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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR QUARTER ENDED March 31, 2009

Commission File Number: 000-52012

thinkorswim Group Inc.

 (Exact name of Registrant as specified in its charter)

(801) 816-6918

Registrant’s telephone number, including area code:

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232, 405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*  ¨ Yes    ¨ No

* The registrant has not yet been phased into the interactive data requirements.

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock: 66,812,819 as of May 6, 2009

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THINKORSWIM GROUP INC. AND SUBSIDIARIES
Report on Form 10-Q
Quarter Ended March 31, 2009

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PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

THINKORSWIM GROUP INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)
(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements

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THINKORSWIM GROUP INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)
(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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THINKORSWIM GROUP INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)
(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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THINKORSWIM GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.                 Basis of Presentation

 The accompanying Condensed Consolidated Financial Statements contain the accounts of thinkorswim Group Inc., a Delaware corporation, and its wholly owned subsidiaries after eliminating all intercompany balances and transactions. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the audited  Consolidated Financial Statements for the year ended December 31, 2008 included in the Company’s Annual Report on Form 10-K.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission (“SEC”) and do not include all the information and footnotes required by accounting principles generally accepted in the United States. However, in the opinion of management, the information furnished reflects all adjustments, consisting of normal recurring adjustments, which are necessary to make a fair presentation of financial position and operating results for the interim periods. The results of operations for the three month period ended March 31, 2009 are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

Preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosed amounts of contingent assets and liabilities and the reported amounts of revenues and expenses. Management believes the most significant estimates and assumptions are associated with the valuation of intangibles, goodwill, income taxes, and revenue recognition. If the underlying estimates and assumptions, upon which the financial statements are based, change in future periods, actual amounts may differ from those included in the accompanying Condensed Consolidated Financial Statements.

Except as described in the following paragraphs, there have been no changes in significant accounting policies from those included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2008.

Reclassifications

The Company’s Brokerage Services segment now comprises the largest portion of the Company’s operations. Accordingly, the Company has reclassified its Statement of Operations to conform with industry standards for presentation of broker dealer financial statements. All periods presented have been reclassified so that presentation is consistent within the Condensed Consolidated Financial Statements.

Certain prior periods’ balances have been reclassified to conform to the current period’s presentation. All allocations were made on a reasonable basis and have been consistently applied for the periods presented.

Recently Adopted Accounting Pronouncements

On January 1, 2009, the Company adopted FASB Staff Position EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses determinations as to whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”) under the two-class method described in paragraphs 60 and 61 of Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share”. The adoption of FSP EITF 03-6-1 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

On January 1, 2008, the Company adopted certain provisions of Financial Accounting Standards Board (“FASB”) SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. The provisions of SFAS 157 adopted on January 1, 2008 relate to financial assets and liabilities as well as other assets and liabilities carried at fair value on a recurring basis and did not have a material impact on the Company’s Condensed Consolidated Financial Statements. On January 1, 2009, the Company adopted the remaining provisions of SFAS 157 related to other nonfinancial assets and liabilities. The adoption of the additional SFAS 157 provisions did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

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In March 2008, the FASB issued SFAS 161, “Disclosure about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. SFAS No. 161 applies to all derivative instruments within the scope of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). It also applies to non-derivative hedging instruments and all hedged items designated and qualifying as hedges under SFAS No. 133. SFAS No. 161 amends the current qualitative and quantitative disclosure requirements for derivative instruments and hedging activities set forth in SFAS No. 133 and generally increases the level of disaggregation that will be required in an entity’s financial statements. SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk related contingent features in derivative agreements. SFAS No. 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of SFAS 161 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

In April 2008, the FASB issued FASB Staff Position 142-3, “Determination of Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible Assets”. FSP 142-3 also requires expanded disclosure regarding the determination of intangible asset useful lives. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The adoption of FSP 142-3 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Accounting Pronouncements Issued Not Yet Adopted

In April 2009, the Financial Accounting Standards Board (“FASB”) issued three Staff Positions (“FSPs”) that are intended to provide additional application guidance and enhance disclosures about fair value measurements and impairments of securities. FSP 157-4 clarifies the objective and method of fair value measurement SFAS No. 157, “Fair Value Measurements” even when there has been a significant decrease in market activity for the asset being measured. FSP 115-2 and 124-2 establishes a new model for measuring other-than-temporary impairments for debt securities, including establishing criteria for when to recognize a write-down through earnings versus other comprehensive income. FSP 107-1 and APB 28-1 expands the fair value disclosures required for all financial instruments within the scope of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, to interim periods. All of these FSPs are effective for interim and annual periods ending after June 15, 2009. The Company does not believe the adoption of this FSP will materially impact the Company’s Condensed Consolidated Financial Statements.

2.                 TD Ameritrade Merger

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 valued at that time at approximately $606 million (the “TD AMERITRADE 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 Company has made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants to conduct its business in the ordinary course during the interim period between the execution of the Merger Agreement and the consummation of the TD AMERITRADE Merger.

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.

Subject to the terms and conditions of the Merger Agreement, which has been approved by the Boards of Directors of the Company and TD AMERITRADE, each outstanding share of common stock of the Company will be converted into the right to receive: (i) $3.34 in cash; and (ii) 0.3980 of a share of TD AMERITRADE common stock. The receipt of TD AMERITRADE shares of common stock by Company stockholders is expected to be tax free for U.S. federal income tax purposes.

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3.              Fair Value Measurements

Effective January 1, 2008, the Company adopted SFAS 157, “Fair Value Measurements”, for all financial assets and liabilities and non-financial assets and liabilities accounted for at fair value.

The SFAS 157 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. SFAS 157 establishes market or observable inputs as the preferred source of values, followed by assumptions based on hypothetical transactions in the absence of market inputs. The valuation techniques required by SFAS 157 are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 Quoted prices for identical instruments in active markets.

Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Significant inputs to the valuation model are unobservable.

The following tables present information about assets and liabilities required to be carried at fair value on a recurring basis as of March 31, 2009 and 2008 (in thousands):

(1)             Securities owned are included in Other current assets on the Condensed Consolidated Balance Sheet.

(2)             Securities sold, not yet purchased are included in Other current liabilities on the Condensed Consolidated Balance Sheet.

(3)             Interest Rate Swap is included in Other long-term accrued liabilities on the Condensed Consolidated Balance Sheet.

The Company primarily applies the market approach for recurring fair value measurements. In addition, the Company uses the income approach with significant observable market inputs to value the Company’s interest rate swap.

The Company entered into a four-year, interest rate swap arrangement with JPMorgan, effective beginning March 30, 2007. The swap changes the variable-rate cash flow exposure on half the term loans’ outstanding balances to a fixed-rate cash flow. Under the terms of the swap, at the end of each calendar quarter the Company receives variable interest rate payments based on the same rate index applicable to the term loans’ LIBOR-based alternative, and makes 4.955 percent fixed interest rate payments. Both rates are applied to amounts equal to 50 percent of the then outstanding term loan balances based on scheduled principal payments, not including any prepayments. The Company has not entered into any other such derivative agreement, and does not speculate using derivative instruments.

During the three month periods ended March 31, 2009 and 2008 the Company recorded $0.3 million gain and $1.4 million loss, respectively, from change in fair value of the swap. These amounts are classified into interest expense as a yield adjustment to that portion of the term loans designated as a hedged debt obligation.

4.                 Capitalized Software Development Costs

The Company complies with the American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) No. 98-1, “Accounting For Costs of Computer Software Developed or Obtained for Internal Use,” and EITF No. 00-2, “Accounting for Website Development Costs”  when accounting for internal use software . In accordance with SOP 98-1, software development costs incurred as part of an approved project plan that result in additional functionality to internal use software are capitalized and amortized on a straight-line basis over the estimated useful life of the software.

During the three months ended March 31, 2009 and 2008, the Company capitalized $1.2 million and $1.3 million respectively, of software development costs related to internal use software for the implementation of the Company’s customer relationship management software solution and software and website assets developed for internal use by the brokerage services segment.

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Amortization of software developed for internal use begins when the software is ready for its intended use and is calculated on a straight-line basis over the estimated use of the product. The Company continues to develop new functionality for its various trading platforms.  Software and website assets developed for internal use were placed in service on various dates. Amortization expense during the three month periods ended March 31, 2009 and 2008 was approximately $1.4 million and $1.2 million, respectively.

5.                 Securities Owned and Securities Sold, Not Yet Purchased

Securities owned and securities sold, not yet purchased, are carried at market value and recorded on a trade date basis. The Company does not actively trade securities for its own benefit. Securities sold, not yet purchased represent obligations of the Company to make future delivery of specified securities and correspondingly create an obligation to purchase securities at prevailing market prices. Equities and options included in securities owned and securities sold, not yet purchased generally result from trade corrections.

Securities owned and securities sold, not yet purchased, are composed of the following (in thousands):

Securities owned and securities sold, not yet purchased are included in Other current assets and Other current liabilities, respectively, within the Condensed Consolidated Balance Sheets.

6.              Acquired Intangibles and Goodwill

Amortizable Intangibles

Amortizable acquired intangibles with finite lives as of March 31, 2009 and December 31, 2008 were as follows (in thousands):

For the three month periods ended March 31, 2009 and 2008, amortization expense was $3.8 million and $3.7 million, respectively. Customer relationships are being amortized on an accelerated basis.

Estimated future amortization expense is as follows (in thousands):

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Non-amortizable Intangibles

Trademarks and trade names are not amortized and have indefinite lives as of March 31, 2009 and December 31, 2008. The Company recorded $0.8 million as a result of the acquisition of Prophet Financial Systems, Inc. (“Prophet”) in 2005 and $16.1 million as a result of the acquisition of thinkorswim Holdings in 2007.

Goodwill

The Company has recorded goodwill for purchase business combinations to the extent the purchase price of each completed acquisition exceeded the fair value of the net identifiable tangible and intangible assets of the acquired company. The changes in the carrying amount of goodwill as of March 31, 2009 are as follows (in thousands):

7.                 Stock-Based Compensation

Employee Stock Option Plan Activity

The Company’s purpose of granting stock options is to attract, retain, motivate and reward officers, directors and employees of the Company.

The following table represents stock option activity for the three months ended March 31, 2009:

At March 31, 2009, the aggregate intrinsic value of options outstanding was $17.6 million and the aggregate intrinsic value of exercisable options was $17.2 million. The total intrinsic value of options exercised was $0.2 million and $1.1 million for the three month periods ended March 31, 2009 and 2008, respectively.

Compensation costs related to employee stock options granted under the existing stock option plans are included in Compensation and benefits in the Condensed Consolidated Statements of Operations and totaled $1.6 million for each of the three month periods ended March 31, 2009 and 2008. At March 31, 2009, there was $11.0 million of unrecognized compensation cost related to options which is expected to be recognized over a weighted-average period of 2.0 years.

The Company uses the Black-Scholes option pricing model to estimate the fair value of option awards with the following weighted average assumptions for the periods indicated:

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Restricted Stock

On June 6, 2008, the shareholders approved an amendment to the 2004 restricted stock plan increasing the amount of common stock authorized for issuance under the plan from 500,000 to 1,500,000. There are 748,475 shares of Company common stock available for issuance under the 2004 Restricted Stock Plan as of March 31, 2009, as amended. Shares of Company common stock awarded under the plan may be either previously authorized but unissued shares or issued shares which have been reacquired by the Company after their original issuance (including but not limited to shares purchased on the open market).

A summary of the status of the Company’s non-vested shares as of March 31, 2009, and changes during the three months ended March 31, 2009, is as follows:

The fair value of the restricted stock awards is recognized in compensation expense as the restrictions lapse over their respective vesting periods based on their fair value on the date of grant. The total fair value of shares vested during the three month periods ended March 31, 2009 and 2008 was $2.0 million and $1.0 million, respectively.

Compensation costs related to restricted stock issued under the 2004 Plan are included in Compensation and benefit expenses within the Condensed Consolidated Statements of Operations and totaled $0.8 million and $0.5 million, for the three month periods ended March 31, 2009 and 2008, respectively. At March 31, 2009, there was $3.9 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2004 Plan. The expense is expected to be recognized over a weighted-average period of 1.7 years.

In conjunction with the vesting of restricted stock, several individuals elected to pay the taxes on the vested shares by allowing the Company to withhold some of the shares to cover the amount of required minimum tax withholdings. For the three month period ended March 31, 2009, the Company withheld 29,017 shares worth $0.2 million or $7.70 per share. The price of the shares was the closing market price on the date repurchased.

Issuance of Common Stock

On February, 15, 2007, the Company completed the acquisition of thinkorswim Holdings, Inc. (“thinkorswim Holdings”). As part of the Merger Agreement, the Company agreed to issue up to a maximum of 728,608 additional shares of common stock to thinkorswim Holdings shareholders in the event the stock’s average trading price fell below $8.75 per share during the twenty-day period prior to certain dates subsequent to the Merger (with an $8.00 floor on such share price). On February 15, 2009, the average trading price fell below the threshold and 117,586 shares of the Company’s common stock were issued to certain former thinkorswim Holdings shareholders in accordance with such Agreement and Plan of Merger. The Company relied on Section 4(2) of the Securities Act of 1933, as amended, to issue such shares of common stock. Of the remaining additional shares that may be issuable under the Merger Agreement, a maximum of 100,788 shares could be issuable as of February 15, 2010, if the trading price falls below $8.75 as described above prior to such date.

8.                 Net Income Per Share

On January 1, 2009, the Company adopted FSP  EITF 03-6-1, which addresses determinations as to whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing EPS under the two-class method described in paragraphs 60 and 61 of SFAS 128, “Earnings Per Share”. Non-vested restricted stock granted to our employees and non-employee directors contain nonforfeitable dividend rights and, therefore, are now considered participating securities in accordance with FSP EITF 03-6-1.  The adoption of FSP EITF 03-6-1 had no material impact on periods presented.

Basic net income per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common shares and dilutive common stock

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equivalents outstanding during the period. Potential common stock equivalents amounting to 2.8 million and 2.8 million for the three-month periods ended March 31, 2009 and 2008, respectively, are excluded from the computation because their effect is anti-dilutive.

The following table presents the calculation for the number of shares used in the basic and diluted net income per share computations (in thousands):

9.              Comprehensive Income

Comprehensive income includes changes to equity accounts that were not the result of transactions with stockholders. Supplemental information on comprehensive income is as follows (in thousands):

10.       Notes Payable

Notes payable amounts outstanding as of March 31, 2009, were $74.0 million. In addition, as of March 31, 2009, there were no outstanding letters of credit against the revolving loan facility. Accordingly, the remaining borrowing capacity under the revolving loan facility is $25.0 million. The weighted average interest rate as of March 31, 2009, was 3.27 percent.

The aggregate maturities of notes payable were as follows as of March 31, 2009 (in thousands):

The Company incurred approximately $4.5 million of debt issuance costs related to these notes payable in 2007. Costs incurred in connection with the issuance of debt are included in the Condensed Consolidated Balance Sheet within Other assets. At March 31, 2009, deferred debt issuance costs were $2.0 million.

Amortization is calculated using the effective interest rate method over the term of the notes payable.  Amortization expense related to debt issuance costs is included in Interest expense in the Condensed Consolidated Statements of Operations and totaled $0.4 million for the three month periods ended March 31, 2009 and 2008, respectively.

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In March 2009, the Company made principal payments of $20.4 million, which included a prepayment on the term loan A and B facilities of $10.4 million, pursuant to the terms of the credit agreement.

11.       Regulatory Requirements

thinkorswim, Inc., the registered broker dealer and wholly owned subsidiary of the Company, is subject to the SEC Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934, as amended, administered by the SEC and Financial Industry Regulatory Authority (“FINRA”), which requires the maintenance of minimum net capital. thinkorswim, Inc. is required to maintain net capital of the greater of 6 2/3% of aggregate indebtedness, or $0.25 million and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. thinkorswim, Inc. is also subject to the CTFC Regulation 1.17 (“Reg 1.17”) under the Commodity Exchange Act, administered by the Commodity Futures Trading Commission and the National Futures Association, which also requires the maintenance of minimum net capital to be the greater of its SEC and FINRA net capital requirement or $45,000. At March 31, 2009, the Company had net capital of $44.6 million, which was $43.0 million in excess of its required net capital of $1.6 million. The Company’s net capital ratio was 0.53 to 1.

12.       Segment Reporting

The Company operates in the following two principal business segments:

Brokerage Services segment — This business segment is an online brokerage firm specializing in options and offers customers a broad range of products including options, equities, futures, mutual funds and bonds. The Company supports retail and active traders through its own trading platforms.

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.

Information concerning our operations by reportable segment is as follows (in thousands):

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13.       Commitments and Contingencies

At March 31, 2009, future minimum lease payments under non-cancelable operating leases, related sub-leases, and capital leases were as follows (in thousands):

The Company establishes liabilities when a particular contingency is probable and estimable. During the quarter ended March 31, 2009, amounts were accrued for certain contingencies which are both probable and estimable. The Company has certain contingencies which are reasonably possible, with an exposure to loss which is in excess of the amount accrued.

Approximately $8.5 million was placed in escrow at the date of the merger with thinkorswim Holdings, pending resolution of various contingencies involving legal and tax-related matters existing prior to the merger. As of March 31, 2009 $7.0 remains in escrow.

The Company has applied for rulings from various states on the taxability of its products to determine if its sales tax policy is supported by the various state taxing jurisdictions. During 2006, the Company received rulings from a majority of the states to which it applied. Based on these rulings, the Company accrued sale tax reserves. The Company reversed $1.3 million and $0.6 million of these reserves during the three-month periods ended March 31, 2009 and 2008, respectively, due to the expiration of state statutes, which is included in the Condensed Consolidated Statements of Operations in Other operating costs and expenses.

The Company has an accrual of $5.4 million for the potential settlement of a contingency. The Company cannot assure that its exposure in connection with this contingency will be limited to the amount of reserve or that the Company will be able to meet any settlement agreements.

The Company has been cooperating and intends to continue to cooperate with a non-public inquiry by the SEC relating to representations by certain presenters in certain portions of their presentations at some of its seminars. The Company has agreed in principle to a settlement which the staff has indicated it will recommend to the Commission. In view of this development, the Company has accrued $2.5 million in the first quarter of 2009, for a total accrual of $3.0 million, in connection with this matter. There can be no assurance as to whether the offer will be accepted by the commission, whether a definitive settlement agreement of this inquiry will occur or, if a definitive settlement occurs, what the monetary and non-monetary consequences will be for the Company or its operations.

In January and February 2009, three purported class actions lawsuits were filed on behalf of thinkorswim stockholders related to the TD Ameritrade Merger (See Note 2). The Company believes the lawsuits to be without merit, and intends to contest the plaintiffs’ claims. There can be no assurance, however, with regard to the outcome of the lawsuits.

The Company is not aware of pending claims or assessments, other than as described above, which may have a material adverse impact on the Company’s liquidity, financial position or results of operations.

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14.       Concentration and Credit Risk

The Company accessed approximately 60% and 42% for the three month periods ended March 31, 2009 and 2008, respectively, of sales transaction volume for the investor education segment through marketing relationships.

The Company entered into an amended marketing agreement with one of our marketing partners on January 29, 2008. Under the agreement, the Company agreed, as a portion of the consideration for services to be provided, to issue up to 150,000 shares of the Company’s common stock on each of January 2010, 2011, and 2012, contingent and based upon certain levels of sales of investor education products and services originating from the marketing partner channel. In January 2009, the Company amended this agreement eliminating the contingent share provision.

Credit risk is the amount of loss the Company would incur if a counterparty failed to perform its obligations under contractual terms. Substantially all of the clearing and depository operations of the Brokerage Services segment are performed by its clearing brokers on a fully disclosed basis pursuant to a clearance agreement.

In the normal course of business, the Company’s clearing brokers make margin loans to our customers which are collateralized by customer securities. In permitting the customers to purchase securities on margin, the clearing broker is exposed to the risk of a market decline that could reduce the value of the collateral held below the customers’ indebtedness before the collateral can be sold which could result in losses to the clearing broker. The Company’s agreement with the clearing brokers is to reimburse the clearing brokers for any losses incurred related to customers introduced by it. The exposure to credit risk associated with the nonperformance of counterparties in fulfilling their contractual obligations pursuant to securities transactions can be directly impacted by volatile securities markets, credit markets and regulatory changes. The Company attempts to control the risk associated with customer activities by monitoring customer trading activity. Losses for trade errors and customer balance write-offs were $0.6 million and $0.5 million for the three-month periods ended March 31, 2009 and 2008, respectively and are included within Brokerage, clearing and execution costs in the Condensed Consolidated Statements of Operations.

15.       Brokerage Service Agreement

On February 27, 2007, the Company entered into a long-term relationship and acquired certain exclusive rights and intellectual property of a group of active option traders, which was an existing customer of thinkorswim Holdings. Pursuant to a definitive agreement, the Company issued 650,000 unregistered common shares, and subject to meeting certain thresholds over annual and cumulative three-year periods, agreed to issue an additional 950,000 contingent shares of unregistered common shares. The value of the contingent shares was measured in accordance with EITF 96-18 “ Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services “ based upon the value of the common shares at the time the contingent shares are earned. Under the agreement the Company would have indefinitely been the exclusive provider for brokerage services for this group of active option traders and its customers.

Of the $10.7 million of consideration in shares issued, $1.0 million was recorded based upon the fair value of the intellectual property received and recorded in Intangible assets and the remaining $9.7 million was recorded in other long-term assets in the Condensed Consolidated Balance Sheets. Both of these assets are being amortized over a useful life of 11 years on a straight line basis and an accelerated basis, respectively. Shares that are contingent upon certain thresholds being met are recorded over the remaining performance period at the time it is probable that the performance conditions will be met.

In July 2008, the Company entered into a revised agreement with the group of active option traders related to certain exclusive rights and intellectual property. Under this revised agreement the Company will remain the exclusive provider for brokerage services for this group of active option traders for a seven year term. This revised agreement eliminates the contingent share provision that was part of the original agreement, therefore the Company has no further obligation to issue contingent shares of its common stock associated with performance thresholds of the active option trader group. The new agreement also contains a change of control provision that entitles the group of active traders to 750,000, 500,000 or 250,000 common shares of the Company’s stock if a change of control event, as defined by the agreement, occurs within the calendar years of 2008, 2009 or 2010, respectively.

Furthermore, the Company will continue to amortize the $0.7 million remaining in Intangible assets and the $7.0 million remaining in Other long-term assets in the Condensed Consolidated Balance Sheets at March 31, 2009 over the remaining term of the revised agreement.

During the three month periods ended March 31, 2009 and 2008, the Company amortized $0.3 million and $0.3 million of these assets, respectively, of which $0.3 million and $0.3 million were recorded as an offset to other brokerage revenue in

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accordance with EITF 01-9, “Accounting for Consideration Given By a Vendor to a Customer (Including a Reseller of the Vendor’s Products)”and $30,646 and $30,845, respectively, were recorded in brokerage, clearing and execution costs within the Condensed Consolidated Statements of Operations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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.

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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.

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

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):