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, 2007.

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, 2007, and include but are not limited to: 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 June 6, 2008, thinkorswim Group Inc., ("thinkorswim") a leading provider of online brokerage and investor education services completed the conversion of its corporate identity from Investools Inc. thinkorswim Group Inc. offers market-leading on-line brokerage, investor education and related financial products and services for self-directed investors and active traders. thinkorswim Inc., our online brokerage division, provides a suite of trading platforms serving self-directed and institutional traders and money managers. thinkorswim customers trade a broad range of products including stocks and stock options, index options, futures and futures options, forex, mutual funds and fixed income. Investools' Education Group, a subsidiary of thinkorswim Group Inc., 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.

On February 15, 2007, we merged with thinkorswim Holdings Inc. ("thinkorswim Holdings"), prior to June 6, 2008 known as thinkorswim Group, Inc All securities transactions are cleared on a fully disclosed basis pursuant to a clearing agreement with our primary clearing broker, Penson Financial Services. See Note 3 to the Condensed Consolidated Financial Statements for further discussion regarding Acquisitions.

Segment Summary Results of Operations

We operate in the following two principal business segments:

Brokerage Services segment-This business segment is a leading online brokerage firm specializing in options and offers customers a broad range of products including stock and stock options, index options, futures and futures options, foreign exchange, mutual funds and fixed income. We support retail and active traders through our own trading platforms and are widely recognized as a premier option software for order entry, professional analytical tools and real-time position management. thinkorswim was ranked by Barron's as its top rated software-based online broker and best for options traders for 2006 and 2007.

Investor Education segment-This business segment provides a full range of investor education products and services that provide lifelong learning and support to self-directed investors. The investor education products and services are offered in a variety of learning formats with courses ranging from beginning to advanced, to address the needs of students on all investor levels.

The operations of thinkorswim Holdings have been included in our operations since the date of the merger, February 15, 2007. See Note 13 to the Condensed Consolidated Financial Statements for additional disclosure regarding Segment Reporting.

Consolidated Revenue

Our primary source of revenue for the Brokerage Services segment, which represented approximately 59% and 56% of total consolidated sales transaction volume ("STV"), a non-GAAP measure, during the three and six months ended June 30, 2008, respectively, is commissions earned from our brokerage activities, which are driven largely by our customer's 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 41% and 44% of total consolidated STV during the three and six months ended June 30, 2008, respectively. Investor Education segment STV, a non-GAAP measure, 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        Six Months Ended
                                               June 30,                 June 30,
                                           2008         2007        2008        2007
Brokerage Services segment revenue
Commissions                             $    33,126   $  16,704   $  59,384   $  22,786
Interest and dividends                        6,198       4,988      13,866       7,016
Payment for order flow                        7,869       3,971      14,443       5,071
Other brokerage related revenue               1,764       1,228       3,730       1,981
Brokerage Services segment revenue           48,957      26,891      91,423      36,854

Investor Education segment revenue
Workshop                                      4,635      12,228      11,342      24,793
Coaching services                            13,263      23,600      27,012      45,666
Home study/Online courses                     8,464      14,540      19,165      30,617
Webtime renewals                              6,950       7,361      12,799      15,808
Other revenue                                   270         863         583       1,398
Total Investor Education sales
transaction volume ("STV")                   33,582      58,592      70,901     118,282
Change in deferred revenue                   14,452      (5,739 )    25,657     (20,535 )
Investor Education segment revenue           48,034      52,853      96,558      97,747
Total Consolidated Revenue              $    96,991   $  79,744   $ 187,981   $ 134,601

Cost of Revenue

The largest components of cost of revenue include investor education solicitation and fulfillment costs, which include employee sales commissions, partner commissions, travel and venue expenditures and credit card fees paid in connection with education sales. These costs are expensed as incurred at the inception of the sales transaction and are therefore recorded in the period of sale, not as the revenue is recognized. Employee compensation and benefits include salaries, bonuses, and related benefit costs for employees in both segments. Brokerage, clearing and other related fees include fees to clearing organizations, exchanges, third-party broker dealers and independent registered representatives. Our cost of sales is detailed as follows (in thousands, except percentages):

                        Three Months Ended                       Six Months Ended
                             June 30,                                June 30,
                         2008         2007       % Change        2008        2007       % Change

Partner commissions   $     6,320   $  10,289     (39 )%      $   12,302   $  19,627     (37 )%
Payroll costs              10,013      11,754     (15 )%          20,152      22,757     (11 )%
Clearing and
brokerage fees and
other related
expenses                    7,380       3,920      88 %           14,452       4,855     198 %
Depreciation and
amortization                4,884       4,244      15 %            9,616       6,857      40 %
Other                       5,726       7,086     (19 )%          12,301      15,802     (22 )%
Total cost of
revenue               $    34,323   $  37,293      (8 )%      $   68,823   $  69,898      (2 )%




                            Three Months Ended                       Six Months Ended
                                 June 30,                                June 30,
Percentage of Revenue       2008          2007                      2008          2007

Total revenue               100 %         100 %                     100 %         100 %

Partner commissions           7 %          13 %                       7 %          15 %
Payroll costs                10 %          15 %                      11 %          17 %
Clearing and brokerage
fees and other related
expenses                      8 %           5 %                       8 %           4 %
Depreciation and
amortization                  5 %           5 %                       5 %           5 %
Other                         6 %           9 %                       6 %          12 %
Total cost of revenue        36 %          47 %                      37 %          53 %

                         Three Months Ended                      Six Months Ended
                              June 30,                               June 30,
Percentage of STV        2008          2007                     2008          2007

Total sales
transaction volume       100 %         100 %                    100 %         100 %

Partner commissions        8 %          12 %                      8 %          13 %
Payroll costs             12 %          14 %                     12 %          15 %
Clearing and
brokerage fees and
other related
expenses                   9 %           5 %                      9 %           3 %
Depreciation and
amortization               6 %           5 %                      6 %           4 %
Other                      7 %           8 %                      8 %          10 %
Total cost of
revenue                   42 %          44 %                     43 %          45 %

Selling Expense

The largest component of selling expense is the marketing costs across multiple marketing channels which include, but are not limited to, television, online banners, paid and organic search, print, direct mail, radio and email direct marketing campaigns. These marketing efforts, primarily for the Investor Education segment, drive customers to either a free preview of investor education products offered at nearby locations, to purchase online and/or the opportunity to speak with a telesales representative about the products offered. Advertising costs are expensed as incurred, except for production costs, which are expensed when the first broadcast airs. Payroll costs included in selling expenses, which encompass both segments, relate to the salaries, commissions and associated employee benefit costs paid to certain employees for customer acquisition, at our live education events or via our telesales groups. Our selling expense is detailed as follows (in thousands, except percentages):

                          Three Months Ended                    Six Months Ended
                               June 30,                             June 30,
                           2008         2007      % Change      2008        2007      % Change

Marketing               $    10,718   $ 12,486     (14 )%     $  24,812   $ 27,194      (9 )%
Payroll costs                 2,475      2,164      14 %          5,100      4,415      16 %
Other                         1,027      2,245     (54 )%         3,425      4,756     (28 )%
Total selling expense   $    14,220   $ 16,895     (16 )%     $  33,337   $ 36,365      (8 )%




                          Three Months Ended           Six Months Ended
                               June 30,                    June 30,
Percentage of Revenue     2008         2007            2008         2007

Total revenue              100 %        100 %           100 %        100 %

Marketing                   11 %         16 %            13 %         20 %
Payroll costs                3 %          3 %             3 %          3 %
Other                        1 %          3 %             2 %          4 %
Total selling expense       15 %         22 %            18 %         27 %

General and Administrative Expense

The largest component of general and administrative expenses is the salary, bonus and related benefit costs for employees in both segments. Lease expenses on office space, professional fees, technology, licensing, hosting, depreciation expenses related to the deployment of internal systems and general travel are also included in general and administrative expenses. The following table details our general and administrative expenses (in thousands, except percentages):

                        Three Months Ended                       Six Months Ended
                              June 30,                                June 30,
                         2008          2007       % Change        2008        2007       % Change

Payroll               $     8,730    $   8,486        3 %      $   17,612   $  22,972     (23 )%
Other                      11,603        6,939       67 %          21,985      14,103      56 %
Total general and
administrative
expense               $    20,333    $  15,425       32 %      $   39,597   $  37,075       7 %




                            Three Months Ended                       Six Months Ended
                                 June 30,                                June 30,
Percentage of Revenue       2008          2007                      2008          2007

Total revenue               100 %         100 %                     100 %         100 %

Payroll                       9 %          11 %                       9 %          17 %
Other                        12 %           9 %                      12 %          11 %
Total general and
administrative expense       21 %          20 %                      21 %          28 %

Operating Data



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



                                              Three Months Ended          Six Months Ended
                                                   June 30,                   June 30,
                                              2008          2007         2008         2007

Brokerage Services segment operating
data:
Trading Days                                        64           63          125          124

New Retail Accounts Opened (1)                  26,825       17,700       51,625       34,675
New Funded Retail Accounts                      12,350        9,725       22,900       17,850
Ending Funded Retail Accounts                   78,075       39,075       78,075       39,075

Retail Daily Average Revenue Trades
("DARTS") (2)                                   52,500       20,900       49,000       18,100
Active Trader DARTs (3)                         46,800       27,100       44,400       24,000
Total DARTs                                     99,300       48,000       93,400       42,100

Total Trades (MM)                                6,353        3,021       11,675        5,213

Ending Client Assets ($MM)                 $     3,110    $   1,780    $   3,110    $   1,780
Average Client Equity/Retail Account       $    39,800    $  44,400    $  39,800    $  45,100
Retail Commission Per Trade                $      8.88    $   10.16    $    8.73    $   10.32

Investor Education segment operating
data:
Initial Education Sales Transaction
Volume % (4)                                         5           17           10           18
Continuing Education Sales Transaction
Volume % (5)                                        95           83           90           82
Total Paid Graduates (6)                        11,510       10,990       21,940       21,360
Ending Active Subscribers (7)                  101,600       94,600      101,600       94,600

(2) Retail DARTs are trades executed using our retail platform.

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

(4) Initial education revenues consist of the sales to students at the initial workshops and sales to new students via our telesales groups. Once the student completes this initial education, which consists primarily of the Investing Foundation Course and/or the Forex Course, they are considered a graduate. This metric is a percentage of total Investor Education sales transaction volume.

(5) Continuing education revenues consist of sales of advanced products and services sold to graduates. This metric is a percentage of total Investor Education sales transaction volume.

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

(7) 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.

Three Months Ended June 30, 2008 Versus Three Months Ended June 30, 2007

thinkorswim Holdings operations have been included in the Condensed Consolidated Financial Statements since the merger date of February 15, 2007

Consolidated Revenue

Revenue increased by $17.2 million for the three month period ended June 30, 2008, when compared to the same period in 2007, due to continued growth of the Brokerage Services segment in 2008.

Brokerage Services Segment

We entered into the Brokerage Services segment on February 15, 2007 with the merger with thinkorswim Holdings. During the three month period ended June 30, 2008, the Brokerage Services segment had approximately $49.0 million of revenue. Commission revenue, which made up $33.1 million was primarily a result of the commissions earned on the trading activity of the 78,075 retail funded accounts that existed at June 30, 2008. Those accounts had daily average revenue trades of 52,500 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. As of June 30, 2008, the average client balance was $39,800, of which approximately 56 percent was held in cash. Also, revenue earned for payment for order flow increased by $3.9 million due to an increase in eligible trades made during the quarter. Total trades were approximately 6.4 million during the three months ended June 30, 2008.

Investor Education Segment

Investor Education Sales Transaction Volume decreased approximately 43 percent for the three month period ended June 30, 2008, when compared to the same period in 2007. The decrease was attributed to approximately the same number of total graduates acquired during the period at lower price points for their initial education. In addition, fewer students purchased continuing education at workshop events. The workshop sales rates, which are the sales that take place at the initial workshop of advanced products, dropped from 48 percent in the three months ended June 30, 2007 to 34 percent in the current three month period.

Change in Deferred Revenue

Change in deferred revenue increased $20.2 million for the three months ended June 30, 2008, compared to the same period in 2007. 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 including 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, coaching subscriptions or online courses or
(2) based on fulfillment of products or services for certain coaching services and workshops. The primary reason for the change was the decrease in overall sales transaction volume in the comparative quarters, the combination of products and services sold during the current year, as well as the mix of products that existed in our deferred revenue liability account.

Cost of Revenues

Overall cost of revenue decreased approximately 8 percent during the three month period ended June 30, 2008, compared to the same period in 2007. As a percentage of STV, cost of revenues decreased during the three months ended June 30, 2008 compared to the three months ended June 30, 2007, as the Brokerage Services segment grew as a percent of overall top line sales and has a lower cost of revenue as a percentage of STV.

Partner commissions, which relate solely to the Investor Education segment, decreased $4.0 million for the three month period ended June 30, 2008 compared to the same period in 2007, due to fewer sales generated through partner channels. This is partially due to the loss of a marketing partner during 2007.

Payroll costs include employee commissions based on a percentage of sales achieved from our Investor Education events or telesales groups, certain fixed wages related to the brokerage trade desk and education coaching services and the associated employee benefit costs. Payroll costs, which decreased by $1.7 million in the three month period ended June 30, 2008, when compared to the same period in 2007, were impacted by a lower levels of STV and decreased headcount in certain departments in the Investor Education segment.

Brokerage, clearing and other related fees, which relate solely to the Brokerage Services segment, increased approximately $3.5 million during the second quarter of 2008 compared to the second quarter of 2007. These expenses include fees to clearing organizations, exchanges, third-party broker dealers and independent registered representatives. The increase is primarily attributable to increased sales volumes.

Depreciation and amortization increased approximately $0.6 million during the three month period ended June 30, 2008, when compared to the same period in 2007, primarily due to amortization of intangibles and other assets related to the thinkorswim Holdings merger.

Other cost of revenue is primarily comprised of amounts directly related to Investor Education sales transaction volume including travel expenditures, venue costs, material costs and credit card fees. In addition, data and quotation service costs related to brokerage services are also included in other cost of revenue. Travel and venue were impacted by a decrease in costs due to a decreased number of events in the quarter ended June 30, 2008 and efforts to fulfill more products and services online.

Selling Expense

Total selling expense decreased by approximately $2.7 million during the three month period ended June 30, 2008, when compared to the same period in 2007, primarily due to a decrease in marketing expense associated with customer . . .