exchange rate
  in effect at each period end. Revenues and expenses are translated at the
  average exchange rate during the period. The effects of foreign currency
  translation adjustments arising from differences in exchange rates from period
  to period are deferred and included as a separate component of shareowners'
  equity.
  
     Property and Equipment--Property and equipment are carried at cost and are
  depreciated on a straight-line basis over their estimated useful lives,
  generally three to seven years. Leasehold improvements are stated at cost and
  are amortized over the lesser of their estimated useful lives or the life of
  the lease.
  
     Technology Development Costs--Technology development costs are charged to
  operations as incurred. Technology development costs include costs incurred in
  the development and enhancement of software used in connection with services
  provided by the Company that do not otherwise qualify as internally developed
  software costs. The cost of internally developed software is capitalized and
  included in property and equipment. The costs to develop such software are
  capitalized in accordance with Statement of Position 98-1, Accounting for the
  Costs of Computer Software Developed or Obtained for Internal Use, and begin
  when management
  
                                         20
  <PAGE>
  
  authorizes and commits to funding a project it believes will be completed and
  used to perform the functions intended and the conceptual formulation, design
  and testing of possible software project alternatives have been completed.
  Pilot projects and projects where expected future economic benefits are less
  than probable are not capitalized. Internally developed software costs include
  the cost of software tools and licenses used in the development of the
  Company's systems, as well as payroll and consulting costs. Capitalized costs
  totaled $10,210,000, $2,832,000 and $114,000 for the years ended September 30,
  1998, 1997 and 1996, respectively.
  
     Completed projects are transferred to property and equipment and are
  reported at the lower of unamortized cost less any provision for impairment.
  Amortization is based on the straight-line method over the estimated useful
  life, generally two to three years. Amortization expense for the years ended
  September 30, 1998 and 1997 was $1,715,000 and $69,000, respectively. There was
  no amortization expense for the year ended September 30, 1996.
  
     Cash Equivalents--For purposes of reporting cash flows, the Company
  considers all highly liquid investments with original maturities of three
  months or less (except for amounts required to be segregated under Federal or
  other regulations or investment securities designated as available-for-sale) to
  be cash equivalents.
  
     Cash and Investments Required to be Segregated Under Federal or Other
  Regulations--Cash and investments required to be segregated under Federal or
  other regulations consist primarily of government backed securities purchased
  under agreements to resell ("Resale Agreements"). Resale Agreements are
  accounted for as collateralized financing transactions and are recorded at
  their contractual amounts, which approximate fair value.
  
     Investments--Investment securities represent a portfolio of commercial
  paper, municipal bonds, corporate bonds, U.S. Government obligations, preferred
  stocks and money market funds. Unrealized gains and losses, net of tax, are
  computed on the basis of average cost and are included as a separate component
  of shareowners' equity. Realized gains and losses and declines in fair-value,
  judged to be other than temporary, are included in other revenues. The cost of
  securities sold is based on the average cost method and interest earned is
  included in interest revenue.
  
     Investments in entities of which the Company owns between 20% and 50% and on
  which the Company has the ability to exercise significant influence are
  accounted for under the equity method. Other investments are accounted for
  using the cost method.
  
     Impairment of Long-Lived Assets--In the event that facts and circumstances
  indicate that the carrying value of a long-lived asset, including associated
  intangibles, may be impaired, an evaluation of recoverability is performed by
  comparing the estimated future undiscounted cash flows associated with the
  asset to the asset's carrying amount to determine if a write-down to market
  value or discounted cash flow is required.
  
     Estimated Fair-Value of Financial Instruments--The Company believes the
  amounts presented for financial instruments on the consolidated balance sheets
  consisting of cash equivalents, commercial paper, municipal bonds, corporate
  bonds, U.S. Government obligations, preferred stocks, money market funds, and
  brokerage receivables and payables to be reasonable estimates of fair-value.
  The Company uses available market information as of the balance sheet dates and
  appropriate valuation methodologies in deriving amounts reported for financial
  instruments.
  
     Stock-Based Compensation--The Company accounts for employee stock-based
  compensation using the intrinsic value method of accounting prescribed in
  Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
  to Employees. The Company provides pro forma disclosures of net income and
  earnings per share as required under SFAS No. 123, Accounting for Stock-Based
  Compensation. SFAS No. 123 encourages, but does not require companies to
  recognize compensation expense for grants of stock, stock options, and other
  equity instruments based on the fair-value method of accounting.
  
                                         21
  <PAGE>
  
     Advertising Costs--Advertising production costs are expensed when the
  initial advertisement is run. Costs of communicating advertising are expensed
  as the services are received.
  
     Income Taxes--The Company accounts for income taxes in accordance with SFAS
  No. 109, Accounting for Income Taxes, which requires the recognition of
  deferred tax liabilities and assets at tax rates expected to be in effect when
  these balances reverse. Future tax benefits attributable to temporary
  differences are recognized to the extent that realization of such benefits is
  more likely than not.
  
     Earnings Per Share--The Company has adopted and retroactively applied the
  provisions of SFAS No. 128, Earnings per Share, for all periods presented. SFAS
  No. 128 requires a dual presentation of basic and diluted EPS. Basic EPS
  excludes dilution and is computed by dividing net income by the weighted
  average common shares outstanding for the period. Diluted EPS reflects the
  potential dilution that could occur if securities or other contracts to issue
  common stock were exercised or converted into common stock.
  
     New Accounting Standards-- In June 1997, the Financial Accounting Standards
  Board ("FASB") issued SFAS No. 130, Reporting Comprehensive Income. SFAS No.
  130 establishes standards for the reporting and display of comprehensive income
  and its components in a financial statement that is displayed with the same
  prominence as other financial statements. Comprehensive income as defined
  includes all changes in equity (net assets) during a period from nonowner
  sources. The disclosures prescribed by SFAS No. 130 will be made beginning with
  the first quarter of fiscal 1999.
  
     In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
  Enterprise and Related Information. This statement establishes standards for
  reporting information about operating segments in annual financial statements.
  It also establishes standards for related disclosures about products and
  services, geographic areas, and major customers. The Company is in the process
  of reassessing its current business segment reporting to determine if changes
  in reporting will be required in adopting this new standard. The disclosures
  prescribed by SFAS No. 131 will be adopted in the Company's fiscal 1999 annual
  report.
  
     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
  Instruments and Hedging Activities. The new standard requires companies to
  record derivatives on the balance sheet as assets or liabilities, measured at
  fair value. Gains or losses resulting from changes in the values of those
  derivatives will be reported in the statement of operations or as a deferred
  item, depending on the use of the derivatives and whether they qualify for
  hedge accounting. The key criterion for hedge accounting is that the derivative
  must be highly effective in achieving offsetting changes in fair value or cash
  flows of the hedged items during the term of the hedge. The Company plans to
  adopt SFAS No. 133 in the first quarter of fiscal 2000 and has not yet
  determined the effect, if any, of adopting the new standard.
  
     Use of Estimates--The preparation of the Company's consolidated financial
  statements in conformity with generally accepted accounting principles requires
  management to make estimates and assumptions that affect the amounts reported
  in the consolidated financial statements and related notes for the periods
  presented. Actual results could differ from management's estimates.
  
     Reclassifications--Certain items in these financial statements have been
  reclassified to conform to the current period presentation.
  
  2. INVESTMENT SECURITIES
  
     The Company invests in high quality, short-term investments, which it
  classifies as available-for-sale. As such, there were no significant
  differences between amortized cost and estimated fair value at September 30,
  1998 or 1997. Additionally, because investments are short-term and are
  generally allowed to mature or contain provisions which provide for resale at
  par to the issuer within 12 months, realized gains and losses for the years
  ended September 30, 1998, 1997 and 1996 were minimal and there were no
  significant changes in net unrealized gains and losses.
  
  
                                         22
  <PAGE>
  
     The following table presents the estimated fair value breakdown of
  investment securities by category (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                  September 30,
                                                                -----------------
                                                                  1998     1997
                                                                -------- --------
       <S>                                                      <C>      <C>
       Municipal bonds......................................... $358,535 $ 43,904
       Commercial paper........................................   54,925   67,062
       U.S. Government obligations.............................   47,102      560
       Money market funds......................................   37,967   61,879
       Corporate bonds.........................................    4,005   10,927
       Preferred stocks........................................       --    7,626
                                                                -------- --------
         Total investment securities........................... $502,534 $191,958
                                                                ======== ========
  </TABLE>
  
  3. BROKERAGE RECEIVABLES AND PAYABLES--NET
  
     Brokerage receivables and payables--net consists of the following (in
  thousands):
  
  <TABLE>
  <CAPTION>
                                                                 September 30,
                                                              -------------------
                                                                 1998      1997
                                                              ---------- --------
       <S>                                                    <C>        <C>
       Receivable from customers and non-customers (less
        allowance for doubtful accounts of $862 and $435 in
        1998 and 1997, respectively)......................... $  961,305 $655,981
       Receivable from brokers, dealers and clearing
        organizations:
        Net settlement and deposits with clearing
         organizations.......................................     14,854   37,198
        Deposits paid for securities borrowed................    328,989   25,584
        Securities failed to deliver.........................        728    1,011
        Other................................................      4,359    4,591
                                                              ---------- --------
         Total brokerage receivables--net.................... $1,310,235 $724,365
                                                              ========== ========
  
  
       Payable to customers and non-customers................ $  340,044 $279,348
       Payable to brokers, dealers and clearing
        organizations:
        Deposits received for securities loaned..............    839,422  398,007
        Securities failed to receive.........................      1,222    1,304
        Other................................................      4,229    2,447
                                                              ---------- --------
         Total brokerage payables............................ $1,184,917 $681,106
                                                              ========== ========
  </TABLE>
  
     Receivable from and payable to brokers, dealers and clearing organizations
  result from the Company's brokerage activities. Receivable from customers
  represents credit extended to customers to finance their purchases of
  securities on margin. At September 30, 1998 and 1997, credit extended to
  customers with respect to margin accounts was $956 million and $678 million,
  respectively. Securities owned by customers are held as collateral for amounts
  due on margin balances (the value of which is not reflected on the accompanying
  consolidated balance sheets). Payable to customers represents free credit
  balances and other customer funds pending completion of securities
  transactions. The Company pays interest on certain customer credit balances.
  
                                         23
  <PAGE>
  
  4. PROPERTY AND EQUIPMENT--NET
  
     Property and equipment--net consists of the following (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                   September 30,
                                                                  ---------------
                                                                   1998    1997
                                                                  ------- -------
       <S>                                                        <C>     <C>
       Equipment................................................. $23,510 $12,737
       Leasehold improvements....................................  14,701   6,525
       Software..................................................  25,460   5,664
       Furniture and fixtures....................................   3,588   1,251
                                                                  ------- -------
                                                                   67,259  26,177
       Less accumulated depreciation and amortization............  18,735   6,182
                                                                  ------- -------
         Total property and equipment-net........................ $48,524 $19,995
                                                                  ======= =======
  </TABLE>
  
  5. INVESTMENTS
  
     Investments consist of the following (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                    September 30,
                                                                    --------------
                                                                     1998    1997
                                                                    ------- ------
       <S>                                                          <C>     <C>
       Knight/Trimark.............................................. $21,173 $3,509
       Joint ventures..............................................  10,153     --
       KAP Group...................................................   2,000  2,000
       Critical Path...............................................  15,250     --
       Other investments...........................................   9,766     10
                                                                    ------- ------
         Total investments......................................... $58,342 $5,519
                                                                    ======= ======
  </TABLE>
  
     Through July 7, 1998, the Company owned a 4.47% interest in Roundtable
  Partners LLC ("Roundtable"), a company formed to hold equity interests in
  securities trading and market making companies and which made distributions to
  its owners of a significant portion of its earnings. The Company had accounted
  for its investment in Roundtable under the equity method since its inception.
  On July 8, 1998, Roundtable was reorganized into a corporation known as
  Knight/Trimark Group, Inc. ("Knight/Trimark") coincident with an initial public
  offering of Knight/Trimark common stock. Knight/Trimark does not currently
  intend to pay dividends. As a result of this reorganization, all of the
  Company's ownership interest in Roundtable was converted into 2,566,432 shares
  of common stock of Knight/Trimark, which represents 4.99% of the issued and
  outstanding shares of common stock of Knight/Trimark. Effective July 8, 1998,
  the Company accounts for its investment in Knight/Trimark as a long-term
  marketable equity security held available-for-sale under the provisions of SFAS
  No. 115, Accounting for Certain Investments in Debt and Equity Securities.
  Accordingly, this investment is carried at fair value at September 30, 1998,
  with unrealized gains of $12,340,000, net of tax of $8,505,000, reported as a
  separate component of shareowners' equity. The Company's investment in
  Knight/Trimark is subject to a sale restriction agreement with the underwriters
  of the initial public offering, which expires in January 1999.
  
     In June 1998, the Company entered into a joint venture agreement with
  SOFTBANK CORP. to form E*TRADE Japan to provide online securities trading
  services to residents of Japan. As part of the transaction, the Company
  invested approximately $8 million in exchange for a 42% ownership position in
  the joint venture. Additionally, the Company entered into a joint venture
  agreement with Electronic Share Information Ltd. ("ESI") to form E*TRADE UK.
  ESI is a leading provider of Internet financial services in the UK. The Company
  accounts for its investments in the joint ventures under the equity method.
  
     In June 1997, the Company invested $2,000,000 in KAP Group, LLC ("KAP
  Group"), by means of a promissory note in the principal amount of $1,806,000
  and through the purchase of a warrant for $194,000.
  
                                         24
  <PAGE>
  
     The note bears interest at 7% per annum which, together with the principal
  amount, is due and payable in July 2002. The warrant gives the Company the
  right to purchase shares of KAP Group. KAP Group has invested substantially all
  of its assets in another entity, which was formed for the purpose of engaging
  in electronic options trading. KAP Group investors include the Company's
  Chairman of the Board of Directors and others.
  
     The Company has also made investments in non-public, venture capital-backed
  high technology companies with which it does business and which provide
  Internet-based services. These investments include: Critical Path, a leading
  provider of outsourced email services and infrastructure for Web portals,
  Internet service providers, Web hosting companies, and corporations; Digital
  Island, a global IP applications network for the digital economy; and Third Age
  Media, producers of ThirdAge.com, a comprehensive source of content, community
  and commerce on the Web for active older adults. These investments each
  represent less than 20% of the outstanding shares of these companies and are
  accounted for under the cost method. At September 30, 1998, the Company
  believes that the fair value of these investments approximates their carrying
  basis.
  
  6. RELATED-PARTY RECEIVABLES
  
     During fiscal 1997, the Company made a relocation loan to Mr. Christos
  Cotsakos, its Chief Executive Officer and a Director, in the aggregate
  principal amount of $3,147,000. The proceeds of this loan were used to fund the
  purchase by Mr. Cotsakos of a personal residence in the Silicon Valley area.
  The relocation loan accrues interest at the rate of 7% per annum which,
  together with the principal amount, is due and payable in November 1999.
  Accrued interest totaled $420,000 and $200,000 as of September 30, 1998 and
  1997, respectively. The loan is required to be collateralized by a combination
  of assets, including the residence purchased. The due date of the relocation
  loan is subject to acceleration upon the occurrence of certain events including
  the voluntary cessation of employment with the Company by Mr. Cotsakos.
  
  7. LONG-TERM NOTES PAYABLE AND SHORT-TERM FUNDING
  
     The principal source of financing for E*TRADE Securities' margin lending is
  cash balances in customers' accounts and financing obtained from other broker-
  dealers through E*TRADE Securities' stock loan program. E*TRADE Securities also
  maintains committed lines of financing with banks totaling $100 million to
  finance margin lending. There were no borrowings outstanding under these lines
  at September 30, 1998. At September 30, 1997, $9,400,000 was outstanding under
  these lines, bearing interest at 6.875% per annum, which was repaid on October
  1, 1997; such amount is recorded as bank loan payable in the consolidated
  balance sheet.
  
  8. INCOME TAXES
  
     The components of income tax expense (benefit) are as follows (in
  thousands):
  
  <TABLE>
  <CAPTION>
                                                    Years Ended September 30,
                                                    -----------------------------
                                                      1998       1997     1996
                                                    ---------  --------  --------
       <S>                                          <C>        <C>       <C>
       Current:
        Federal.................................... $  (1,173) $  5,499  $   (66)
        State......................................      (353)    2,222       (2)
                                                    ---------  --------  -------
         Total current.............................    (1,526)    7,721      (68)
                                                    ---------  --------  -------
       Deferred:
        Federal....................................       (33)    1,727     (441)
        State......................................       606       (23)     (46)
                                                    ---------  --------  -------
         Total deferred............................       573     1,704     (487)
                                                    ---------  --------  -------
       Total tax expense (benefit)................. $    (953) $  9,425  $  (555)
                                                    =========  ========  =======
  </TABLE>
  
  
                                         25
  <PAGE>
  
     Deferred income taxes are recorded when revenues and expenses are recognized
  in different periods for financial statement and tax return purposes. The
  temporary differences and tax carryforwards that created deferred tax assets
  (liabilities) are as follows (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                September 30,
                                                                ---------------
                                                                 1998     1997
                                                                -------  ------
       <S>                                                      <C>      <C>
       Deferred tax assets:
        Reserves and allowances................................ $   599  $  412
        Net operating loss carryforwards.......................   2,189     487
        Depreciation and amortization..........................     828      --
        Deferred compensation..................................     999     533
        Other..................................................     685     164
                                                                -------  ------
         Total deferred tax assets.............................   5,300   1,596
                                                                -------  ------
       Deferred tax liabilities:
        Depreciation and amortization..........................      --  (2,292)
        Internally developed software..........................  (5,783)     --
        Other..................................................    (636)   (235)
                                                                -------  ------
         Total deferred tax liabilities........................  (6,419) (2,527)
       Valuation allowance ....................................    (385)     --
                                                                -------  ------
       Net deferred tax liability included in other
        liabilities............................................ $(1,504) $ (931)
                                                                =======  ======
  </TABLE>
  
     No valuation allowance has been provided for the deferred tax assets at
  September 30, 1998 and 1997 as full realization of these assets is expected,
  other than for the preacquisition tax loss carry forwards of ClearStation,
  which are subject to certain limitations.
  
     The effective tax rates differed from the federal statutory rates as
  follows:
  
  <TABLE>
  <CAPTION>
                                                 Years Ended September 30,
                                                ------------------------------
                                                  1998       1997      1996
                                                ---------   -------- ---------
       <S>                                      <C>         <C>      <C>
       Income tax expense (benefit) at federal
        statutory rate........................      (35.0)%    35.0%      35.0%
       State income taxes, net of federal tax
        benefit...............................       10.2       6.2        2.3
       Income of Subchapter S corporation.....       65.6      (1.9)    (130.8)
       Nondeductible acquisition costs........       24.5        --         --
       Preacquisition losses of ClearStation
        ......................................       22.7        --         --
       Tax-exempt interest....................     (137.4)       --         --
       Other..................................       14.9      (0.8)       2.8
                                                ---------   -------  ---------
       Effective tax rate.....................      (34.5)%    38.5%     (90.7)%
                                                =========   =======  =========
  </TABLE>
  
     Prior to being acquired by the Company, ShareData was a Subchapter S
  corporation and was not subject to federal and state corporate income taxes.
  
  9. SHAREOWNERS' EQUITY
  
   Stock Issuances
  
     In April 1996, the Company sold 20,336 shares of Series B Preferred Stock
  ("Series B") to Christos Cotsakos, Chief Executive Officer and a Director, and
  affiliates, Richard Braddock, and General Atlantic Partners and affiliates for
  $2,847,000 and incurred issuance costs of $10,000. The Company used the
  proceeds to provide additional working capital.
  
     In June 1996, the Company sold 11,180 shares of Series C Preferred Stock
  ("Series C") to SOFTBANK Holdings Inc. for $9,000,000 and incurred issuance
  costs of $50,000. The Company used the proceeds to provide additional
  regulatory net capital to E*TRADE Securities.
  
                                         26
  <PAGE>
  
     In August 1996, the Company completed an initial public offering of
  20,106,200 shares of the Company's common stock at a price of $2.63 per share.
  Each outstanding share of Series A, Series B and Series C Preferred Stock was
  automatically converted into 240 shares of common stock upon the closing of the
  initial public offering. The proceeds to the Company from the offering, net of
  underwriting discounts and offering expenses of $6.4 million, were $46.4
  million.
  
     In August 1997, the Company completed a secondary public offering of
  29,220,000 shares of the Company's common stock at a price of $6.88 per share.
  The proceeds to the Company from the offering, net of underwriting discounts
  and offering expenses of $14.8 million, were $188.8 million.
  
     In July 1998, the Company entered into an agreement to issue and sell
  62,600,000 shares of common stock to SOFTBANK CORP., a Japanese corporation,
  for an aggregate purchase price of $400 million.
  
   Stock Option Plans
  
     The Company's stock option plans provide for the granting of nonqualified or
  incentive stock options to officers, directors, key employees and consultants
  for the purchase of shares of the Company's common stock at a price determined
  by the Board of Directors at the date the option is granted. The options are
  generally exercisable ratably over a five-year period from the date the option
  is granted and expire within ten years from the date of grant.
  
     In July 1996, the shareowners of the Company approved the 1996 Stock
  Incentive Plan (the "1996 Plan") and reserved 16,000,000 shares of common stock
  for future grants. Following adoption, no additional grants may be made under
  any prior plans. The 1996 Plan is divided into three components: the
  Discretionary Option Grant Program, the Stock Issuance Program and the
  Automatic Option Grant Program. Under the Discretionary Option Grant Program,
  options may be granted to purchase shares of common stock at an exercise price
  not less than the fair market value of those shares on the grant date to
  eligible employees. The Stock Issuance Program allows for individuals to be
  issued shares of common stock directly through the purchase of such shares at a
  price not less than the fair market value of those shares at the time of
  issuance or as a bonus tied to the performance of services. Under the Automatic
  Option Grant Program, options are automatically granted at periodic intervals
  to eligible non-employee members of the Board of Directors to purchase shares
  of common stock at an exercise price equal to the fair market value of those
  shares on the grant date.
  
     A summary of stock option activity follows (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                          Weighted
                                                                  Number  Average
                                                                    of    Exercise
                                                                  Shares   Price
                                                                  ------  --------
       <S>                                                        <C>     <C>
       Outstanding at September 30, 1995......................... 16,092   $ .11
        Granted.................................................. 16,368   $1.30
        Exercised................................................ (5,404)  $0.05
        Canceled.................................................   (716)  $1.57
                                                                  ------   -----
       Outstanding at September 30, 1996......................... 26,340   $0.82
        Granted.................................................. 10,840   $5.27
        Exercised................................................ (7,068)  $0.23
        Canceled................................................. (3,992)  $1.74
                                                                  ------   -----
       Outstanding at September 30, 1997......................... 26,120   $2.75
        Granted.................................................. 14,821   $5.73
        Exercised................................................ (3,548)  $1.41
        Canceled................................................. (2,849)  $4.27
                                                                  ------   -----
       Outstanding at September 30, 1998......................... 34,544   $4.04
                                                                  ======   =====
  </TABLE>
  
  
                                         27
  <PAGE>
  
     On October 22, 1998, the Company implemented an option cancellation /
  regrant program pursuant to which employees who held outstanding stock options
  with an exercise price in excess of $4.25 per share were able to cancel the
  previously issued options and receive the same number of new options at an
  exercise price of $4.25, the closing price of the Company's common stock on
  October 22, 1998. Each new option has a maximum term of ten years, subject to
  earlier termination upon the optionee's cessation of service, and will become
  exercisable in a series of four successive equal annual installments over the
  optionee's period of continued service with the Company measured from October
  22, 1998, the regrant date. Options covering a total of 13,918,136 shares of
  the Company's common stock were cancelled and regranted under the program.
  
  <TABLE>
  <CAPTION>
                                                                September 30,
                                                             --------------------
                                                              1998   1997   1996
                                                             ------ ------ ------
       <S>                                                   <C>    <C>    <C>
       Options available for grant.........................     608  4,852 11,480
       Options exercisable (as adjusted for the October 22,
        1998 transaction)..................................   6,951  1,880  3,656
       Options exercisable weighted average exercise
        price..............................................  $ 2.28 $ 1.09 $ 0.29
  </TABLE>
  
     The following table summarizes information on outstanding and exercisable
  stock options as of September 30, 1998 (as adjusted for the October 22, 1998
  transaction):
  
  <TABLE>
  <CAPTION>
                         Options Outstanding           Options Exercisable
                 ----------------------------------- -----------------------
                                 Weighted
                     Number       Average   Weighted     Number     Weighted
    Range of      Outstanding   Contractual Average   Exercisable   Average
   Exercisable   as of 9/30/98     Life     Exercise as of 9/30/98  Exercise
     Prices      (in thousands)   (Years)    Price   (in thousands)  Price
  -------------  -------------- ----------- -------- -------------- --------
  <S>            <C>            <C>         <C>      <C>            <C>
  $ .07--$ 0.58       7,628        7.09      $0.44       2,299       $0.39
  $ .92--$ 2.81       6,036        7.77      $2.20       2,432       $1.97
  $2.90--$ 4.44      16,392        9.86      $4.23         268       $3.89
  $4.52--$ 5.25       3,164        9.10      $4.75       1,884       $4.55
  $5.26--$10.70       1,324        9.18      $6.42          68       $7.08
                     ------                              -----
  $0.07--$10.70      34,544        8.79      $3.17       6,951       $2.28
                     ======                              =====
  </TABLE>
  
   Stock Purchase Plan
  
     In July 1996, the shareowners of the Company approved the 1996 Stock
  Purchase Plan (the "Purchase Plan"), and reserved 2,600,000 shares of common
  stock for sale to employees at a price no less than 85% of the lower of the
  fair market value of the common stock at the beginning of the two-year offering
  period or the end of each of the six-month purchase periods.
  
  
                                         28
  <PAGE>
  
   Additional Stock Plan Information
  
     In accordance with SFAS No. 123, Accounting for Stock-Based Compensation,
  the Company applied APB Opinion 25 and related interpretations in accounting
  for its stock option plans, and accordingly does not record compensation costs.
  If the Company had elected, beginning in fiscal 1996, to recognize compensation
  cost based on the fair value of the option granted at the grant date as
  prescribed by SFAS No. 123, net income (loss) and net income (loss) per share
  would have been reduced to the pro forma amounts shown below (in thousands,
  except per share amounts):
  
  <TABLE>
  <CAPTION>
                                                          Years Ended September
                                                                   30,
                                                         ------------------------
                                                           1998     1997    1996
                                                         --------  ------- ------
       <S>                                               <C>       <C>     <C>
       As Reported
       Net income (loss)................................ $ (1,812) $15,035 $1,167
       Net income (loss) per share-basic................ $  (0.01) $  0.12 $ 0.01
       Net income (loss) per share-diluted.............. $  (0.01) $  0.10 $ 0.01
       Pro Forma
       Net income (loss)................................ $(25,383) $ 8,728 $  501
       Net income (loss) per share-basic................ $  (0.15) $  0.07 $ 0.01
       Net income (loss) per share-diluted.............. $  (0.15) $  0.06 $ 0.00
  </TABLE>
  
     The Company's calculations were made using the minimum value method and
  Black-Scholes option pricing models with the following weighted average
  assumptions:
  
  <TABLE>
  <CAPTION>
                                                Years Ended September 30,
                                                ------------------------------
                                                  1998       1997       1996
                                                --------   --------   --------
       <S>                                      <C>        <C>        <C>
       Dividend yield..........................       --         --         --
       Expected volatility.....................       75%        65%        65%
       Risk-free interest rate.................        6%         6%         6%
       Expected life of option following
        vesting (in months)....................       12         12         12
  </TABLE>
  
     Under SFAS No. 123, the fair value of stock-based awards to employees is
  calculated using the minimum value method for fiscal 1996 prior to the initial
  public offering, and subsequently through the use of option pricing models,
  even though such models were developed to estimate the fair value of freely
  tradable, fully transferable options without vesting restrictions, which
  significantly differ from the Company's stock option awards. These models also
  require subjective assumptions, including future stock price volatility and
  expected time to exercise, which greatly affect the calculated values.
  
     The Company's calculations are based on a multiple option valuation approach
  and forfeitures are recognized as they occur. The valuations of the computed
  weighted average fair values of option grants under SFAS No. 123 in fiscal
  1998, 1997 and 1996 were $3.02, $2.77 and $0.41, respectively.
  
   401(k) Salary Deferral Program
  
     The Company has a 401(k) salary deferral program, which became effective on
  January 1, 1995, for eligible employees who have met certain service
  requirements. The Company matches certain employee contributions; additional
  contributions to this plan are at the discretion of the Company. Total Company
  contribution expense for the years ended September 30, 1998, 1997 and 1996 was
  $312,000, $153,000 and $59,000, respectively.
  
                                         29
  <PAGE>
  
  10. NET INCOME (LOSS) PER SHARE
  
     The following table sets forth the computation of shares used in the
  computations of basic and diluted net income (loss) per share (in thousands):
  
  <TABLE>
  <CAPTION>
                                                       Years Ended September 30,
                                                       --------------------------
                                                         1998     1997     1996
                                                       -------- -------- --------
       <S>                                             <C>      <C>      <C>
       Shares Used in Computation:
        Weighted average common shares outstanding
         used in computation of basic net income
         (loss) per share.............................  169,791  129,408   78,564
        Dilutive effect of stock options..............       --   14,088   41,164
                                                       -------- -------- --------
        Shares used in computation of diluted net
         income (loss) per share......................  169,791  143,496  119,728
                                                       ======== ======== ========
  </TABLE>
  
     Because the Company reported a net loss in fiscal 1998, the calculation of
  diluted earnings per share does not include common stock equivalents as they
  are anti-dilutive and would result in a reduction of net loss per share. If the
  Company had reported net income in fiscal year 1998, there would have been
  11,404,000 additional shares in the calculation of diluted earnings per share.
  Options to purchase 1,198,848 and 478,324 shares of common stock at prices
  ranging from $4.85 to $11.50 and $2.42 to $3.30 were outstanding as of
  September 30, 1997 and 1996, respectively, but not included in the computation
  of diluted net income (loss) per share for the years ended September 30, 1997
  and 1996, respectively. These options were excluded because the options'
  exercise price was greater than the average market price of the Company's
  common stock for the years ended September 30, 1997 and 1996, respectively, and
  therefore would be anti-dilutive for purposes of this calculation.
  
  11. REGULATORY REQUIREMENTS
  
     E*TRADE Securities is subject to the Uniform Net Capital Rule (the "Rule")
  under the Securities Exchange Act of 1934 administered by the Securities and
  Exchange Commission and the National Association of Securities Dealers, Inc.,
  which requires the maintenance of minimum net capital. E*TRADE Securities has
  elected to use the alternative method permitted by the Rule, which requires
  that the Company maintain minimum net capital equal to the greater of $250,000
  or 2 percent of aggregate debit balances arising from customer transactions, as
  defined. E*TRADE Securities had amounts in relation to the Rule as follows (in
  thousands, except percentage data):
  
  <TABLE>
  <CAPTION>
                                                                  September 30,
                                                                 ----------------
                                                                  1998     1997
                                                                 -------  -------
       <S>                                                       <C>      <C>
       Net capital.............................................. $97,355  $51,721
       Percentage of aggregate debit balances...................     9.5%     7.5%
       Required net capital..................................... $20,429  $13,771
       Excess net capital....................................... $76,926  $37,950
  </TABLE>
  
     Under the alternative method, a broker-dealer may not repay subordinated
  borrowings, pay cash dividends or make any unsecured advances or loans to its
  parent or employees if such payment would result in net capital of less than 5%
  of aggregate debit balances or less than 120% of its minimum dollar amount
  requirement.
  
  12. LEASE ARRANGEMENTS
  
     During fiscal 1998 the Company entered into agreements to lease facilities
  in Menlo Park, California, where it will consolidate its existing Silicon
  Valley locations. The Company also entered into an agreement to lease a
  facility in Alpharetta, Georgia, where it has expanded certain operations, such
  as customer service, and, in fiscal 1999, will establish a new technology
  center.
  
  
                                         30
  <PAGE>
  
     The Company has non-cancelable operating leases for office facilities
  through 2009 and operating leases for equipment through 2003. Future minimum
  rental commitments under these leases at September 30, 1998, are as follows (in
  thousands):
  
  <TABLE>
       <S>                                                               <C>
       Years ending September 30:
        1999............................................................ $ 28,341
        2000............................................................   22,245
        2001............................................................   14,889
        2002............................................................   10,842
        2003............................................................   10,611
        Thereafter......................................................   50,672
                                                                         --------
                                                                         $137,600
                                                                         ========
  </TABLE>
  
     Certain leases contain provisions for renewal options and rent escalations
  based on increases in certain costs incurred by the lessor. Rent expense for
  the years ended September 30, 1998, 1997 and 1996 was approximately
  $20,561,000, $11,389,000 and $2,697,000, respectively.
  
  13. COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS
  
     The Company is a defendant in civil actions arising from the normal course
  of business. In the opinion of management, these actions are expected to be
  resolved with no material effect on the Company's consolidated financial
  position or results of operations.
  
     On November 21, 1997, a putative class action was filed in the Superior
  Court of California, County of Santa Clara, by Larry R. Cooper on behalf of
  himself and other similarly situated individuals. The action alleges, among
  other things, that the Company's advertising, other communications and business
  practices regarding the Company's commission rates and its ability to timely
  execute transactions through its online brokerage services were false and
  deceptive. The action seeks injunctive relief enjoining the purported deceptive
  and unfair practices alleged in the action and also seeks unspecified
  compensatory and punitive damages, as well as attorney fees.
  
     This proceeding is at an early stage and the Company is unable to speculate
  as to its ultimate outcome. However, the Company believes it has meritorious
  defenses to the claims and intends to conduct vigorous defenses. An unfavorable
  outcome in any matters which are not covered by insurance could have a material
  adverse effect on the Company's business, financial condition and results of
  operations. In addition, even if the ultimate outcomes are resolved in favor of
  the Company, the defense of such litigation could entail considerable cost and
  the diversion of efforts of management, either of which could have a material
  adverse effect on the Company's results of operation.
  
     From time to time the Company has been threatened with, or named as a
  defendant in, lawsuits and administrative claims. Compliance and trading
  problems that are reported to the NASD or the SEC by dissatisfied customers are
  investigated by the NASD or the SEC, and, if pursued by such customers, may
  rise to the level of arbitration or disciplinary action. One or more of such
  claims or disciplinary actions decided adversely against the Company could have
  a material adverse effect on the Company's business, financial condition and
  results of operations. The Company is also subject to periodic regulatory
  audits and inspections.
  
     The securities industry is subject to extensive regulation under federal,
  state and applicable international laws. As a result, the Company is required
  to comply with many complex laws and rules and its ability to so comply is
  dependent in large part upon the establishment and maintenance of a qualified
  compliance system. The Company is aware of several instances of its non-
  compliance with applicable regulations. In particular, in fiscal 1997, the
  Company failed to comply with applicable advertising restrictions in one
  international jurisdiction and due to a clerical oversight, failed to timely
  renew its registration as a broker-dealer in two
  
                                         31
  <PAGE>
  
  states, Nebraska and Ohio. One of the state jurisdictions, Ohio, as a condition
  of renewing the Company's license as a broker-dealer in that jurisdiction,
  required the Company to offer customers resident in that state the ability to
  rescind (for up to 30 days) certain securities transactions effected through
  the Company during the period January 1, 1997 through April 15, 1997, the date
  the Company's license was renewed. For fiscal 1997, the Company recorded a $4.3
  million pre-tax charge against earnings in connection with this matter.
  
     The Company maintains insurance in such amounts and with such coverage,
  deductibles and policy limits as management believes are reasonable and
  prudent. The principal risks that the Company insures against are comprehensive
  general liability, commercial property, hardware/software damage, directors and
  officers, and errors and omissions liability. The Company believes that such
  insurance coverage is adequate for the purpose of its business.
  
     In March 1996, the Company entered into a five-year employment agreement
  with a key executive officer. The employment agreement provides for, among
  other things, an annual base salary which is subject to adjustment based on the
  Company's performance and a severance payment up to $1,250,000 in the event of
  termination of employment under certain defined circumstances.
  
  14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET CREDIT RISK AND CONCENTRATIONS
      OF CREDIT RISK
  
     The Company's customer securities activities are transacted on either a cash
  or margin basis. In margin transactions, the Company extends credit to the
  customer, subject to various regulatory and internal margin requirements,
  collateralized by cash and securities in the customer's account. As customers
  write option contracts or sell securities short, the Company may incur losses
  if the customers do not fulfill their obligations and the collateral in
  customer accounts is not sufficient to fully cover losses which customers may
  incur from these strategies. To control this risk, the Company monitors
  required margin levels daily, and customers are required to deposit additional
  collateral, or reduce positions, when necessary.
  
     Through its broker-dealer subsidiaries, the Company loans securities
  temporarily to other brokers in connection with its securities lending
  activities. The Company receives cash as collateral for the securities loaned.
  Increases in security prices may cause the market value of the securities
  loaned to exceed the amount of cash received as collateral. In the event the
  counterparty to these transactions does not return the loaned securities, the
  Company may be exposed to the risk of acquiring the securities at prevailing
  market prices in order to satisfy its customer obligations. The Company
  controls this risk by requiring credit approvals for counterparties, by
  monitoring the market value of securities loaned on a daily basis and by
  requiring deposits of additional cash as collateral when necessary.
  
     The Company is obligated to settle transactions with brokers and other
  financial institutions even if its customers fail to meet their obligations to
  the Company. Customers are required to complete their transactions on
  settlement date, generally three business days after trade date. If customers
  do not fulfill their contractual obligations, the Company may incur losses. The
  Company has established procedures to reduce this risk by requiring that
  customers deposit cash and/or securities into their account prior to placing an
  order.
  
     The Company may at times maintain inventories in equity securities on both a
  long and short basis. While long inventory positions represent the Company's
  ownership of securities, short inventory positions represent obligations of the
  Company. Accordingly, both long and short inventory positions may result in
  losses or gains to the Company as market values of securities fluctuate. To
  mitigate the risk of losses, long and short positions are marked to market
  daily and are continuously monitored by the Company.
  
  15. SUBSEQUENT EVENTS AND ACQUISITIONS
  
     In December 1998 and April 1999, the Company's Board of Directors voted to
  effect two separate two-for-one stock splits by distributing one additional
  share of common stock, par value $.01, for every share of
  
                                         32
  <PAGE>
  
  common stock outstanding to shareowners of record as of January 15, 1999 and
  again as of May 7, 1999. The disclosures herein reflect the two-for-one stock
  splits which were effective on February 1, 1999 and May 21, 1999.
  
   OptionsLink
  
     In the first quarter of fiscal 1998, E*TRADE acquired the OptionsLink
  Division of Hambrech & Quist for a purchase price of $3.5 million. The purchase
  price exceeded the fair value of the assets acquired by $3.1 million, of which
  $2.9 million was capitalized as software and amortized over two years, in
  accordance with the Company's existing policy.
  
   ShareData
  
     On July 30, 1998, the Company acquired ShareData, Inc., ("ShareData").
  ShareData supplies stock plan knowledge-based software for pre-IPO and public
  companies. The Company issued 5.2 million shares of its common stock in
  exchange for all outstanding common stock of ShareData. The Company also
  assumed all outstanding ShareData options, which were converted to options to
  purchase approximately 744,000 shares of the Company's common stock. The
  acquisition was accounted for as a pooling of interests, and accordingly, all
  prior financial data of the Company has been restated to include the historical
  operations of ShareData. As a result of the acquisition, the combined Company
  incurred charges and direct transaction costs relating to the business
  combination of $1.2 million. These non-recurring costs have been charged to
  operations in the fourth quarter of fiscal 1998. Prior to the acquisition,
  ShareData reported on a calendar year end. Fiscal 1998 and 1997 include the
  results of ShareData for the twelve months ended September 30, 1998 and 1997,
  respectively. Fiscal 1996 includes the results of ShareData for the twelve
  months ended December 31, 1996. The results of operations for the quarter ended
  December 31, 1996 (revenues of $4,637,000 and net income of $746,000), included
  in both fiscal 1997 and 1996, is reflected as an adjustment to retained
  earnings in fiscal 1997. No adjustments were required to conform accounting
  policies of the entities. There were no significant intercompany transactions
  requiring elimination for any periods presented.
  
   ClearStation
  
     On April 30, 1999, the Company acquired ClearStation, Inc.,
  ("ClearStation"). ClearStation is a financial media web site that integrates
  technical and fundamental analysis and discussion for investors. The Company
  issued 939,072 shares of common stock in exchange for all outstanding common
  stock of ClearStation. The Company also assumed all outstanding ClearStation
  options, which were converted to options to purchase approximately 112,000
  shares of the Company's common stock. The acquisition was accounted for as a
  pooling of interest, and accordingly, all prior financial data of the Company
  has been restated to include the historical operations of ClearStation from
  October 1997 (the date of ClearStation's inception). As a result of the
  acquisition, the Company incurred charges and direct transaction costs relating
  to the business combination of $250,000. These non-recurring costs have been
  charged to operations in the third quarter of fiscal 1999. Fiscal 1998 includes
  the results of ClearStation for the twelve months ended September 30, 1998. No
  adjustments were required to conform accounting policies of the entities. There
  were no significant intercompany transactions requiring elimination for any
  periods presented.
  
                                         33
  <PAGE>
  
     The operating results of the separate Companies are as follows (in
  thousands):
  
  <TABLE>
  <CAPTION>
                                                                 Net    Net Income
                                                               Revenues   (Loss)
                                                               -------- ----------
       <S>                                                     <C>      <C>
       Year ended September 30, 1998
        E*TRADE Group......................................... $235,452  $ 2,418
        ShareData (through June 30, 1998).....................    9,865   (3,130)
        ClearStation..........................................       --   (1,100)
                                                               --------  -------
        Combined.............................................. $245,317  $(1,812)
                                                               ========  =======
       Year ended September 30, 1997
        E*TRADE Group......................................... $142,737  $13,905
        ShareData.............................................   13,658    1,130
        ClearStation..........................................       --       --
                                                               --------  -------
        Combined.............................................. $156,395  $15,035
                                                               ========  =======
       Year ended September 30, 1996
        E*TRADE Group......................................... $ 51,595  $  (828)
        ShareData.............................................   10,925    1,995
        ClearStation..........................................       --       --
                                                               --------  -------
        Combined.............................................. $ 62,520  $ 1,167
                                                               ========  =======
  </TABLE>
  Telebanc
  
     On June 1, 1999, the Company entered into a definitive agreement to acquire
  Telebanc Financial Corporation ("Telebanc"). Telebanc is the holding company of
  TeleBank, an Internet-based, federally chartered savings bank. Under the terms
  of the agreement, Telebanc shareowners will receive 2.1 shares of E*TRADE
  common stock for each share of Telebanc common stock. Following the merger,
  which is expected to be accounted for as a pooling of interest, Telebanc
  shareowners will own approximately 13 percent of E*TRADE's fully diluted common
  stock. The Boards of Directors of both companies have approved the merger, but
  final consummation of the merger, which is expected to be completed this fall,
  is contingent on regulatory approval and the vote of the Telebanc shareowners.
  
                                         34
  <PAGE>
  
  16. QUARTERLY DATA (unaudited)
  
     The unaudited quarterly financial information presented below reflects all
  adjustments which, in the opinion of management, are of a normal and recurring
  nature necessary to present fairly the results of operations for the periods
  presented (in thousands, except per share amounts).
  
     On November 23, 1998, the American Institute of Certified Public Accountants
  held the first meeting of a task force formed to prepare guidance for companies
  that account for business acquisitions under the purchase method of accounting
  which includes in-process research and development ("IPR&D"). At this meeting,
  representatives of the Securities and Exchange Commission ("SEC") expressed
  their views on this matter. After considering the new views taken by the SEC on
  IPR&D, the Company has reassessed its allocation of the purchase price of the
  OptionsLink acquisition made in the first quarter of fiscal 1998. Initially,
  $2.8 million of the purchase price had been allocated to IPR&D. Based on the
  SEC's recent guidance, the Company has reallocated a substantial part of the
  purchase price to capitalized software, to be amortized over two years, in
  accordance with the Company's existing policy. The net effect of these
  reallocations are to reduce reported net loss in fiscal year 1998 by $573,000
  with no change to earnings per share. The impact of this change for the quarter
  ended September 30, 1998, due to increased amortization expense, is an increase
  in reported net loss by $169,000, with no change to earnings per share.
  
  <TABLE>
  <CAPTION>
                                      Fiscal 1998                         Fiscal 1997
                            ----------------------------------- --------------------------------
                              4th       3rd      2nd      1st     4th     3rd      2nd     1st
                            Quarter   Quarter  Quarter  Quarter Quarter Quarter  Quarter Quarter
                            --------  -------  -------  ------- ------- -------  ------- -------
  <S>                       <C>       <C>      <C>      <C>     <C>     <C>      <C>     <C>
  E*TRADE Group (as
   previously reported):
   Revenues...............  $ 64,296  $62,316  $53,309  $51,130 $48,477 $37,036  $32,201 $25,023
   Cost of services.......    31,991   28,722   24,280   22,747  23,384  21,834   13,198  12,425
   Net income (loss)......   (15,923)   6,560    6,118    4,914   5,523   3,068    3,054   2,260
   Net income (loss) per
    share:
   Basic..................  $  (0.08) $  0.03  $  0.03  $  0.03 $  0.04 $  0.02  $  0.03 $  0.02
   Diluted................  $  (0.08) $  0.03  $  0.02  $  0.03 $  0.04 $  0.02  $  0.02 $  0.02
  
  
  ShareData, ClearStation
   and software
   adjustment:
   Revenues...............  $  4,401  $ 4,167  $ 2,822  $ 2,876 $ 3,507 $ 2,541  $ 2,973 $ 4,637
   Cost of services.......     1,282    1,064      979      823     916     677      633     314
   Net income (loss)......      (203)  (1,420)  (1,930)      72     353    (158)     189     746
  
  
  Combined:
   Revenues...............  $ 68,697  $66,483  $56,131  $54,006 $51,984 $39,577  $35,174 $29,660
   Cost of services.......    33,273   29,786   25,259   23,570  24,300  22,511   13,831  12,739
   Net income (loss)......   (16,126)   5,140    4,188    4,986   5,876   2,910    3,243   3,006
   Net income (loss) per
    share:
   Basic..................  $  (0.08) $  0.03  $  0.03  $  0.03 $  0.04 $  0.02  $  0.03 $  0.02
   Diluted................  $  (0.08) $  0.03  $  0.02  $  0.03 $  0.04 $  0.02  $  0.02 $  0.02
  </TABLE>
  
                                         35
  <PAGE>
  
  Management's Discussion and Analysis of Financial Condition and Results of
  Operations for the six months ended March 31, 1999 and 1998
  
  Forward-Looking Statements
  
     The following discussion of the financial condition and results of
  operations of the Company as restated for its merger with ClearStation on April
  30, 1999, which was accounted for as a pooling of interests, should be read in
  conjunction with the supplemental consolidated financial statements and notes
  thereto included elsewhere herein. This discussion contains forward-looking
  statements, including statements regarding the Company's strategy, financial
  performance and revenue sources which involve risks and uncertainties. The
  Company's actual results may differ materially from those anticipated in these
  forward-looking statements as a result of certain factors, including, but not
  limited to, those set forth elsewhere herein.
  
  Results of Operations
  
   Revenue Detail (in millions)
  
  <TABLE>
  <CAPTION>
                                                               Six Months Ended
                                                                   March 31,
                                                             ---------------------
                                                                           Percent
                                                              1999   1998  Change
                                                             ------ ------ -------
     <S>                                                     <C>    <C>    <C>
     Revenues:
       Transaction revenues:
         Commissions........................................ $133.0 $ 62.6   112%
         Order flow.........................................   17.8   12.9    39%
                                                             ------ ------   ---
           Total transaction revenue........................  150.8   75.5   100%
                                                             ------ ------   ---
       Interest-net of interest expense(A):
         Brokerage..........................................   38.7   20.4    89%
         Other..............................................   11.3    4.2   171%
                                                             ------ ------   ---
           Total interest...................................   50.0   24.6   103%
                                                             ------ ------   ---
       International........................................    2.0    1.6    25%
       Other................................................   12.2    8.4    45%
                                                             ------ ------   ---
           Total revenues................................... $215.1 $110.1    95%
                                                             ====== ======   ===
     Transactions per day...................................    0.6    0.3   122%
     Transaction per period.................................    7.1    3.2   121%
  </TABLE>
  --------
  (A) Interest is presented net of interest expense. Interest expense for the six
      months ended March 31, 1999 and 1998 was $26.0 and $17.3, respectively.
  
     The Company's revenues increased to $215.1 million for the six months ended
  March 31, 1999, up 95% from $110.1 million in the equivalent period of fiscal
  1998. Revenues increased mainly due to higher customer trading volume and an
  increase in customer assets.
  
     Transaction revenues consist of commission revenues and payments based on
  order flow. Transaction revenues increased to $150.9 million for the six months
  ended March 31, 1999, up 100% from $75.5 million for the equivalent period in
  fiscal 1998. This increase was primarily attributable to an increase of 121% in
  the number of transactions processed from the equivalent period in the prior
  year. The increase in transaction processing volume was primarily a result of a
  significant increase in customer accounts resulting from the substantial
  advertising expenditures made by the Company during fiscal 1999. Growth in
  transaction revenues reflected the overall high level of trading volume in U.S.
  financial markets as well as the increase in new customer accounts.
  
  
                                         36
  <PAGE>
  
     Commission revenues for the six months ended March 31, 1999 increased to
  $133.0 million, up 113% from $62.6 million for the same period a year ago.
  
     Order flow revenue increased to $17.9 million for the six months ended March
  31, 1999, up 39% from $12.9 million for the same period in the prior year.
  Order flow revenue accounted for 12% of transaction revenue in the six months
  ended March 31, 1999 compared to 17% in the comparable period in fiscal 1998.
  Order flow revenue as a percentage of total revenue decreased primarily due to
  the loss of Roundtable earnings, which ended when Roundtable was reorganized as
  Knight/Trimark, Inc. and went public in July 1998. Until its initial public
  offering, Knight/Trimark, Inc. would allocate a portion of its earnings to its
  owners, including the Company, based on the percentage its owners contributed
  to Knight/Trimark, Inc.'s total order flow. The Company previously recorded the
  amounts it received from this allocation as order flow revenue.
  
     Net interest revenues primarily represent interest earned by the Company on
  credit extended to its customers to finance their purchases of securities on
  margin, interest earned on customer assets invested in money market accounts
  and interest earned on investment securities, offset by interest paid to
  customers on certain credit balances, interest paid to banks and interest paid
  to other broker-dealers through the Company's stock loan program. Pursuant to
  Securities and Exchange Commission regulations, customer cash balances that are
  not used for margin lending are segregated into an investment account that is
  maintained for the exclusive benefit of customers.
  
     Net interest revenues increased to $50.0 million for the six months ended
  March 31, 1999, up 103% from $24.6 million for the same period in fiscal 1998.
  This increase was primarily due to interest derived from customer operations of
  $38.7 million for the six months ended March 31, 1999, up $18.3 million or 89%
  compared to the equivalent period in fiscal 1998. Average customer margin debit
  balances were up 68% to $1.6 billion, and average customer money market fund
  balances increased 35% to $2.9 billion. Additionally, interest earned on
  investment securities increased to $11.3 million in the second quarter of
  fiscal 1999, up 171% from $4.2 million in the equivalent period in fiscal 1998.
  
     International revenues were $2.0 million for the six months ended March 31,
  1999 compared to $1.6 million for the same period in fiscal 1998. International
  revenues represent international licensing fees and royalties based on the
  licensee's transaction revenues. The Company may, from time to time, seek to
  enter into similar licensing agreements with others as part of its
  international expansion strategy. There can be no assurance that any such
  future agreements will be consummated or that the terms thereof will be
  comparable to those of the aforementioned agreements or that the recognition of
  any licensing fees will occur during the period in which an arrangement is
  consummated.
  
     Other revenues increased to $12.2 million for the six months ended March 31,
  1999, up 45% from $8.4 million for the comparable period in fiscal 1998. Other
  revenues increased primarily due to increases in broker-related fees for
  services, growth in ShareData licensing revenue, ClearStation revenues and
  increased revenues from mutual funds and advertising on the Company's Web site.
  
   Cost of Services
  
     Total cost of services increased to $97.9 million for the six months ended
  March 31, 1999, up 100% from $48.8 million for the comparable period in fiscal
  1998. Cost of services as a percentage of net revenues was 45% for the
  six months ended March 31, 1999 compared to 44% in the comparable period in
  fiscal 1998. Cost of services includes expenses related to the Company's
  clearing operations, customer service activities, system maintenance and
  communications. These increases reflect the overall increase in customer
  transactions processed by the Company, customer service inquiries, and
  operations and maintenance costs associated with the technology centers in Palo
  Alto and Rancho Cordova, California, and Alpharetta, Georgia.
  
  
                                         37
  <PAGE>
  
   Operating Expenses
  
     Selling and marketing expenses increased to $101.0 million for the six
  months ended March 31, 1999, up 383% from $20.9 million for the comparable
  period in fiscal 1998. As a percentage of net revenue, selling and marketing
  expenses increased to 47% for the six months ended March 31, 1999, from 19% in
  the equivalent period of fiscal 1998. Selling and marketing expenses include
  media, print and direct mail advertising, and related production, printing and
  postage costs. The increase in selling and marketing expenses reflect the
  Company's aggressive account and membership acquisition strategy which includes
  major marketing expenditures for advertising placements, creative development
  and collateral materials resulting from a variety of advertising campaigns
  directed at building brand name recognition, growing customer base and market
  share, and maintaining customer retention rates. These increased expenditure
  levels are expected to continue throughout fiscal 1999. The Company's selling
  and marketing expenses vary depending upon a variety of factors including,
  without limitation, the launch of new products or services.
  
     Technology development expenses increased to $29.8 million for the six
  months ended March 31, 1999, up 116% from $13.8 million for the comparable
  period in fiscal 1998. As a percentage of net revenue, technology development
  increased to 14% for the six months ended March 31, 1999, from 13% for the six
  months ended March 31, 1998. The increased level of expenses was incurred to
  enhance the Company's existing product offerings and reflects the Company's
  continuing commitment to invest in new products and technologies to support
  potential future growth.
  
     General and administrative expenses increased to $32.5 million for the six
  months ended March 31, 1999, up 205% from $10.6 million for the comparable
  period in fiscal 1998. This increase is the result of personnel additions, the
  development of administrative functions resulting from the overall growth in
  the Company, and the costs associated with the opening of a new technology and
  customer service support facility in Alpharetta, Georgia.
  
     Non-operating income (expense)
  
     In February 1999, the Company sold 39% of its holdings in Knight/Trimark,
  Inc., a market-maker, recognizing a pre-tax gain of $33.4 million on the sale.
  The investment had been classified as available-for-sale under the provisions
  of SFAS 115.
  
     Loss on equity investments was $1.3 million for the six months ended March
  31, 1999 which resulted from the Company's minority ownership in certain
  investments that are accounted for under the equity method. Equity in losses of
  affiliates for the six months ended March 31, 1999 includes the results from
  the Company's minority ownership in Archipelago and E*OFFERING, as well as the
  Company's international joint ventures in Japan and the United Kingdom. The
  Company expects that its affiliate companies will continue to invest in the
  development of their products and services, and to incur operating losses for
  at least the next 12 months, which will result in future charges being recorded
  by the Company to reflect its proportionate share of such losses.
  
   Income Tax Expense (Benefit)
  
     Income tax expense (benefit) represents the provision for federal and state
  income taxes at an effective rate of (43.8%) for the six months ended March 31,
  1999 and 42.5% for the comparable period in fiscal 1998. This rate was impacted
  because there was no available tax benefit for the preacquisition operating
  losses of ClearStation. Prior to its merger with the Company, ShareData was a
  Subchapter S corporation and was not subject to federal and state corporate
  income taxes.
  
  Liquidity and Capital Resources
  
     The Company currently anticipates that its available cash resources and
  credit facilities will be sufficient to meet its presently anticipated working
  capital and capital expenditure requirements for at least the next 12 months.
  However, the Company may need to raise additional funds in order to support
  more rapid
  
                                         38
  <PAGE>
  
  expansion, develop new or enhanced services and products, respond to
  competitive pressures, acquire complementary businesses or technologies or take
  advantage of unanticipated opportunities.
  
     Cash used in operating activities was $36.9 million for the six months ended
  March 31, 1999 compared with cash provided by operating activities of $46.0
  million in the equivalent period in fiscal 1998. Cash used in operations
  increased primarily due to increased operating expenditures, including
  significant increases in sales and marketing expenses associated with the
  Company's aggressive account and membership acquisition strategy.
  
     Cash provided by investing activities was $50.4 million for the six months
  ended March 31, 1999, compared to cash used in investing activities of $7.1
  million in the equivalent period in fiscal 1998. The increase in cash provided
  by investing activities was primarily a result of proceeds of $33 million from
  the sale of a portion of the Company's investment in Knight/Trimark, Inc., and
  net purchases and sale/maturity of investment securities of $93.2 million,
  offset by purchases of investments of $50.7 million and purchases of property
  and equipment of $29.3 million. The Company expects that it will incur
  approximately $50 to $75 million of capital expenditures during the second half
  of fiscal 1999.
  
     Cash provided by financing activities was $14.2 million for the six months
  ended March 31, 1999, compared to $2.4 million in the equivalent period in
  fiscal 1998. The increase in cash provided by financing activities was
  primarily a result of increases in the proceeds from employee stock
  transactions.
  
  Year 2000 Compatibility
  
     Many computer systems use only two digits to identify a specific year and
  therefore may not accurately recognize and handle dates beyond the year 1999.
  If not corrected, these computer applications could fail or create erroneous
  results by or at the year 2000. The Company utilizes, and is dependent upon,
  data processing systems and software to conduct its business. The data
  processing systems and software include those developed and maintained by the
  Company's third-party data processing vendors and software which is run on in-
  house computer networks.
  
     Due to the Company's dependence on computer technology to conduct its
  business, and the dependence of the financial services industry on computer
  technology, the nature and impact of year 2000 processing failures on the
  Company's business, financial position, results of operations or cash flows
  could be material. During the first quarter of fiscal 1998, the Company
  initiated a review and assessment of all hardware and software to evaluate
  whether it will function properly in the year 2000 without material errors or
  interruptions.
  
     The Company believes that all year 2000 issues revealed as a result of that
  evaluation to date can be remedied in a timely manner, and therefore does not
  expect a material risk of disruption of operations. With respect to outside
  vendors, those vendors that have been contacted have indicated that their
  hardware or software is or will be year 2000 compatible in time frames that
  meet regulatory requirements. Evaluation of these issues is continuing and
  there is a risk that other problems, not presently known to the Company, will
  be discovered which could present a material risk of disruption to the
  Company's operations and result in material adverse consequences to the
  Company. Furthermore, there can be no assurance that the Company will not
  experience unexpected delays in remediation of any year 2000 issues that may be
  discovered. Any inability to remediate such issues in a timely manner could
  cause a material disruption of the Company's business. In addition, the method
  of trading employed by the Company is heavily dependent on the integrity of
  electronic systems outside of the Company's control, such as online and
  Internet service providers, and third-party software such as Internet browsers.
  A failure of any such system in the trading process, even for a short time,
  could cause interruption to the Company's business. The year 2000 issue could
  lower demand for the Company's services while increasing the Company's costs.
  These combining factors, while not quantified, could have a material adverse
  impact on the Company's financial results.
  
     Because systems critical to the Company other than its computer systems may
  be affected by the century change, the Company's year 2000 efforts also
  encompass facilities and equipment, which rely on date-
  
                                         39
  <PAGE>
  
  dependent technology, such as, building equipment that contains embedded
  technology and the Company's third-party providers.
  
     At this time, it does not appear that the costs of addressing year 2000
  issues will have a material adverse impact on the Company's financial position.
  However, in the event that the Company and third parties upon which it relies
  are unable to address these issues in a timely manner, it could result in a
  material financial risk to the Company.
  
   Status of Year 2000 Efforts
  
     The Company's year 2000 efforts address all computer systems, equipment and
  business partner relationships considered essential to the Company's ability to
  conduct its business. The objective of the Company's year 2000 project is to
  identify the core business processes and associated computer systems and
  equipment that may be at risk due to the use of two-digit year dates. Once
  identified, the systems and equipment are rated for risk and are prioritized
  for conversion or replacement according to their impact on core business
  operations. The Company's year 2000 project follows a structured approach in
  analyzing and mitigating year 2000 issues. This approach consists of six
  phases: awareness, assessment, remediation, validation, implementation and
  industry-wide testing. The work associated with each phase may be performed
  simultaneously with other phases of the project, depending on the nature of the
  work to be performed and the technology and business requirements of the
  specific business unit. For example, awareness is an ongoing effort and occurs
  in each phase. As part of this project, the Company reviews its vendor
  relationships (suppliers, alliances and third-party providers) in an attempt to
  assess their ability to meet the year 2000 challenge. In addition, this plan
  seeks to ensure that all of the Company's business partners and service
  providers are also year 2000 ready. In addition, written contingency plans are
  being developed for all mission critical systems and many non-critical systems
  to address any unexpected year 2000 failures. However, there can be no
  assurance that contingency plans will adequately address all year 2000
  failures.
  
     Currently, the Company's primary focus is the completion of remediation and
  testing, and on-going contingency planning and vendor management efforts.
  However, the Company is continuing to assess the impact of year 2000 issues on
  its products, internal information systems and third-party vendor relations.
  The Company has begun, and in many cases completed, corrective efforts in these
  areas. The Company does not anticipate that addressing year 2000 issues for its
  internal information systems and current and future products will have a
  material impact on its operations or financial results. However, there can be
  no assurance that these costs will not be greater than anticipated, or that
  corrective action undertaken will be completed before year 2000 issues may
  arise.
  
     In March 1999, the Company completed its assessment phase on mission
  critical systems including a significant amount of the implementation and
  testing. The Company's primary focus remains on the successful remediation and
  testing of all critical systems, including systems owned by third parties.
  Additional focus will be placed on non-critical systems and written contingency
  plans in the later half of the third quarter of fiscal 1999. The Company
  anticipates that work on the awareness, contingency planning, and vendor
  management phases of the project will continue through the century change.
  
     The success of the Company's year 2000 efforts depends in part on the
  adequacy of compliance by vendors with their representations concerning their
  systems, and on parallel efforts being undertaken by vendors and other third
  parties with which the Company's systems interact and the Company is therefore
  taking steps to determine the status of critical third parties' year 2000
  compatibility. The Company has implemented a vendor management program.
  Activities include creating an inventory of vendors, inquiring directly as to
  the status of vendors' year 2000 efforts, and continuing contact with vendors
  to monitor the progress of vendors who may not yet be year 2000 capable. If
  these suppliers fail to adequately address year 2000 issues for the products
  and services they provide to the Company, this could have a material adverse
  impact on the Company's operations and financial results. The Company is still
  assessing the effect year 2000 issues will have on its suppliers and at this
  time, cannot determine the impact it will have. There can be no assurance that
  all third parties will provide
  
                                         40
  <PAGE>
  
  accurate and complete information or that all their systems will be fully year
  2000 capable. Third parties' year 2000 processing failures may have a material
  adverse impact on the Company's systems and operations.
  
     As the year 2000 project continues, the Company may discover additional year
  2000 issues, may not be able to develop, implement, or test remediation or
  contingency plans, or may find that the costs of these activities exceed
  current expectations and become material. In many cases, the Company is relying
  on assurances from suppliers that new and upgraded information systems and
  other products will be year 2000 capable. The Company plans to test such third-
  party products, but cannot be sure that its tests will be adequate or that, if
  problems are identified, they will be addressed by the supplier in a timely and
  satisfactory way.
  
     Because the Company uses a variety of information systems and has additional
  systems embedded in its operations and infrastructure, the Company cannot be
  sure that all of its systems will work together in a year 2000 capable fashion.
  Furthermore, the Company cannot be sure that it will not suffer business
  interruptions, either because of its own year 2000 issues or those of its
  customers or suppliers whose year 2000 issues may make it difficult or
  impossible for them to fulfill their commitments to the Company. If the Company
  fails to satisfactorily resolve year 2000 issues related to its products in a
  timely manner, it could be exposed to liability to third parties.
  
     The Company is continuing to evaluate year 2000-related risks and corrective
  actions. However, the risks associated with the year 2000 may be pervasive and
  complex; they can be difficult to identify and to address, and can result in
  material adverse consequences to the Company. Even if the Company, in a timely
  manner, completes all of its assessments, identifies and tests remediation
  plans believed to be adequate, and develops contingency plans believed to be
  adequate, some issues may not be identified or corrected in time to prevent
  material adverse consequences to the Company.
  
     The Company's plan may also be affected by regulatory changes, changes in
  industry customs and practices, and significant systems modifications unrelated
  to the year 2000 project including upgrades and additions to capacity, and the
  cost and continued availability of qualified personnel and other resources.
  
     The Company spent approximately $1.5 million in the six months ended March
  31, 1999 and currently estimates that it will spend approximately an additional
  $3.5 million to ascertain that its core computer systems and those of its
  vendors are year 2000 capable. These expenditures will consist primarily of
  compensation for information technology employees and contractors dedicated to
  this project and related hardware and software costs. This estimate excludes
  the time that may be spent by management and administrative staff in guiding
  and assisting the information technology effort described above or for making
  systems other than core brokerage computer systems year 2000 capable. The
  Company expects to fund all year 2000 related costs through operating cash
  flows. These costs are not expected to result in increased information
  technology expenditures because they will be funded through a reallocation of
  the Company's overall development spending. In accordance with generally
  accepted accounting principles, such expenditures will be expensed as incurred.
  
  Quantitative and Qualitative Disclosures About Market Risk
  
     Market Risk Disclosures
  
     The following discussion about the Company's market risk disclosures
  involves forward-looking statements. Actual results could differ materially
  from those projected in the forward-looking statements. The Company is exposed
  to market risk related to changes in interest rates and equity security price
  risk. The Company does not have derivative financial instruments for
  speculative or trading purposes.
  
     Interest Rate Sensitivity
  
     The Company maintains a short-term investment portfolio consisting of mainly
  income securities with an average maturity of less than two years. These
  available-for-sale securities are subject to interest rate risk and
  
                                         41
  <PAGE>
  
  will fall in value if market interest rates increase. If market interest rates
  were to increase immediately and uniformly by 10 percent in levels at March 31,
  1999, the fair value of the portfolio would decline by an immaterial amount.
  The Company has the ability to hold its fixed income investments until
  maturity, and therefore the Company would not expect its operating results or
  cash flows to be affected to any significant degree by the effect of a sudden
  change in market interest rates on its securities portfolio.
  
     Equity Price Risk
  
     The Company holds a small portfolio of marketable-equity traded securities
  that are subject to market price volatility. Equity price fluctuations of plus
  or minus 15 percent would not have a material impact on the Company.
  
     Financial Instruments
  
     For its working capital and reserves which are required to be segregated
  under Federal or other regulations, the Company invests in money market funds,
  resale agreements, certificates of deposit, and commercial paper. Money market
  funds do not have maturity dates and do not present a material market risk. The
  other financial instruments are fixed rate investments with short maturities
  and do not present a material interest rate risk.
  
                                         42
  <PAGE>
  
  Supplemental Interim Financial Statements and Supplementary Data
  
  Index to Supplemental Consolidated Supplemental Financial Statements
  
  <TABLE>
  <CAPTION>
                                                                            Page
                                                                            ----
     <S>                                                                    <C>
     Supplemental Consolidated Balance Sheets as of March 31, 1999 and
      September 30, 1998...................................................  44
  
     Supplemental Consolidated Statements of Operations for the six months
      ended March 31, 1999 and 1998........................................  45
  
     Supplemental Consolidated Statements of Cash Flows for the six months
      ended March 31, 1999 and 1998........................................  46
  
     Notes to Supplemental Consolidated Financial Statements...............  47
  </TABLE>
  
                                         43
  <PAGE>
  
                        E*TRADE GROUP, INC. AND SUBSIDIARIES
  
                      Supplemental Consolidated Balance Sheets
                        (in thousands, except share amounts)
  
  <TABLE>
  <CAPTION>
                                                         March 31,  September 30,
                                                           1999         1998*
                                                        ----------- -------------
                                                        (Unaudited)
  <S>                                                   <C>         <C>
                         ASSETS
  
  Current assets:
   Cash and equivalents................................ $   49,658   $   21,890
   Cash and investments required to be segregated under
    Federal or other regulations.......................      5,000        5,000
   Investment securities...............................    409,192      502,534
   Brokerage receivables--net..........................  2,276,014    1,310,235
   Other assets........................................     19,070       11,710
                                                        ----------   ----------
    Total current assets...............................  2,758,934    1,851,369
  Property and equipment--net..........................     65,722       48,524
  Investments..........................................    482,043       58,342
  Related party receivables............................        --         3,719
  Other assets.........................................      6,193        7,491
                                                        ----------   ----------
      Total assets..................................... $3,312,892   $1,969,445
                                                        ==========   ==========
  
           LIABILITIES AND SHAREOWNERS' EQUITY
  
  Liabilities:
   Brokerage payables.................................. $2,133,456   $1,184,917
   Accounts payable, accrued and other liabilities.....    209,662       74,992
                                                        ----------   ----------
    Total liabilities..................................  2,343,118    1,259,909
                                                        ----------   ----------
  
  Commitments and contingencies (Note 7)
  
  Shareowners' equity:
   Common stock, $.01 par value; shares authorized,
    300,000,000; shares issued and outstanding: March
    1999, 232,759,206; September 1998, 227,077,074.....      2,328        2,271
   Additional paid-in capital..........................    726,860      680,319
   Retained earnings...................................      6,311       14,210
   Accumulated other comprehensive income..............    234,275       12,736
                                                        ----------   ----------
    Total shareowners' equity..........................    969,774      709,536
                                                        ----------   ----------
      Total liabilities and shareowners' equity........ $3,312,892   $1,969,445
                                                        ==========   ==========
  </TABLE>
  --------
  *  Derived from audited financial information
  
            See notes to supplemental consolidated financial statements.
  
                                         44
  <PAGE>
  
                        E*TRADE GROUP, INC. AND SUBSIDIARIES
  
                 Supplemental Consolidated Statements of Operations
                      (in thousands, except per share amounts)
                                    (Unaudited)
  
  <TABLE>
  <CAPTION>
                                                              Six Months Ended
                                                                  March 31,
                                                              ------------------
                                                                1999      1998
                                                              --------  --------
  <S>                                                         <C>       <C>
  Revenue:
    Transaction revenues..................................... $150,844  $ 75,462
    Interest-net of interest expense(A)......................   50,016    24,653
    International............................................    2,016     1,620
    Other....................................................   12,213     8,402
                                                              --------  --------
      Net revenues...........................................  215,089   110,137
                                                              --------  --------
  Cost of services...........................................   97,862    48,829
                                                              --------  --------
  Operating expenses:
    Selling and marketing....................................  101,037    20,916
    Technology development...................................   29,822    13,782
    General and administrative...............................   32,463    10,643
                                                              --------  --------
      Total operating expenses...............................  163,322    45,341
                                                              --------  --------
      Total cost of services and operating expenses..........  261,184    94,170
                                                              --------  --------
  Operating income (loss)....................................  (46,095)   15,967
                                                              --------  --------
  Non-operating income (expense):
    Gain on sale of investment...............................   33,367       --
    Loss on equity investments...............................   (1,334)      --
                                                              --------  --------
      Total non-operating income.............................   32,033       --
                                                              --------  --------
  Pre-tax income (loss)......................................  (14,062)   15,967
  Income tax expense (benefit)...............................   (6,163)    6,793
                                                              --------  --------
  Net income (loss).......................................... $ (7,899) $  9,174
                                                              ========  ========
  Net income (loss) per share (Note 5):
    Basic.................................................... $  (0.03) $   0.06
                                                              ========  ========
    Diluted.................................................. $  (0.03) $   0.05
                                                              ========  ========
  Shares used in computation of net income (loss) per share
   (Note 5):
    Basic....................................................  229,351   161,441
    Diluted..................................................  229,351   172,807
  </TABLE>
  --------
  (A) Interest is presented net of interest expense. Interest expense for the six
      months ended March 31, 1999 and 1998 was $26,028 and $17,290, respectively.
  
            See notes to supplemental consolidated financial statements.
  
                                         45
  <PAGE>
  
                        E*TRADE GROUP, INC. AND SUBSIDIARIES
  
                 Supplemental Consolidated Statements of Cash Flows
                                   (in thousands)
                                    (Unaudited)
  
  <TABLE>
  <CAPTION>
                                                            Six Months Ended
                                                                March 31,
                                                          ----------------------
                                                             1999        1998
                                                          -----------  ---------
  <S>                                                     <C>          <C>
  CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss).................................... $    (7,899) $   9,174
    Reconciliation to net cash provided by (used in)
     operating activities:
      Deferred income taxes..............................      (2,909)      (481)
      Depreciation and amortization......................      12,125      4,372
      Loss on equity investments.........................       1,334        --
      Options issued to consultants......................       2,200        --
      Gain on sale of investment.........................     (33,367)       --
      Other..............................................         (19)      (849)
    Net effect of changes in brokerage-related assets and
     liabilities:
      Cash and investments required to be segregated
       under Federal or other regulations................         --      10,001
      Brokerage receivables..............................    (965,779)  (298,923)
      Brokerage payables.................................     948,539    290,958
    Other changes, net:
      Other assets.......................................      (7,162)       290
      Accounts payable, accrued and other liabilities....      16,030     31,425
                                                          -----------  ---------
        Net cash provided by (used in) operating
         activities......................................     (36,907)    45,967
                                                          -----------  ---------
  CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment...................     (29,323)   (14,060)
    Purchase of investment securities....................  (3,143,914)  (864,237)
    Sale/maturity of investment securities...............   3,237,157    874,680
    Proceeds from sale of investment.....................      33,495        --
    Acquisition of OptionsLink...........................         --      (3,500)
    Purchase of investments..............................     (50,708)       --
    Related party receivable.............................       3,738        --
                                                          -----------  ---------
        Net cash provided by (used in) investing
         activities......................................      50,445     (7,117)
                                                          -----------  ---------
  CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from employee stock transactions............      14,208      2,436
    Other................................................          22        --
                                                          -----------  ---------
        Net cash provided by financing activities........      14,230      2,436
                                                          -----------  ---------
  INCREASE IN CASH AND EQUIVALENTS.......................      27,768     41,286
  CASH AND EQUIVALENTS--Beginning of period..............      21,890     23,234
                                                          -----------  ---------
  CASH AND EQUIVALENTS--End of period.................... $    49,658  $  64,520
                                                          ===========  =========
  SUPPLEMENTAL DISCLOSURES:
    Cash paid for interest............................... $    28,753  $  16,429
                                                          ===========  =========
    Non-cash activities:
      Unrealized gain on available-for-sale securities... $   373,384  $      96
                                                          ===========  =========
      Tax benefit on exercise of stock options........... $    30,190        --
                                                          ===========  =========
  </TABLE>
  
            See notes to supplemental consolidated financial statements.
  
                                         46
  <PAGE>
  
                        E*TRADE GROUP, INC. AND SUBSIDIARIES
  
              Notes to Supplemental Consolidated Financial Statements
  
  Note 1.--Basis of Presentation
  
     The accompanying unaudited supplemental consolidated financial statements
  include E*TRADE Group, Inc. and its subsidiaries (collectively, the "Company"),
  including E*TRADE Securities, Inc. ("E*TRADE Securities"), a securities broker-
  dealer.
  
     These consolidated financial statements have been prepared pursuant to the
  rules and regulations of the Securities and Exchange Commission ("SEC") and, in
  the opinion of management, reflect all normal recurring adjustments necessary
  to present fairly the financial position, results of operations and cash flows
  for the periods presented in conformity with generally accepted accounting
  principles. All significant intercompany accounts and transactions have been
  eliminated. These consolidated financial statements should be read in
  conjunction with the audited consolidated financial statements and notes
  thereto included in the Company's Annual Report to Shareowners on Form 10-K for
  the fiscal year ended September 30, 1998.
  
     The supplemental consolidated financial statements of the Company have been
  prepared to give retroactive effect to the acquisition of ShareData, Inc.
  ("ShareData") in July 1998 and ClearStation, Inc. ("ClearStation") in April
  1999, as well as the reallocations made in the fourth quarter of fiscal 1998
  for the allocation of the purchase price paid for OptionsLink, which was
  acquired in the first quarter of 1998 (See Note 15 to the supplemental
  financial statements as of September 30, 1998 included herein.)
  
     In December 1998 and April 1999, the Company's Board of Directors voted to
  effect a two-for-one stock split by distributing one additional share of common
  stock, par value $.01, for every share of common stock outstanding to
  shareowners of record on January 15, 1999 and May 7, 1999. The disclosures
  herein reflect the two-for-one stock splits which were effective on February 1,
  1999 and May 21, 1999.
  
  Note 2.--Net Brokerage Receivables and Payables
  
     Net brokerage receivables and payables consists of the following (in
  thousands):
  
  <TABLE>
  <CAPTION>
                                                          March 31,  September 30,
                                                             1999        1998
                                                          ---------- -------------
     <S>                                                  <C>        <C>
     Receivable from customers and non-customers (less
      allowance for doubtful accounts of $6,450 at March
      31, 1999 and $862 at September 30, 1998)..........  $1,887,959  $  961,305
     Receivable from brokers, dealers and clearing
      organizations:
       Net settlement and deposits with clearing
        organizations...................................      31,342      14,854
       Deposits paid for securities borrowed............     346,129     328,989
       Securities failed to deliver.....................       3,977         728
       Other............................................       6,607       4,359
                                                          ----------  ----------
         Total net brokerage receivables................  $2,276,014  $1,310,235
                                                          ==========  ==========
     Payable to customers and non-customers.............  $  570,534  $  340,044
     Payable to brokers, dealers and clearing
      organizations:
       Deposits received for securities loaned..........   1,535,386     839,422
       Securities failed to receive.....................       5,324       1,222
       Other............................................       6,712       4,229
     Bank loan payable..................................      15,500         --
                                                          ----------  ----------
         Total net brokerage payables...................  $2,133,456  $1,184,917
                                                          ==========  ==========
  </TABLE>
  
                                         47
  <PAGE>
  
                        E*TRADE GROUP, INC. AND SUBSIDIARIES
  
        Notes to Supplemental Consolidated Financial Statements--(Continued)
  
  
     Receivable from and payable to brokers, dealers and clearing organizations
  result from the Company's brokerage activities. Receivable from customers and
  non-customers represents credit extended to finance their purchases of
  securities on margin. At March 31, 1999 and September 30, 1998, credit extended
  to customers and non-customers with respect to margin accounts was $1,878
  million and $956 million, respectively. Securities owned by customers and non-
  customers are held as collateral for amounts due on margin balances (the value
  of which is not reflected on the accompanying consolidated balance sheets).
  Payable to customers and non-customers represents free credit balances and
  other customer and non-customer funds pending completion of securities
  transactions. The Company pays interest on certain customer and non-customer
  credit balances.
  
  Note 3.-- Investments
  
     In January 1999, the Company acquired a 25 percent voting interest in
  Archipelago Holdings, LLC ("Archipelago"). Archipelago owns 100 percent of
  Archipelago, LLC, which operates an Electronic Communication Network ("ECN")
  for Nasdaq stocks. In connection with such investment, the Company entered into
  an assistance agreement with Archipelago, which requires the Company to provide
  certain operational and technical assistance to Archipelago. The agreement
  provides that the Company will initially be entitled to representation on
  Archipelago's board of managers in proportion to its holding of voting
  interests.
  
     In February 1999, the Company acquired a 28 percent voting interest in
  E*OFFERING, a full-service, Internet-based investment bank. E*OFFERING plans to
  provide individual and institutional investors greater access to public
  offerings. E*OFFERING leverages the Internet to improve the process of raising
  capital for companies by reducing time to market and underwriting costs
  traditionally associated with the registration process, while broadening
  capital distribution. Additionally, E*OFFERING provides after-market support
  and shareholder communication services.
  
     The Company accounts for these investments according to the equity method of
  accounting, whereby the Company's proportionate share of each affiliate's net
  income (loss) is included in equity income (loss).
  
  Note 4.--Comprehensive Income
  
     On October 1, 1998, the Company adopted Statement of Financial Accounting
  Standards No. 130, Reporting Comprehensive Income, which requires that an
  enterprise report, by major components and as a single total, the change in net
  assets during the period from non-owner sources. The reconciliation of net
  income (loss) to comprehensive income is as follows (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                  Six Months
                                                                     Ended
                                                                   March 31,
                                                                ----------------
                                                                  1999     1998
                                                                --------  ------
     <S>                                                        <C>       <C>
     Net income (loss)......................................... $ (7,899) $9,174
     Changes in other comprehensive income:
       Unrealized gain on available-for-sale securities, net
        of tax.................................................  221,022      96
       Cumulative translation adjustments......................      517     --
                                                                --------  ------
         Total comprehensive income............................ $213,640  $9,270
                                                                ========  ======
  </TABLE>
  
                                         48
  <PAGE>
  
                        E*TRADE GROUP, INC. AND SUBSIDIARIES
  
        Notes to Supplemental Consolidated Financial Statements--(Continued)
  
  
  Note 5.--Net Income (Loss) Per Share
  
     The following table sets forth the computation of shares used in the
  computations of basic and diluted net income (loss) per share (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                     Six Months
                                                                        Ended
                                                                      March 31,
                                                                   ---------------
                                                                    1999    1998
                                                                   ------- -------
  <S>                                                              <C>     <C>
  Shares Used in Computation:
    Weighted average common shares outstanding used in computation
     of basic net income (loss) per share......................... 229,351 161,441
    Dilutive effect of stock options..............................     --   11,366
                                                                   ------- -------
      Shares used in computation of diluted net income (loss)
       per share.................................................. 229,351 172,807
                                                                   ======= =======
  </TABLE>
  
     Because the Company reported a net loss for the six months ended March 31,
  1999, the calculation of diluted earnings per share does not include common
  stock equivalents as it would result in a reduction of net loss per share. If
  the Company had reported net income in this period, there would have been
  16,350,000 additional shares in the calculation of diluted earnings per share.
  
     The following options to purchase shares of common stock were not included
  in the computation of diluted net income (loss) per share because the options'
  exercise price was greater than the average market price of the Company's
  common stock for the periods stated, and therefore are not common stock
  equivalents for purposes of this calculation (in thousands, except exercise
  price data):
  
  <TABLE>
  <CAPTION>
                                                                   Six Months
                                                                      Ended
                                                                    March 31,
                                                                  -------------
                                                                   1999   1998
                                                                  ------ ------
     <S>                                                          <C>    <C>
     Options excluded from computation of diluted net income
      (loss) per share...........................................     88  5,370
     Exercise price ranges:
       High...................................................... $30.39 $11.52
       Low....................................................... $19.46 $ 6.57
  </TABLE>
  
  Note 6.--Regulatory Requirements
  
     E*TRADE Securities is subject to the Uniform Net Capital Rule (the "Rule")
  under the Securities Exchange Act of 1934 administered by the SEC and the
  National Association of Securities Dealers, Inc. ("NASD"), which requires the
  maintenance of minimum net capital. E*TRADE Securities has elected to use the
  alternative method permitted by the Rule, which requires that the Company
  maintain minimum net capital equal to the greater of $250,000 or 2 percent of
  aggregate debit balances arising from customer transactions, as defined.
  E*TRADE Securities had amounts in relation to the Rule as follows (in
  thousands, except percentage data):
  
  <TABLE>
  <CAPTION>
                                                          March 31,  September 30,
                                                            1999         1998
                                                          ---------  -------------
     <S>                                                  <C>        <C>
     Net capital......................................... $124,500      $97,355
     Percentage of aggregate debit balances..............      6.2%         9.5%
     Required net capital................................ $ 40,062      $20,429
     Excess net capital.................................. $ 84,438      $76,926
  </TABLE>
  
     Under the alternative method, a broker-dealer may not repay subordinated
  borrowings, pay cash dividends or make any unsecured advances or loans to its
  parent or employees if such payment would result in net capital of less than 5%
  of aggregate debit balances or less than 120% of its minimum dollar amount
  requirement.
  
                                         49
  <PAGE>
  
                        E*TRADE GROUP, INC. AND SUBSIDIARIES
  
        Notes to Supplemental Consolidated Financial Statements--(Continued)
  
  
  Note 7.--Commitments, Contingencies and Regulatory Matters
  
     The Company is a defendant in civil actions arising from the normal course
  of business. In the opinion of management, these actions are expected to be
  resolved with no material effect on the Company's consolidated financial
  position or results of operations.
  
     On November 21, 1997, a putative class action was filed in the Superior
  Court of California, County of Santa Clara, by Larry R. Cooper on behalf of
  himself and other similarly situated individuals. The action alleges, among
  other things, that the Company's advertising, other communications and business
  practices regarding the Company's commission rates and its ability to timely
  execute transactions through its online brokerage services were false and
  deceptive. The action seeks injunctive relief enjoining the purported deceptive
  and unfair practices alleged in the action and also seeks unspecified
  compensatory and punitive damages, as well as attorney fees. This proceeding is
  at an early stage and the Company is unable to predict its ultimate outcome.
  However, the Company believes it has meritorious defenses to the claims and
  intends to conduct vigorous defenses. An unfavorable outcome in any matters,
  which are not covered by insurance, could have a material adverse effect on the
  Company's business, financial condition and results of operations. In addition,
  even if the ultimate outcomes are resolved in favor of the Company, the defense
  of such litigation could entail considerable cost and the diversion of efforts
  of management, either of which could have a material adverse effect on the
  Company's results of operations.
  
     On February 8, 1999, a putative class action was filed in the Superior Court
  of California, County of Santa Clara, by Coleen Divito, on behalf of herself
  and other similarly situated individuals. Subsequently on February 19, 1999, a
  putative class action was filed in Superior Court of California, County of
  Santa Clara, by Mario Cirignani, on behalf of himself and other similarly
  situated individuals. Both complaints allege damages and seek injunctive relief
  arising out of, among other things, the February 3, 4 and 5, 1999 system
  interruptions and allege a class of all E*TRADE account holders as of February
  2, 1999. Pursuant to a stipulation of counsel dated March 23, 1999, the Court
  consolidated the Divito and Cirignani actions for all purposes. This proceeding
  is currently at a very early stage and the Company is unable to predict its
  ultimate outcome.
  
     On February 11, 1999, a putative class action was filed in the Supreme Court
  of New York, County of New York, by Evan Berger, on behalf of himself and other
  similarly situated individuals. The action alleges, among other things, that
  the Company's advertising, other communications and business practices
  regarding its ability to timely execute and confirm transactions through its
  online brokerage services were false and deceptive. This proceeding is
  currently at a very early stage and the Company is unable to predict its
  ultimate outcome.
  
     On March 1, 1999, a putative class action was filed in the Court of Common
  Pleas, Cuyahoga County, Ohio, by Truc Q. Hoang. The Hoang complaint seeks
  damages and injunctive relief arising out of, among other things, the
  plaintiff's alleged problems accessing his account and placing orders.
  Plaintiff alleges causes of action for breach of contract, fiduciary duty and
  unjust enrichment, fraud, unfair and deceptive trade practices,
  negligence/intentional tort and injunctive relief. This proceeding is currently
  at a very early stage and the Company is unable to predict its ultimate
  outcome.
  
     On March 10, 1999, a putative class action was filed in the Superior Court
  of California, County of Santa Clara, by Raj Chadha. The Chadha complaint seeks
  damages and injunctive relief arising out of, among other things, the February
  3, 4 and 5, 1999 system interruptions. Plaintiff brings causes of action for
  breach of fiduciary duty and violations of the Consumer Legal Remedies Act and
  California Unfair Business Practices Act. This proceeding is currently at a
  very early stage and the Company is unable to predict its ultimate outcome.
  
     On March 11, 1999, a putative class action was filed in Superior Court of
  California, County of Santa Clara, by Elie Wurtman. The Wurtman complaint seeks
  damages and injunctive relief arising out of,
  
                                         50
  <PAGE>
  
                        E*TRADE GROUP, INC. AND SUBSIDIARIES
  
        Notes to Supplemental Consolidated Financial Statements--(Continued)
  
  among other things, plaintiff's alleged problems accessing her account and
  placing orders. The complaint also makes allegations regarding access problems
  relating to E*TRADE customers residing or traveling outside of the United
  States. Plaintiff brings causes of action for negligence and violations of the
  Consumer Legal Remedies Act and California Unfair Business Practices Act. This
  proceeding is currently at a very early stage and the Company is unable to
  predict its ultimate outcome.
  
     On April 14, 1999, a putative action was filed in Superior Court of
  California, County of Los Angeles, by Matthew J. Rosenberg. The Rosenberg
  compliant alleges violations of the Consumer Legal Remedies Act and the
  California Unfair Business Practices Act in relation to E*TRADE's IPO business.
  This proceeding is currently at a very early stage and the Company is unable to
  predict its ultimate outcome.
  
     From time to time the Company has been threatened with, or named as a
  defendant in, lawsuits and administrative claims. Compliance and trading
  problems that are reported to the NASD or the SEC by dissatisfied customers are
  investigated by the NASD or the SEC, and, if pursued by such customers, may
  rise to the level of arbitration or disciplinary action. One or more of such
  claims or disciplinary actions decided adversely against the Company could have
  a material adverse effect on the Company's business, financial condition and
  results of operations. The Company is also subject to periodic regulatory
  audits and inspections.
  
     The securities industry is subject to extensive regulation under federal,
  state and applicable international laws. As a result, the Company is required
  to comply with many complex laws and rules and its ability to so comply is
  dependent in large part upon the establishment and maintenance of a qualified
  compliance system.
  
     The Company maintains insurance in such amounts and with such coverage,
  deductibles and policy limits as management believes are reasonable and
  prudent. The principal risks that the Company insures against are comprehensive
  general liability, commercial property damage, hardware/software damage,
  directors and officers, and errors and omissions liability. The Company
  believes that such insurance coverage is adequate for the purpose of its
  business.
  
     The Company has entered into employment agreements with several of its key
  executive officers. These employment agreements provide for annual base salary
  compensation, stock option acceleration and severance payments in the event of
  termination of employment under certain defined circumstances, or change in the
  Company's control. Base salaries are subject to adjustments according to the
  Company's financial performance.
  
  Note 8.--Subsequent Events
  
   ClearStation
  
     On April 30, 1999, the Company acquired ClearStation, Inc.,
  ("ClearStation"). ClearStation is a financial media web site that integrates
  technical and fundamental analysis and discussion for investors. The Company
  issued 939,072 shares of common stock in exchange for all outstanding common
  stock of ClearStation. The Company also assumed all outstanding ClearStation
  options, which were converted to options to purchase approximately 112,000
  shares of the Company's common stock. The acquisition was accounted for as a
  pooling of interest, and accordingly, all prior financial data of the Company
  has been restated to include the historical operations of ClearStation from
  October 1997 (the date of ClearStation's inception). As a result of the
  acquisition, the Company incurred charges and direct transaction costs relating
  to the business combination of $250,000. These non-recurring costs have been
  charged to operations in the third quarter of fiscal 1999. No adjustments were
  required to conform accounting policies of the entities. There were no
  significant intercompany transactions requiring elimination for any periods
  presented.
  
                                         51
  <PAGE>
  
                        E*TRADE GROUP, INC. AND SUBSIDIARIES
  
        Notes to Supplemental Consolidated Financial Statements--(Continued)
  
  
  Telebanc
  
     On June 1, 1999, the Company entered into a definitive agreement to acquire
  Telebanc Financial Corporation ("Telebanc"). Telebanc is the holding company of
  TeleBank, an Internet-based, federally chartered savings bank. Under the terms
  of the agreement, Telebanc shareowners will receive 2.1 shares of E*TRADE
  common stock for each share of Telebanc common stock. Following the merger,
  which is expected to be accounted for as a pooling of interest, Telebanc
  shareowners will own approximately 13 percent of E*TRADE's fully diluted common
  stock. The Boards of Directors of both companies have approved the merger, but
  final consummation of the merger, which is expected to be completed this fall,
  is contingent on regulatory approval and the vote of the Telebanc shareowners.
  
  
                                         52
  <PAGE>
  
                                     SIGNATURES
  
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
  Registrant has duly caused this report to be signed on its behalf by the
  undersigned, thereunto duly authorized.
  
                                           E*TRADE Group, Inc.
                                           (Registrant)
  
                                           Dated: June 25, 1999
  
                                            By:   /s/ Leonard C. Purkis
                                              -------------------------
                                                     Leonard C. Purkis
                                        Executive Vice President, Finance and
                                                   Administration,
                                    Chief Financial Officer (principal financial
                                               and accounting officer)
  
                                         53
  <PAGE>
  
                                   EXHIBIT INDEX
  
  <TABLE>
  <CAPTION>
   Exhibit Description
   ------- -----------
   <C>     <S>
    23.1   Consent of Independent Auditors.
  </TABLE>
  
                                         54
metadata_documents: [{"type": "8-K", "sequence": "1", "description": "FORM 8-K", "secsgml_size_bytes": 203631}]
metadata_filer: {"company-data": {"conformed-name": "E TRADE GROUP INC", "cik": "0001015780", "assigned-sic": "6211", "irs-number": "942844166", "state-of-incorporation": "DE", "fiscal-year-end": "0930"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-11921", "film-number": "99652350"}, "business-address": {"street1": "FOUR EMBARCADERO PLACE 2400 GENG ROAD", "city": "PALO ALTO", "state": "CA", "zip": "94303", "phone": "6508422500"}, "mail-address": {"street1": "FOUR EMBARCADERO PLACE 2400 GENG ROAD", "city": "PALO ALTO", "state": "CA", "zip": "94303"}}
text: SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C. 20549
  
                                 ----------------
  
                                      FORM 8-K
                                   CURRENT REPORT
  
                       Pursuant to Section 13 or 15(d) of the
                          Securities Exchange Act of 1934
  
  Date of Report (Date of earliest event reported)   June 25, 1999
                                                   ----------------------------
  
                                  E*TRADE Group, Inc.
  --------------------------------------------------------------------------------
                 (Exact name of registrant as specified in charter)
  
          Delaware                   1-11921                   94-2844166
  ----------------------------------------------------------------------------
      (State or other
        jurisdiction               (Commission               (IRS Employer
     of incorporation)             File Number)            Identification No.)
  
  Four Embarcadero Place, 2400 Geng Road, Palo Alto, California       94303
  --------------------------------------------------------------------------------
  (Address of principal executive offices)                          (Zip Code)
  
  Registrant's telephone number, including area code:   (650) 842-2500
  --------------------------------------------------------------------------------
  
                                   Not Applicable
  --------------------------------------------------------------------------------
           (Former name or former address, if changed since last report.)
  This Form 8-K is being filed to present on a supplemental basis the Selected
  Financial Data, Management's Discussion and Analysis of Financial Conditions
  and Results of Operations and consolidated financial statements of E*TRADE
  Group, Inc. ("E*TRADE") as of September 30, 1998 and 1997 and for each of the
  three years in the period ended September 30, 1998, and as of March 31, 1999
  and for the six month periods ended March 31, 1999 and 1998, which gives
  retroactive effect to its merger with ClearStation, Inc. ("ClearStation"), on
  April 30, 1999 which was accounted for as a pooling of interests and for the
  two-for-one stock splits effective February 1, 1999 and May 21, 1999.
  
  Item 5 OTHER
  
      (a) Supplemental Annual Financial Information as of September 30, 1998
          and 1997 and for each of the three years in the period ended
          September 30, 1998.
  
        (1) Selected Supplemental Financial Data
  
        (2) Management's Discussion and Analysis of Financial Condition and
            Results of Operations
  
        (3) Quantitative and Qualitative Disclosures About Market Risk
  
        (4) Supplemental Consolidated Financial Statements and Supplementary
            Data
  
      (b) Supplemental Interim Financial Information as of March 31, 1999 and
          for the six month periods ended March 31, 1999 and 1998.
  
        (1) Management's Discussion and Analysis of Financial Condition and
            Results of Operations
  
        (2) Quantitative and Qualitative Disclosures About Market Risk
  
        (3) Supplemental Consolidated Financial Statements and Supplementary
            Data
  
  Item 7 FINANCIAL STATEMENTS AND EXHIBITS
  
      (c)Exhibit.
  
        The following document is filed as an exhibit to this Report:
  
        23.1 Consent of Independent Auditors
  
                                         2
  Selected Supplemental Financial Data
  Years Ended September 30,
                                  ----------------------------------------------
                                     1998       1997     1996     1995    1994
                                  ----------  -------- --------  ------- -------
                                    (in thousands, except per share amounts)
  Consolidated Statement of
   Operations Data*:
  
  Revenues:
   Transaction revenues.........  $  162,097  $109,659 $ 44,178  $20,835 $ 9,548
   Interest, net of interest
    expense.....................      56,020    25,265    4,813    1,004     302
   International................       7,031     4,000       --       --      --
   Other........................      20,169    17,471   13,529    6,947   5,558
                                  ----------  -------- --------  ------- -------
    Net revenues................     245,317   156,395   62,520   28,786  15,408
                                  ----------  -------- --------  ------- -------
  Cost of services..............     111,888    73,381   38,027   14,683   8,485
                                  ----------  -------- --------  ------- -------
  Operating expenses:
   Selling and marketing........      71,447    28,160   10,944    4,204   2,372
   Technology development.......      33,699    13,547    4,699    2,265   1,181
   General and administrative...      31,048    16,847    8,238    3,022   2,724
                                  ----------  -------- --------  ------- -------
    Total operating expenses....     136,194    58,554   23,881    9,491   6,277
                                  ----------  -------- --------  ------- -------
    Total cost of services and
     operating expenses.........     248,082   131,935   61,908   24,174  14,762
                                  ----------  -------- --------  ------- -------
  Pre-tax income (loss).........      (2,765)   24,460      612    4,612     646
  Income tax expense (benefit)..        (953)    9,425     (555)   1,728    (541)
                                  ----------  -------- --------  ------- -------
  Net income (loss).............  $   (1,812) $ 15,035 $  1,167  $ 2,884 $ 1,187
                                  ==========  ======== ========  ======= =======
  Net income (loss) per share**:
   Basic........................  $    (0.01) $   0.12 $   0.01  $  0.04 $  0.02
                                  ==========  ======== ========  ======= =======
   Diluted......................  $    (0.01) $   0.10 $   0.01  $  0.03 $  0.01
                                  ==========  ======== ========  ======= =======
  Shares used in computation of
   net income (loss) per
   share**:
   Basic........................     169,791   129,408   78,564   68,068  65,944
   Diluted......................     169,791   143,496  119,728  111,028 109,784
  September 30,
                                  ----------------------------------------------
                                     1998       1997     1996     1995    1994
                                  ----------  -------- --------  ------- -------
                                                 (in thousands)
  Consolidated Balance Sheet
   Data*:
  Cash and equivalents..........  $   21,890  $ 23,234 $ 15,856  $10,985 $ 2,000
  Investment securities.........     502,534   191,958   35,563      560     560
  Brokerage receivables--net....   1,310,235   724,365  193,228    1,936     499
  Total assets..................   1,969,445   995,422  302,171   18,146   5,386
  Shareowners' equity...........     709,536   283,374   71,976   12,348     919
  --------
  * All amounts presented have been restated to reflect the acquisition of
    ShareData, Inc. in July 1998, and ClearStation, Inc. in April 1999, which
    were accounted for as pooling of interests (see Note 15 of the Supplemental
    Consolidated Financial Statements).
  ** Reflects the two-for-one stock splits effective February 1, 1999 and May
     21, 1999.
  
                                         3
  Management's Discussion and Analysis of Financial Condition and Results of
  Operations for the Years Ended September 30, 1998, 1997 and 1996
  
  Forward-Looking Statements
  
     The following discussion of the financial condition and results of
  operations of E*TRADE Group, Inc. ("E*TRADE" or the "Company") as restated for
  its merger with ClearStation, Inc. ("Clear Station") on April 30, 1999, which
  was accounted for as a pooling of interests should be read in conjunction with
  the supplemental consolidated financial statements and notes thereto included
  elsewhere herein. This discussion contains forward-looking statements,
  including statements regarding the Company's strategy, financial performance
  and revenue sources which involve risks and uncertainties. The Company's actual
  results may differ materially from those anticipated in these forward-looking
  statements as a result of certain factors, including, but not limited to, those
  set forth elsewhere herein.
  
  Overview
  
     A leading branded provider of online investing services, E*TRADE has
  established a popular destination Web site for self-directed investors. Founded
  in 1982, the Company operated initially as a service bureau, providing
  automated online securities transaction services to various brokerage firms,
  including Fidelity Brokerage Services, Inc., Quick and Reilly, Inc. and,
  through an agreement with Bank of America, Charles Schwab. In 1992, the Company
  formed E*TRADE Securities and began to offer retail investing services and
  account information 24 hours a day, seven days a week. The Company offers
  independent investors the convenience and control of automated stock, option,
  fixed income and mutual fund order placement at lower commission rates than
  traditional brokerage firms. In addition, E*TRADE has a suite of value-added
  products and services that can be customized and personalized, including
  portfolio tracking, Java-based charting and quote applications, real-time stock
  quotes, Smart Alerts, market commentary and analysis, news, investor community
  areas and other information services.
  
     Free resources available to the public on E*TRADE's Web site include
  breaking financial news, real-time stock and option price quotes, company
  financial information and news announcements, live market commentary,
  personalized investment portfolios, investor community areas, and search and
  filtering tools for mutual fund and fixed income products. E*TRADE's Web site
  services three levels of investors--visitors, members, and customers, with each
  successive group gaining access to additional value-added products and
  services. Visitors can view market information, headline news, stock quotes and
  charts, mutual fund information, and much more. By registering but not opening
  an account, a visitor becomes a member and receives free access to many
  advanced, customizable investment research tools, including free real-times
  quotes and secure email. Customers, those investors with E*TRADE accounts, have
  complete access to E*TRADE's trading engine and to all the investment research
  and management features, including Smart Alerts, and many sophisticated
  analytical and record keeping tools. Customers may also subscribe to E*TRADE's
  Professional Edge service and receive access to IPOs, institutional quality
  research reports, and other premium services.
  
     The Company's revenues consist principally of transaction revenues, which
  include securities brokerage commissions and payments based on order flow,
  interest and certain other fees related to the Company's product offerings. The
  Company has experienced substantial growth in its revenues since E*TRADE
  Securities was formed. At the end of fiscal 1992, the Company was processing
  slightly over 100 transactions per day. For the quarter ended September 30,
  1998, the Company's average daily transaction volume was 30,500, a 27% increase
  over the average daily transaction volume of 24,100 in the equivalent period in
  fiscal 1997. Although increases in the overall activity in the securities
  markets have contributed to the Company's growth, the Company believes that its
  growth has also been due to the success of its advertising campaigns in
  bringing brand name recognition to the E*TRADE name, the launch of Internet
  access to E*TRADE in February 1996, and the continuing successful integration
  of new product developments.
  
                                         4
  In December 1997, the Company acquired OptionsLink, a division of Hambrecht
  & Quist LLC. OptionsLink is an all-electronic Web-based and interactive voice
  response inquiry and order entry system for employee stock option and stock
  purchase plan services for corporate stock plan participants. The acquisition
  of OptionsLink demonstrates the Company's commitment to expand its products and
  services into the corporate financial services market.
  
     In July 1998, the Company acquired ShareData, Inc., a supplier of stock plan
  knowledge-based software for pre-IPO and public companies. This acquisition
  will enable the Company to extend its corporate services strategy, which began
  when the Company purchased OptionsLink. Corporate financial services represents
  a potential growth segment for the Company and provides an opportunity to
  diversify its revenue stream. The Company intends to provide an automated
  solution for stock plan management and company stock transaction capabilities
  to plan sponsors and their employees through combining the OptionsLink and
  ShareData, Inc. product offerings.
  
     On April 30, 1999, the Company acquired ClearStation, Inc.,
  ("ClearStation"). ClearStation is a financial media web site that integrates
  technical and fundamental analysis and discussion for investors. The Company
  issued 939,072 shares of common stock in exchange for all outstanding common
  stock of ClearStation. The Company also assumed all outstanding ClearStation
  options, which were converted to options to purchase approximately 112,000
  shares of the Company's common stock. The acquisition was accounted for as a
  pooling of interests, and accordingly, all prior financial data of the Company
  has been restated to include the historical operations of ClearStation from
  October 1997 (the date of ClearStation's inception). As a result of the
  acquisition, the Company incurred charges and direct transaction costs relating
  to the business combination of $250,000. These non-recurring costs have been
  charged to operations in the third quarter of fiscal 1999. Fiscal 1998 includes
  the results of ClearStation for the twelve months ended September 30, 1998. No
  adjustments were required to conform accounting policies of the entities. There
  were no significant intercompany transactions requiring elimination for any
  periods presented.
  
     The Company uses other broker-dealers to execute its customers' orders and,
  in recent years, has derived a significant portion of its revenues from these
  broker-dealers for such order flow. This practice of receiving payments for
  order flow is widespread in the securities industry. Under applicable SEC
  regulations, receipt of these payments requires disclosure of such payments by
  the Company to its customers. The revenues received by the Company under these
  arrangements for fiscal 1998, 1997 and 1996 amounted to 16%, 19% and 22% of
  total transaction revenues, respectively. There can be no assurance that the
  Company will be able to continue its present relationships and terms for such
  payments for order flow. In addition, there can be no assurance that payments
  for order flow will continue to be permitted by the SEC, the NASD or other
  regulatory agencies, courts or governmental units. Loss of any or all of these
  revenues could have a material adverse effect on the Company's business,
  financial condition and operating results.
  
     The Company is making significant investments in systems technology and has
  established technology centers in both Palo Alto and Rancho Cordova,
  California. These facilities support systems, network services, trading,
  customer service, transaction redundancy and backup between the two locations,
  thereby providing an operational system in the event of a service interruption
  at either facility. In fiscal 1998, the Company opened a new facility in
  Alpharetta, Georgia which will also support systems, network services, trading
  and customer service.
  
     The Company implemented self-clearing operations for equity securities in
  July 1996 and self-clearing operations for options in April 1997. Prior to July
  1996, the Company cleared all of its customer transactions as a fully-disclosed
  correspondent of Herzog, Heine, Geduld, Inc. ("Herzog"). Clearing services
  include the confirmation, receipt, settlement, custody and delivery functions
  involved in securities transactions. In the first quarter of fiscal 1996, the
  Company began hiring associates to perform these functions. As a consequence,
  the Company incurred significant costs associated with the hiring and training
  of its associates, and systems integration costs, while continuing to incur
  expenses for clearing operations performed by Herzog through June 1996. The
  conversion to self-clearing has allowed the Company to realize significant cost
  savings and revenue enhancement.
  
                                         5
  The Company assumes direct responsibility for the possession and control of
  customer securities and other customer assets and the clearing of customers'
  securities transactions. This responsibility requires the Company to record on
  its balance sheet the receivables and payables to the Company that are a result
  of customer margin loans (i.e., loans made to customers that are collateralized
  by securities held in the customers' accounts at the Company) and customer free
  credit balances (i.e., customer cash balances maintained by the Company),
  respectively. In addition, to the extent that the Company's customer debit
  balances exceed customer free credit balances, the Company may be required to
  obtain financing for any excess debit balance. The Company had receivables from
  customers, brokers, dealers and clearing organizations of $1.3 billion and
  payables to customers, brokers, dealers and clearing organizations of
  $1.2 billion as of September 30, 1998. The Company contracts with a third-party
  service bureau, BETA Systems, for its customer record keeping and data
  processing services.
  
     The Company has experienced substantial changes in, and expansion of, its
  business and operations since it began offering online investing services in
  1992 and Internet investing services in February 1996, and expects to continue
  to experience periods of rapid growth. The Company's past expansion has placed,
  and any future expansion would place, significant demands on the Company's
  administrative, operational, financial and other resources. Competition for
  highly qualified senior managers and technical personnel is intense. If the
  Company fails to attract, assimilate and retain such personnel, there could be
  a material adverse effect on the Company's business, financial condition and
  operating results.
  
     The securities industry is subject to extensive regulation under federal,
  state and applicable international laws. As a result, the Company is required
  to comply with many complex laws and rules and its ability to so comply is
  dependent in large part upon the establishment and maintenance of a qualified
  compliance system. The Company is aware of several instances of its non-
  compliance with applicable regulations. In particular, in fiscal 1997, the
  Company failed to comply with applicable advertising restrictions in one
  international jurisdiction and, due to a clerical oversight, failed to timely
  renew its registration as a broker-dealer in two states, Nebraska and Ohio. One
  of the states, Ohio, as a condition of renewing the Company's license as a
  broker-dealer in that state, required the Company to offer customers resident
  in that state the ability to rescind (for up to 30 days) certain securities
  transactions effected through the Company during the period January 1, 1997
  through April 15, 1997, the date the Company's license was renewed. For fiscal
  1997, the Company recorded a $4.3 million pre-tax charge against earnings in
  connection with this matter.
  
  Results of Operations
  
     The following table sets forth the percentage of net revenues represented by
  certain items on the Company's consolidated statements of operations for the
  periods indicated:
  Years Ended September 30,
                             -----------------------------
                               1998       1997      1996
                             --------   --------  --------
  Revenues:
   Transaction revenues.....     66.1%      70.1%     70.7%
   Interest, net of interest
    expense.................     22.8       16.2       7.7
   International............      2.9        2.5        --
   Other....................      8.2       11.2      21.6
                             --------   --------  --------
    Net revenues............    100.0      100.0     100.0
                             --------   --------  --------
  Cost of services..........     45.6       46.9      60.8
                             --------   --------  --------
  Operating expenses:
   Selling and marketing....     29.1       18.0      17.5
   Technology development...     13.7        8.7       7.5
   General and
    administrative..........     12.7       10.8      13.2
                             --------   --------  --------
    Total operating
     expenses...............     55.5       37.5      38.2
                             --------   --------  --------
    Total cost of services
     and operating
     expenses...............    101.1       84.4      99.0
                             --------   --------  --------
  Pre-tax income (loss).....     (1.1)      15.6       1.0
  Income tax expense
   (benefit)................     (0.4)       6.0      (0.9)
                             --------   --------  --------
  Net income (loss).........     (0.7)%      9.6%      1.9%
                             ========   ========  ========
  6
  Fiscal Years Ended September 30, 1998, 1997 and 1996
  
   Revenues
  
     The Company's revenues increased to $245.3 million in fiscal 1998, up 57%
  from $156.4 million in fiscal 1997, which was up from 150% from $62.5 million
  in fiscal 1996. Transaction revenues increased to $162.1 million in fiscal
  1998, up 48% from $109.7 million in fiscal 1997, which was up 148% from $44.2
  million in fiscal 1996. Transaction revenues consist of commission revenues and
  payments based on order flow. Commission revenues increased to $136.3 million,
  up 64% from $82.9 million in fiscal 1997, which was up 153% from $32.8 million
  in fiscal 1996. Transactions for fiscal 1998 totaled 7.0 million or an average
  of 27,600 transactions per day. This is an increase of 68% over the average
  daily transaction volume of 16,400 in fiscal 1997, which was up 169% from 6,100
  in fiscal 1996. Average commissions per transaction declined to $19.58 in
  fiscal 1998 from $20.00 in fiscal 1997 and $20.82 in fiscal 1996, due primarily
  to a change in product mix and the lowering of commissions on listed market
  orders from $19.95 to $14.95 in February 1996. Payments for order flow
  decreased to $25.8 million in fiscal 1998, down 4% from $26.8 million in fiscal
  1997, which had increased 135% from $11.4 million in fiscal 1996. The decrease
  in payments for order flow is reflective of a trend that the Company expects to
  continue as a result of the implementation by the SEC of new order handling
  rules in January 1997, the outcome of which was that the bid/ask spread was
  reduced thereby reducing market maker margins and limiting their ability to pay
  for order flow, and the loss of Roundtable earnings, which ended when
  Roundtable was reorganized as Knight/Trimark, Inc. and went public in July 1998
  (see Note 5 of the Supplemental Consolidated Financial Statements). Until its
  initial public offering, Knight/Trimark would allocate a portion of its
  earnings to its owners, including the Company, based on what percentage its
  owners contributed to Knight/Trimark's total order flow. The Company previously
  recorded the amounts it received under this allocation as payment for order
  flow revenue.
  
     Net interest revenues primarily represent interest earned by the Company on
  credit extended to its customers to finance their purchases of securities on
  margin, fees on its customer assets invested in money market accounts and
  interest earned on investment securities, offset by interest paid to customers
  on certain credit balances, interest paid to banks and interest paid to other
  broker-dealers through the Company's stock loan program. Net interest revenues
  increased to $56.0 million in fiscal 1998, up 122% from $25.3 million in fiscal
  1997, which was up 425% from $4.8 million in fiscal 1996. This increase was due
  primarily to growth in customer accounts and the opportunity that being self-
  clearing has given the Company to manage interest rates. This increase was also
  a result of average customer margin debit balances increasing 70% to
  $925 million, average customer credit balances increasing 12% to $244 million,
  average money market fund balances increasing 95% to $1.4 billion, and an
  increase in investment securities from fiscal 1997 to fiscal 1998.
  
     International revenues of $7.0 million represent international licensing
  fees and ongoing royalties from agreements signed as part of E*TRADE's
  continued international expansion effort. International alliances signed during
  this fiscal year cover a number of countries in Europe and Asia. These
  agreements grant the licensees the exclusive right to use E*TRADE's technology
  and offer online investing services under the E*TRADE name. In addition, the
  Company has established joint ventures with strategic partners in Japan and the
  U.K. E*TRADE's global network will extend to 32 countries and territories when
  fully implemented. These agreements provide that the Company will receive
  royalties based upon their transaction revenues. International revenues were
  $4.0 million in fiscal 1997, from licensing fees attributable to the Company's
  agreements with VERSUS in Canada and Nova Pacific in Australia. Prior to fiscal
  1997, there were no international revenues. The Company may, from time to time,
  seek to enter into similar licensing agreements with others as part of its
  international expansion strategy. There can be no assurance that any such
  future agreements will be consummated or that the terms thereof will be
  comparable to those of the aforementioned agreements or that the recognition of
  any licensing fees will occur during the period in which an arrangement is
  consummated.
  
     Other revenues increased to $20.2 million in fiscal 1998, up 15% from $17.5
  million in fiscal 1997, which was up 29% from $13.5 million in fiscal 1996.
  Other revenues increased primarily due to equity earnings from the Company's
  investment in Roundtable, broker-related fees for services, new revenue streams
  from
  
                                         7
  OptionsLink, growth in ShareData, Inc. licensing revenue, and increased
  revenues from mutual funds and advertising on the Company's Web site. As a
  result of the Knight/Trimark initial public offering, the Company will no
  longer recognize any equity income from the Company's investment in Roundtable
  in future quarters (see Note 5 of the Supplemental Consolidated Financial
  Statements).
  
   Cost of Services
  
     Total cost of services increased to $111.9 million in fiscal 1998, up 52%
  from $73.4 million in fiscal 1997, which was up 93% from $38.0 million in
  fiscal 1996. Cost of services includes expenses related to the Company's
  clearing operations and customer service activities, system maintenance and
  communication expenses, and clearing fees paid to the Company's former clearing
  broker. Cost of services as a percentage of total transaction revenues was 69%
  in fiscal 1998 compared to 67% in fiscal 1997 and 86% in fiscal 1996. Included
  in total cost of services for fiscal 1997 was a charge of $4.3 million, which
  resulted from a clerical oversight connected with the Company's failure to
  timely renew its registration as a broker-dealer in the state of Ohio. Included
  in total cost of services in fiscal 1996 were self-clearing start-up costs of
  $2.2 million. Cost of services, exclusive of the registration charge and self-
  clearing start-up costs, increased to $111.8 million in fiscal 1998, up 62%
  from $69.0 million in fiscal 1997, which was up 93% from $35.8 million in
  fiscal 1996. These increases reflect the overall increase in customer
  transactions processed by the Company, a related increase in customer service
  inquiries, and operations and maintenance costs associated with the technology
  centers in Palo Alto and Rancho Cordova, California.
  
   Operating Expenses
  
     Selling and marketing expenses increased to $71.4 million in fiscal 1998, up
  154% from $28.2 million in fiscal 1997, which was up 157% from $10.9 million in
  fiscal 1996. This increase reflects expenditures for advertising placements,
  creative development and collateral materials resulting from a variety of
  advertising campaigns directed at building brand name recognition, growing the
  customer base and market share, and maintaining customer retention rates.
  Beginning in the fourth quarter of fiscal 1998, the Company significantly
  expanded its marketing efforts including the launch of Destination E*TRADE,
  expanded national television advertising and new strategic marketing alliances
  with key business partners, such as AOL and Yahoo!. These increased expenditure
  levels are expected to continue in fiscal 1999.
  
     Technology development expenses increased to $33.7 million in fiscal 1998,
  up 149% from $13.5 million in fiscal 1997, which was up 188% from $4.7 million
  in fiscal 1996. The increased level of expenses was incurred to enhance the
  Company's existing product offerings, including maintenance of the Company's
  Web site, development efforts related to the launch of Destination E*TRADE and
  proprietary Stateless Architecture SM, and reflects the Company's continuing
  commitment to invest in new products and technologies.
  
     General and administrative expenses increased to $31.0 million in fiscal
  1998, up 84% from $16.8 million in fiscal 1997, which was up 105% from $8.2
  million in fiscal 1996. This increase is the result of personnel additions, the
  development of administrative functions resulting from the overall growth in
  the Company, acquisition costs and the costs associated with the opening of a
  new facility in Alpharetta, Georgia.
  
   Income Tax Expense (Benefit)
  
     Income tax expense (benefit) represents the provision for federal and state
  income taxes at an effective rate of (34.5%), 38.5% and (90.7%) for fiscal
  1998, 1997 and 1996, respectively. Prior to its merger with the Company,
  ShareData, Inc. was a Subchapter S corporation and was not subject to federal
  and state corporate income taxes. Additionally, the fiscal 1998 rate reflects
  expected tax benefits from tax-exempt interest income and certain nondeductible
  acquisition costs.
  
  Year 2000 Compatibility
  
     Many computer systems use only two digits to identify a specific year and
  therefore may not accurately recognize and handle dates beyond the year 1999.
  If not corrected, these computer applications could fail or
  
                                         8
  create erroneous results by or at the year 2000. The Company utilizes, and is
  dependent upon, data processing systems and software to conduct its business.
  The data processing systems and software include those developed and maintained
  by the Company's third-party data processing vendors and software which is run
  on in-house computer networks.
  
     Due to the Company's dependence on computer technology to conduct its
  business, and the dependence of the financial services industry on computer
  technology, the nature and impact of year 2000 processing failures on the
  Company's business, financial position, results of operations or cash flows
  could be material. During the first quarter of fiscal 1998, the Company
  initiated a review and assessment of all hardware and software to evaluate
  whether it will function properly in the year 2000 without material errors or
  interruptions.
  
     The Company believes that all year 2000 issues revealed as a result of that
  evaluation to date can be remedied in a timely manner, and therefore are not
  expected to create a material risk of disruption of operations. With respect to
  outside vendors, those vendors that have been contacted have indicated that
  their hardware or software is or will be year 2000 compatible in time frames
  that meet regulatory requirements. Evaluation of these issues is continuing and
  there is a risk that other problems, not presently known to the Company, will
  be discovered which could present a material risk of disruption to the
  Company's operations and result in material adverse consequences to the
  Company. Furthermore, there can be no assurance that the Company will not
  experience unexpected delays in remediation of any year 2000 issues that may be
  discovered. Any inability to remediate such issues in a timely manner could
  cause a material disruption of the Company's business. In addition, the method
  of trading employed by the Company is heavily dependent on the integrity of
  electronic systems outside of the Company's control, such as online and
  Internet service providers, and third-party software such as Internet browsers.
  A failure of any such system in the trading process, even for a short time,
  could cause interruption to the Company's business. The year 2000 issue could
  lower demand for the Company's services while increasing the Company's costs.
  These combining factors, while not quantified, could have a material adverse
  impact on the Company's financial results.
  
     Because systems critical to the Company's functioning other than its
  computer systems may be affected by the century change, the Company's year 2000
  efforts also encompass facilities and equipment which rely on date-dependent
  technology, such as, building equipment that contains embedded technology and
  the Company's third-party providers.
  
     At this time, it does not appear that the costs of addressing year 2000
  issues will have a material adverse impact on the Company's financial position.
  However, in the event that the Company and third parties upon which it relies
  are unable to address these issues in a timely manner, it could result in a
  material financial risk to the Company.
  
   Status of Year 2000 Efforts
  
     The Company's year 2000 efforts address all computer systems, equipment and
  business partner relationships considered essential to the Company's ability to
  conduct its business. The objective of the Company's year 2000 project is to
  identify the core business processes and associated computer systems and
  equipment that may be at risk due to the use of two-digit year dates. Once
  identified, the systems and equipment are rated for risk and are prioritized
  for conversion or replacement according to their impact on core business
  operations. The Company's year 2000 project follows a structured approach in
  analyzing and mitigating year 2000 issues. This approach consists of six
  phases: awareness, assessment, remediation, validation, implementation and
  industry-wide testing. The work associated with each phase may be performed
  simultaneously with other phases of the project, depending on the nature of the
  work to be performed and the technology and business requirements of the
  specific business unit. For example, awareness is an ongoing effort and occurs
  in each phase. As part of this project, the Company reviews its vendor
  relationships (suppliers, alliances and third-party providers) in an attempt to
  assess their ability to meet the year 2000 challenge. In addition, this plan
  seeks to ensure that all of the Company's business partners and service
  providers are also year 2000 ready. In addition, written contingency plans are
  being developed for all mission critical systems and many non-critical systems
  to address any unexpected year 2000 failures. However, there can be no
  assurance that contingency plans will adequately address all year 2000
  failures.
  
                                         9
  Currently, the Company's primary focus is the completion of remediation and
  testing, and on-going contingency planning and vendor management efforts.
  However, the Company is continuing to assess the impact of year 2000 issues on
  its products, internal information systems and third-party vendor relations.
  The Company has begun, and in many cases completed, corrective efforts in these
  areas. The Company does not anticipate that addressing year 2000 issues for its
  internal information systems and current and future products will have a
  material impact on its operations or financial results. However, there can be
  no assurance that these costs will not be greater than anticipated, or that
  corrective actions undertaken will be completed before year 2000 issues may
  arise.
  
     In March 1999, the Company completed its assessment phase on mission
  critical systems including a significant amount of the implementation and
  testing. The Company's primary focus remains on the successful remediation and
  testing of all critical systems, including systems owned by third parties.
  Additional focus will be placed on non-critical systems and written contingency
  plans in the later half of the third quarter of fiscal 1999. The Company
  anticipates that work on the awareness, contingency planning, and vendor
  management phases of the project will continue through the century change.
  
     The success of the Company's year 2000 efforts depends in part on the
  adequacy of compliance by vendors with their representations concerning their
  systems, and on parallel efforts being undertaken by vendors and other third
  parties with which the Company's systems interact and therefore, the Company is
  taking steps to determine the status of critical third parties' year 2000
  compatibility. The Company has implemented a vendor management program.
  Activities include creating an inventory of vendors, inquiring directly as to
  the status of vendors' year 2000 efforts, and continuing contacts with vendors
  to monitor the progress of vendors who may not yet be year 2000 capable. If
  these suppliers fail to adequately address year 2000 issues for the products
  and services they provide to the Company, this could have a material adverse
  impact on the Company's operations and financial results. The Company is still
  assessing the effect year 2000 issues will have on its suppliers and at this
  time, cannot determine the impact it will have. There can be no assurance that
  all third parties will provide accurate and complete information or that all
  their systems will be fully year 2000 capable. Third parties' year 2000
  processing failures may have a material adverse impact on the Company's systems
  and operations.
  
     As the year 2000 project continues, the Company may discover additional year
  2000 issues, may not be able to develop, implement, or test remediation or
  contingency plans, or may find that the costs of these activities exceed
  current expectations and become material. In many cases, the Company is relying
  on assurances from suppliers that new and upgraded information systems and
  other products will be year 2000 capable. The Company plans to test such third-
  party products, but cannot be sure that its tests will be adequate or that, if
  problems are identified, they will be addressed by the supplier in a timely and
  satisfactory way.
  
     Because the Company uses a variety of information systems and has additional
  systems embedded in its operations and infrastructure, the Company cannot be
  sure that all of its systems will work together in a year 2000-capable fashion.
  Furthermore, the Company cannot be sure that it will not suffer business
  interruptions, either because of its own year 2000 issues or those of its
  customers or suppliers whose year 2000 issues may make it difficult or
  impossible for them to fulfill their commitments to the Company. If the Company
  fails to satisfactorily resolve year 2000 issues related to its products in a
  timely manner, it could be exposed to liability to third parties.
  
     The Company is continuing to evaluate year 2000-related risks and corrective
  actions. However, the risks associated with the year 2000 may be pervasive and
  complex; they can be difficult to identify and to address, and can result in
  material adverse consequences to the Company. Even if the Company, in a timely
  manner, completes all of its assessments, identifies and tests remediation
  plans believed to be adequate, and develops contingency plans believed to be
  adequate, some issues may not be identified or corrected in time to prevent
  material adverse consequences to the Company.
  
                                         10
  The Company's plan may also be affected by regulatory changes, changes in
  industry customs and practices, and significant systems modifications unrelated
  to the year 2000 project including upgrades and additions to capacity, and the
  cost and continued availability of qualified personnel and other resources.
  
     The Company has spent approximately $1.8 million in fiscal 1998 and
  currently estimates that it will spend approximately an additional $5 million
  to ascertain that its core computer systems and those of its vendors are year
  2000 capable. These expenditures will consist primarily of compensation for
  information technology employees and contractors dedicated to this project and
  related hardware and software costs. This estimate excludes the time that may
  be spent by management and administrative staff in guiding and assisting the
  information technology effort described above or for making systems other than
  core brokerage computer systems year 2000 capable. The Company expects to fund
  all year 2000 related costs through operating cash flows. These costs are not
  expected to result in increased information technology expenditures because
  they will be funded through a reallocation of the Company's overall development
  spending. In accordance with generally accepted accounting principles, such
  expenditures will be expensed as incurred.
  
  Variability of Results
  
     The Company expects to experience significant fluctuations in future
  quarterly operating results that may be caused by many factors, including the
  following: the timing of introductions or enhancements to online investing
  services and products by the Company or its competitors; market acceptance of
  online investing services and products; the pace of development of the market
  for online commerce; changes in trading volume in securities markets; trends in
  securities markets; domestic and international regulation of the brokerage
  industry; changes in pricing policies by the Company or its competitors;
  changes in strategy; the success of or costs associated with acquisitions,
  joint ventures or other strategic relationships; changes in key personnel;
  seasonal trends; the extent of international expansion; the mix of
  international and domestic revenues; changes in the level of operating expenses
  to support projected growth; and general economic conditions.
  
     Because of the foregoing factors, in addition to other factors that affect
  the Company's operating results and financial position, investors should not
  consider past financial performance or management's expectations a reliable
  indicator of future performance, and not use historical trends to anticipate
  results or trends in future periods. In that regard, results of operations and
  financial condition could be adversely affected by a number of factors in
  addition to those discussed above, including overall economic conditions and
  lower than expected demand. Further, the Company's stock price is subject to
  volatility. Any of the factors discussed above could have an adverse effect on
  the Company's stock price. In addition, the Company's stock price could be
  adversely affected if the Company's revenues or earnings in any quarter fail to
  meet the investment community's expectations, or if there are broader, negative
  market trends. The Company does not undertake an obligation to update its
  forward-looking statements or risk factors to reflect future events or
  circumstances.
  
  Liquidity and Capital Resources
  
     In August 1996, the Company completed an initial public offering of its
  Common Stock, resulting in net proceeds to the Company of approximately $46.4
  million.
  
     In August 1997, the Company completed a secondary public offering of
  29,220,000 shares of the Company's Common Stock at a price of $6.88 per share.
  The proceeds to the Company from the offering, net of underwriting discounts
  and offering expenses of $14.8 million, were $188.8 million. The Company also
  has financed its activities through the private placement of Preferred Stock
  and, to a lesser extent, equipment financing.
  
     In July 1998, the Company entered into an agreement to issue and sell
  62,600,000 shares of its common stock to SOFTBANK CORP., a Japanese
  corporation, for an aggregate purchase price of $400 million. This investment
  represents a minority interest ownership of approximately 27.6% in the Company
  as of September 30, 1998.
  
                                         11
  In July 1996, the Company obtained financing facilities totaling $100
  million, to be collateralized by customer securities. There were no borrowings
  outstanding under these lines at September 30, 1998. At September 30, 1997,
  $9.4 million was outstanding under these lines, which was repaid on October 1,
  1997. In addition, the Company has entered into numerous agreements with other
  broker-dealers to provide financing under the Company's stock loan program.
  
     The Company currently anticipates that its available cash resources and
  credit facilities will be sufficient to meet its presently anticipated working
  capital and capital expenditure requirements for at least the next 12 months.
  However, the Company may need to raise additional funds in order to support
  more rapid expansion, develop new or enhanced services and products, respond to
  competitive pressures, acquire complementary businesses or technologies or take
  advantage of unanticipated opportunities. The Company's future liquidity and
  capital requirements will depend upon numerous factors, including costs and
  timing of expansion of research and development efforts and the success of such
  efforts, the success of the Company's existing and new service offerings and
  competing technological and market developments. The Company's forecast of the
  period of time through which its financial resources will be adequate to
  support its operations is a forward-looking statement that involves risks and
  uncertainties, and actual results could vary. The factors described earlier in
  this paragraph will impact the Company's future capital requirements and the
  adequacy of its available funds. If additional funds are raised through the
  issuance of equity securities, the percentage ownership of the shareowners of
  the Company will be reduced, shareowners may experience additional dilution in
  net book value per share or such equity securities may have rights, preferences
  or privileges senior to those of the holders of the Company's Common Stock.
  There can be no assurance that additional financing will be available when
  needed on terms favorable to the Company, if at all.
  
     If adequate funds are not available on acceptable terms, the Company may be
  unable to develop or enhance its services and products, take advantage of
  future opportunities or respond to competitive pressures, any of which could
  have a material adverse effect on the Company's business, financial condition
  and operating results.
  
     Cash used in operating activities was $30.1 million in fiscal 1998,
  primarily as a result of increases in brokerage-related assets in excess of
  related liabilities of $81.5 million, offset in part by depreciation and
  amortization of $12.6 million and increases in accounts payable, accrued and
  other liabilities in excess of other assets of $41.5 million. Cash used in
  operating activities in fiscal 1997 and 1996 was $8.1 million and $6.8 million,
  respectively. Such amounts primarily reflect net income for the respective
  periods, increases in brokerage-related assets in excess of related
  liabilities, and in fiscal 1997, the impact of depreciation and amortization
  and increases in accounts payable, accrued and other liabilities in excess of
  other assets.
  
     Cash used in investing activities was $381.0 million in fiscal 1998, $174.6
  million in fiscal 1997 and $46.4 million in fiscal 1996. In fiscal 1998, cash
  used in investing activities reflects the investment of proceeds from the
  common stock issuance to SOFTBANK CORP., investments in several companies and
  joint ventures, and property and equipment purchases. Cash used in investing
  activities in fiscal 1997 and 1996 primarily represent the investment of the
  proceeds from the Company's secondary public offering of Common Stock in August
  1997 and initial public offering of Common Stock in August 1996. Additionally,
  the Company made ongoing investments in its technological infrastructure and
  the second technology center in Rancho Cordova, and in fiscal 1997, a
  relocation loan to the Company's Chief Executive Officer (see Note 6 of the
  Supplemental Consolidated Financial Statements).
  
     Cash provided by financing activities was $409.7 million in fiscal 1998,
  compared with $190.2 million in fiscal 1997. In fiscal 1998, cash provided by
  financing activities primarily consisted of $400 million in proceeds from the
  common stock issuance to SOFTBANK CORP. and in fiscal 1997 the net proceeds
  from the Company's secondary public offering. Cash provided by financing
  activities in fiscal 1996 of $58.1 million reflects net proceeds from the
  Company's initial public offering of Common Stock in August 1996 and private
  sales of Preferred Stock.
  
                                         12
  The Company expects that it will incur approximately $75 million of capital
  expenditures for the 12 months ended September 30, 1999.
  
  Quantitative and Qualitative Disclosures About Market Risk
  
   Market Risk Disclosures
  
     The following discussion about the Company's market risk disclosures
  involves forward-looking statements. Actual results could differ materially
  from those projected in the forward-looking statements. The Company is exposed
  to market risk related to changes in interest rates and equity security price
  risk. The Company does not have derivative financial instruments for
  speculative or trading purposes.
  
   Interest Rate Sensitivity
  
     The Company maintains a short-term investment portfolio consisting mainly of
  income securities with an average maturity of less than two years. These
  available-for-sale securities are subject to interest rate risk and will fall
  in value if market interest rates increase. If market interest rates were to
  increase immediately and uniformly by 10 percent in levels at September 30,
  1998, the fair value of the portfolio would decline by an immaterial amount.
  The Company has the ability to hold its fixed income investments until
  maturity, and therefore the Company would not expect its operating results or
  cash flows to be affected to any significant degree by the effect of a sudden
  change in market interest rates on its securities portfolio.
  
   Equity Price Risk
  
     The Company holds a small portfolio of marketable-equity traded securities
  that are subject to market price volatility. Equity price fluctuations of plus
  or minus 15 percent would not have a material impact on the Company.
  
   Financial Instruments
  
     For its working capital and reserves which are required to be segregated
  under Federal or other regulations, the Company invests in money market funds,
  resale agreements, certificates of deposit, and commercial paper. Money market
  funds do not have maturity dates and do not present a material market risk. The
  other financial instruments are fixed rate investments with short maturities
  and do not present a material interest rate risk.
  
                                         13
  Supplemental Annual Financial Statements and Supplementary Data
  
  Index to Supplemental Consolidated Financial Statements
  Page
                                                                             ----
  Independent Auditors' Report..........................................   15
  
     Supplemental Consolidated Balance Sheets as of September 30, 1998 and
      1997.................................................................   16
  
     Supplemental Consolidated Statements of Operations for the Years Ended
      September 30, 1998, 1997 and 1996....................................   17
  
     Supplemental Consolidated Statements of Shareowners' Equity for the
      Years Ended September 30, 1998, 1997 and 1996........................   18
  
     Supplemental Consolidated Statements of Cash Flows for the Years Ended
      September 30, 1998, 1997 and 1996....................................   19
  
     Notes to Supplemental Consolidated Financial Statements...............   20
  14
  Independent Auditors' Report
  
  To the Board of Directors and Shareowners of
  E*TRADE Group, Inc.:
  
     We have audited the accompanying supplemental consolidated balance sheets of
  E*TRADE Group, Inc. and subsidiaries (the "Company") as of September 30, 1998
  and 1997, and the related supplemental consolidated statements of operations,
  shareowners' equity and cash flows for each of the three years in the period
  ended September 30, 1998. 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. The supplemental consolidated
  financial statements give retroactive effect to the merger of ClearStation,
  Inc. with and into E*TRADE Group, Inc. on April 30, 1999, which has been
  accounted for as a pooling-of-interests as described in Note 15 to the
  supplemental consolidated financial statements. Generally accepted accounting
  principles proscribe giving effect to a consummated business combination
  accounted for by the pooling-of-interests method in financial statements that
  do not include the date of consummation. These financial statements do not
  extend through the date of consummation; however, they will become the
  historical consolidated financial statements of the Company after financial
  statements covering the date of consummation of the business combination have
  been issued.
  
     We conducted our audits in accordance with generally accepted auditing
  standards. Those standards require that we plan and perform the audit to obtain
  reasonable assurance about whether the financial statements are free of
  material misstatement. 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, such supplemental consolidated financial statements present
  fairly, in all material respects, the financial position of E*TRADE Group, Inc.
  and subsidiaries at September 30, 1998 and 1997, and the results of their
  operations and their cash flows for each of the three years in the period ended
  September 30, 1998 in conformity with generally accepted accounting principles
  applicable after the financial statements are issued for a period which
  includes the date of consummation of the business combination.
  
  DELOITTE & TOUCHE LLP
  
  San Jose, California
  November 23, 1998
  (June 1, 1999 as to Note 15)
  
                                         15
  E*TRADE GROUP, INC. AND SUBSIDIARIES
  
                      Supplemental Consolidated Balance Sheets
                        (in thousands, except share amounts)
  September 30,
                                                              -------------------
                                                                 1998      1997
                                                              ---------- --------
  ASSETS
  
  Current assets:
   Cash and equivalents...................................... $   21,890 $ 23,234
   Cash and investments required to be segregated under
    Federal or other regulations.............................      5,000   15,001
   Investment securities.....................................    502,534  191,958
   Brokerage receivables--net................................  1,310,235  724,365
   Other assets..............................................     11,710    6,970
                                                              ---------- --------
    Total current assets.....................................  1,851,369  961,528
  Property and equipment--net................................     48,524   19,995
  Investments................................................     58,342    5,519
  Related party receivables..................................      3,719    3,259
  Other assets...............................................      7,491    5,121
                                                              ---------- --------
      Total assets........................................... $1,969,445 $995,422
                                                              ========== ========
              LIABILITIES AND SHAREOWNERS' EQUITY
  
  Liabilities:
   Brokerage payables........................................ $1,184,917 $681,106
   Bank loan payable.........................................         --    9,400
   Accounts payable, accrued liabilities and other...........     74,992   21,542
                                                              ---------- --------
    Total liabilities........................................  1,259,909  712,048
                                                              ---------- --------
  
  Commitments and contingencies (Notes 12 and 13)
  
  Shareowners' equity:
   Common stock, $.01 par: shares authorized, 300,000,000;
    shares issued and outstanding: 1998, 227,077,074; 1997,
    159,799,072..............................................      2,271    1,598
   Additional paid-in capital................................    680,319  265,754
   Retained earnings.........................................     14,210   16,022
   Cumulative translation adjustment.........................        210       --
   Unrealized gain on available-for-securities, net of tax...     12,526       --
                                                              ---------- --------
    Total shareowners' equity................................    709,536  283,374
                                                              ---------- --------
      Total liabilities and shareowners' equity.............. $1,969,445 $995,422
                                                              ========== ========
  See notes to supplemental consolidated financial statements.
  
                                         16
  E*TRADE GROUP, INC. AND SUBSIDIARIES
  
                 Supplemental Consolidated Statements of Operations
                      (in thousands, except per share amounts)
  Years Ended September 30,
                                                     --------------------------
                                                       1998      1997    1996
                                                     --------  -------- -------
  Revenues:
   Transaction revenues............................. $162,097  $109,659 $44,178
   Interest--net of interest expense (A)............   56,020    25,265   4,813
   International....................................    7,031     4,000      --
   Other............................................   20,169    17,471  13,529
                                                     --------  -------- -------
    Net revenues....................................  245,317   156,395  62,520
                                                     --------  -------- -------
  Cost of services..................................  111,888    73,381  38,027
                                                     --------  -------- -------
  Operating expenses:
   Selling and marketing............................   71,447    28,160  10,944
   Technology development...........................   33,699    13,547   4,699
   General and administrative.......................   31,048    16,847   8,238
                                                     --------  -------- -------
    Total operating expenses........................  136,194    58,554  23,881
                                                     --------  -------- -------
    Total cost of services and operating expenses...  248,082   131,935  61,908
                                                     --------  -------- -------
  Pre-tax income (loss).............................   (2,765)   24,460     612
  Income tax expense (benefit)......................     (953)    9,425    (555)
                                                     --------  -------- -------
  Net income (loss)................................. $ (1,812) $ 15,035 $ 1,167
                                                     ========  ======== =======
  Net income (loss) per share:
   Basic............................................ $  (0.01) $   0.12 $  0.01
                                                     ========  ======== =======
   Diluted.......................................... $  (0.01) $   0.10 $  0.01
                                                     ========  ======== =======
  Shares used in computation of net income (loss)
   per share:
   Basic............................................  169,791   129,408  78,564
   Diluted..........................................  169,791   143,496 119,728
  --------
  (A) Interest is presented net of interest expense of $39,714, $14,909 and
      $2,224 for fiscal years ended September 30, 1998, 1997 and 1996,
      respectively.
  
            See notes to supplemental consolidated financial statements.
  
                                         17
  E*TRADE GROUP, INC. AND SUBSIDIARIES
  
            Supplemental Consolidated Statements of Shareowners' Equity
                                   (in thousands)
  Unrealized
                                                                                              gain on
                              Preferred                                                     available-
                                Stock      Common Stock    Additional           Cumulative   for-sale      Total
                            ------------- ---------------   paid-in   Retained  translation securities, shareowners'
                            Shares Amount Shares   Amount   capital   earnings  adjustment  net of tax     equity
                            ------ ------ -------  ------  ---------- --------  ----------- ----------- ------------
  BALANCE, OCTOBER 1,
   1995...................    100   $ 1    64,740  $  647   $  9,457  $ 2,243      $ --       $    --     $ 12,348
  Net income..............                                              1,167                                1,167
  Issuance of Series B
   preferred stock, net of
   issuance costs.........     20                              2,837                                         2,837
  Issuance of Series C
   preferred stock, net of
   issuance costs.........     11                              8,950                                         8,950
  Initial public
   offering...............                 20,108     201     46,201                                        46,402
  Conversion of preferred
   stock..................   (131)   (1)   31,564     316       (315)                                           --
  Exercise of stock
   warrants, including tax
   benefit................                  1,612      16        274                                           290
  Exercise of stock
   options, including tax
   benefit................                  5,404      54        465                                           519
  Issuance of common stock
   for services...........                     28                 20                                            20
  Cash dividends--
   ShareData..............                                               (518)                                (518)
  Other employee stock
   transactions...........                    (68)               (39)                                          (39)
                             ----   ---   -------  ------   --------  -------      ----       -------     --------
  BALANCE, SEPTEMBER 30,
   1996...................     --    --   123,388   1,234     67,850    2,892        --            --       71,976
  Net income..............                                             15,035                               15,035
  Adjustment for ShareData
   earnings...............                                               (746)                                (746)
  Issuance of common
   stock, net of issuance
   costs..................                 29,220     292    188,533                                       188,825
  Exercise of stock
   options, including tax
   benefit................                  7,068      71      8,521                                         8,592
  Employee Stock Purchase
   Plan...................                    296       3        685                                           688
  Cash dividends--
   ShareData..............                                             (1,159)                              (1,159)
  Other employee stock
   transactions...........                   (173)     (2)       165                                           163
                             ----   ---   -------  ------   --------  -------      ----       -------     --------
  BALANCE, SEPTEMBER 30,
   1997...................     --    --   159,799   1,598    265,754   16,022        --            --      283,374
  Net loss................                                             (1,812)                              (1,812)
  Issuance of common
   stock, net of issuance
   costs..................                 63,264     633    398,825                                       399,458
  Exercise of stock
   options, including tax
   benefit................                  3,549      36     14,391                                        14,427
  Employee Stock Purchase
   Plan...................                    416       4      1,190                                         1,194
  Foreign currency
   translation............                                                          210                        210
  Unrealized gain on
   available-for-sale
   securities, net of
   tax....................                                                                     12,526       12,526
  Other employee stock
   transactions...........                     49                159                                           159
                             ----   ---   -------  ------   --------  -------      ----       -------     --------
  BALANCE, SEPTEMBER 30,
   1998...................     --   $--   227,077  $2,271   $680,319  $14,210      $210       $12,526     $709,536
                             ====   ===   =======  ======   ========  =======      ====       =======     ========
  See notes to supplemental consolidated financial statements.
  
                                         18
  E*TRADE GROUP, INC. AND SUBSIDIARIES
  
                 Supplemental Consolidated Statements of Cash Flows
                                   (in thousands)
  Years Ended September 30,
                                               ---------------------------------
                                                  1998        1997       1996
                                               -----------  ---------  ---------
  CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)..........................  $    (1,812) $  15,035  $   1,167
  Non-cash items included in net income
   (loss):
   Deferred income taxes.....................          573      1,704       (487)
   Depreciation and amortization.............       12,553      3,793        901
   Income from equity investment.............       (1,198)    (1,785)      (228)
   Other.....................................         (219)      (179)       107
  Net effect of changes in brokerage related
   assets and liabilities:
   Cash and investments required to be
    segregated under Federal or other
    regulations..............................       10,001     20,499    (35,500)
   Brokerage receivables.....................     (585,870)  (531,137)  (191,292)
   Brokerage payables........................      503,811    461,623    219,483
   Bank loan payable.........................       (9,400)     9,400         --
  Other changes, net:
   Other assets..............................       (8,269)    (1,897)    (5,850)
   Accounts payable, accrued liabilities and
    other....................................       49,746     14,797      4,937
                                               -----------  ---------  ---------
  Net cash used in operating activities......      (30,084)    (8,147)    (6,762)
                                               -----------  ---------  ---------
  CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment.........      (35,765)   (15,742)    (9,474)
  Purchase of investments....................      (32,278)        --     (2,000)
  Purchase of investment securities..........   (3,237,731)  (993,282)  (337,073)
  Sale/maturity of investment securities.....    2,924,167    836,877    302,070
  Related party transactions.................           --     (3,147)        --
  Acquisition of OptionsLink.................       (3,500)        --         --
  Distributions received from equity
   investment................................        4,108        658         44
                                               -----------  ---------  ---------
  Net cash used in investing activities......     (380,999)  (174,636)   (46,433)
                                               -----------  ---------  ---------
  CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of common stock, net
   of issuance costs.........................      399,458    188,825     46,402
  Proceeds from issuance of preferred stock,
   net of issuance costs.....................           --         --     11,787
  Proceeds from exercise of stock options....        4,917      1,627        310
  Proceeds from exercise of stock warrants...           --         --        113
  Proceeds from Employee Stock Purchase
   Plan......................................        1,194        688         --
  Proceeds from long-term note payable.......           --         --      2,500
  Repayment of long-term note payable........           --         --     (2,500)
  Cash dividends--ShareData..................           --     (1,159)      (518)
  Other......................................        4,170        180        (28)
                                               -----------  ---------  ---------
  Net cash provided by financing activities..      409,739    190,161     58,066
                                               -----------  ---------  ---------
  INCREASE (DECREASE) IN CASH AND
   EQUIVALENTS...............................       (1,344)     7,378      4,871
  CASH AND EQUIVALENTS--Beginning of period..       23,234     15,856     10,985
                                               -----------  ---------  ---------
  CASH AND EQUIVALENTS--End of period........  $    21,890  $  23,234  $  15,856
                                               ===========  =========  =========
  SUPPLEMENTAL DISCLOSURES:
  Cash paid for interest.....................  $    37,714  $  13,440  $   2,013
                                               ===========  =========  =========
  Cash paid for income taxes.................  $        --  $   1,235  $   1,025
                                               ===========  =========  =========
  Non-cash financing activities:
   Tax benefit on exercise of stock options
    and warrants.............................  $     9,430  $   6,926  $     352
                                               ===========  =========  =========
   Unrealized gain on investment securities
    and investments..........................  $    21,156  $      --  $      --
                                               ===========  =========  =========
  See notes to supplemental consolidated financial statements.
  
                                         19
  E*TRADE GROUP, INC. AND SUBSIDIARIES
  
              Notes to Supplemental Consolidated Financial Statements
  
  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  
     Basis of Presentation--The supplemental consolidated financial statements
  include E*TRADE Group, Inc. and its subsidiaries (collectively, the "Company"),
  including E*TRADE Securities, Inc. ("E*TRADE Securities"), a securities broker-
  dealer. The supplemental consolidated financial statements of the Company have
  been prepared to give retroactive effect to the acquisition of ShareData, Inc.
  ("ShareData") in July 1998 and ClearStation, Inc. ("Clear-Station") in April
  1999, both of which were accounted for as poolings of interests (see Note 15).
  All significant intercompany accounts and transactions have been eliminated.
  
     Transaction Revenues--The Company derives revenues from commissions related
  to customer transactions in equity and debt securities, options and, to a
  lesser extent, payments from other broker-dealers for order flow. Securities
  transactions are recorded on a trade date basis and are executed by independent
  broker-dealers. Through June 1996, the Company did not receive or hold
  customers' securities or funds. The Company implemented self-clearing
  operations and took custody of securities and funds in customer accounts in
  July 1996.
  
     Interest, Net of Interest Expense--Prior to July 1996, these amounts
  represent the Company's participation in the interest differential on its
  customer debit and credit balances through a contractual agreement with its
  former clearing broker, and fees on its customer assets invested in money
  market accounts. Subsequent to the implementation of self-clearing operations
  in July 1996, these amounts primarily represent interest earned by the Company
  on credit extended to its customers to finance their purchases of securities on
  margin, fees on its customer assets invested in money market accounts and
  interest earned on investment securities, offset by interest paid to customers
  on certain credit balances, interest paid to banks and interest paid to other
  broker-dealers through the Company's stock loan program.
  
     International Revenue--International revenue represents fees from the
  licensing of rights which allow foreign licensees to offer on-line investing
  services using the E*TRADE brand name in their respective countries and ongoing
  royalty payments based on transaction volume.
  
     Other Revenue--Other revenue primarily represents ShareData software
  licensing and maintenance fee revenue, broker-related fees for services,
  revenues from advertising on the Company's Web site, equity earnings from the
  Company's investment in Roundtable until its public offering in July 1998 (see
  Note 5), and mutual fund fees.
  
     Foreign Currency Translation--Assets and liabilities of operations outside
  of the United States are translated into U.S. dollars using the exchange rate
  in effect at each period end. Revenues and expenses are translated at the
  average exchange rate during the period. The effects of foreign currency
  translation adjustments arising from differences in exchange rates from period
  to period are deferred and included as a separate component of shareowners'
  equity.
  
     Property and Equipment--Property and equipment are carried at cost and are
  depreciated on a straight-line basis over their estimated useful lives,
  generally three to seven years. Leasehold improvements are stated at cost and
  are amortized over the lesser of their estimated useful lives or the life of
  the lease.
  
     Technology Development Costs--Technology development costs are charged to
  operations as incurred. Technology development costs include costs incurred in
  the development and enhancement of software used in connection with services
  provided by the Company that do not otherwise qualify as internally developed
  software costs. The cost of internally developed software is capitalized and
  included in property and equipment. The costs to develop such software are
  capitalized in accordance with Statement of Position 98-1, Accounting for the
  Costs of Computer Software Developed or Obtained for Internal Use, and begin
  when management
  
                                         20
  authorizes and commits to funding a project it believes will be completed and
  used to perform the functions intended and the conceptual formulation, design
  and testing of possible software project alternatives have been completed.
  Pilot projects and projects where expected future economic benefits are less
  than probable are not capitalized. Internally developed software costs include
  the cost of software tools and licenses used in the development of the
  Company's systems, as well as payroll and consulting costs. Capitalized costs
  totaled $10,210,000, $2,832,000 and $114,000 for the years ended September 30,
  1998, 1997 and 1996, respectively.
  
     Completed projects are transferred to property and equipment and are
  reported at the lower of unamortized cost less any provision for impairment.
  Amortization is based on the straight-line method over the estimated useful
  life, generally two to three years. Amortization expense for the years ended
  September 30, 1998 and 1997 was $1,715,000 and $69,000, respectively. There was
  no amortization expense for the year ended September 30, 1996.
  
     Cash Equivalents--For purposes of reporting cash flows, the Company
  considers all highly liquid investments with original maturities of three
  months or less (except for amounts required to be segregated under Federal or
  other regulations or investment securities designated as available-for-sale) to
  be cash equivalents.
  
     Cash and Investments Required to be Segregated Under Federal or Other
  Regulations--Cash and investments required to be segregated under Federal or
  other regulations consist primarily of government backed securities purchased
  under agreements to resell ("Resale Agreements"). Resale Agreements are
  accounted for as collateralized financing transactions and are recorded at
  their contractual amounts, which approximate fair value.
  
     Investments--Investment securities represent a portfolio of commercial
  paper, municipal bonds, corporate bonds, U.S. Government obligations, preferred
  stocks and money market funds. Unrealized gains and losses, net of tax, are
  computed on the basis of average cost and are included as a separate component
  of shareowners' equity. Realized gains and losses and declines in fair-value,
  judged to be other than temporary, are included in other revenues. The cost of
  securities sold is based on the average cost method and interest earned is
  included in interest revenue.
  
     Investments in entities of which the Company owns between 20% and 50% and on
  which the Company has the ability to exercise significant influence are
  accounted for under the equity method. Other investments are accounted for
  using the cost method.
  
     Impairment of Long-Lived Assets--In the event that facts and circumstances
  indicate that the carrying value of a long-lived asset, including associated
  intangibles, may be impaired, an evaluation of recoverability is performed by
  comparing the estimated future undiscounted cash flows associated with the
  asset to the asset's carrying amount to determine if a write-down to market
  value or discounted cash flow is required.
  
     Estimated Fair-Value of Financial Instruments--The Company believes the
  amounts presented for financial instruments on the consolidated balance sheets
  consisting of cash equivalents, commercial paper, municipal bonds, corporate
  bonds, U.S. Government obligations, preferred stocks, money market funds, and
  brokerage receivables and payables to be reasonable estimates of fair-value.
  The Company uses available market information as of the balance sheet dates and
  appropriate valuation methodologies in deriving amounts reported for financial
  instruments.
  
     Stock-Based Compensation--The Company accounts for employee stock-based
  compensation using the intrinsic value method of accounting prescribed in
  Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
  to Employees. The Company provides pro forma disclosures of net income and
  earnings per share as required under SFAS No. 123, Accounting for Stock-Based
  Compensation. SFAS No. 123 encourages, but does not require companies to
  recognize compensation expense for grants of stock, stock options, and other
  equity instruments based on the fair-value method of accounting.
  
                                         21
  Advertising Costs--Advertising production costs are expensed when the
  initial advertisement is run. Costs of communicating advertising are expensed
  as the services are received.
  
     Income Taxes--The Company accounts for income taxes in accordance with SFAS
  No. 109, Accounting for Income Taxes, which requires the recognition of
  deferred tax liabilities and assets at tax rates expected to be in effect when
  these balances reverse. Future tax benefits attributable to temporary
  differences are recognized to the extent that realization of such benefits is
  more likely than not.
  
     Earnings Per Share--The Company has adopted and retroactively applied the
  provisions of SFAS No. 128, Earnings per Share, for all periods presented. SFAS
  No. 128 requires a dual presentation of basic and diluted EPS. Basic EPS
  excludes dilution and is computed by dividing net income by the weighted
  average common shares outstanding for the period. Diluted EPS reflects the
  potential dilution that could occur if securities or other contracts to issue
  common stock were exercised or converted into common stock.
  
     New Accounting Standards-- In June 1997, the Financial Accounting Standards
  Board ("FASB") issued SFAS No. 130, Reporting Comprehensive Income. SFAS No.
  130 establishes standards for the reporting and display of comprehensive income
  and its components in a financial statement that is displayed with the same
  prominence as other financial statements. Comprehensive income as defined
  includes all changes in equity (net assets) during a period from nonowner
  sources. The disclosures prescribed by SFAS No. 130 will be made beginning with
  the first quarter of fiscal 1999.
  
     In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
  Enterprise and Related Information. This statement establishes standards for
  reporting information about operating segments in annual financial statements.
  It also establishes standards for related disclosures about products and
  services, geographic areas, and major customers. The Company is in the process
  of reassessing its current business segment reporting to determine if changes
  in reporting will be required in adopting this new standard. The disclosures
  prescribed by SFAS No. 131 will be adopted in the Company's fiscal 1999 annual
  report.
  
     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
  Instruments and Hedging Activities. The new standard requires companies to
  record derivatives on the balance sheet as assets or liabilities, measured at
  fair value. Gains or losses resulting from changes in the values of those
  derivatives will be reported in the statement of operations or as a deferred
  item, depending on the use of the derivatives and whether they qualify for
  hedge accounting. The key criterion for hedge accounting is that the derivative
  must be highly effective in achieving offsetting changes in fair value or cash
  flows of the hedged items during the term of the hedge. The Company plans to
  adopt SFAS No. 133 in the first quarter of fiscal 2000 and has not yet
  determined the effect, if any, of adopting the new standard.
  
     Use of Estimates--The preparation of the Company's consolidated financial
  statements in conformity with generally accepted accounting principles requires
  management to make estimates and assumptions that affect the amounts reported
  in the consolidated financial statements and related notes for the periods
  presented. Actual results could differ from management's estimates.
  
     Reclassifications--Certain items in these financial statements have been
  reclassified to conform to the current period presentation.
  
  2. INVESTMENT SECURITIES
  
     The Company invests in high quality, short-term investments, which it
  classifies as available-for-sale. As such, there were no significant
  differences between amortized cost and estimated fair value at September 30,
  1998 or 1997. Additionally, because investments are short-term and are
  generally allowed to mature or contain provisions which provide for resale at
  par to the issuer within 12 months, realized gains and losses for the years
  ended September 30, 1998, 1997 and 1996 were minimal and there were no
  significant changes in net unrealized gains and losses.
  
                                         22
  The following table presents the estimated fair value breakdown of
  investment securities by category (in thousands):
  September 30,
                                                                -----------------
                                                                  1998     1997
                                                                -------- --------
  Municipal bonds......................................... $358,535 $ 43,904
       Commercial paper........................................   54,925   67,062
       U.S. Government obligations.............................   47,102      560
       Money market funds......................................   37,967   61,879
       Corporate bonds.........................................    4,005   10,927
       Preferred stocks........................................       --    7,626
                                                                -------- --------
         Total investment securities........................... $502,534 $191,958
                                                                ======== ========
  3. BROKERAGE RECEIVABLES AND PAYABLES--NET
  
     Brokerage receivables and payables--net consists of the following (in
  thousands):
  September 30,
                                                              -------------------
                                                                 1998      1997
                                                              ---------- --------
  Receivable from customers and non-customers (less
        allowance for doubtful accounts of $862 and $435 in
        1998 and 1997, respectively)......................... $  961,305 $655,981
       Receivable from brokers, dealers and clearing
        organizations:
        Net settlement and deposits with clearing
         organizations.......................................     14,854   37,198
        Deposits paid for securities borrowed................    328,989   25,584
        Securities failed to deliver.........................        728    1,011
        Other................................................      4,359    4,591
                                                              ---------- --------
         Total brokerage receivables--net.................... $1,310,235 $724,365
                                                              ========== ========
  
       Payable to customers and non-customers................ $  340,044 $279,348
       Payable to brokers, dealers and clearing
        organizations:
        Deposits received for securities loaned..............    839,422  398,007
        Securities failed to receive.........................      1,222    1,304
        Other................................................      4,229    2,447
                                                              ---------- --------
         Total brokerage payables............................ $1,184,917 $681,106
                                                              ========== ========
  Receivable from and payable to brokers, dealers and clearing organizations
  result from the Company's brokerage activities. Receivable from customers
  represents credit extended to customers to finance their purchases of
  securities on margin. At September 30, 1998 and 1997, credit extended to
  customers with respect to margin accounts was $956 million and $678 million,
  respectively. Securities owned by customers are held as collateral for amounts
  due on margin balances (the value of which is not reflected on the accompanying
  consolidated balance sheets). Payable to customers represents free credit
  balances and other customer funds pending completion of securities
  transactions. The Company pays interest on certain customer credit balances.
  
                                         23
  4. PROPERTY AND EQUIPMENT--NET
  
     Property and equipment--net consists of the following (in thousands):
  September 30,
                                                                  ---------------
                                                                   1998    1997
                                                                  ------- -------
  Equipment................................................. $23,510 $12,737
       Leasehold improvements....................................  14,701   6,525
       Software..................................................  25,460   5,664
       Furniture and fixtures....................................   3,588   1,251
                                                                  ------- -------
                                                                   67,259  26,177
       Less accumulated depreciation and amortization............  18,735   6,182
                                                                  ------- -------
         Total property and equipment-net........................ $48,524 $19,995
                                                                  ======= =======
  5. INVESTMENTS
  
     Investments consist of the following (in thousands):
  September 30,
                                                                    --------------
                                                                     1998    1997
                                                                    ------- ------
  Knight/Trimark.............................................. $21,173 $3,509
       Joint ventures..............................................  10,153     --
       KAP Group...................................................   2,000  2,000
       Critical Path...............................................  15,250     --
       Other investments...........................................   9,766     10
                                                                    ------- ------
         Total investments......................................... $58,342 $5,519
                                                                    ======= ======
  Through July 7, 1998, the Company owned a 4.47% interest in Roundtable
  Partners LLC ("Roundtable"), a company formed to hold equity interests in
  securities trading and market making companies and which made distributions to
  its owners of a significant portion of its earnings. The Company had accounted
  for its investment in Roundtable under the equity method since its inception.
  On July 8, 1998, Roundtable was reorganized into a corporation known as
  Knight/Trimark Group, Inc. ("Knight/Trimark") coincident with an initial public
  offering of Knight/Trimark common stock. Knight/Trimark does not currently
  intend to pay dividends. As a result of this reorganization, all of the
  Company's ownership interest in Roundtable was converted into 2,566,432 shares
  of common stock of Knight/Trimark, which represents 4.99% of the issued and
  outstanding shares of common stock of Knight/Trimark. Effective July 8, 1998,
  the Company accounts for its investment in Knight/Trimark as a long-term
  marketable equity security held available-for-sale under the provisions of SFAS
  No. 115, Accounting for Certain Investments in Debt and Equity Securities.
  Accordingly, this investment is carried at fair value at September 30, 1998,
  with unrealized gains of $12,340,000, net of tax of $8,505,000, reported as a
  separate component of shareowners' equity. The Company's investment in
  Knight/Trimark is subject to a sale restriction agreement with the underwriters
  of the initial public offering, which expires in January 1999.
  
     In June 1998, the Company entered into a joint venture agreement with
  SOFTBANK CORP. to form E*TRADE Japan to provide online securities trading
  services to residents of Japan. As part of the transaction, the Company
  invested approximately $8 million in exchange for a 42% ownership position in
  the joint venture. Additionally, the Company entered into a joint venture
  agreement with Electronic Share Information Ltd. ("ESI") to form E*TRADE UK.
  ESI is a leading provider of Internet financial services in the UK. The Company
  accounts for its investments in the joint ventures under the equity method.
  
     In June 1997, the Company invested $2,000,000 in KAP Group, LLC ("KAP
  Group"), by means of a promissory note in the principal amount of $1,806,000
  and through the purchase of a warrant for $194,000.
  
                                         24
  The note bears interest at 7% per annum which, together with the principal
  amount, is due and payable in July 2002. The warrant gives the Company the
  right to purchase shares of KAP Group. KAP Group has invested substantially all
  of its assets in another entity, which was formed for the purpose of engaging
  in electronic options trading. KAP Group investors include the Company's
  Chairman of the Board of Directors and others.
  
     The Company has also made investments in non-public, venture capital-backed
  high technology companies with which it does business and which provide
  Internet-based services. These investments include: Critical Path, a leading
  provider of outsourced email services and infrastructure for Web portals,
  Internet service providers, Web hosting companies, and corporations; Digital
  Island, a global IP applications network for the digital economy; and Third Age
  Media, producers of ThirdAge.com, a comprehensive source of content, community
  and commerce on the Web for active older adults. These investments each
  represent less than 20% of the outstanding shares of these companies and are
  accounted for under the cost method. At September 30, 1998, the Company
  believes that the fair value of these investments approximates their carrying
  basis.
  
  6. RELATED-PARTY RECEIVABLES
  
     During fiscal 1997, the Company made a relocation loan to Mr. Christos
  Cotsakos, its Chief Executive Officer and a Director, in the aggregate
  principal amount of $3,147,000. The proceeds of this loan were used to fund the
  purchase by Mr. Cotsakos of a personal residence in the Silicon Valley area.
  The relocation loan accrues interest at the rate of 7% per annum which,
  together with the principal amount, is due and payable in November 1999.
  Accrued interest totaled $420,000 and $200,000 as of September 30, 1998 and
  1997, respectively. The loan is required to be collateralized by a combination
  of assets, including the residence purchased. The due date of the relocation
  loan is subject to acceleration upon the occurrence of certain events including
  the voluntary cessation of employment with the Company by Mr. Cotsakos.
  
  7. LONG-TERM NOTES PAYABLE AND SHORT-TERM FUNDING
  
     The principal source of financing for E*TRADE Securities' margin lending is
  cash balances in customers' accounts and financing obtained from other broker-
  dealers through E*TRADE Securities' stock loan program. E*TRADE Securities also
  maintains committed lines of financing with banks totaling $100 million to
  finance margin lending. There were no borrowings outstanding under these lines
  at September 30, 1998. At September 30, 1997, $9,400,000 was outstanding under
  these lines, bearing interest at 6.875% per annum, which was repaid on October
  1, 1997; such amount is recorded as bank loan payable in the consolidated
  balance sheet.
  
  8. INCOME TAXES
  
     The components of income tax expense (benefit) are as follows (in
  thousands):
  Years Ended September 30,
                                                    -----------------------------
                                                      1998       1997     1996
                                                    ---------  --------  --------
  Current:
        Federal.................................... $  (1,173) $  5,499  $   (66)
        State......................................      (353)    2,222       (2)
                                                    ---------  --------  -------
         Total current.............................    (1,526)    7,721      (68)
                                                    ---------  --------  -------
       Deferred:
        Federal....................................       (33)    1,727     (441)
        State......................................       606       (23)     (46)
                                                    ---------  --------  -------
         Total deferred............................       573     1,704     (487)
                                                    ---------  --------  -------
       Total tax expense (benefit)................. $    (953) $  9,425  $  (555)
                                                    =========  ========  =======
  25
  Deferred income taxes are recorded when revenues and expenses are recognized
  in different periods for financial statement and tax return purposes. The
  temporary differences and tax carryforwards that created deferred tax assets
  (liabilities) are as follows (in thousands):
  September 30,
                                                                ---------------
                                                                 1998     1997
                                                                -------  ------
  Deferred tax assets:
        Reserves and allowances................................ $   599  $  412
        Net operating loss carryforwards.......................   2,189     487
        Depreciation and amortization..........................     828      --
        Deferred compensation..................................     999     533
        Other..................................................     685     164
                                                                -------  ------
         Total deferred tax assets.............................   5,300   1,596
                                                                -------  ------
       Deferred tax liabilities:
        Depreciation and amortization..........................      --  (2,292)
        Internally developed software..........................  (5,783)     --
        Other..................................................    (636)   (235)
                                                                -------  ------
         Total deferred tax liabilities........................  (6,419) (2,527)
       Valuation allowance ....................................    (385)     --
                                                                -------  ------
       Net deferred tax liability included in other
        liabilities............................................ $(1,504) $ (931)
                                                                =======  ======
  No valuation allowance has been provided for the deferred tax assets at
  September 30, 1998 and 1997 as full realization of these assets is expected,
  other than for the preacquisition tax loss carry forwards of ClearStation,
  which are subject to certain limitations.
  
     The effective tax rates differed from the federal statutory rates as
  follows:
  Years Ended September 30,
                                                ------------------------------
                                                  1998       1997      1996
                                                ---------   -------- ---------
  Income tax expense (benefit) at federal
        statutory rate........................      (35.0)%    35.0%      35.0%
       State income taxes, net of federal tax
        benefit...............................       10.2       6.2        2.3
       Income of Subchapter S corporation.....       65.6      (1.9)    (130.8)
       Nondeductible acquisition costs........       24.5        --         --
       Preacquisition losses of ClearStation
        ......................................       22.7        --         --
       Tax-exempt interest....................     (137.4)       --         --
       Other..................................       14.9      (0.8)       2.8
                                                ---------   -------  ---------
       Effective tax rate.....................      (34.5)%    38.5%     (90.7)%
                                                =========   =======  =========
  Prior to being acquired by the Company, ShareData was a Subchapter S
  corporation and was not subject to federal and state corporate income taxes.
  
  9. SHAREOWNERS' EQUITY
  
   Stock Issuances
  
     In April 1996, the Company sold 20,336 shares of Series B Preferred Stock
  ("Series B") to Christos Cotsakos, Chief Executive Officer and a Director, and
  affiliates, Richard Braddock, and General Atlantic Partners and affiliates for
  $2,847,000 and incurred issuance costs of $10,000. The Company used the
  proceeds to provide additional working capital.
  
     In June 1996, the Company sold 11,180 shares of Series C Preferred Stock
  ("Series C") to SOFTBANK Holdings Inc. for $9,000,000 and incurred issuance
  costs of $50,000. The Company used the proceeds to provide additional
  regulatory net capital to E*TRADE Securities.
  
                                         26
  In August 1996, the Company completed an initial public offering of
  20,106,200 shares of the Company's common stock at a price of $2.63 per share.
  Each outstanding share of Series A, Series B and Series C Preferred Stock was
  automatically converted into 240 shares of common stock upon the closing of the
  initial public offering. The proceeds to the Company from the offering, net of
  underwriting discounts and offering expenses of $6.4 million, were $46.4
  million.
  
     In August 1997, the Company completed a secondary public offering of
  29,220,000 shares of the Company's common stock at a price of $6.88 per share.
  The proceeds to the Company from the offering, net of underwriting discounts
  and offering expenses of $14.8 million, were $188.8 million.
  
     In July 1998, the Company entered into an agreement to issue and sell
  62,600,000 shares of common stock to SOFTBANK CORP., a Japanese corporation,
  for an aggregate purchase price of $400 million.
  
   Stock Option Plans
  
     The Company's stock option plans provide for the granting of nonqualified or
  incentive stock options to officers, directors, key employees and consultants
  for the purchase of shares of the Company's common stock at a price determined
  by the Board of Directors at the date the option is granted. The options are
  generally exercisable ratably over a five-year period from the date the option
  is granted and expire within ten years from the date of grant.
  
     In July 1996, the shareowners of the Company approved the 1996 Stock
  Incentive Plan (the "1996 Plan") and reserved 16,000,000 shares of common stock
  for future grants. Following adoption, no additional grants may be made under
  any prior plans. The 1996 Plan is divided into three components: the
  Discretionary Option Grant Program, the Stock Issuance Program and the
  Automatic Option Grant Program. Under the Discretionary Option Grant Program,
  options may be granted to purchase shares of common stock at an exercise price
  not less than the fair market value of those shares on the grant date to
  eligible employees. The Stock Issuance Program allows for individuals to be
  issued shares of common stock directly through the purchase of such shares at a
  price not less than the fair market value of those shares at the time of
  issuance or as a bonus tied to the performance of services. Under the Automatic
  Option Grant Program, options are automatically granted at periodic intervals
  to eligible non-employee members of the Board of Directors to purchase shares
  of common stock at an exercise price equal to the fair market value of those
  shares on the grant date.
  
     A summary of stock option activity follows (in thousands):
  Weighted
                                                                  Number  Average
                                                                    of    Exercise
                                                                  Shares   Price
                                                                  ------  --------
  Outstanding at September 30, 1995......................... 16,092   $ .11
        Granted.................................................. 16,368   $1.30
        Exercised................................................ (5,404)  $0.05
        Canceled.................................................   (716)  $1.57
                                                                  ------   -----
       Outstanding at September 30, 1996......................... 26,340   $0.82
        Granted.................................................. 10,840   $5.27
        Exercised................................................ (7,068)  $0.23
        Canceled................................................. (3,992)  $1.74
                                                                  ------   -----
       Outstanding at September 30, 1997......................... 26,120   $2.75
        Granted.................................................. 14,821   $5.73
        Exercised................................................ (3,548)  $1.41
        Canceled................................................. (2,849)  $4.27
                                                                  ------   -----
       Outstanding at September 30, 1998......................... 34,544   $4.04
                                                                  ======   =====
  27
  On October 22, 1998, the Company implemented an option cancellation /
  regrant program pursuant to which employees who held outstanding stock options
  with an exercise price in excess of $4.25 per share were able to cancel the
  previously issued options and receive the same number of new options at an
  exercise price of $4.25, the closing price of the Company's common stock on
  October 22, 1998. Each new option has a maximum term of ten years, subject to
  earlier termination upon the optionee's cessation of service, and will become
  exercisable in a series of four successive equal annual installments over the
  optionee's period of continued service with the Company measured from October
  22, 1998, the regrant date. Options covering a total of 13,918,136 shares of
  the Company's common stock were cancelled and regranted under the program.
  September 30,
                                                             --------------------
                                                              1998   1997   1996
                                                             ------ ------ ------
  Options available for grant.........................     608  4,852 11,480
       Options exercisable (as adjusted for the October 22,
        1998 transaction)..................................   6,951  1,880  3,656
       Options exercisable weighted average exercise
        price..............................................  $ 2.28 $ 1.09 $ 0.29
  The following table summarizes information on outstanding and exercisable
  stock options as of September 30, 1998 (as adjusted for the October 22, 1998
  transaction):
  Options Outstanding           Options Exercisable
                 ----------------------------------- -----------------------
                                 Weighted
                     Number       Average   Weighted     Number     Weighted
    Range of      Outstanding   Contractual Average   Exercisable   Average
   Exercisable   as of 9/30/98     Life     Exercise as of 9/30/98  Exercise
     Prices      (in thousands)   (Years)    Price   (in thousands)  Price
  -------------  -------------- ----------- -------- -------------- --------
  $ .07--$ 0.58       7,628        7.09      $0.44       2,299       $0.39
  $ .92--$ 2.81       6,036        7.77      $2.20       2,432       $1.97
  $2.90--$ 4.44      16,392        9.86      $4.23         268       $3.89
  $4.52--$ 5.25       3,164        9.10      $4.75       1,884       $4.55
  $5.26--$10.70       1,324        9.18      $6.42          68       $7.08
                     ------                              -----
  $0.07--$10.70      34,544        8.79      $3.17       6,951       $2.28
                     ======                              =====
  Stock Purchase Plan
  
     In July 1996, the shareowners of the Company approved the 1996 Stock
  Purchase Plan (the "Purchase Plan"), and reserved 2,600,000 shares of common
  stock for sale to employees at a price no less than 85% of the lower of the
  fair market value of the common stock at the beginning of the two-year offering
  period or the end of each of the six-month purchase periods.
  
                                         28
  Additional Stock Plan Information
  
     In accordance with SFAS No. 123, Accounting for Stock-Based Compensation,
  the Company applied APB Opinion 25 and related interpretations in accounting
  for its stock option plans, and accordingly does not record compensation costs.
  If the Company had elected, beginning in fiscal 1996, to recognize compensation
  cost based on the fair value of the option granted at the grant date as
  prescribed by SFAS No. 123, net income (loss) and net income (loss) per share
  would have been reduced to the pro forma amounts shown below (in thousands,
  except per share amounts):
  Years Ended September
                                                                   30,
                                                         ------------------------
                                                           1998     1997    1996
                                                         --------  ------- ------
  As Reported
       Net income (loss)................................ $ (1,812) $15,035 $1,167
       Net income (loss) per share-basic................ $  (0.01) $  0.12 $ 0.01
       Net income (loss) per share-diluted.............. $  (0.01) $  0.10 $ 0.01
       Pro Forma
       Net income (loss)................................ $(25,383) $ 8,728 $  501
       Net income (loss) per share-basic................ $  (0.15) $  0.07 $ 0.01
       Net income (loss) per share-diluted.............. $  (0.15) $  0.06 $ 0.00
  The Company's calculations were made using the minimum value method and
  Black-Scholes option pricing models with the following weighted average
  assumptions:
  Years Ended September 30,
                                                ------------------------------
                                                  1998       1997       1996
                                                --------   --------   --------
  Dividend yield..........................       --         --         --
       Expected volatility.....................       75%        65%        65%
       Risk-free interest rate.................        6%         6%         6%
       Expected life of option following
        vesting (in months)....................       12         12         12
  Under SFAS No. 123, the fair value of stock-based awards to employees is
  calculated using the minimum value method for fiscal 1996 prior to the initial
  public offering, and subsequently through the use of option pricing models,
  even though such models were developed to estimate the fair value of freely
  tradable, fully transferable options without vesting restrictions, which
  significantly differ from the Company's stock option awards. These models also
  require subjective assumptions, including future stock price volatility and
  expected time to exercise, which greatly affect the calculated values.
  
     The Company's calculations are based on a multiple option valuation approach
  and forfeitures are recognized as they occur. The valuations of the computed
  weighted average fair values of option grants under SFAS No. 123 in fiscal
  1998, 1997 and 1996 were $3.02, $2.77 and $0.41, respectively.
  
   401(k) Salary Deferral Program
  
     The Company has a 401(k) salary deferral program, which became effective on
  January 1, 1995, for eligible employees who have met certain service
  requirements. The Company matches certain employee contributions; additional
  contributions to this plan are at the discretion of the Company. Total Company
  contribution expense for the years ended September 30, 1998, 1997 and 1996 was
  $312,000, $153,000 and $59,000, respectively.
  
                                         29
  10. NET INCOME (LOSS) PER SHARE
  
     The following table sets forth the computation of shares used in the
  computations of basic and diluted net income (loss) per share (in thousands):
  Years Ended September 30,
                                                       --------------------------
                                                         1998     1997     1996
                                                       -------- -------- --------
  Shares Used in Computation:
        Weighted average common shares outstanding
         used in computation of basic net income
         (loss) per share.............................  169,791  129,408   78,564
        Dilutive effect of stock options..............       --   14,088   41,164
                                                       -------- -------- --------
        Shares used in computation of diluted net
         income (loss) per share......................  169,791  143,496  119,728
                                                       ======== ======== ========
  Because the Company reported a net loss in fiscal 1998, the calculation of
  diluted earnings per share does not include common stock equivalents as they
  are anti-dilutive and would result in a reduction of net loss per share. If the
  Company had reported net income in fiscal year 1998, there would have been
  11,404,000 additional shares in the calculation of diluted earnings per share.
  Options to purchase 1,198,848 and 478,324 shares of common stock at prices
  ranging from $4.85 to $11.50 and $2.42 to $3.30 were outstanding as of
  September 30, 1997 and 1996, respectively, but not included in the computation
  of diluted net income (loss) per share for the years ended September 30, 1997
  and 1996, respectively. These options were excluded because the options'
  exercise price was greater than the average market price of the Company's
  common stock for the years ended September 30, 1997 and 1996, respectively, and
  therefore would be anti-dilutive for purposes of this calculation.
  
  11. REGULATORY REQUIREMENTS
  
     E*TRADE Securities is subject to the Uniform Net Capital Rule (the "Rule")
  under the Securities Exchange Act of 1934 administered by the Securities and
  Exchange Commission and the National Association of Securities Dealers, Inc.,
  which requires the maintenance of minimum net capital. E*TRADE Securities has
  elected to use the alternative method permitted by the Rule, which requires
  that the Company maintain minimum net capital equal to the greater of $250,000
  or 2 percent of aggregate debit balances arising from customer transactions, as
  defined. E*TRADE Securities had amounts in relation to the Rule as follows (in
  thousands, except percentage data):
  September 30,
                                                                 ----------------
                                                                  1998     1997
                                                                 -------  -------
  Net capital.............................................. $97,355  $51,721
       Percentage of aggregate debit balances...................     9.5%     7.5%
       Required net capital..................................... $20,429  $13,771
       Excess net capital....................................... $76,926  $37,950
  Under the alternative method, a broker-dealer may not repay subordinated
  borrowings, pay cash dividends or make any unsecured advances or loans to its
  parent or employees if such payment would result in net capital of less than 5%
  of aggregate debit balances or less than 120% of its minimum dollar amount
  requirement.
  
  12. LEASE ARRANGEMENTS
  
     During fiscal 1998 the Company entered into agreements to lease facilities
  in Menlo Park, California, where it will consolidate its existing Silicon
  Valley locations. The Company also entered into an agreement to lease a
  facility in Alpharetta, Georgia, where it has expanded certain operations, such
  as customer service, and, in fiscal 1999, will establish a new technology
  center.
  
                                         30
  The Company has non-cancelable operating leases for office facilities
  through 2009 and operating leases for equipment through 2003. Future minimum
  rental commitments under these leases at September 30, 1998, are as follows (in
  thousands):
  Years ending September 30:
        1999............................................................ $ 28,341
        2000............................................................   22,245
        2001............................................................   14,889
        2002............................................................   10,842
        2003............................................................   10,611
        Thereafter......................................................   50,672
                                                                         --------
                                                                         $137,600
                                                                         ========
  Certain leases contain provisions for renewal options and rent escalations
  based on increases in certain costs incurred by the lessor. Rent expense for
  the years ended September 30, 1998, 1997 and 1996 was approximately
  $20,561,000, $11,389,000 and $2,697,000, respectively.
  
  13. COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS
  
     The Company is a defendant in civil actions arising from the normal course
  of business. In the opinion of management, these actions are expected to be
  resolved with no material effect on the Company's consolidated financial
  position or results of operations.
  
     On November 21, 1997, a putative class action was filed in the Superior
  Court of California, County of Santa Clara, by Larry R. Cooper on behalf of
  himself and other similarly situated individuals. The action alleges, among
  other things, that the Company's advertising, other communications and business
  practices regarding the Company's commission rates and its ability to timely
  execute transactions through its online brokerage services were false and
  deceptive. The action seeks injunctive relief enjoining the purported deceptive
  and unfair practices alleged in the action and also seeks unspecified
  compensatory and punitive damages, as well as attorney fees.
  
     This proceeding is at an early stage and the Company is unable to speculate
  as to its ultimate outcome. However, the Company believes it has meritorious
  defenses to the claims and intends to conduct vigorous defenses. An unfavorable
  outcome in any matters which are not covered by insurance could have a material
  adverse effect on the Company's business, financial condition and results of
  operations. In addition, even if the ultimate outcomes are resolved in favor of
  the Company, the defense of such litigation could entail considerable cost and
  the diversion of efforts of management, either of which could have a material
  adverse effect on the Company's results of operation.
  
     From time to time the Company has been threatened with, or named as a
  defendant in, lawsuits and administrative claims. Compliance and trading
  problems that are reported to the NASD or the SEC by dissatisfied customers are
  investigated by the NASD or the SEC, and, if pursued by such customers, may
  rise to the level of arbitration or disciplinary action. One or more of such
  claims or disciplinary actions decided adversely against the Company could have
  a material adverse effect on the Company's business, financial condition and
  results of operations. The Company is also subject to periodic regulatory
  audits and inspections.
  
     The securities industry is subject to extensive regulation under federal,
  state and applicable international laws. As a result, the Company is required
  to comply with many complex laws and rules and its ability to so comply is
  dependent in large part upon the establishment and maintenance of a qualified
  compliance system. The Company is aware of several instances of its non-
  compliance with applicable regulations. In particular, in fiscal 1997, the
  Company failed to comply with applicable advertising restrictions in one
  international jurisdiction and due to a clerical oversight, failed to timely
  renew its registration as a broker-dealer in two
  
                                         31
  states, Nebraska and Ohio. One of the state jurisdictions, Ohio, as a condition
  of renewing the Company's license as a broker-dealer in that jurisdiction,
  required the Company to offer customers resident in that state the ability to
  rescind (for up to 30 days) certain securities transactions effected through
  the Company during the period January 1, 1997 through April 15, 1997, the date
  the Company's license was renewed. For fiscal 1997, the Company recorded a $4.3
  million pre-tax charge against earnings in connection with this matter.
  
     The Company maintains insurance in such amounts and with such coverage,
  deductibles and policy limits as management believes are reasonable and
  prudent. The principal risks that the Company insures against are comprehensive
  general liability, commercial property, hardware/software damage, directors and
  officers, and errors and omissions liability. The Company believes that such
  insurance coverage is adequate for the purpose of its business.
  
     In March 1996, the Company entered into a five-year employment agreement
  with a key executive officer. The employment agreement provides for, among
  other things, an annual base salary which is subject to adjustment based on the
  Company's performance and a severance payment up to $1,250,000 in the event of
  termination of employment under certain defined circumstances.
  
  14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET CREDIT RISK AND CONCENTRATIONS
      OF CREDIT RISK
  
     The Company's customer securities activities are transacted on either a cash
  or margin basis. In margin transactions, the Company extends credit to the
  customer, subject to various regulatory and internal margin requirements,
  collateralized by cash and securities in the customer's account. As customers
  write option contracts or sell securities short, the Company may incur losses
  if the customers do not fulfill their obligations and the collateral in
  customer accounts is not sufficient to fully cover losses which customers may
  incur from these strategies. To control this risk, the Company monitors
  required margin levels daily, and customers are required to deposit additional
  collateral, or reduce positions, when necessary.
  
     Through its broker-dealer subsidiaries, the Company loans securities
  temporarily to other brokers in connection with its securities lending
  activities. The Company receives cash as collateral for the securities loaned.
  Increases in security prices may cause the market value of the securities
  loaned to exceed the amount of cash received as collateral. In the event the
  counterparty to these transactions does not return the loaned securities, the
  Company may be exposed to the risk of acquiring the securities at prevailing
  market prices in order to satisfy its customer obligations. The Company
  controls this risk by requiring credit approvals for counterparties, by
  monitoring the market value of securities loaned on a daily basis and by
  requiring deposits of additional cash as collateral when necessary.
  
     The Company is obligated to settle transactions with brokers and other
  financial institutions even if its customers fail to meet their obligations to
  the Company. Customers are required to complete their transactions on
  settlement date, generally three business days after trade date. If customers
  do not fulfill their contractual obligations, the Company may incur losses. The
  Company has established procedures to reduce this risk by requiring that
  customers deposit cash and/or securities into their account prior to placing an
  order.
  
     The Company may at times maintain inventories in equity securities on both a
  long and short basis. While long inventory positions represent the Company's
  ownership of securities, short inventory positions represent obligations of the
  Company. Accordingly, both long and short inventory positions may result in
  losses or gains to the Company as market values of securities fluctuate. To
  mitigate the risk of losses, long and short positions are marked to market
  daily and are continuously monitored by the Company.
  
  15. SUBSEQUENT EVENTS AND ACQUISITIONS
  
     In December 1998 and April 1999, the Company's Board of Directors voted to
  effect two separate two-for-one stock splits by distributing one additional
  share of common stock, par value $.01, for every share of
  
                                         32
  common stock outstanding to shareowners of record as of January 15, 1999 and
  again as of May 7, 1999. The disclosures herein reflect the two-for-one stock
  splits which were effective on February 1, 1999 and May 21, 1999.
  
   OptionsLink
  
     In the first quarter of fiscal 1998, E*TRADE acquired the OptionsLink
  Division of Hambrech & Quist for a purchase price of $3.5 million. The purchase
  price exceeded the fair value of the assets acquired by $3.1 million, of which
  $2.9 million was capitalized as software and amortized over two years, in
  accordance with the Company's existing policy.
  
   ShareData
  
     On July 30, 1998, the Company acquired ShareData, Inc., ("ShareData").
  ShareData supplies stock plan knowledge-based software for pre-IPO and public
  companies. The Company issued 5.2 million shares of its common stock in
  exchange for all outstanding common stock of ShareData. The Company also
  assumed all outstanding ShareData options, which were converted to options to
  purchase approximately 744,000 shares of the Company's common stock. The
  acquisition was accounted for as a pooling of interests, and accordingly, all
  prior financial data of the Company has been restated to include the historical
  operations of ShareData. As a result of the acquisition, the combined Company
  incurred charges and direct transaction costs relating to the business
  combination of $1.2 million. These non-recurring costs have been charged to
  operations in the fourth quarter of fiscal 1998. Prior to the acquisition,
  ShareData reported on a calendar year end. Fiscal 1998 and 1997 include the
  results of ShareData for the twelve months ended September 30, 1998 and 1997,
  respectively. Fiscal 1996 includes the results of ShareData for the twelve
  months ended December 31, 1996. The results of operations for the quarter ended
  December 31, 1996 (revenues of $4,637,000 and net income of $746,000), included
  in both fiscal 1997 and 1996, is reflected as an adjustment to retained
  earnings in fiscal 1997. No adjustments were required to conform accounting
  policies of the entities. There were no significant intercompany transactions
  requiring elimination for any periods presented.
  
   ClearStation
  
     On April 30, 1999, the Company acquired ClearStation, Inc.,
  ("ClearStation"). ClearStation is a financial media web site that integrates
  technical and fundamental analysis and discussion for investors. The Company
  issued 939,072 shares of common stock in exchange for all outstanding common
  stock of ClearStation. The Company also assumed all outstanding ClearStation
  options, which were converted to options to purchase approximately 112,000
  shares of the Company's common stock. The acquisition was accounted for as a
  pooling of interest, and accordingly, all prior financial data of the Company
  has been restated to include the historical operations of ClearStation from
  October 1997 (the date of ClearStation's inception). As a result of the
  acquisition, the Company incurred charges and direct transaction costs relating
  to the business combination of $250,000. These non-recurring costs have been
  charged to operations in the third quarter of fiscal 1999. Fiscal 1998 includes
  the results of ClearStation for the twelve months ended September 30, 1998. No
  adjustments were required to conform accounting policies of the entities. There
  were no significant intercompany transactions requiring elimination for any
  periods presented.
  
                                         33
  The operating results of the separate Companies are as follows (in
  thousands):
  Net    Net Income
                                                               Revenues   (Loss)
                                                               -------- ----------
  Year ended September 30, 1998
        E*TRADE Group......................................... $235,452  $ 2,418
        ShareData (through June 30, 1998).....................    9,865   (3,130)
        ClearStation..........................................       --   (1,100)
                                                               --------  -------
        Combined.............................................. $245,317  $(1,812)
                                                               ========  =======
       Year ended September 30, 1997
        E*TRADE Group......................................... $142,737  $13,905
        ShareData.............................................   13,658    1,130
        ClearStation..........................................       --       --
                                                               --------  -------
        Combined.............................................. $156,395  $15,035
                                                               ========  =======
       Year ended September 30, 1996
        E*TRADE Group......................................... $ 51,595  $  (828)
        ShareData.............................................   10,925    1,995
        ClearStation..........................................       --       --
                                                               --------  -------
        Combined.............................................. $ 62,520  $ 1,167
                                                               ========  =======
  Telebanc
  
     On June 1, 1999, the Company entered into a definitive agreement to acquire
  Telebanc Financial Corporation ("Telebanc"). Telebanc is the holding company of
  TeleBank, an Internet-based, federally chartered savings bank. Under the terms
  of the agreement, Telebanc shareowners will receive 2.1 shares of E*TRADE
  common stock for each share of Telebanc common stock. Following the merger,
  which is expected to be accounted for as a pooling of interest, Telebanc
  shareowners will own approximately 13 percent of E*TRADE's fully diluted common
  stock. The Boards of Directors of both companies have approved the merger, but
  final consummation of the merger, which is expected to be completed this fall,
  is contingent on regulatory approval and the vote of the Telebanc shareowners.
  
                                         34
  16. QUARTERLY DATA (unaudited)
  
     The unaudited quarterly financial information presented below reflects all
  adjustments which, in the opinion of management, are of a normal and recurring
  nature necessary to present fairly the results of operations for the periods
  presented (in thousands, except per share amounts).
  
     On November 23, 1998, the American Institute of Certified Public Accountants
  held the first meeting of a task force formed to prepare guidance for companies
  that account for business acquisitions under the purchase method of accounting
  which includes in-process research and development ("IPR&D"). At this meeting,
  representatives of the Securities and Exchange Commission ("SEC") expressed
  their views on this matter. After considering the new views taken by the SEC on
  IPR&D, the Company has reassessed its allocation of the purchase price of the
  OptionsLink acquisition made in the first quarter of fiscal 1998. Initially,
  $2.8 million of the purchase price had been allocated to IPR&D. Based on the
  SEC's recent guidance, the Company has reallocated a substantial part of the
  purchase price to capitalized software, to be amortized over two years, in
  accordance with the Company's existing policy. The net effect of these
  reallocations are to reduce reported net loss in fiscal year 1998 by $573,000
  with no change to earnings per share. The impact of this change for the quarter
  ended September 30, 1998, due to increased amortization expense, is an increase
  in reported net loss by $169,000, with no change to earnings per share.
  Fiscal 1998                         Fiscal 1997
                            ----------------------------------- --------------------------------
                              4th       3rd      2nd      1st     4th     3rd      2nd     1st
                            Quarter   Quarter  Quarter  Quarter Quarter Quarter  Quarter Quarter
                            --------  -------  -------  ------- ------- -------  ------- -------
  E*TRADE Group (as
   previously reported):
   Revenues...............  $ 64,296  $62,316  $53,309  $51,130 $48,477 $37,036  $32,201 $25,023
   Cost of services.......    31,991   28,722   24,280   22,747  23,384  21,834   13,198  12,425
   Net income (loss)......   (15,923)   6,560    6,118    4,914   5,523   3,068    3,054   2,260
   Net income (loss) per
    share:
   Basic..................  $  (0.08) $  0.03  $  0.03  $  0.03 $  0.04 $  0.02  $  0.03 $  0.02
   Diluted................  $  (0.08) $  0.03  $  0.02  $  0.03 $  0.04 $  0.02  $  0.02 $  0.02
  
  ShareData, ClearStation
   and software
   adjustment:
   Revenues...............  $  4,401  $ 4,167  $ 2,822  $ 2,876 $ 3,507 $ 2,541  $ 2,973 $ 4,637
   Cost of services.......     1,282    1,064      979      823     916     677      633     314
   Net income (loss)......      (203)  (1,420)  (1,930)      72     353    (158)     189     746
  
  Combined:
   Revenues...............  $ 68,697  $66,483  $56,131  $54,006 $51,984 $39,577  $35,174 $29,660
   Cost of services.......    33,273   29,786   25,259   23,570  24,300  22,511   13,831  12,739
   Net income (loss)......   (16,126)   5,140    4,188    4,986   5,876   2,910    3,243   3,006
   Net income (loss) per
    share:
   Basic..................  $  (0.08) $  0.03  $  0.03  $  0.03 $  0.04 $  0.02  $  0.03 $  0.02
   Diluted................  $  (0.08) $  0.03  $  0.02  $  0.03 $  0.04 $  0.02  $  0.02 $  0.02
  35
  Management's Discussion and Analysis of Financial Condition and Results of
  Operations for the six months ended March 31, 1999 and 1998
  
  Forward-Looking Statements
  
     The following discussion of the financial condition and results of
  operations of the Company as restated for its merger with ClearStation on April
  30, 1999, which was accounted for as a pooling of interests, should be read in
  conjunction with the supplemental consolidated financial statements and notes
  thereto included elsewhere herein. This discussion contains forward-looking
  statements, including statements regarding the Company's strategy, financial
  performance and revenue sources which involve risks and uncertainties. The
  Company's actual results may differ materially from those anticipated in these
  forward-looking statements as a result of certain factors, including, but not
  limited to, those set forth elsewhere herein.
  
  Results of Operations
  
   Revenue Detail (in millions)
  Six Months Ended
                                                                   March 31,
                                                             ---------------------
                                                                           Percent
                                                              1999   1998  Change
                                                             ------ ------ -------
  Revenues:
       Transaction revenues:
         Commissions........................................ $133.0 $ 62.6   112%
         Order flow.........................................   17.8   12.9    39%
                                                             ------ ------   ---
           Total transaction revenue........................  150.8   75.5   100%
                                                             ------ ------   ---
       Interest-net of interest expense(A):
         Brokerage..........................................   38.7   20.4    89%
         Other..............................................   11.3    4.2   171%
                                                             ------ ------   ---
           Total interest...................................   50.0   24.6   103%
                                                             ------ ------   ---
       International........................................    2.0    1.6    25%
       Other................................................   12.2    8.4    45%
                                                             ------ ------   ---
           Total revenues................................... $215.1 $110.1    95%
                                                             ====== ======   ===
     Transactions per day...................................    0.6    0.3   122%
     Transaction per period.................................    7.1    3.2   121%
  --------
  (A) Interest is presented net of interest expense. Interest expense for the six
      months ended March 31, 1999 and 1998 was $26.0 and $17.3, respectively.
  
     The Company's revenues increased to $215.1 million for the six months ended
  March 31, 1999, up 95% from $110.1 million in the equivalent period of fiscal
  1998. Revenues increased mainly due to higher customer trading volume and an
  increase in customer assets.
  
     Transaction revenues consist of commission revenues and payments based on
  order flow. Transaction revenues increased to $150.9 million for the six months
  ended March 31, 1999, up 100% from $75.5 million for the equivalent period in
  fiscal 1998. This increase was primarily attributable to an increase of 121% in
  the number of transactions processed from the equivalent period in the prior
  year. The increase in transaction processing volume was primarily a result of a
  significant increase in customer accounts resulting from the substantial
  advertising expenditures made by the Company during fiscal 1999. Growth in
  transaction revenues reflected the overall high level of trading volume in U.S.
  financial markets as well as the increase in new customer accounts.
  
                                         36
  Commission revenues for the six months ended March 31, 1999 increased to
  $133.0 million, up 113% from $62.6 million for the same period a year ago.
  
     Order flow revenue increased to $17.9 million for the six months ended March
  31, 1999, up 39% from $12.9 million for the same period in the prior year.
  Order flow revenue accounted for 12% of transaction revenue in the six months
  ended March 31, 1999 compared to 17% in the comparable period in fiscal 1998.
  Order flow revenue as a percentage of total revenue decreased primarily due to
  the loss of Roundtable earnings, which ended when Roundtable was reorganized as
  Knight/Trimark, Inc. and went public in July 1998. Until its initial public
  offering, Knight/Trimark, Inc. would allocate a portion of its earnings to its
  owners, including the Company, based on the percentage its owners contributed
  to Knight/Trimark, Inc.'s total order flow. The Company previously recorded the
  amounts it received from this allocation as order flow revenue.
  
     Net interest revenues primarily represent interest earned by the Company on
  credit extended to its customers to finance their purchases of securities on
  margin, interest earned on customer assets invested in money market accounts
  and interest earned on investment securities, offset by interest paid to
  customers on certain credit balances, interest paid to banks and interest paid
  to other broker-dealers through the Company's stock loan program. Pursuant to
  Securities and Exchange Commission regulations, customer cash balances that are
  not used for margin lending are segregated into an investment account that is
  maintained for the exclusive benefit of customers.
  
     Net interest revenues increased to $50.0 million for the six months ended
  March 31, 1999, up 103% from $24.6 million for the same period in fiscal 1998.
  This increase was primarily due to interest derived from customer operations of
  $38.7 million for the six months ended March 31, 1999, up $18.3 million or 89%
  compared to the equivalent period in fiscal 1998. Average customer margin debit
  balances were up 68% to $1.6 billion, and average customer money market fund
  balances increased 35% to $2.9 billion. Additionally, interest earned on
  investment securities increased to $11.3 million in the second quarter of
  fiscal 1999, up 171% from $4.2 million in the equivalent period in fiscal 1998.
  
     International revenues were $2.0 million for the six months ended March 31,
  1999 compared to $1.6 million for the same period in fiscal 1998. International
  revenues represent international licensing fees and royalties based on the
  licensee's transaction revenues. The Company may, from time to time, seek to
  enter into similar licensing agreements with others as part of its
  international expansion strategy. There can be no assurance that any such
  future agreements will be consummated or that the terms thereof will be
  comparable to those of the aforementioned agreements or that the recognition of
  any licensing fees will occur during the period in which an arrangement is
  consummated.
  
     Other revenues increased to $12.2 million for the six months ended March 31,
  1999, up 45% from $8.4 million for the comparable period in fiscal 1998. Other
  revenues increased primarily due to increases in broker-related fees for
  services, growth in ShareData licensing revenue, ClearStation revenues and
  increased revenues from mutual funds and advertising on the Company's Web site.
  
   Cost of Services
  
     Total cost of services increased to $97.9 million for the six months ended
  March 31, 1999, up 100% from $48.8 million for the comparable period in fiscal
  1998. Cost of services as a percentage of net revenues was 45% for the
  six months ended March 31, 1999 compared to 44% in the comparable period in
  fiscal 1998. Cost of services includes expenses related to the Company's
  clearing operations, customer service activities, system maintenance and
  communications. These increases reflect the overall increase in customer
  transactions processed by the Company, customer service inquiries, and
  operations and maintenance costs associated with the technology centers in Palo
  Alto and Rancho Cordova, California, and Alpharetta, Georgia.
  
                                         37
  Operating Expenses
  
     Selling and marketing expenses increased to $101.0 million for the six
  months ended March 31, 1999, up 383% from $20.9 million for the comparable
  period in fiscal 1998. As a percentage of net revenue, selling and marketing
  expenses increased to 47% for the six months ended March 31, 1999, from 19% in
  the equivalent period of fiscal 1998. Selling and marketing expenses include
  media, print and direct mail advertising, and related production, printing and
  postage costs. The increase in selling and marketing expenses reflect the
  Company's aggressive account and membership acquisition strategy which includes
  major marketing expenditures for advertising placements, creative development
  and collateral materials resulting from a variety of advertising campaigns
  directed at building brand name recognition, growing customer base and market
  share, and maintaining customer retention rates. These increased expenditure
  levels are expected to continue throughout fiscal 1999. The Company's selling
  and marketing expenses vary depending upon a variety of factors including,
  without limitation, the launch of new products or services.
  
     Technology development expenses increased to $29.8 million for the six
  months ended March 31, 1999, up 116% from $13.8 million for the comparable
  period in fiscal 1998. As a percentage of net revenue, technology development
  increased to 14% for the six months ended March 31, 1999, from 13% for the six
  months ended March 31, 1998. The increased level of expenses was incurred to
  enhance the Company's existing product offerings and reflects the Company's
  continuing commitment to invest in new products and technologies to support
  potential future growth.
  
     General and administrative expenses increased to $32.5 million for the six
  months ended March 31, 1999, up 205% from $10.6 million for the comparable
  period in fiscal 1998. This increase is the result of personnel additions, the
  development of administrative functions resulting from the overall growth in
  the Company, and the costs associated with the opening of a new technology and
  customer service support facility in Alpharetta, Georgia.
  
     Non-operating income (expense)
  
     In February 1999, the Company sold 39% of its holdings in Knight/Trimark,
  Inc., a market-maker, recognizing a pre-tax gain of $33.4 million on the sale.
  The investment had been classified as available-for-sale under the provisions
  of SFAS 115.
  
     Loss on equity investments was $1.3 million for the six months ended March
  31, 1999 which resulted from the Company's minority ownership in certain
  investments that are accounted for under the equity method. Equity in losses of
  affiliates for the six months ended March 31, 1999 includes the results from
  the Company's minority ownership in Archipelago and E*OFFERING, as well as the
  Company's international joint ventures in Japan and the United Kingdom. The
  Company expects that its affiliate companies will continue to invest in the
  development of their products and services, and to incur operating losses for
  at least the next 12 months, which will result in future charges being recorded
  by the Company to reflect its proportionate share of such losses.
  
   Income Tax Expense (Benefit)
  
     Income tax expense (benefit) represents the provision for federal and state
  income taxes at an effective rate of (43.8%) for the six months ended March 31,
  1999 and 42.5% for the comparable period in fiscal 1998. This rate was impacted
  because there was no available tax benefit for the preacquisition operating
  losses of ClearStation. Prior to its merger with the Company, ShareData was a
  Subchapter S corporation and was not subject to federal and state corporate
  income taxes.
  
  Liquidity and Capital Resources
  
     The Company currently anticipates that its available cash resources and
  credit facilities will be sufficient to meet its presently anticipated working
  capital and capital expenditure requirements for at least the next 12 months.
  However, the Company may need to raise additional funds in order to support
  more rapid
  
                                         38
  expansion, develop new or enhanced services and products, respond to
  competitive pressures, acquire complementary businesses or technologies or take
  advantage of unanticipated opportunities.
  
     Cash used in operating activities was $36.9 million for the six months ended
  March 31, 1999 compared with cash provided by operating activities of $46.0
  million in the equivalent period in fiscal 1998. Cash used in operations
  increased primarily due to increased operating expenditures, including
  significant increases in sales and marketing expenses associated with the
  Company's aggressive account and membership acquisition strategy.
  
     Cash provided by investing activities was $50.4 million for the six months
  ended March 31, 1999, compared to cash used in investing activities of $7.1
  million in the equivalent period in fiscal 1998. The increase in cash provided
  by investing activities was primarily a result of proceeds of $33 million from
  the sale of a portion of the Company's investment in Knight/Trimark, Inc., and
  net purchases and sale/maturity of investment securities of $93.2 million,
  offset by purchases of investments of $50.7 million and purchases of property
  and equipment of $29.3 million. The Company expects that it will incur
  approximately $50 to $75 million of capital expenditures during the second half
  of fiscal 1999.
  
     Cash provided by financing activities was $14.2 million for the six months
  ended March 31, 1999, compared to $2.4 million in the equivalent period in
  fiscal 1998. The increase in cash provided by financing activities was
  primarily a result of increases in the proceeds from employee stock
  transactions.
  
  Year 2000 Compatibility
  
     Many computer systems use only two digits to identify a specific year and
  therefore may not accurately recognize and handle dates beyond the year 1999.
  If not corrected, these computer applications could fail or create erroneous
  results by or at the year 2000. The Company utilizes, and is dependent upon,
  data processing systems and software to conduct its business. The data
  processing systems and software include those developed and maintained by the
  Company's third-party data processing vendors and software which is run on in-
  house computer networks.
  
     Due to the Company's dependence on computer technology to conduct its
  business, and the dependence of the financial services industry on computer
  technology, the nature and impact of year 2000 processing failures on the
  Company's business, financial position, results of operations or cash flows
  could be material. During the first quarter of fiscal 1998, the Company
  initiated a review and assessment of all hardware and software to evaluate
  whether it will function properly in the year 2000 without material errors or
  interruptions.
  
     The Company believes that all year 2000 issues revealed as a result of that
  evaluation to date can be remedied in a timely manner, and therefore does not
  expect a material risk of disruption of operations. With respect to outside
  vendors, those vendors that have been contacted have indicated that their
  hardware or software is or will be year 2000 compatible in time frames that
  meet regulatory requirements. Evaluation of these issues is continuing and
  there is a risk that other problems, not presently known to the Company, will
  be discovered which could present a material risk of disruption to the
  Company's operations and result in material adverse consequences to the
  Company. Furthermore, there can be no assurance that the Company will not
  experience unexpected delays in remediation of any year 2000 issues that may be
  discovered. Any inability to remediate such issues in a timely manner could
  cause a material disruption of the Company's business. In addition, the method
  of trading employed by the Company is heavily dependent on the integrity of
  electronic systems outside of the Company's control, such as online and
  Internet service providers, and third-party software such as Internet browsers.
  A failure of any such system in the trading process, even for a short time,
  could cause interruption to the Company's business. The year 2000 issue could
  lower demand for the Company's services while increasing the Company's costs.
  These combining factors, while not quantified, could have a material adverse
  impact on the Company's financial results.
  
     Because systems critical to the Company other than its computer systems may
  be affected by the century change, the Company's year 2000 efforts also
  encompass facilities and equipment, which rely on date-
  
                                         39
  dependent technology, such as, building equipment that contains embedded
  technology and the Company's third-party providers.
  
     At this time, it does not appear that the costs of addressing year 2000
  issues will have a material adverse impact on the Company's financial position.
  However, in the event that the Company and third parties upon which it relies
  are unable to address these issues in a timely manner, it could result in a
  material financial risk to the Company.
  
   Status of Year 2000 Efforts
  
     The Company's year 2000 efforts address all computer systems, equipment and
  business partner relationships considered essential to the Company's ability to
  conduct its business. The objective of the Company's year 2000 project is to
  identify the core business processes and associated computer systems and
  equipment that may be at risk due to the use of two-digit year dates. Once
  identified, the systems and equipment are rated for risk and are prioritized
  for conversion or replacement according to their impact on core business
  operations. The Company's year 2000 project follows a structured approach in
  analyzing and mitigating year 2000 issues. This approach consists of six
  phases: awareness, assessment, remediation, validation, implementation and
  industry-wide testing. The work associated with each phase may be performed
  simultaneously with other phases of the project, depending on the nature of the
  work to be performed and the technology and business requirements of the
  specific business unit. For example, awareness is an ongoing effort and occurs
  in each phase. As part of this project, the Company reviews its vendor
  relationships (suppliers, alliances and third-party providers) in an attempt to
  assess their ability to meet the year 2000 challenge. In addition, this plan
  seeks to ensure that all of the Company's business partners and service
  providers are also year 2000 ready. In addition, written contingency plans are
  being developed for all mission critical systems and many non-critical systems
  to address any unexpected year 2000 failures. However, there can be no
  assurance that contingency plans will adequately address all year 2000
  failures.
  
     Currently, the Company's primary focus is the completion of remediation and
  testing, and on-going contingency planning and vendor management efforts.
  However, the Company is continuing to assess the impact of year 2000 issues on
  its products, internal information systems and third-party vendor relations.
  The Company has begun, and in many cases completed, corrective efforts in these
  areas. The Company does not anticipate that addressing year 2000 issues for its
  internal information systems and current and future products will have a
  material impact on its operations or financial results. However, there can be
  no assurance that these costs will not be greater than anticipated, or that
  corrective action undertaken will be completed before year 2000 issues may
  arise.
  
     In March 1999, the Company completed its assessment phase on mission
  critical systems including a significant amount of the implementation and
  testing. The Company's primary focus remains on the successful remediation and
  testing of all critical systems, including systems owned by third parties.
  Additional focus will be placed on non-critical systems and written contingency
  plans in the later half of the third quarter of fiscal 1999. The Company
  anticipates that work on the awareness, contingency planning, and vendor
  management phases of the project will continue through the century change.
  
     The success of the Company's year 2000 efforts depends in part on the
  adequacy of compliance by vendors with their representations concerning their
  systems, and on parallel efforts being undertaken by vendors and other third
  parties with which the Company's systems interact and the Company is therefore
  taking steps to determine the status of critical third parties' year 2000
  compatibility. The Company has implemented a vendor management program.
  Activities include creating an inventory of vendors, inquiring directly as to
  the status of vendors' year 2000 efforts, and continuing contact with vendors
  to monitor the progress of vendors who may not yet be year 2000 capable. If
  these suppliers fail to adequately address year 2000 issues for the products
  and services they provide to the Company, this could have a material adverse
  impact on the Company's operations and financial results. The Company is still
  assessing the effect year 2000 issues will have on its suppliers and at this
  time, cannot determine the impact it will have. There can be no assurance that
  all third parties will provide
  
                                         40
  accurate and complete information or that all their systems will be fully year
  2000 capable. Third parties' year 2000 processing failures may have a material
  adverse impact on the Company's systems and operations.
  
     As the year 2000 project continues, the Company may discover additional year
  2000 issues, may not be able to develop, implement, or test remediation or
  contingency plans, or may find that the costs of these activities exceed
  current expectations and become material. In many cases, the Company is relying
  on assurances from suppliers that new and upgraded information systems and
  other products will be year 2000 capable. The Company plans to test such third-
  party products, but cannot be sure that its tests will be adequate or that, if
  problems are identified, they will be addressed by the supplier in a timely and
  satisfactory way.
  
     Because the Company uses a variety of information systems and has additional
  systems embedded in its operations and infrastructure, the Company cannot be
  sure that all of its systems will work together in a year 2000 capable fashion.
  Furthermore, the Company cannot be sure that it will not suffer business
  interruptions, either because of its own year 2000 issues or those of its
  customers or suppliers whose year 2000 issues may make it difficult or
  impossible for them to fulfill their commitments to the Company. If the Company
  fails to satisfactorily resolve year 2000 issues related to its products in a
  timely manner, it could be exposed to liability to third parties.
  
     The Company is continuing to evaluate year 2000-related risks and corrective
  actions. However, the risks associated with the year 2000 may be pervasive and
  complex; they can be difficult to identify and to address, and can result in
  material adverse consequences to the Company. Even if the Company, in a timely
  manner, completes all of its assessments, identifies and tests remediation
  plans believed to be adequate, and develops contingency plans believed to be
  adequate, some issues may not be identified or corrected in time to prevent
  material adverse consequences to the Company.
  
     The Company's plan may also be affected by regulatory changes, changes in
  industry customs and practices, and significant systems modifications unrelated
  to the year 2000 project including upgrades and additions to capacity, and the
  cost and continued availability of qualified personnel and other resources.
  
     The Company spent approximately $1.5 million in the six months ended March
  31, 1999 and currently estimates that it will spend approximately an additional
  $3.5 million to ascertain that its core computer systems and those of its
  vendors are year 2000 capable. These expenditures will consist primarily of
  compensation for information technology employees and contractors dedicated to
  this project and related hardware and software costs. This estimate excludes
  the time that may be spent by management and administrative staff in guiding
  and assisting the information technology effort described above or for making
  systems other than core brokerage computer systems year 2000 capable. The
  Company expects to fund all year 2000 related costs through operating cash
  flows. These costs are not expected to result in increased information
  technology expenditures because they will be funded through a reallocation of
  the Company's overall development spending. In accordance with generally
  accepted accounting principles, such expenditures will be expensed as incurred.
  
  Quantitative and Qualitative Disclosures About Market Risk
  
     Market Risk Disclosures
  
     The following discussion about the Company's market risk disclosures
  involves forward-looking statements. Actual results could differ materially
  from those projected in the forward-looking statements. The Company is exposed
  to market risk related to changes in interest rates and equity security price
  risk. The Company does not have derivative financial instruments for
  speculative or trading purposes.
  
     Interest Rate Sensitivity
  
     The Company maintains a short-term investment portfolio consisting of mainly
  income securities with an average maturity of less than two years. These
  available-for-sale securities are subject to interest rate risk and
  
                                         41
  will fall in value if market interest rates increase. If market interest rates
  were to increase immediately and uniformly by 10 percent in levels at March 31,
  1999, the fair value of the portfolio would decline by an immaterial amount.
  The Company has the ability to hold its fixed income investments until
  maturity, and therefore the Company would not expect its operating results or
  cash flows to be affected to any significant degree by the effect of a sudden
  change in market interest rates on its securities portfolio.
  
     Equity Price Risk
  
     The Company holds a small portfolio of marketable-equity traded securities
  that are subject to market price volatility. Equity price fluctuations of plus
  or minus 15 percent would not have a material impact on the Company.
  
     Financial Instruments
  
     For its working capital and reserves which are required to be segregated
  under Federal or other regulations, the Company invests in money market funds,
  resale agreements, certificates of deposit, and commercial paper. Money market
  funds do not have maturity dates and do not present a material market risk. The
  other financial instruments are fixed rate investments with short maturities
  and do not present a material interest rate risk.
  
                                         42
  Supplemental Interim Financial Statements and Supplementary Data
  
  Index to Supplemental Consolidated Supplemental Financial Statements
  Page
                                                                            ----
  Supplemental Consolidated Balance Sheets as of March 31, 1999 and
      September 30, 1998...................................................  44
  
     Supplemental Consolidated Statements of Operations for the six months
      ended March 31, 1999 and 1998........................................  45
  
     Supplemental Consolidated Statements of Cash Flows for the six months
      ended March 31, 1999 and 1998........................................  46
  
     Notes to Supplemental Consolidated Financial Statements...............  47
  43
  E*TRADE GROUP, INC. AND SUBSIDIARIES
  
                      Supplemental Consolidated Balance Sheets
                        (in thousands, except share amounts)
  March 31,  September 30,
                                                           1999         1998*
                                                        ----------- -------------
                                                        (Unaudited)
  ASSETS
  
  Current assets:
   Cash and equivalents................................ $   49,658   $   21,890
   Cash and investments required to be segregated under
    Federal or other regulations.......................      5,000        5,000
   Investment securities...............................    409,192      502,534
   Brokerage receivables--net..........................  2,276,014    1,310,235
   Other assets........................................     19,070       11,710
                                                        ----------   ----------
    Total current assets...............................  2,758,934    1,851,369
  Property and equipment--net..........................     65,722       48,524
  Investments..........................................    482,043       58,342
  Related party receivables............................        --         3,719
  Other assets.........................................      6,193        7,491
                                                        ----------   ----------
      Total assets..................................... $3,312,892   $1,969,445
                                                        ==========   ==========
  
           LIABILITIES AND SHAREOWNERS' EQUITY
  
  Liabilities:
   Brokerage payables.................................. $2,133,456   $1,184,917
   Accounts payable, accrued and other liabilities.....    209,662       74,992
                                                        ----------   ----------
    Total liabilities..................................  2,343,118    1,259,909
                                                        ----------   ----------
  
  Commitments and contingencies (Note 7)
  
  Shareowners' equity:
   Common stock, $.01 par value; shares authorized,
    300,000,000; shares issued and outstanding: March
    1999, 232,759,206; September 1998, 227,077,074.....      2,328        2,271
   Additional paid-in capital..........................    726,860      680,319
   Retained earnings...................................      6,311       14,210
   Accumulated other comprehensive income..............    234,275       12,736
                                                        ----------   ----------
    Total shareowners' equity..........................    969,774      709,536
                                                        ----------   ----------
      Total liabilities and shareowners' equity........ $3,312,892   $1,969,445
                                                        ==========   ==========
  --------
  *  Derived from audited financial information
  
            See notes to supplemental consolidated financial statements.
  
                                         44
  E*TRADE GROUP, INC. AND SUBSIDIARIES
  
                 Supplemental Consolidated Statements of Operations
                      (in thousands, except per share amounts)
                                    (Unaudited)
  Six Months Ended
                                                                  March 31,
                                                              ------------------
                                                                1999      1998
                                                              --------  --------
  Revenue:
    Transaction revenues..................................... $150,844  $ 75,462
    Interest-net of interest expense(A)......................   50,016    24,653
    International............................................    2,016     1,620
    Other....................................................   12,213     8,402
                                                              --------  --------
      Net revenues...........................................  215,089   110,137
                                                              --------  --------
  Cost of services...........................................   97,862    48,829
                                                              --------  --------
  Operating expenses:
    Selling and marketing....................................  101,037    20,916
    Technology development...................................   29,822    13,782
    General and administrative...............................   32,463    10,643
                                                              --------  --------
      Total operating expenses...............................  163,322    45,341
                                                              --------  --------
      Total cost of services and operating expenses..........  261,184    94,170
                                                              --------  --------
  Operating income (loss)....................................  (46,095)   15,967
                                                              --------  --------
  Non-operating income (expense):
    Gain on sale of investment...............................   33,367       --
    Loss on equity investments...............................   (1,334)      --
                                                              --------  --------
      Total non-operating income.............................   32,033       --
                                                              --------  --------
  Pre-tax income (loss)......................................  (14,062)   15,967
  Income tax expense (benefit)...............................   (6,163)    6,793
                                                              --------  --------
  Net income (loss).......................................... $ (7,899) $  9,174
                                                              ========  ========
  Net income (loss) per share (Note 5):
    Basic.................................................... $  (0.03) $   0.06
                                                              ========  ========
    Diluted.................................................. $  (0.03) $   0.05
                                                              ========  ========
  Shares used in computation of net income (loss) per share
   (Note 5):
    Basic....................................................  229,351   161,441
    Diluted..................................................  229,351   172,807
  --------
  (A) Interest is presented net of interest expense. Interest expense for the six
      months ended March 31, 1999 and 1998 was $26,028 and $17,290, respectively.
  
            See notes to supplemental consolidated financial statements.
  
                                         45
  E*TRADE GROUP, INC. AND SUBSIDIARIES
  
                 Supplemental Consolidated Statements of Cash Flows
                                   (in thousands)
                                    (Unaudited)
  Six Months Ended
                                                                March 31,
                                                          ----------------------
                                                             1999        1998
                                                          -----------  ---------
  CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss).................................... $    (7,899) $   9,174
    Reconciliation to net cash provided by (used in)
     operating activities:
      Deferred income taxes..............................      (2,909)      (481)
      Depreciation and amortization......................      12,125      4,372
      Loss on equity investments.........................       1,334        --
      Options issued to consultants......................       2,200        --
      Gain on sale of investment.........................     (33,367)       --
      Other..............................................         (19)      (849)
    Net effect of changes in brokerage-related assets and
     liabilities:
      Cash and investments required to be segregated
       under Federal or other regulations................         --      10,001
      Brokerage receivables..............................    (965,779)  (298,923)
      Brokerage payables.................................     948,539    290,958
    Other changes, net:
      Other assets.......................................      (7,162)       290
      Accounts payable, accrued and other liabilities....      16,030     31,425
                                                          -----------  ---------
        Net cash provided by (used in) operating
         activities......................................     (36,907)    45,967
                                                          -----------  ---------
  CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment...................     (29,323)   (14,060)
    Purchase of investment securities....................  (3,143,914)  (864,237)
    Sale/maturity of investment securities...............   3,237,157    874,680
    Proceeds from sale of investment.....................      33,495        --
    Acquisition of OptionsLink...........................         --      (3,500)
    Purchase of investments..............................     (50,708)       --
    Related party receivable.............................       3,738        --
                                                          -----------  ---------
        Net cash provided by (used in) investing
         activities......................................      50,445     (7,117)
                                                          -----------  ---------
  CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from employee stock transactions............      14,208      2,436
    Other................................................          22        --
                                                          -----------  ---------
        Net cash provided by financing activities........      14,230      2,436
                                                          -----------  ---------
  INCREASE IN CASH AND EQUIVALENTS.......................      27,768     41,286
  CASH AND EQUIVALENTS--Beginning of period..............      21,890     23,234
                                                          -----------  ---------
  CASH AND EQUIVALENTS--End of period.................... $    49,658  $  64,520
                                                          ===========  =========
  SUPPLEMENTAL DISCLOSURES:
    Cash paid for interest............................... $    28,753  $  16,429
                                                          ===========  =========
    Non-cash activities:
      Unrealized gain on available-for-sale securities... $   373,384  $      96
                                                          ===========  =========
      Tax benefit on exercise of stock options........... $    30,190        --
                                                          ===========  =========
  See notes to supplemental consolidated financial statements.
  
                                         46
  E*TRADE GROUP, INC. AND SUBSIDIARIES
  
              Notes to Supplemental Consolidated Financial Statements
  
  Note 1.--Basis of Presentation
  
     The accompanying unaudited supplemental consolidated financial statements
  include E*TRADE Group, Inc. and its subsidiaries (collectively, the "Company"),
  including E*TRADE Securities, Inc. ("E*TRADE Securities"), a securities broker-
  dealer.
  
     These consolidated financial statements have been prepared pursuant to the
  rules and regulations of the Securities and Exchange Commission ("SEC") and, in
  the opinion of management, reflect all normal recurring adjustments necessary
  to present fairly the financial position, results of operations and cash flows
  for the periods presented in conformity with generally accepted accounting
  principles. All significant intercompany accounts and transactions have been
  eliminated. These consolidated financial statements should be read in
  conjunction with the audited consolidated financial statements and notes
  thereto included in the Company's Annual Report to Shareowners on Form 10-K for
  the fiscal year ended September 30, 1998.
  
     The supplemental consolidated financial statements of the Company have been
  prepared to give retroactive effect to the acquisition of ShareData, Inc.
  ("ShareData") in July 1998 and ClearStation, Inc. ("ClearStation") in April
  1999, as well as the reallocations made in the fourth quarter of fiscal 1998
  for the allocation of the purchase price paid for OptionsLink, which was
  acquired in the first quarter of 1998 (See Note 15 to the supplemental
  financial statements as of September 30, 1998 included herein.)
  
     In December 1998 and April 1999, the Company's Board of Directors voted to
  effect a two-for-one stock split by distributing one additional share of common
  stock, par value $.01, for every share of common stock outstanding to
  shareowners of record on January 15, 1999 and May 7, 1999. The disclosures
  herein reflect the two-for-one stock splits which were effective on February 1,
  1999 and May 21, 1999.
  
  Note 2.--Net Brokerage Receivables and Payables
  
     Net brokerage receivables and payables consists of the following (in
  thousands):
  March 31,  September 30,
                                                             1999        1998
                                                          ---------- -------------
  Receivable from customers and non-customers (less
      allowance for doubtful accounts of $6,450 at March
      31, 1999 and $862 at September 30, 1998)..........  $1,887,959  $  961,305
     Receivable from brokers, dealers and clearing
      organizations:
       Net settlement and deposits with clearing
        organizations...................................      31,342      14,854
       Deposits paid for securities borrowed............     346,129     328,989
       Securities failed to deliver.....................       3,977         728
       Other............................................       6,607       4,359
                                                          ----------  ----------
         Total net brokerage receivables................  $2,276,014  $1,310,235
                                                          ==========  ==========
     Payable to customers and non-customers.............  $  570,534  $  340,044
     Payable to brokers, dealers and clearing
      organizations:
       Deposits received for securities loaned..........   1,535,386     839,422
       Securities failed to receive.....................       5,324       1,222
       Other............................................       6,712       4,229
     Bank loan payable..................................      15,500         --
                                                          ----------  ----------
         Total net brokerage payables...................  $2,133,456  $1,184,917
                                                          ==========  ==========
  47
  E*TRADE GROUP, INC. AND SUBSIDIARIES
  
        Notes to Supplemental Consolidated Financial Statements--(Continued)
  
     Receivable from and payable to brokers, dealers and clearing organizations
  result from the Company's brokerage activities. Receivable from customers and
  non-customers represents credit extended to finance their purchases of
  securities on margin. At March 31, 1999 and September 30, 1998, credit extended
  to customers and non-customers with respect to margin accounts was $1,878
  million and $956 million, respectively. Securities owned by customers and non-
  customers are held as collateral for amounts due on margin balances (the value
  of which is not reflected on the accompanying consolidated balance sheets).
  Payable to customers and non-customers represents free credit balances and
  other customer and non-customer funds pending completion of securities
  transactions. The Company pays interest on certain customer and non-customer
  credit balances.
  
  Note 3.-- Investments
  
     In January 1999, the Company acquired a 25 percent voting interest in
  Archipelago Holdings, LLC ("Archipelago"). Archipelago owns 100 percent of
  Archipelago, LLC, which operates an Electronic Communication Network ("ECN")
  for Nasdaq stocks. In connection with such investment, the Company entered into
  an assistance agreement with Archipelago, which requires the Company to provide
  certain operational and technical assistance to Archipelago. The agreement
  provides that the Company will initially be entitled to representation on
  Archipelago's board of managers in proportion to its holding of voting
  interests.
  
     In February 1999, the Company acquired a 28 percent voting interest in
  E*OFFERING, a full-service, Internet-based investment bank. E*OFFERING plans to
  provide individual and institutional investors greater access to public
  offerings. E*OFFERING leverages the Internet to improve the process of raising
  capital for companies by reducing time to market and underwriting costs
  traditionally associated with the registration process, while broadening
  capital distribution. Additionally, E*OFFERING provides after-market support
  and shareholder communication services.
  
     The Company accounts for these investments according to the equity method of
  accounting, whereby the Company's proportionate share of each affiliate's net
  income (loss) is included in equity income (loss).
  
  Note 4.--Comprehensive Income
  
     On October 1, 1998, the Company adopted Statement of Financial Accounting
  Standards No. 130, Reporting Comprehensive Income, which requires that an
  enterprise report, by major components and as a single total, the change in net
  assets during the period from non-owner sources. The reconciliation of net
  income (loss) to comprehensive income is as follows (in thousands):
  Six Months
                                                                     Ended
                                                                   March 31,
                                                                ----------------
                                                                  1999     1998
                                                                --------  ------
  Net income (loss)......................................... $ (7,899) $9,174
     Changes in other comprehensive income:
       Unrealized gain on available-for-sale securities, net
        of tax.................................................  221,022      96
       Cumulative translation adjustments......................      517     --
                                                                --------  ------
         Total comprehensive income............................ $213,640  $9,270
                                                                ========  ======
  48
  E*TRADE GROUP, INC. AND SUBSIDIARIES
  
        Notes to Supplemental Consolidated Financial Statements--(Continued)
  
  Note 5.--Net Income (Loss) Per Share
  
     The following table sets forth the computation of shares used in the
  computations of basic and diluted net income (loss) per share (in thousands):
  Six Months
                                                                        Ended
                                                                      March 31,
                                                                   ---------------
                                                                    1999    1998
                                                                   ------- -------
  Shares Used in Computation:
    Weighted average common shares outstanding used in computation
     of basic net income (loss) per share......................... 229,351 161,441
    Dilutive effect of stock options..............................     --   11,366
                                                                   ------- -------
      Shares used in computation of diluted net income (loss)
       per share.................................................. 229,351 172,807
                                                                   ======= =======
  Because the Company reported a net loss for the six months ended March 31,
  1999, the calculation of diluted earnings per share does not include common
  stock equivalents as it would result in a reduction of net loss per share. If
  the Company had reported net income in this period, there would have been
  16,350,000 additional shares in the calculation of diluted earnings per share.
  
     The following options to purchase shares of common stock were not included
  in the computation of diluted net income (loss) per share because the options'
  exercise price was greater than the average market price of the Company's
  common stock for the periods stated, and therefore are not common stock
  equivalents for purposes of this calculation (in thousands, except exercise
  price data):
  Six Months
                                                                      Ended
                                                                    March 31,
                                                                  -------------
                                                                   1999   1998
                                                                  ------ ------
  Options excluded from computation of diluted net income
      (loss) per share...........................................     88  5,370
     Exercise price ranges:
       High...................................................... $30.39 $11.52
       Low....................................................... $19.46 $ 6.57
  Note 6.--Regulatory Requirements
  
     E*TRADE Securities is subject to the Uniform Net Capital Rule (the "Rule")
  under the Securities Exchange Act of 1934 administered by the SEC and the
  National Association of Securities Dealers, Inc. ("NASD"), which requires the
  maintenance of minimum net capital. E*TRADE Securities has elected to use the
  alternative method permitted by the Rule, which requires that the Company
  maintain minimum net capital equal to the greater of $250,000 or 2 percent of
  aggregate debit balances arising from customer transactions, as defined.
  E*TRADE Securities had amounts in relation to the Rule as follows (in
  thousands, except percentage data):
  March 31,  September 30,
                                                            1999         1998
                                                          ---------  -------------
  Net capital......................................... $124,500      $97,355
     Percentage of aggregate debit balances..............      6.2%         9.5%
     Required net capital................................ $ 40,062      $20,429
     Excess net capital.................................. $ 84,438      $76,926
  Under the alternative method, a broker-dealer may not repay subordinated
  borrowings, pay cash dividends or make any unsecured advances or loans to its
  parent or employees if such payment would result in net capital of less than 5%
  of aggregate debit balances or less than 120% of its minimum dollar amount
  requirement.
  
                                         49
  E*TRADE GROUP, INC. AND SUBSIDIARIES
  
        Notes to Supplemental Consolidated Financial Statements--(Continued)
  
  Note 7.--Commitments, Contingencies and Regulatory Matters
  
     The Company is a defendant in civil actions arising from the normal course
  of business. In the opinion of management, these actions are expected to be
  resolved with no material effect on the Company's consolidated financial
  position or results of operations.
  
     On November 21, 1997, a putative class action was filed in the Superior
  Court of California, County of Santa Clara, by Larry R. Cooper on behalf of
  himself and other similarly situated individuals. The action alleges, among
  other things, that the Company's advertising, other communications and business
  practices regarding the Company's commission rates and its ability to timely
  execute transactions through its online brokerage services were false and
  deceptive. The action seeks injunctive relief enjoining the purported deceptive
  and unfair practices alleged in the action and also seeks unspecified
  compensatory and punitive damages, as well as attorney fees. This proceeding is
  at an early stage and the Company is unable to predict its ultimate outcome.
  However, the Company believes it has meritorious defenses to the claims and
  intends to conduct vigorous defenses. An unfavorable outcome in any matters,
  which are not covered by insurance, could have a material adverse effect on the
  Company's business, financial condition and results of operations. In addition,
  even if the ultimate outcomes are resolved in favor of the Company, the defense
  of such litigation could entail considerable cost and the diversion of efforts
  of management, either of which could have a material adverse effect on the
  Company's results of operations.
  
     On February 8, 1999, a putative class action was filed in the Superior Court
  of California, County of Santa Clara, by Coleen Divito, on behalf of herself
  and other similarly situated individuals. Subsequently on February 19, 1999, a
  putative class action was filed in Superior Court of California, County of
  Santa Clara, by Mario Cirignani, on behalf of himself and other similarly
  situated individuals. Both complaints allege damages and seek injunctive relief
  arising out of, among other things, the February 3, 4 and 5, 1999 system
  interruptions and allege a class of all E*TRADE account holders as of February
  2, 1999. Pursuant to a stipulation of counsel dated March 23, 1999, the Court
  consolidated the Divito and Cirignani actions for all purposes. This proceeding
  is currently at a very early stage and the Company is unable to predict its
  ultimate outcome.
  
     On February 11, 1999, a putative class action was filed in the Supreme Court
  of New York, County of New York, by Evan Berger, on behalf of himself and other
  similarly situated individuals. The action alleges, among other things, that
  the Company's advertising, other communications and business practices
  regarding its ability to timely execute and confirm transactions through its
  online brokerage services were false and deceptive. This proceeding is
  currently at a very early stage and the Company is unable to predict its
  ultimate outcome.
  
     On March 1, 1999, a putative class action was filed in the Court of Common
  Pleas, Cuyahoga County, Ohio, by Truc Q. Hoang. The Hoang complaint seeks
  damages and injunctive relief arising out of, among other things, the
  plaintiff's alleged problems accessing his account and placing orders.
  Plaintiff alleges causes of action for breach of contract, fiduciary duty and
  unjust enrichment, fraud, unfair and deceptive trade practices,
  negligence/intentional tort and injunctive relief. This proceeding is currently
  at a very early stage and the Company is unable to predict its ultimate
  outcome.
  
     On March 10, 1999, a putative class action was filed in the Superior Court
  of California, County of Santa Clara, by Raj Chadha. The Chadha complaint seeks
  damages and injunctive relief arising out of, among other things, the February
  3, 4 and 5, 1999 system interruptions. Plaintiff brings causes of action for
  breach of fiduciary duty and violations of the Consumer Legal Remedies Act and
  California Unfair Business Practices Act. This proceeding is currently at a
  very early stage and the Company is unable to predict its ultimate outcome.
  
     On March 11, 1999, a putative class action was filed in Superior Court of
  California, County of Santa Clara, by Elie Wurtman. The Wurtman complaint seeks
  damages and injunctive relief arising out of,
  
                                         50
  E*TRADE GROUP, INC. AND SUBSIDIARIES
  
        Notes to Supplemental Consolidated Financial Statements--(Continued)
  
  among other things, plaintiff's alleged problems accessing her account and
  placing orders. The complaint also makes allegations regarding access problems
  relating to E*TRADE customers residing or traveling outside of the United
  States. Plaintiff brings causes of action for negligence and violations of the
  Consumer Legal Remedies Act and California Unfair Business Practices Act. This
  proceeding is currently at a very early stage and the Company is unable to
  predict its ultimate outcome.
  
     On April 14, 1999, a putative action was filed in Superior Court of
  California, County of Los Angeles, by Matthew J. Rosenberg. The Rosenberg
  compliant alleges violations of the Consumer Legal Remedies Act and the
  California Unfair Business Practices Act in relation to E*TRADE's IPO business.
  This proceeding is currently at a very early stage and the Company is unable to
  predict its ultimate outcome.
  
     From time to time the Company has been threatened with, or named as a
  defendant in, lawsuits and administrative claims. Compliance and trading
  problems that are reported to the NASD or the SEC by dissatisfied customers are
  investigated by the NASD or the SEC, and, if pursued by such customers, may
  rise to the level of arbitration or disciplinary action. One or more of such
  claims or disciplinary actions decided adversely against the Company could have
  a material adverse effect on the Company's business, financial condition and
  results of operations. The Company is also subject to periodic regulatory
  audits and inspections.
  
     The securities industry is subject to extensive regulation under federal,
  state and applicable international laws. As a result, the Company is required
  to comply with many complex laws and rules and its ability to so comply is
  dependent in large part upon the establishment and maintenance of a qualified
  compliance system.
  
     The Company maintains insurance in such amounts and with such coverage,
  deductibles and policy limits as management believes are reasonable and
  prudent. The principal risks that the Company insures against are comprehensive
  general liability, commercial property damage, hardware/software damage,
  directors and officers, and errors and omissions liability. The Company
  believes that such insurance coverage is adequate for the purpose of its
  business.
  
     The Company has entered into employment agreements with several of its key
  executive officers. These employment agreements provide for annual base salary
  compensation, stock option acceleration and severance payments in the event of
  termination of employment under certain defined circumstances, or change in the
  Company's control. Base salaries are subject to adjustments according to the
  Company's financial performance.
  
  Note 8.--Subsequent Events
  
   ClearStation
  
     On April 30, 1999, the Company acquired ClearStation, Inc.,
  ("ClearStation"). ClearStation is a financial media web site that integrates
  technical and fundamental analysis and discussion for investors. The Company
  issued 939,072 shares of common stock in exchange for all outstanding common
  stock of ClearStation. The Company also assumed all outstanding ClearStation
  options, which were converted to options to purchase approximately 112,000
  shares of the Company's common stock. The acquisition was accounted for as a
  pooling of interest, and accordingly, all prior financial data of the Company
  has been restated to include the historical operations of ClearStation from
  October 1997 (the date of ClearStation's inception). As a result of the
  acquisition, the Company incurred charges and direct transaction costs relating
  to the business combination of $250,000. These non-recurring costs have been
  charged to operations in the third quarter of fiscal 1999. No adjustments were
  required to conform accounting policies of the entities. There were no
  significant intercompany transactions requiring elimination for any periods
  presented.
  
                                         51
  E*TRADE GROUP, INC. AND SUBSIDIARIES
  
        Notes to Supplemental Consolidated Financial Statements--(Continued)
  
  Telebanc
  
     On June 1, 1999, the Company entered into a definitive agreement to acquire
  Telebanc Financial Corporation ("Telebanc"). Telebanc is the holding company of
  TeleBank, an Internet-based, federally chartered savings bank. Under the terms
  of the agreement, Telebanc shareowners will receive 2.1 shares of E*TRADE
  common stock for each share of Telebanc common stock. Following the merger,
  which is expected to be accounted for as a pooling of interest, Telebanc
  shareowners will own approximately 13 percent of E*TRADE's fully diluted common
  stock. The Boards of Directors of both companies have approved the merger, but
  final consummation of the merger, which is expected to be completed this fall,
  is contingent on regulatory approval and the vote of the Telebanc shareowners.
  
                                         52
  SIGNATURES
  
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
  Registrant has duly caused this report to be signed on its behalf by the
  undersigned, thereunto duly authorized.
  
                                           E*TRADE Group, Inc.
                                           (Registrant)
  
                                           Dated: June 25, 1999
  
                                            By:   /s/ Leonard C. Purkis
                                              -------------------------
                                                     Leonard C. Purkis
                                        Executive Vice President, Finance and
                                                   Administration,
                                    Chief Financial Officer (principal financial
                                               and accounting officer)
  
                                         53
  EXHIBIT INDEX
  Exhibit Description
   ------- -----------
  23.1   Consent of Independent Auditors.
  54