The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and accompanying notes included elsewhere in this Form 10-Q and the audited Consolidated Financial Statements and accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Forward Looking Statement

Certain statements in this Quarterly Report on Form 10-Q that are not purely historical information, including, without limitation, estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Examples of such forward-looking statements include, but are not limited to, the statements concerning trends in revenue, costs and expenses; our accounting estimates, assumptions and judgments; our business plans relating to each of our products and services; the outcome of contingencies; our ability to scale our operations in response to changing demands and expectations of our customers; the level of demand for our products and services; and the competitive nature of and anticipated growth in our markets. Such forward-looking statements may be identified by words such as "believe", "intend", "expect", "may", "could", "would", "will", "will be", "will continue", "should", "plan", "estimate", "project", "contemplate", "anticipate", or other words and terms of similar meaning.

Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, many of which are beyond our control, which may cause actual results, performance or trends to differ materially from those expressed in the forward-looking statements. Potential risks, among others, that could cause actual results to differ materially are discussed under "Item 1A Risk Factors" of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and include but are not limited to: our pending merger with TD AMERITRADE, including related uncertainties and risks and the impact of our business if the merger is not completed; the success of brand development efforts and strategic alliances; regulatory developments; the ability to compete effectively and adjust to changing market conditions; economic and political conditions generally; and the effect of competition in the brokerage and investor education markets. We assume no obligation to update or revise any forward-looking statements made herein or any other forward-looking statements we make, whether as a result of new information, future events, or otherwise.

Business Overview

On January 8, 2009, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with TD AMERITRADE Holdings Corporation ("TD AMERITRADE"), Tango Acquisition Corporation One, a wholly-owned subsidiary of TD AMERITRADE ("Merger Sub One") and Tango Acquisition Corporation Two, a wholly-owned subsidiary of TD AMERITRADE ("Merger Sub Two") pursuant to which TD AMERITRADE would acquire the Company, pursuant to a merger, for a combination of cash and shares of TD AMERITRADE common stock (the "TD AMERITRADE Merger").

The Board of Directors of the Company and TD AMERITRADE have approved the Merger. The affirmative vote of the holders of a majority of the outstanding shares of the Company's common stock at a meeting is required to approve the TD AMERITRADE Merger and will be necessary for the TD AMERITRADE Merger to close.

The Merger Agreement contains certain customary termination rights for both the Company and TD AMERITRADE, including the right of the Company to terminate the Merger Agreement to accept a Superior Proposal (as defined in the Merger Agreement) on and subject to the terms and conditions set forth in the Merger Agreement.

The information in this Quarterly Report on Form 10-Q does not give effect to the Merger.

thinkorswim Group Inc. ("thinkorswim"), offers market-leading online brokerage, investor education and related financial products and services for self-directed investors and active traders.

Segment Summary Results of Operations

We operate in the following two principal business segments:

Brokerage Services segment-Our Brokerage Services segment includes thinkorswim, Inc. our award-winning online brokerage which provides a suite of trading platforms serving self-directed and institutional traders and money managers. thinkorswim, Inc. platforms have easy-to-use interfaces, sophisticated analytical and research tools, and fast and efficient order execution for even the most complex trading strategies. thinkorswim, Inc. customers trade a broad range of products including stock and stock options, index options, futures and futures options, forex, mutual funds and fixed income.

Investor Education segment-Our Investor Education division offers a full range of investor education products and services that provide lifelong learning in a variety of interactive delivery formats. Our educational products and services cover a broad range of financial products, including equity securities, options, fixed income, index products, futures, other derivatives and foreign exchange.

Consolidated Revenue

Our primary source of revenue for the Brokerage Services segment, which represented approximately 63% of total consolidated sales transaction volume ("STV"), a non-GAAP measure, during the three months ended March 31, 2009, is commissions earned from our brokerage activities, which are driven largely by our customers' trading activities. We derive commission revenues from customer transactions in options, stock, mutual funds, fixed income securities and futures and fees for spot foreign exchange ("forex"). Commission revenues and related brokerage and clearing related costs are recognized on a trade-date basis. Interest revenue and fees consists primarily of income generated by customer cash and money market funds held by our clearing broker, net of interest paid to customers on their credit balances and charged to customers on margin balances. Interest income is recorded when earned. We receive payment for order flow from liquidity providers where customers' orders are routed. Payment for order flow is accrued when earned based on the respective trades generating such payments. The Investor Education segment represented approximately 37% of total consolidated STV during the three months ended March 31, 2009. Investor Education segment STV represents sales transactions generated in each period before the impact of recognition of deferred revenue from prior periods for services performed in the current period, and the deferral of current period sales for services to be performed in the future. We believe that STV is an important measure of business performance for the Investor Education segment.

Revenue from our Investor Education segment is derived from: (i) the initial education sales of our products and services as a result of marketing efforts from us or one of our marketing partners across multiple marketing channels which include, but are not limited to, television, online banner, paid and organic search, print, direct mail, radio and email direct marketing campaigns which drive customers to either a free preview of investor education products offered at locations near the prospect or the opportunity to speak with a telesales representative about the products offered; and (ii) the continuing education sales of products and services to graduates as a result of continued interaction with us in workshops, periodic email and direct mail communications and through access to coaches and instructors.

The combined sales volume of our Brokerage Services and Investor Education segments is as follows (in thousands):

                                                              Three Months Ended
                                                                  March 31,
                                                               2009         2008
Brokerage Services segment revenue
Commissions                                                 $    35,674   $ 26,258
Interest and dividends                                            1,699      7,668
Payment for order flow                                            7,180      6,574
Other brokerage related revenue                                   2,386      1,966
Brokerage Services segment revenue                               46,939     42,466

Investor Education segment revenue
Workshop                                                          4,443      6,707
Coaching services                                                13,195     13,749
Home study/Online courses                                         5,025     10,701
Webtime renewals                                                  4,414      5,849
Other revenue                                                       156        313
Total Investor Education sales transaction volume ("STV")        27,233     37,319
Change in deferred revenue                                        2,959     11,205
Investor Education segment revenue                               30,192     48,524
Total Consolidated Revenue                                  $    77,131   $ 90,990

Operating Expenses

Our largest expense item is employee compensation and benefits, which includes salaries, bonuses, group insurance, contributions to benefit programs and other related labor costs in both segments. Brokerage, clearing and execution costs include other third-party services, fees to clearing organizations, exchanges and third-party broker-dealers, trade errors and customer write-offs. These costs are largely variable with trade volumes. Marketing costs include advertising on television, radio, online banners, paid and organic search, print, direct mail, promotions on our own Web sites, direct marketing campaigns and other marketing activities. Marketing costs are expensed as incurred, except for production costs, which are expensed when the first broadcast airs. Partner commissions include revenue share and royalty costs paid to our strategic marketing partners and commissions paid to independent registered broker-dealer representatives. Events, travel and venue costs include travel and lodging, venue fees, meals, materials, printing, shipping and all other costs associated with the settings for workshops, investor conferences, trade shows, seminars, and other live presentations. Technology and telecommunication includes all costs required to support and maintain our trading applications, investor toolbox, computer network, call center, websites, software, hardware and other trading tools. Market data costs are also included. Depreciation and amortization includes depreciation on property and equipment, as well as amortization of capitalized software and other intangible assets. Other expenses include occupancy costs, professional fees, regulatory fees, credit card fees, corporate travel and miscellaneous expenses.

The following table sets forth our total consolidated operating expenses for the periods presented (in thousands):

                                         Three Months Ended March 31,
                                                % of                 % of
                                      2009     Revenue     2008     Revenue
Compensation and benefits           $ 20,646        27 % $ 22,057        24 %
Brokerage, clearing and execution      7,176         9 %    7,570         8 %
Marketing                              7,121         9 %   13,359        15 %
Partner commissions                    9,906        13 %    6,530         8 %
Events, travel and venue               2,571         3 %    6,268         7 %
Technology and telecommunications      6,725         9 %    6,246         7 %
Depreciation and amortization          6,194         8 %    5,908         6 %
Other                                  7,202         9 %    5,336         6 %
Total Operating Expenses            $ 67,541        87 % $ 73,274        81 %

Operating Data



The following table sets forth certain statistical data for each segment of the
Company for the periods presented below:



                                                        Three Months Ended
                                                             March 31,
                                                        2009          2008
Investor Education segment operating data:
Initial Education Sales Transaction Volume %(1)               3 %           14 %
Continuing Education Sales Transaction Volume %(2)           97 %           86 %
Total Paid Graduates(3)                                  15,100         10,430
Active Subscribers(4)                                    95,500        106,400
Brokerage Service segment operating data:
Trading days                                               61.0           61.0
New retail accounts opened(5)                            32,675         24,800
New funded retail accounts                               11,475         10,550
Period-end funded retail accounts                       108,000         66,950
Retail Daily Average Revenue Trades ("DARTs")(6)         69,000         45,400
Active trader DARTs(7)                                   65,300         41,900

Total DARTs                                             134,300         87,300
Total trades                                          8,190,000      5,322,000
Ending client assets ($MM)                           $    3,190    $     2,690
Average client equity/retail account                     29,500         39,700
Retail commission per trade                          $     7.90    $      8.55

(2) Continuing education revenues consist of sales of advanced products and services sold to graduates.

(3) Total graduates include customers who purchased the Foundation Course and/or the Forex Course as a result of direct or indirect marketing efforts.

(4) Active subscribers are those customers who have an active subscription to Investools Online, Investools FX Online or Prophet.net as of the end of the period.

(5) Accounts opened represent accounts that have initiated the application process with the intent to fund.

(6) Retails DARTs are trades executed using the retail thinkorswim platform.

(7) Active Trader DARTs are trades executed using an active trader platform such as thinkpipes.

Three Months Ended March 31, 2009 Versus Three Months Ended March 31, 2008

Consolidated Revenue

Revenue decreased $13.9 million or 15 percent for the three month period ended March 31, 2009 when compared to the same period in 2008 due to a decrease in revenue for Investor Education, resulting from lower sales transaction volumes. The decrease in education revenue was partially offset by growth in Brokerage Services revenues.

Brokerage Services Segment

The Brokerage Services segment generated approximately $46.9 million of revenue during the quarter ended March 31, 2009. Commission revenue, which was $35.7 million, was primarily a result of the commissions earned on the trading activity of the 108,000 retail funded accounts that existed at March 31, 2009. Those accounts had daily average revenue trades of 69,000 during this period. Interest income is primarily earned from our clearing firm based on a negotiated rate that takes into account interest earned by our clearing firm on customer credit cash balances and charges to customers on margin balances. At March 31, 2009, the average client balance was $29,500, of which a portion was held in cash. We also earned payment for

order flow on trades made during the year, which increased year-over-year due to increased volumes. Total trades were approximately 8.2 million during the three month period ended March 31, 2009.

Interest and dividend revenue decreased 78 percent to $1.7 million during the first quarter of 2009 compared to the first quarter of 2008, due to the current historic low interest rate environment.

Investor Education Segment

Investor Education Sales Transaction Volume decreased approximately 27 percent for the three month period ended March 31, 2009 when compare to the same period in 2008. The decrease was attributed to lower sales volumes and lower average price points on an increased number of graduates acquired during the first quarter of fiscal 2009 when compared to the first quarter of fiscal 2008. In addition, fewer students purchased continuing education at workshop events. The workshop sales rates, which are the continuing education sales of advanced products that take place at the initial workshop, dropped from 34 percent in the three months ended March 31, 2008 to 27 percent in the current three month period ended March 31, 2009.

Change in Deferred Revenue

Change in deferred revenue decreased $8.2 million for the three months ended March 31, 2009, when compared to the same period in 2008. The change in deferred revenue is made up of two components. First, additions to deferred revenue include current period sales of products and services that have a future fulfillment date, which include coaching services, workshops, online courses and website subscription renewals. Bundled sales which include deferred revenue components are added to deferred revenue and revenue is recognized as services to the student are rendered. Second, recognition of previously deferred revenue includes revenue recognized over either (1) the passage of time for subscription based products such as toolbox or online courses or (2) based on fulfillment of products or services for coaching and workshops. The decrease in change in deferred revenue is attributable to recent trends in sales transaction volume and also due to lower fulfillment of workshop events in the current quarter.

Compensation and Benefits

Compensation and benefit related costs decreased $1.4 million or 6 percent to $20.6 million for the three month period ended March 31, 2009, when compared to the same period in 2008. The decline was primarily attributable to a decrease in commission expense of $1.5 million related to the decline in sales transaction volume in the education business.

Brokerage, clearing and execution costs

Brokerage, clearing and execution costs, which totaled $7.2 million for the three month period ended March 31, 2009, relate solely to the Brokerage Service segment. These costs include fees to clearing organizations, exchanges, third-party broker dealers and other brokerage costs related to trade errors and customer debit write-offs. The decrease of $0.4 million for the three month period ended March 31, 2009, as compared the same period in 2008, is attributable primarily to a decrease in pass through fees from various exchanges due to a shift in trading mix.

Marketing

Marketing costs decreased $6.2 million or 47 percent to $7.1 million during the three month period ended March 31, 2009, when compared to the same period in 2008, primarily due to a decrease in marketing expense associated with customer acquisition activities in the Investor Education segment, offset slightly by increased marketing spend in the Brokerage Services segment.

Partner commissions

Partner commissions increased $3.4 million or 52 percent to $9.9 million for the three month period ended March 31, 2009 when compared to the same period in 2008, primarily due to an increase in the amount of education sales transaction volume derived from partner channels and changes in the partner commission agreements.

Events, travel and venue

Events, travel and venue expense decreased by approximately $3.7 million or 59 percent to $2.6 million for the three month period ended March 31, 2009, when compared to the same period in 2008, primarily due to decreased numbers of events and continuing efforts to fulfill more Investor Education segment products and services online.

Technology and telecommunications

Technology and telecommunication expenses increased $0.5 million or 8 percent to $6.7 million for the three month period ended March 31, 2009, when compared to the same period in 2008. The increase is primarily due to higher market data costs, telecommunication costs and in the costs associated with supporting and maintaining the trading platforms, websites and other technologies utilized in serving our growing brokerage services customer base.

Depreciation and amortization

Depreciation and amortization increased $0.3 million or 5 percent to $6.2 million for the three month period ended March 31, 2009, when compared to the same period in 2008, primarily due to an increase in software amortization.

Other

Other expenses increased $1.9 million or 35 percent to $7.2 million for the three month period ended March 31, 2009, when compared to the same period in 2008. This increase is primarily due to a combination of $2.8 million in legal related costs, partially offset by a decrease in credit card fees correlated to the decline in sales transaction volume from the Investor Education segment and an increase in the reversal of accrued sales tax expense.

Interest Income

Interest income for the three month period ended March 31, 2009, when compared to the same period in 2008 decreased by $0.4 million due to the decline in interest rates during the intervening year.

Interest Expense

Interest expense decreased by $2.7 million or 66 percent to $1.4 million for the three month period ended March 31, 2009, when compared to the same period in 2008, primarily due to less interest incurred on notes payable resulting from decreased principal balances, reductions in interest rates, and the interest expense effect associated with changes in the fair value of the interest rate swap. The principal balances decreased due to scheduled principal payments, and a $5.6 million voluntary prepayment in the second quarter of 2008. The effect on interest expense from changes in the fair value of the interest rate swap was a decrease of $0.3 million for the quarter ended March 31, 2009, and an increase of $1.4 million for the quarter ended March 31, 2008.

Income Taxes

During the three month period ended March 31, 2009, income tax expense of approximately $3.5 million was recorded and was based on a review of our overall effective tax rate applied to operations throughout the quarter. Certain discrete items are separately recognized in the quarter during which they occur and can be a source of variability from quarter to quarter.

During the three month period ended March 31, 2008, income tax expense of approximately $2.5 million was recorded and was based on a review of the overall effective tax rate applied to operations throughout the quarter. During this quarter the utilization of net operating losses and associated valuation allowance reductions were considered in estimating our annual effective rate. Additionally, part of the tax expense was due to the utilization of net operating losses associated with a prior acquisition that had a valuation allowance established in purchase accounting. Subsequent recognition and usage of these net operating losses in the first quarter of 2008 resulted in a decrease to goodwill for the reversal of the valuation allowance and an offsetting increase in income tax expense of $0.4 million.

Liquidity

Cash Flows

At March 31, 2009, our principal sources of liquidity consisted of $74.1 million of cash and cash equivalents, as compared to $82.6 million of cash and cash equivalents at December 31, 2008.

Net cash provided by operating activities was $13.5 million for the three months ended March 31, 2009, compared to $7.9 million for the three months ended March 31, 2008. Net income for the first three months of 2009 was $4.7 million, compared to a net income of $11.5 million for the same period of 2008. The change in net cash provided by operating activities was also impacted by a $1.7 million decrease in change in fair value of the swap and a $6.2 million decrease from

the change in accounts receivable. However, these cash flow decreases were offset by $8.2 million increase in operating cash flow resulting from the change to deferred revenue balances, along with $5.7 million in cash flow increases attributable to the change in accrued payroll and $5.3 million in other liabilities.

At March 31, 2009, net working capital increased by $0.7 million to $52.4 million, compared to $51.7 million at December 31, 2008, after excluding the change in the current portion of deferred revenue which is substantially a non-cash liability. The primary reasons for the increase in net working capital was a decrease in notes payable of $10.4 million and a $3.2 million increase in accounts receivable balances, offset by an $8.4 million decrease in cash and cash equivalents and $6.0 million increase in accrued liabilities.

At March 31, 2009, we had notes payable of $74.0 million compared to $94.4 million at December 31, 2008. During the three months ended March 31, 2009 we made a principal prepayment of $10.4 million pursuant to the terms of the credit agreement, compared to no voluntary prepayment in the same period in 2008. The principal payments made during the three months ended March 31, 2009 totaled $20.4 million.

We expect to continue to use our liquid assets to invest in our infrastructure and fund our operations.

Credit Agreement with JPMorgan

In connection with the merger with thinkorswim Holdings, on February 15, 2007 we entered into a Credit Agreement with JPMorgan Chase Bank, N.A. ("JPMorgan"), as administrative agent, and with other lenders from time to time parties thereto.

The Credit Agreement provides for $125 million in senior secured term loan facilities and a $25 million senior secured revolving loan facility. The senior secured term loan facilities are comprised of a five-year $50 million senior secured term loan A facility, and a five-and-a-half year $75 million senior secured term loan B facility. The revolving loan facility has a five-year term. The Credit Agreement includes an expansion feature with respect to the term loans pursuant to which we may request an increase in the permitted aggregate . . .