##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549


Form 10-K


|   |  |                                                                                                               
|-- |  | --------------------------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934                      
|  
|   |  | For the fiscal year ended December 31, 2005                                                                   
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
|   |  | For the transition period
    from           to                                                               

Commission file number: 001-32419


optionsXpress Holdings, Inc.


(Exact name of registrant as specified in its charter)


|                                                                                                                      |  |                                                                       
|--------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------
|Delaware                                                                                                              |  | 20-1444525                                                            
|(State or other jurisdiction of
    incorporation or organization)                                                    |  | (I.R.S. Employer
    Identification No.)                              
|                                                                                                                     
|39 S. LaSalle, Suite 220
     Chicago, Illinois 60603(Address of Principal Executive Offices,
    including Zip Code) |  | (312) 630-3332(Registrants Telephone Number,
    Including Area Code)

Securities Registered Pursuant to Section 12(b) of the
Act:


Common Stock, Par Value $.0001 Per Share


Securities Registered Pursuant to Section 12(g) of the
Act:


None


o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2




|                          |                     |                        
|------------------------- | ------------------- | -----------------------
|Large accelerated filer o | Accelerated filer o | Non-Accelerated filer þ

12b-2 o þ




DOCUMENTS INCORPORATED BY REFERENCE













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##### 










TABLE OF CONTENTS


|                                                              |  |                                                                                                    |     |  |    | 
|------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- | --- |  | -- | 
|PART I                                                       
|ITEM 1.                                                       |  | BUSINESS                                                                                           |     |  | 3  | 
|ITEM 1A.                                                      |  | RISK FACTORS                                                                                       |     |  | 13 | 
|ITEM 2.                                                       |  | PROPERTIES                                                                                         |     |  | 23 | 
|ITEM 3.                                                       |  | LEGAL PROCEEDINGS                                                                                  |     |  | 23 | 
|ITEM 4.                                                       |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS                                            |     |  | 23 | 
|PART II                                                      
|ITEM 5.                                                       |  | MARKET FOR THE REGISTRANTS COMMON
    EQUITY AND RELATED STOCKHOLDER MATTERS                      |     |  | 23 | 
|ITEM 6.                                                       |  | SELECTED FINANCIAL DATA                                                                            |     |  | 25 | 
|ITEM 7.                                                       |  | MANAGEMENTS DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          |     |  | 26 | 
|ITEM 7A.                                                      |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES
    ABOUT MARKET RISK                                     |     |  | 33 | 
|ITEM 8.                                                       |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA                                                    |     |  | 34 | 
|ITEM 9.                                                       |  | CHANGES IN AND DISAGREEMENTS WITH
    ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           |     |  | 34 | 
|ITEM 9A.                                                      |  | CONTROLS AND PROCEDURES                                                                            |     |  | 34 | 
|PART III                                                     
|ITEM 10.                                                      |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE
    REGISTRANT                                             |     |  | 35 | 
|ITEM 11.                                                      |  | EXECUTIVE COMPENSATION                                                                             |     |  | 35 | 
|ITEM 12.                                                      |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
    OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |     |  | 35 | 
|ITEM 13.                                                      |  | CERTAIN RELATIONSHIPS AND RELATED
    TRANSACTIONS                                                 |     |  | 35 | 
|ITEM 14.                                                      |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                             |     |  | 35 | 
|PART IV                                                      
|ITEM 15.                                                      |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
    AND REPORTS ON FORM 8-K                               |     |  | 35 | 
|SIGNATURES                                                    |  |                                                                                                    | 36  | 
|REPORT OF INDEPENDENT REGISTERED PUBLIC
    ACCOUNTING FIRM   |  |                                                                                                    | F-2 | 
|CONSOLIDATED STATEMENTS OF OPERATIONS                         |  |                                                                                                    | F-3 | 
|CONSOLIDATED STATEMENTS OF FINANCIAL
    CONDITION            |  |                                                                                                    | F-4 | 
|CONSOLIDATED STATEMENT OF CHANGES IN
    STOCKHOLDERS EQUITY |  |                                                                                                    | F-5 | 
|CONSOLIDATED STATEMENTS OF CASH FLOWS                         |  |                                                                                                    | F-6 | 
|NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS                |  |                                                                                                    | F-7 | 
|SUBSIDIARIES OF THE REGISTRANT                                |  |                                                                                                    |     | 
|EX-23.1 CONSENT OF ERNST & YOUNG LLP                          |  |                                                                                                    |     | 
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO                  |  |                                                                                                    |     | 
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO                  |  |                                                                                                    |     | 
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO AND THE CFO      |  |                                                                                                    |     | 
|Consent of Ernst & Young LLP                                 
|Certification of CEO Pursuant to Section 302                 
|Certification of CFO Pursuant to Section 302                 
|Certification of CEO and CFO Pursuant to Section 906         



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Forward Looking Statements


10-K, 10-K 10-K






| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the statements about our intention to pay dividends;                                                                                                         
|
| |  | the statements about future growth in online brokerage accounts,
    options trading and online options trading;                                             
|
| |  | the statement that on a per trade basis, brokerage, clearing and
    other related expenses generally decrease as the number of
    customer trades increase;
|
| |  | the statements about our anticipated move to self-clearing;                                                                                                  
|
| |  | the statements concerning continued financing options; and                                                                                                   
|
| |  | the statements regarding scalability of our systems and the cost
    of increases.                                                                           






PART I







|        |         
|------- | --------
|ITEM 1. | BUSINESS

Overview


Barrons Forbes SmartMoney


Market Opportunity




3



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Platform






Growth Strategy






| |                                                            
| | -----------------------------------------------------------
| | Growing Share of Growing Market  Retail Online
    Options





| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Increased Penetration in Larger Markets  Retail
    Online Stocks, Mutual Funds and Fixed-Income Products



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| |                                                             
| | ------------------------------------------------------------
| | Expand into other areas of Specialty Brokerage 
    Futures





| |                                                                                  
| | ---------------------------------------------------------------------------------
| | brokersXpress  Expansion into Professional
    Advisor and Institutional Markets

easy-to -set-up






| |                        
| | -----------------------
| | International Expansion



Our Brokerage Platform


easy-to






| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We empower our customers by making accessible cutting-edge
    position management and order execution technology, advanced
    analytical tools, education and real-time financial information
    from any web browser.    
|
| |  | Our software was designed to ensure an efficient customer
    experience, beginning with a highly automated account opening
    process and ending with fast trade execution and thorough,
    real-time position monitoring.
|
| |  | Our user-friendly interface provides interactive real-time views
    of account balances, positions, profits or losses and buying
    power to enable our customers to more easily make informed                             

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| |  |                                                                                                                       
| |  | ----------------------------------------------------------------------------------------------------------------------
| |  | investment decisions. Customers are able to access all features
    from any web browser without downloading software.










| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Strategy
    Scan®.
    Strategy Scan enables an investor to transform a trading idea
    into an executable trade. It accomplishes this by identifying up
    to three trading opportunities for our customers based upon
    their bullish, bearish or neutral opinion of a specific stock
    over a specified time frame. We clearly identify the range of
    potential gain or loss for each trading opportunity.                                                                                                                                                
|
| |  | Xspreads®.
    Our Xspreads technology simplifies and expedites the execution
    of our customers combination trades. The Xspreads Order
    Booksm
    electronically displays customers orders, thereby creating
    greater transparency in the market, resulting in increased
    liquidity for both our customers and the broader marketplace. In
    addition, Xspreads enables our customers to execute all portions
    of a combination trade simultaneously, thereby eliminating the
    risk that all portions will not be executed at the desired price.
|
| |  | Xecutesm(patent pending). We pioneered online auto-trading for the
    retail investor. Our Xecute product allows our customers who
    subscribe to specified third-party advisory newsletters and
    other financial publications to automate the trading of the
    third-party recommendations. This not only benefits our
    customers who subscribe to these newsletters, but also makes us
    the logical brokerage platform for other subscribers to such
    newsletters.                                                                                  
|
| |  | Advanced Order Management (patent applied). Our software
    allows our retail customers to automate professional trading
    strategies involving order sequencing without manual
    intervention. Our customers are able to enter contingent orders
    which are executed in accordance with specified time, price or
    other triggers. A significant advantage of this feature is that
    our customers do not have to constantly monitor the market in
    order to execute their orders.                                                                     

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Virtual Trading. Virtual trading provides our customers
    with a mock trading environment where they can practice
    strategies and educate themselves without risk, utilizing
    current market information. This provides our customers with a
    practical method of gaining real market experience without
    putting money at risk. Our customers can mock trade almost any
    strategy involving stocks, options and mutual funds, including
    spreads, straddles, and covered calls. We believe virtual
    trading provides our customers with a better environment to
    learn versus simply studying trading strategies.                                                                   
|
| |  | Integration with Third-Party Investment Software. The
    design of our technology allows customers to integrate our
    execution with third-party investment or analytical software,
    including Investools,
    e-Signal, Quotracker,
    Prophet, PowerOptions and Wizetrade. This is a key design
    feature of our platform and differentiates us from other online
    trading systems that rely on legacy technologies. Giving the
    customer access to other technologies allows us to service
    customers who use complementary analytical software. The design
    of our technology allows us to easily and cost-effectively
    private label our website for other financial institutions.

Customer Service




e-mail


e-mail point-of




Marketing






7



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Broker-Dealer Operations




| |                 
| | ----------------
| | Order Processing







| |                     
| | --------------------
| | Clearing and Custody





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| |                    
| | -------------------
| | Margin and Leverage







| |                       
| | ----------------------
| | Payment for Order Flow





| |                           
| | --------------------------
| | Supervision and Compliance





Technology Systems and Architecture




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Intellectual Property




optionsXpress brokersXpress optionsXpress optionsXpress brokersXpress


Competition and Pricing








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Employees




Available Information


10-K, 10-Q, 10-K, 10-Q, 8-K,


Regulation




| |         
| | --------
| | Overview







| |   |                                                        
| | - | -------------------------------------------------------
| |  | sales methods,                                         
|
| |  | trade practices,                                       
|
| |  | use and safekeeping of customers funds and securities,
|
| |  | capital structure,                                     

11



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| |   |                                              
| | - | ---------------------------------------------
| |  | record-keeping,                              
|
| |  | best execution,                              
|
| |  | financing of customers purchases, and       
|
| |  | conduct of directors, officers and employees.





| |                 
| | ----------------
| | Net Capital Rule







| |                                     
| | ------------------------------------
| | Foreign Jurisdictions and Regulation







| |            
| | -----------
| | Patriot Act



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ITEM 1A.     RISK FACTORS




We may be unable to effectively manage our rapid growth and
retain our customers.






We operate in a highly regulated industry and compliance
failures could adversely affect our business.






| |   |                                                      
| | - | -----------------------------------------------------
| |  | sales methods;                                       
|
| |  | trade practices;                                     
|
| |  | use and safekeeping of customer funds and securities;
|
| |  | capital structure;                                   
|
| |  | record-keeping;                                      
|
| |  | financing of customers purchases; and               
|
| |  | conduct of directors, officers and employees.        



Changes in legislation or regulations may affect our ability
to conduct our business or reduce our profitability.




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Servicing customers outside the United States involves
special challenges that we may not be able to meet, which could
negatively impact our financial results.






Substantial competition could reduce our market share and
harm our financial performance.




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Our business is primarily transaction-based, and decreases in
trading or other changes in our revenue base could harm our
business.




Our strong dependence upon revenues derived from commissions
from option trades may place us at a competitive
disadvantage.




If we fail to attract customers in a cost-effective manner,
our profitability and growth may be impaired.




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We are subject to various forms of credit risk, and those
risks could have a material adverse effect on our financial
situation.






Our risk management policies and procedures may not be
effective and may leave us exposed to unidentified or unexpected
risks.




We may suffer losses if our reputation is harmed.




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Systems failures and delays could harm our business.








| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | a loss of customers or a reduction in the growth of our customer
    base;
|
| |  | increased operating expenses;                                             
|
| |  | financial losses;                                                         
|
| |  | litigation or other customer claims; and                                  
|
| |  | regulatory sanctions or additional regulatory burdens.                    



Our networks and those of our third-party service providers
may be vulnerable to security risks.




We will need to introduce new products and services to remain
competitive.




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Our inability to protect our intellectual property rights or
our infringement of the intellectual property rights of others
could adversely affect our business.








We may make acquisitions, and we may be unable to
successfully integrate those acquisitions with our business,
impairing our financial performance.




Failure to comply with net capital requirements could
adversely affect our business.




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We are dependent on clearing agents, including Goldman Sachs
Execution & Clearing, L.P., and any failures by them or
difficulties in our relationships could materially harm our
business.








| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | We may not obtain the necessary approvals or may have other
    delays in our plans to begin self-clearing securities trades.





| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our anticipated move to self-clear securities trades will
    require additional resources, subject us to additional
    regulations and will require additional reliance on our existing
    and third party technology.





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The loss of or change in our third-party vendors may
adversely affect our business.






Our exposure to possible litigation could adversely affect
our business.






Losses due to employee or customer fraud could have an
adverse effect on our business.




Procedures and requirements of the Patriot Act may expose us
to significant costs or penalties.




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Requirements associated with being a public company will
require significant company resources and management
attention.




The market price of our common stock could fluctuate
significantly.




Market volatility may cause our stock price and the value of
your investment to decline.






| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | actual or anticipated variations in quarterly operating results;                                                                                                                                  
|
| |  | changes in financial estimates by us or by any securities
    analysts who might cover our stock;                                                                                                 
|
| |  | conditions or trends in our industry, including trading volumes,
    regulatory changes or changes in the securities marketplace;                                                                 
|
| |  | changes in the market valuations of other companies operating in
    our industry; announcements by us or our competitors of
    significant acquisitions, strategic partnerships or divestitures;
|
| |  | announcements of investigations or regulatory scrutiny of our
    operations or lawsuits filed against us;                                                                                        
|
| |  | additions or departures of key personnel; and                                                                                                                                                     
|
| |  | sales of our common stock, including sales of our common stock
    by our directors and officers or our strategic investors.                                                                      

Our officers, directors and largest stockholders will
maintain the ability to control all matters submitted to
stockholders for approval.




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Our share price may decline due to the large number of shares
eligible for future sale.






Provisions in our charter documents and Delaware law could
discourage potential acquisition proposals, could delay, deter
or prevent a change in control and could limit the price certain
investors might be willing to pay for our stock.






| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a classified board of directors with staggered terms;                                                                                                                                                         
|
| |  | a prohibition on stockholder action through written consents;                                                                                                                                                 
|
| |  | a requirement that special meetings of stockholders be called
    only by the board of directors;                                                                                                             
|
| |  | advance notice requirements for stockholder proposals and
    director nominations;                                                                                                                           
|
| |  | limitations on the ability of stockholders to amend, alter or
    repeal the by-laws; and                                                                                                                     
|
| |  | the authority of the board of directors to issue, without
    stockholder approval, preferred stock with such terms as the
    board of directors may determine and additional shares of our
    common stock.



We may not continue to pay dividends on our common stock.




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|        |           
|------- | ----------
|ITEM 2. | PROPERTIES



|                         |  |       |                 |  |                 |  |                         | 
|------------------------ |  | ----- | --------------- |  | --------------- |  | ----------------------- | 
|Location                 |  | Space |                 |  | Principal Usage | 
|                         |  |       |                 |  |                 | 
|Chicago, IL              |  |       | 23,147 sq. feet |  |                 |  | Corporate Headquarters  | 
|El Paso (Ripley St), TX  |  |       | 6,000 sq. feet  |  |                 |  | Customer Service Center | 
|El Paso (Granada St), TX |  |       | 2,200 sq. feet  |  |                 |  | Office Space            | 
|Thousand Oaks, CA        |  |       | 950 sq. feet    |  |                 |  | Office Space            | 






|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS








|        |                                                    
|------- | ---------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS






PART II







|        |                                                                              
|------- | -----------------------------------------------------------------------------
|ITEM 5. | MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
    STOCKHOLDER MATTERS



|               |  |                     |       |  |     |   |       |  |  |  |  | 
|-------------- |  | ------------------- | ----- |  | --- | - | ----- |  |  |  |  | 
|               |  | Common Stock        |       |  |    
|               |  | Closing Sales Price |       |  |    
|               |  | 2005                |       |  |    
|               |  |                     |       |  |    
|               |  | High                |       |  | Low |   |       | 
|               |  |                     |       |  |     |   |       | 
|First Quarter  |  | $                   | 23.90 |  |     | $ | 15.55 |  |  |  |  | 
|Second Quarter |  | $                   | 17.47 |  |     | $ | 12.48 |  |  |  |  | 
|Third Quarter  |  | $                   | 19.07 |  |     | $ | 15.11 |  |  |  |  | 
|Fourth Quarter |  | $                   | 26.20 |  |     | $ | 17.21 |  |  |  |  | 



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Dividends






Recent Sales of Unregistered Securities; Use of Proceeds from
Registered Securities


S-1 333-119967)




24



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|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA

10-K


|                                                |  |                                       |         |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        |  
|----------------------------------------------- |  | ------------------------------------- | ------- |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | -
|                                                |  | Year Ended December 31,               |        
|                                                |  |                                       |        
|                                                |  | 2005                                  |         |  | 2004 |   |        | 2003 |  |   | 2002   |  |  | 2001 |       
|                                                |  |                                       |         |  |      |   |        |      |  |   |        |  |  |      |       
|                                                |  | (In thousands, except per share data) |        
|Results of Operations                           |  |                                       |         |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        |  
|Revenues                                        |  |                                       |         |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        |  
|Commissions                                     |  | $                                     | 91,410  |  |      | $ | 71,567 |      |  | $ | 38,088 |  |  | $    | 14,173 |  |  | $ | 1,995  |  
|Other brokerage related revenue                 |  |                                       | 24,503  |  |      |   | 17,751 |      |  |   | 8,793  |  |  |      | 2,751  |  |  |   |       |  
|Interest income                                 |  |                                       | 12,813  |  |      |   | 3,648  |      |  |   | 1,274  |  |  |      | 340    |  |  |   | 74     |  
|Other                                           |  |                                       | 257     |  |      |   | 103    |      |  |   | 26     |  |  |      | 4      |  |  |   | 13     |  
|Total revenues                                  |  | $                                     | 128,983 |  |      | $ | 93,069 |      |  | $ | 48,181 |  |  | $    | 17,268 |  |  | $ | 2,082  |  
|Expenses                                        |  |                                       |         |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        |  
|Brokerage, clearing, and other related expenses |  | $                                     | 15,295  |  |      | $ | 14,258 |      |  | $ | 8,494  |  |  | $    | 5,198  |  |  | $ | 1,108  |  
|Compensation and benefits                       |  |                                       | 14,175  |  |      |   | 9,760  |      |  |   | 5,037  |  |  |      | 2,865  |  |  |   | 985    |  
|Advertising                                     |  |                                       | 5,681   |  |      |   | 6,675  |      |  |   | 2,975  |  |  |      | 1,070  |  |  |   | 503    |  
|Quotation services                              |  |                                       | 4,249   |  |      |   | 3,693  |      |  |   | 1,984  |  |  |      | 786    |  |  |   | 210    |  
|Depreciation and amortization                   |  |                                       | 2,293   |  |      |   | 1,648  |      |  |   | 770    |  |  |      | 331    |  |  |   | 88     |  
|Technology and telecommunication                |  |                                       | 2,305   |  |      |   | 1,434  |      |  |   | 693    |  |  |      | 362    |  |  |   | 225    |  
|Other                                           |  |                                       | 4,732   |  |      |   | 3,376  |      |  |   | 1,010  |  |  |      | 466    |  |  |   | 321    |  
|Total expenses                                  |  |                                       | 48,730  |  |      |   | 40,844 |      |  |   | 20,963 |  |  |      | 11,078 |  |  |   | 3,440  |  
|Income (loss) before income taxes               |  |                                       | 80,253  |  |      |   | 52,225 |      |  |   | 27,218 |  |  |      | 6,190  |  |  |   | (1,358 | )
|Income taxes                                    |  |                                       | 31,512  |  |      |   | 21,015 |      |  |   | 10,862 |  |  |      | 1,819  |  |  |   |       |  
|Net income (loss)                               |  | $                                     | 48,741  |  |      | $ | 31,210 |      |  | $ | 16,356 |  |  | $    | 4,371  |  |  | $ | (1,358 | )
|Net income (loss) per share  basic             |  | $                                     | 0.79    |  |      | $ | 0.56   |      |  | $ | 0.30   |  |  | $    | 0.08   |  |  | $ | (0.04  | )
|Net income (loss) per share  diluted           |  | $                                     | 0.79    |  |      | $ | 0.55   |      |  | $ | 0.29   |  |  | $    | 0.08   |  |  | $ | (0.04  | )
|Weighted average shares  basic                 |  |                                       | 60,136  |  |      |   | 37,956 |      |  |   | 40,583 |  |  |      | 38,935 |  |  |   | 37,500 |  
|Weighted average shares  diluted               |  |                                       | 62,055  |  |      |   | 57,264 |      |  |   | 56,783 |  |  |      | 55,370 |  |  |   | 37,500 |  

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|                                                 |  |                    |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |       |  
|------------------------------------------------ |  | ------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ----- | -
|                                                 |  | As of December 31, |        
|                                                 |  |                    |        
|                                                 |  | 2005               |         |   | 2004 |   |         | 2003 |  |   | 2002   |   |  | 2001 |       
|                                                 |  |                    |         |   |      |   |         |      |  |   |        |   |  |      |       
|Statistical Data                                 |  |                    |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |       |  
|Number of customer accounts (at period end)(1)   |  |                    | 161,800 |   |      |   | 101,000 |      |  |   | 57,700 |   |  |      | 22,200 |   |  |   | 4,800 |  
|Daily average revenue trades (DARTs)(2)        |  |                    | 19,600  |   |      |   | 13,600  |      |  |   | 7,600  |   |  |      | 2,800  |   |  |   | 400   |  
|Customer trades per account(3)                   |  |                    | 38      |   |      |   | 43      |      |  |   | 47     |   |  |      | 53     |   |  |   | 41    |  
|Average commission per trade                     |  | $                  | 18.54   |   |      | $ | 20.99   |      |  | $ | 19.90  |   |  | $    | 19.80  |   |  | $ | 20.19 |  
|Option trades as a % of total trades             |  |                    | 76      | % |      |   | 79      | %    |  |   | 79     | % |  |      | 90     | % |  |   | 88    | %
|Advertising expense per new customer account(4)  |  | $                  | 93      |   |      | $ | 154     |      |  | $ | 84     |   |  | $    | 61     |   |  | $ | 106   |  
|Balance Sheet (at period end, in thousands)      |  |                    |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |       |  
|Cash and short-term investments                  |  | $                  | 10,258  |   |      | $ | $24,759 |      |  | $ | 2,777  |   |  | $    | 2,604  |   |  | $ | 1,003 |  
|Total assets                                     |  |                    | 126,569 |   |      |   | 40,095  |      |  |   | 9,990  |   |  |      | 5,129  |   |  |   | 1,843 |  
|Long-term debt                                   |  |                    |        |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   | 387   |  
|Total liabilities                                |  |                    | 8,050   |   |      |   | 7,089   |      |  |   | 2,011  |   |  |      | 2,213  |   |  |   | 509   |  
|Total stockholders equity                       |  |                    | 118,519 |   |      |   | 33,006  |      |  |   | 7,979  |   |  |      | 2,916  |   |  |   | 1,334 |  
|Dividends                                        |  |                    |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |       |  
|Dividends declared per share (during the period) |  | $                  | 0.72    |   |      | $ | 0.13    |      |  | $ | 0.17   |   |  | $    | 0.05   |   |  |   |      |  






|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(1) | Customer accounts are open, numbered accounts.                                                                              
|   
|(2) | DARTs are total revenue-generating trades for a period divided
    by the number of trading days in that period.            
|   
|(3) | Customer trades per account are total trades divided by the
    average number of total customer accounts during the period.
|   
|(4) | Calculated based on total new customer accounts opened during
    the period.                                               






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

Overview




Sources of Revenue




26



---



##### Table of Contents





Operating Expenses




| |                                               
| | ----------------------------------------------
| | Brokerage, clearing and other related expenses





| |                         
| | ------------------------
| | Other operating expenses



27



---



##### Table of Contents



Results of Operations




|                                                |  |                         |         |   |      |   |        |      |  |   |        |  
|----------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                |  | Year Ended December 31, |        
|                                                |  |                         |        
|                                                |  | 2005                    |         |   | 2004 |   |        | 2003 | 
|                                                |  |                         |         |   |      |   |        |      | 
|Results of Operations                           |  |                         |         |   |      |   |        |      |  |   |        |  
|Total revenues (in thousands)                   |  | $                       | 128,983 |   |      | $ | 93,069 |      |  | $ | 48,181 |  
|Brokerage, clearing, and other related expenses |  |                         | 11.8    | % |      |   | 15.3   | %    |  |   | 17.6   | %
|Compensation and benefits                       |  |                         | 11.0    |   |      |   | 10.5   |      |  |   | 10.5   |  
|Advertising                                     |  |                         | 4.4     |   |      |   | 7.2    |      |  |   | 6.2    |  
|Quotation services                              |  |                         | 3.3     |   |      |   | 4.0    |      |  |   | 4.1    |  
|Depreciation and amortization                   |  |                         | 1.8     |   |      |   | 1.8    |      |  |   | 1.6    |  
|Technology and telecommunication                |  |                         | 1.8     |   |      |   | 1.5    |      |  |   | 1.4    |  
|Other                                           |  |                         | 3.7     |   |      |   | 3.6    |      |  |   | 2.1    |  
|Income before income taxes                      |  |                         | 62.2    |   |      |   | 56.1   |      |  |   | 56.5   |  
|Income taxes                                    |  |                         | 24.4    |   |      |   | 22.6   |      |  |   | 22.6   |  
|Net income                                      |  |                         | 37.8    |   |      |   | 33.5   |      |  |   | 33.9   |  



| |                                                                     
| | --------------------------------------------------------------------
| | Year Ended December 31, 2005 versus Year Ended
    December 31, 2004



| |         
| | --------
| | Overview





| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | total customer accounts increased by 60,800 to 161,800, or 60.2%;       
|
| |  | total trades increased by 1.5 million to 4.9 million,
    or 44.2%; and 
|
| |  | average commission per trade decreased by $2.45 to $18.54, or
    11.7%.





| |               
| | --------------
| | Total revenues



28



---



##### Table of Contents





| |                                                
| | -----------------------------------------------
| | Brokerage, clearing, and other related expenses





| |                          
| | -------------------------
| | Compensation and benefits





| |            
| | -----------
| | Advertising





| |                   
| | ------------------
| | Quotation services





| |                              
| | -----------------------------
| | Depreciation and amortization





| |                                 
| | --------------------------------
| | Technology and telecommunication





| |      
| | -----
| | Other





| |             
| | ------------
| | Income taxes



29



---



##### Table of Contents





| |           
| | ----------
| | Net income





| |                                                                     
| | --------------------------------------------------------------------
| | Year Ended December 31, 2004 versus Year Ended
    December 31, 2003



| |         
| | --------
| | Overview





| |   |                                                                        
| | - | -----------------------------------------------------------------------
| |  | total customer accounts increased by 43,300 to 101,000, or 74.9%;      
|
| |  | total trades increased by 1.5 million to 3.4 million,
    or 78.1%; and
|
| |  | average commission per trade increased by $1.09 to $20.99, or
    5.5%.





| |               
| | --------------
| | Total revenues





| |                                                
| | -----------------------------------------------
| | Brokerage, clearing, and other related expenses





| |                          
| | -------------------------
| | Compensation and benefits





| |            
| | -----------
| | Advertising



30



---



##### Table of Contents





| |                   
| | ------------------
| | Quotation services





| |                              
| | -----------------------------
| | Depreciation and amortization





| |                                 
| | --------------------------------
| | Technology and telecommunication





| |      
| | -----
| | Other





| |             
| | ------------
| | Income taxes





| |           
| | ----------
| | Net income



Liquidity and Capital Resources






15c3-1) 15c3-1,


31



---



##### Table of Contents



2 3 2 3


15c3-1; 15c3-1




| |          
| | ---------
| | Cash Flow









| |                     
| | --------------------
| | Capital Expenditures



Off-Balance-Sheet Arrangements




32



---



##### Table of Contents





| |                                                                                 
| | --------------------------------------------------------------------------------
| | Summary Disclosures about Contractual Obligations and
    Commercial Commitments



|                            |  |                        |       |           |        |   |       |             |           |   |             |  |         |   |   |  |  |   |   | 
|--------------------------- |  | ---------------------- | ----- | --------- | ------ | - | ----- | ----------- | --------- | - | ----------- |  | ------- | - | - |  |  | - | - | 
|                            |  | Payments Due by Period
|                            |  |                       
|                            |  |                        |       | Less Than |        |   |       |             | More Than
|Contractual Obligations     |  | Total                  |       |           | 1 Year |   |       | 1 - 3 Years |           |   | 3 - 5 Years |  | 5 Years
|                            |  |                        |       |           |        |   |       |             |           |   |             |  |        
|                            |  | (In thousands)        
|Capital lease obligations   |  | $                      | 142   |           |        | $ | 111   |             |           | $ | 31          |  |         | $ |  |  |  | $ |  | 
|Operating lease obligations |  |                        | 897   |           |        |   | 494   |             |           |   | 403         |  |         |   |  |  |  |   |  | 
|Purchase obligations        |  |                        | 1,196 |           |        |   | 842   |             |           |   | 354         |  |         |   |  |  |  |   |  | 
|                            |  |                        |       |           |        |   |       |             |           |   |             |  |         |   |  
|Total                       |  | $                      | 2,235 |           |        | $ | 1,447 |             |           | $ | 788         |  |         | $ |  |  |  | $ |  | 
|                            |  |                        |       |           |        |   |       |             |           |   |             |  |         |   |  

Critical Accounting Policies


10-K,




| |         
| | --------
| | Software

98-1




Recently Issued Accounting Standards


Share-Based Payments Accounting for
Stock-Based Compensation Accounting for Stock Issued to Employees


33



---



##### Table of Contents














|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK









34



---



##### Table of Contents










|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

10-K.







|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE








|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures




Changes in Internal Control Over Financial Reporting






|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION






PART III


10-K 10-K,


35



---



##### Table of Contents






PART IV







|         |                                                                      
|-------- | ---------------------------------------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
    FORM 10-K

10-K:


|       |     |  |             |                                                                                                                        
|------ | --- |  | ----------- | -----------------------------------------------------------------------------------------------------------------------
|Number |     |  | Description
|       |     |  |            
|       | F-1 |  |             | Index to Consolidated Financial Statements                                                                             
|       | F-2 |  |             | Report of Ernst & Young LLP,
    Independent Registered Public Accounting Firm                                         
|       | F-3 |  |             | Consolidated Statements of Operations at
    December 31, 2005, 2004 and 2003                                          
|       | F-4 |  |             | Consolidated Statements of Financial
    Condition at December 31, 2005 and 2004                                       
|       | F-5 |  |             | Consolidated Statements of Changes in
    Stockholders Equity for the years ended December 31,
    2005, 2004 and 2003
|       | F-6 |  |             | Consolidated Statements of Cash Flows for
    the years ended December 31, 2005, 2004 and 2003                         
|       | F-7 |  |             | Notes to Consolidated Financial
    Statements                                                                         



10-K:


|                                                               |  |      |     | 
|-------------------------------------------------------------- |  | ---- | --- | 
|                                                               |  | Page |    
|                                                               |  |      |    
|Schedule I  Condensed
    Financial Information of Registrant |  |      | S-1 | 









36



---



##### Table of Contents






SIGNATURES




|                                       |  |                                                                          |  | 
|-------------------------------------- |  | ------------------------------------------------------------------------ |  | 
|Signature                              |  | Title                                                                   
|                                       |  |                                                                         
|                                      
|/s/ JAMES A. GRAYJames A. Gray         |  | Chairman of the Board                                                   
|                                      
|/s/ DAVID S. KALTDavid S. Kalt         |  | Chief Executive Officer
    (Principal Executive Officer) and Director  
|                                      
|/s/ NED W. BENNETTNed W. Bennett       |  | Chief Operating Officer and Director                                    
|                                      
|/s/ DAVID A. FISHERDavid A. Fisher     |  | Chief Financial Officer
    (Principal Financial and Accounting Officer)
|                                      
|/s/ BRUCE EVANSBruce Evans             |  | Director                                                                
|                                      
|/s/ THOMAS PATRICKThomas Patrick       |  | Director                                                                
|                                      
|/s/ STEVEN SCOTT WALDSteven Scott Wald |  | Director                                                                

37



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##### Table of Contents



Exhibits


|        |       |  |             |                                                                                                                                                                                                
|------- | ----- |  | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |            
|Number  |       |  | Description
|        |       |  |            
|        | 2.1   |  |             | Agreement and Plan of Merger, dated as of June 30, 2004, by and
    among optionsXpress, Inc., optionsXpress Holdings, Inc. and
    optionsXpress MergerCo, Inc.(1)                            
|        | 2.2   |  |             | Omnibus Amendment, Waiver and Consent, dated as of June 30,
    2004, by and among optionsXpress, Inc., optionsXpress Holdings,
    Inc. and each of the other signatories thereto(1)          
|        | 3.1   |  |             | Amended and Restated Certificate of Incorporation of
    optionsXpress Holdings, Inc., incorporated by reference to
    Exhibit 3.1 to the Annual Report on Form 10-K, filed March
    23, 2005
|        | 3.2   |  |             | Amended and Restated By-laws of optionsXpress Holdings, Inc.(1)                                                                                                                                
|        | 4.1   |  |             | Certificate of Common Stock of optionsXpress Holdings, Inc.(1)                                                                                                                                 
|        | 4.2   |  |             | Registration Agreement, dated as of January 15, 2004, by and
    among investment funds affiliated with Summit Partners, L.P. and
    stockholders listed on the signature pages thereto(1)    
|        | 10.1  |  |             | Stock Purchase and Recapitalization Agreement, dated as of
    December 17, 2003, by and among optionsXpress, Inc., the
    purchasers named therein and the sellers named therein(1)          
|        | 10.2  |  |             | Stockholders Agreement, dated as of January 15, 2004, by and
    among investment funds affiliated with Summit Partners, L.P. and
    stockholders listed on the signature pages thereto(1)    
|        | 10.3  |  |             | Investor Rights Agreement, dated as of January 15, 2004, by and
    among investment funds affiliated with Summit Partners, L.P. and
    stockholders listed on the signature pages thereto(1) 
|        | 10.4  |  |             | Amended and Restated Restricted Stock Agreement, dated January
    15, 2004, by and between optionsXpress, Inc. and James A.
    Gray(1)(2)                                                    
|        | 10.5  |  |             | Amended and Restated Restricted Stock Agreement, dated January
    15, 2004, by and between optionsXpress, Inc. and David S.
    Kalt(1)(2)                                                    
|        | 10.6  |  |             | Amended and Restated Restricted Stock Agreement, dated January
    15, 2004, by and between optionsXpress, Inc. and Ned W.
    Bennett(1)(2)                                                   
|        | 10.7  |  |             | Restricted Stock Agreement, by and between optionsXpress
    Holdings, Inc. and David A. Fisher(1)(2)                                                                                          
|        | 10.8  |  |             | Management Rights Agreement, dated January 15, 2004, by and
    among investment funds affiliated with Summit Partners, L.P.(1)                                                                
|        | 10.9  |  |             | optionsXpress, Inc. 2001 Equity Incentive Plan(1)                                                                                                                                              
|        | 10.10 |  |             | Form of optionsXpress Holdings, Inc. 2005 Equity Incentive
    Plan(1)                                                                                                                         
|        | 10.11 |  |             | Form of optionsXpress Holdings, Inc. 2005 Employee Stock
    Purchase Plan(1)                                                                                                                  
|        | 10.12 |  |             | Retention Agreement, by and between optionsXpress, Inc. and
    James A. Gray(1)                                                                                                               
|        | 10.13 |  |             | Employment Agreement, dated as of January 15, 2004, by and
    between optionsXpress, Inc. and David S. Kalt(1)(2)                                                                             
|        | 10.14 |  |             | Employment Agreement, dated as of January 15, 2004, by and
    between optionsXpress, Inc. and Ned W. Bennett(1)(2)                                                                            
|        | 10.15 |  |             | Employment Agreement, by and between optionsXpress Holdings,
    Inc. and David A. Fisher(1)(2)                                                                                                
|        | 10.16 |  |             | Clearing Agreement, dated September 13, 2004, by and between
    optionsXpress, Inc. and Spear, Leeds & Kellogg L.P. (n/k/a
    Goldman Sachs Execution & Clearing, L.P.)(1)                   
|        | 10.17 |  |             | Form of Indemnification Agreement, dated as of January 15, 2004,
    by and between optionsXpress, Inc. and its directors(1)                                                                   
|        | 10.18 |  |             | Amended and Restated 2005 Employee Stock Purchase Plan,
    incorporated by reference to the Report on Form 8-K, filed May
    17, 2005(2)                                                     
|        | 14.1  |  |             | Code of Ethics                                                                                                                                                                                 
|        | 21.1  |  |             | Subsidiaries of optionsXpress Holdings, Inc.(1)                                                                                                                                                
|        | 23.1  |  |             | Consent of Ernst & Young LLP                                                                                                                                                                   

38



---



##### Table of Contents



|        |      |  |             |                                                                                                                                                                                      
|------- | ---- |  | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |            
|Number  |      |  | Description
|        |      |  |            
|        | 31.1 |  |             | Certification of Chief Executive Officer Pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002                                                                               
|        | 31.2 |  |             | Certification of Chief Financial Officer Pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002                                                                               
|        | 32.1 |  |             | Certification of Chief Executive Officer and Chief Financial
    Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002






|    |                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the same exhibit filed with
    optionsXpress Holdings, Inc Registration Statement on
    Form S-1
|   
|(2) | Management Contract                                                                                                            

39



---



##### Table of Contents



optionsXpress Holdings, Inc.


Consolidated Financial Statements


Years Ended December 31, 2005, 2004 and 2003


Contents


|                                                               |  |  |     | 
|-------------------------------------------------------------- |  |  | --- | 
|Consolidated Financial Statements                              |  |  | F-1 | 
|Report of Independent Registered Public
    Accounting Firm    |  |  | F-2 | 
|Consolidated Statements of Operations                          |  |  | F-3 | 
|Consolidated Statements of Financial
    Condition             |  |  | F-4 | 
|Consolidated Statements of Changes in
    Stockholders Equity |  |  | F-5 | 
|Consolidated Statements of Cash Flows                          |  |  | F-6 | 
|Notes to Consolidated Financial
    Statements                 |  |  | F-7 | 

F-1



---



##### Table of Contents






Report of Independent Registered Public Accounting Firm


















F-2



---



##### Table of Contents



optionsXpress Holdings, Inc.





Consolidated Statements of Operations


|                                                |  |                                       |         |  |      |   |        |      |  |   |        | 
|----------------------------------------------- |  | ------------------------------------- | ------- |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                |  | Years Ended December 31               |        
|                                                |  |                                       |        
|                                                |  | 2005                                  |         |  | 2004 |   |        | 2003 | 
|                                                |  |                                       |         |  |      |   |        |      | 
|                                                |  | (In thousands, except per share data) |        
|Revenues                                        |  |                                       |         |  |      |   |        |      |  |   |        | 
|Commissions                                     |  | $                                     | 91,410  |  |      | $ | 71,567 |      |  | $ | 38,088 | 
|Other brokerage-related revenue                 |  |                                       | 24,503  |  |      |   | 17,751 |      |  |   | 8,793  | 
|Interest income                                 |  |                                       | 12,813  |  |      |   | 3,648  |      |  |   | 1,274  | 
|Other income                                    |  |                                       | 257     |  |      |   | 103    |      |  |   | 26     | 
|                                                |  |                                       |         |  |      |   |        |      | 
|Total revenues                                  |  |                                       | 128,983 |  |      |   | 93,069 |      |  |   | 48,181 | 
|Expenses                                        |  |                                       |         |  |      |   |        |      |  |   |        | 
|Brokerage, clearing, and other related expenses |  |                                       | 15,295  |  |      |   | 14,258 |      |  |   | 8,494  | 
|Compensation and benefits                       |  |                                       | 14,175  |  |      |   | 9,760  |      |  |   | 5,037  | 
|Advertising                                     |  |                                       | 5,681   |  |      |   | 6,675  |      |  |   | 2,975  | 
|Quotation services                              |  |                                       | 4,249   |  |      |   | 3,693  |      |  |   | 1,984  | 
|Depreciation and amortization                   |  |                                       | 2,293   |  |      |   | 1,648  |      |  |   | 770    | 
|Technology and telecommunication                |  |                                       | 2,305   |  |      |   | 1,434  |      |  |   | 693    | 
|Other                                           |  |                                       | 4,732   |  |      |   | 3,376  |      |  |   | 1,010  | 
|                                                |  |                                       |         |  |      |   |        |      | 
|Total expenses                                  |  |                                       | 48,730  |  |      |   | 40,844 |      |  |   | 20,963 | 
|                                                |  |                                       |         |  |      |   |        |      | 
|Income before income taxes                      |  |                                       | 80,253  |  |      |   | 52,225 |      |  |   | 27,218 | 
|Income taxes                                    |  |                                       | 31,512  |  |      |   | 21,015 |      |  |   | 10,862 | 
|                                                |  |                                       |         |  |      |   |        |      | 
|Net income                                      |  | $                                     | 48,741  |  |      | $ | 31,210 |      |  | $ | 16,356 | 
|                                                |  |                                       |         |  |      |   |        |      | 
|Earnings per common share:                      |  |                                       |         |  |      |   |        |      |  |   |        | 
|Basic                                           |  | $                                     | 0.79    |  |      | $ | 0.56   |      |  | $ | 0.30   | 
|Diluted                                         |  |                                       | 0.79    |  |      |   | 0.55   |      |  |   | 0.29   | 
|Weighted-average number of common shares:       |  |                                       |         |  |      |   |        |      |  |   |        | 
|Basic                                           |  |                                       | 60,136  |  |      |   | 37,956 |      |  |   | 40,583 | 
|Diluted                                         |  |                                       | 62,055  |  |      |   | 57,264 |      |  |   | 56,783 | 



F-3



---



##### Table of Contents



optionsXpress Holdings, Inc.





Consolidated Statements of Financial Condition


|                                                                                                                                                                                            |  |                |         |   |      |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------ | 
|                                                                                                                                                                                            |  | December 31    |        
|                                                                                                                                                                                            |  |                |        
|                                                                                                                                                                                            |  | 2005           |         |   | 2004 |  
|                                                                                                                                                                                            |  |                |         |   |      |  
|                                                                                                                                                                                            |  | (In thousands) |        
|ASSETS                                                                                                                                                                                     
|Cash and cash equivalents                                                                                                                                                                   |  | $              | 10,258  |   |      | $ | 24,759 | 
|Cash segregated in compliance with federal regulations                                                                                                                                      |  |                | 585     |   |      |   |       | 
|Short-term investments                                                                                                                                                                      |  |                | 95,275  |   |      |   |       | 
|Receivable from brokers                                                                                                                                                                     |  |                | 11,765  |   |      |   | 9,299  | 
|Security deposits                                                                                                                                                                           |  |                | 547     |   |      |   | 313    | 
|Fixed assets (net of accumulated depreciation and amortization
    of $4,626 and $2,333, respectively)                                                                                      |  |                | 4,088   |   |      |   | 3,732  | 
|Other assets                                                                                                                                                                                |  |                | 3,655   |   |      |   | 1,892  | 
|Investment in optionsXpress Australia Pty Limited                                                                                                                                           |  |                | 396     |   |      |   | 100    | 
|                                                                                                                                                                                            |  |                |         |   |      |  
|Total assets                                                                                                                                                                                |  | $              | 126,569 |   |      | $ | 40,095 | 
|                                                                                                                                                                                            |  |                |         |   |      |  
|                                                                                                                                                                                           
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                       
|Accounts payable and accrued liabilities                                                                                                                                                    |  | $              | 6,570   |   |      | $ | 5,023  | 
|Payables to customers                                                                                                                                                                       |  |                | 369     |   |      |   |       | 
|Current income taxes payable                                                                                                                                                                |  |                | 2       |   |      |   | 1,152  | 
|Net deferred income tax liabilities                                                                                                                                                         |  |                | 1,109   |   |      |   | 914    | 
|                                                                                                                                                                                            |  |                |         |   |      |  
|Total liabilities                                                                                                                                                                           |  |                | 8,050   |   |      |   | 7,089  | 
|Stockholders equity                                                                                                                                                                        |  |                |         |   |      |   |        | 
|Common stock, $0.0001 par value, 187,500 shares
    authorized; 2005  62,101 issued and outstanding,
    2004  38,296 issued and outstanding                                              |  |                | 6       |   |      |   | 4      | 
|Convertible preferred stock, $0.0001 par
    value,75,000 shares authorized as of December 31, 2005
    and 2004; 2005  0 issued and outstanding,
    2004  18,196 issued and outstanding |  |                |        |   |      |   | 2      | 
|Additional paid-in capital                                                                                                                                                                  |  |                | 90,176  |   |      |   | 12,450 | 
|Accumulated other comprehensive income (loss)                                                                                                                                               |  |                | (13     | ) |      |   | 2      | 
|Retained earnings                                                                                                                                                                           |  |                | 28,350  |   |      |   | 20,548 | 
|                                                                                                                                                                                            |  |                |         |   |      |  
|Total stockholders equity                                                                                                                                                                  |  |                | 118,519 |   |      |   | 33,006 | 
|                                                                                                                                                                                            |  |                |         |   |      |  
|Total liabilities and stockholders equity                                                                                                                                                  |  | $              | 126,569 |   |      | $ | 40,095 | 
|                                                                                                                                                                                            |  |                |         |   |      |  



F-4



---



##### Table of Contents



optionsXpress Holdings, Inc.





Consolidated Statements of Changes in Stockholders
Equity


|                                             |  |                |         |             |                 |          |    |            |             |  |               |   |  |          |    |   |               |   |         |          |  |   |       |   |  |   |         |   |  |   |         |  
|-------------------------------------------- |  | -------------- | ------- | ----------- | --------------- | -------- | -- | ---------- | ----------- |  | ------------- | - |  | -------- | -- | - | ------------- | - | ------- | -------- |  | - | ----- | - |  | - | ------- | - |  | - | ------- | -
|                                             |  |                |         |             |                 | Series A |    |            |             |  |               |   |  |          |   
|                                             |  |                |         | Convertible |                 |          |    |            | Accumulated |  |               |   |  |         
|                                             |  | Common Stock   |         |             | Preferred Stock |          |    | Additional |             |  | Other         |   |  |          |    |  
|                                             |  |                |         |             |                 |          |    | Paid-In    |             |  | Comprehensive |   |  | Retained |    |   |              
|                                             |  | Shares         |         |             | Amount          |          |    | Shares     |             |  | Amount        |   |  | Capital  |    |   | Income (Loss) |   |         | Earnings |  |   | Total |  
|                                             |  |                |         |             |                 |          |    |            |             |  |               |   |  |          |    |   |               |   |         |          |  |   |       |  
|                                             |  | (In thousands) |        
|Balance, January 1, 2003                     |  |                | 40,365  |             |                 |          | 4  |            |             |  | 14,448        |   |  |          | 1  |   |               |   | 12,964  |          |  |   |      |   |  |   | (10,053 | ) |  |   | 2,916   |  
|Convertible preferred stock redeemed         |  |                |        |             |                 |          |   |            |             |  | (500          | ) |  |          |   |   |               |   | (2,000  | )        |  |   |      |   |  |   |        |   |  |   | (2,000  | )
|Options exercised                            |  |                | 764     |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   | 162     |          |  |   |      |   |  |   |        |   |  |   | 162     |  
|Stock dividend (Note 10)                     |  |                | 9       |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   | 149     |          |  |   |      |   |  |   | (149    | ) |  |   |        |  
|Dividends declared                           |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   |        |          |  |   |      |   |  |   | (9,455  | ) |  |   | (9,455  | )
|Net income                                   |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   |        |          |  |   |      |   |  |   | 16,356  |   |  |   | 16,356  |  
|                                             |  |                |         |             |                 |          |    |            |             |  |               |   |  |          |    |   |               |   |         |          |  |   |       |  
|Balance, December 31, 2003                   |  |                | 41,138  |             |                 |          | 4  |            |             |  | 13,948        |   |  |          | 1  |   |               |   | 11,275  |          |  |   |      |   |  |   | (3,301  | ) |  |   | 7,979   |  
|Preferred stock converted to common stock    |  |                | 13,948  |             |                 |          | 1  |            |             |  | (13,948       | ) |  |          | (1 | ) |               |   |        |          |  |   |      |   |  |   |        |   |  |   |        |  
|Convertible preferred stock issued (Note 10) |  |                |        |             |                 |          |   |            |             |  | 18,196        |   |  |          | 2  |   |               |   | 88,388  |          |  |   |      |   |  |   |        |   |  |   | 88,390  |  
|Common stock redeemed (Note 10)              |  |                | (18,196 | )           |                 |          | (2 | )          |             |  |               |   |  |          |   |   |               |   | (88,388 | )        |  |   |      |   |  |   |        |   |  |   | (88,390 | )
|Direct cost of capital raised                |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   | (2,491  | )        |  |   |      |   |  |   |        |   |  |   | (2,491  | )
|Tax benefit (Note 10)                        |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   | 646     |          |  |   |      |   |  |   |        |   |  |   | 646     |  
|Common stock issued                          |  |                | 473     |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   | 2,654   |          |  |   |      |   |  |   |        |   |  |   | 2,654   |  
|Common stock redeemed                        |  |                | (74     | )           |                 |          |   |            |             |  |              |   |  |          |   |   |               |   | (355    | )        |  |   |      |   |  |   |        |   |  |   | (355    | )
|Options exercised                            |  |                | 986     |             |                 |          | 1  |            |             |  |              |   |  |          |   |   |               |   | 374     |          |  |   |      |   |  |   |        |   |  |   | 375     |  
|Stock dividend (Note 10)                     |  |                | 21      |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   | 347     |          |  |   |      |   |  |   | (347    | ) |  |   |        |  
|Dividends declared                           |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   |        |          |  |   |      |   |  |   | (7,014  | ) |  |   | (7,014  | )
|Net income                                   |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   |        |          |  |   |      |   |  |   | 31,210  |   |  |   | 31,210  |  
|Currency translation adjustment              |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   |        |          |  |   | 2     |   |  |   |        |   |  |   | 2       |  
|                                             |  |                |         |             |                 |          |    |            |             |  |               |   |  |          |    |   |               |   |         |          |  |   |       |  
|Total comprehensive income                   |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   |        |          |  |   | 2     |   |  |   | 31,210  |   |  |   | 31,212  |  
|                                             |  |                |         |             |                 |          |    |            |             |  |               |   |  |          |    |   |               |   |         |          |  |   |       |  
|Balance, December 31, 2004                   |  |                | 38,296  |             |                 | $        | 4  |            |             |  | 18,196        |   |  | $        | 2  |   |               | $ | 12,450  |          |  | $ | 2     |   |  | $ | 20,548  |   |  | $ | 33,006  |  
|Preferred stock converted into common stock  |  |                | 18,196  |             |                 |          | 2  |            |             |  | (18,196       | ) |  |          | (2 | ) |               |   |        |          |  |   |      |   |  |   |        |   |  |   |        |  
|Proceeds from initial public offering        |  |                | 5,000   |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   | 76,725  |          |  |   |      |   |  |   |        |   |  |   | 76,725  |  
|Direct costs of capital raised               |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   | (1,885  | )        |  |   |      |   |  |   |        |   |  |   | (1,885  | )
|Tax benefit (Note 10)                        |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   | 1,923   |          |  |   |      |   |  |   |        |   |  |   | 1,923   |  
|Stock options expensed                       |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   | 24      |          |  |   |      |   |  |   |        |   |  |   | 24      |  
|Employee stock purchase plan                 |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   | 14      |          |  |   |      |   |  |   |        |   |  |   | 14      |  
|Stock option exercises                       |  |                | 609     |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   | 924     |          |  |   |      |   |  |   |        |   |  |   | 924     |  
|Stock dividend (Note 10)                     |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   | 1       |          |  |   |      |   |  |   | (1      | ) |  |   |        |  
|Dividend declared                            |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   |        |          |  |   |      |   |  |   | (40,938 | ) |  |   | (40,938 | )
|Net income                                   |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   |        |          |  |   |      |   |  |   | 48,741  |   |  |   | 48,741  |  
|Currency translation adjustment              |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   |        |          |  |   | 9     |   |  |   |        |   |  |   | 9       |  
|Unrealized loss on short-term investments    |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   |        |          |  |   | (24   | ) |  |   |        |   |  |   | (24     | )
|                                             |  |                |         |             |                 |          |    |            |             |  |               |   |  |          |    |   |               |   |         |          |  |   |       |  
|Total comprehensive income                   |  |                |        |             |                 |          |   |            |             |  |              |   |  |          |   |   |               |   |        |          |  |   | (15   | ) |  |   |        |   |  |   | (15     | )
|                                             |  |                |         |             |                 |          |    |            |             |  |               |   |  |          |    |   |               |   |         |          |  |   |       |  
|Balance, December 31, 2005                   |  |                | 62,101  |             |                 |          | 6  |            |             |  |              |   |  |          |   |   |               |   | 90,176  |          |  |   | (13   | ) |  |   | 28,350  |   |  |   | 118,519 |  



F-5



---



##### Table of Contents



optionsXpress Holdings, Inc.





Consolidated Statements of Cash Flows


|                                                                                  |  |                         |          |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                  |  | Years Ended December 31 |         
|                                                                                  |  |                         |         
|                                                                                  |  | 2005                    |          |   | 2004 |   |         | 2003 | 
|                                                                                  |  |                         |          |   |      |   |         |      | 
|                                                                                  |  | (In thousands)          |         
|Operating activities                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Net income                                                                        |  | $                       | 48,741   |   |      | $ | 31,210  |      |  | $ | 16,356  |  
|Adjustments to reconcile net income to cash provided by
    operating activities: |  |                         |          |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                     |  |                         | 2,293    |   |      |   | 1,648   |      |  |   | 770     |  
|Net deferred income taxes                                                         |  |                         | 195      |   |      |   | 469     |      |  |   | 220     |  
|Tax benefit (Note 10)                                                             |  |                         | 1,923    |   |      |   | 646     |      |  |   |        |  
|Stock options expensed                                                            |  |                         | 24       |   |      |   |        |      |  |   |        |  
|Gain on investment in optionsXpress Australia Pty Limited                         |  |                         | (189     | ) |      |   | (41     | )    |  |   |        |  
|Changes in operating assets and liabilities:                                      |  |                         |          |   |      |   |         |      |  |   |         |  
|(Increase) decrease in:                                                           |  |                         |          |   |      |   |         |      |  |   |         |  
|Cash segregated in compliance with federal regulations                            |  |                         | (585     | ) |      |   |        |      |  |   |        |  
|Receivable from brokers                                                           |  |                         | (2,466   | ) |      |   | (4,929  | )    |  |   | (3,498  | )
|Security deposits                                                                 |  |                         | (234     | ) |      |   | (20     | )    |  |   | (20     | )
|Other assets                                                                      |  |                         | 237      |   |      |   | (1,549  | )    |  |   | (95     | )
|Increase (decrease) in:                                                           |  |                         |          |   |      |   |         |      |  |   |         |  
|Accounts payable and accrued liabilities                                          |  |                         | 1,547    |   |      |   | 3,669   |      |  |   | 654     |  
|Payables to customers                                                             |  |                         | 369      |   |      |   |        |      |  |   |        |  
|Current income taxes payable                                                      |  |                         | (1,150   | ) |      |   | 940     |      |  |   | (1,076  | )
|                                                                                  |  |                         |          |   |      |   |         |      | 
|Net cash provided by operating activities                                         |  |                         | 50,705   |   |      |   | 32,043  |      |  |   | 13,311  |  
|Investing activities                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Loan to affiliates and non-affiliates                                             |  |                         | (2,098   | ) |      |   | (57     | )    |  |   |        |  
|Purchase of short-term investments                                                |  |                         | (240,464 | ) |      |   |        |      |  |   |        |  
|Proceeds from short-term investments                                              |  |                         | 145,165  |   |      |   |        |      |  |   |        |  
|Purchases and development of computer software                                    |  |                         | (1,386   | ) |      |   | (1,593  | )    |  |   | (1,002  | )
|Purchases of fixed assets                                                         |  |                         | (1,263   | ) |      |   | (1,580  | )    |  |   | (843    | )
|                                                                                  |  |                         |          |   |      |   |         |      | 
|Net cash used in investing activities                                             |  |                         | (100,046 | ) |      |   | (3,230  | )    |  |   | (1,845  | )
|Financing activities                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Exercise of stock options                                                         |  |                         | 924      |   |      |   | 338     |      |  |   | 162     |  
|Purchases through employee stock purchase plan                                    |  |                         | 14       |   |      |   |        |      |  |   |        |  
|Redemption of convertible preferred stock                                         |  |                         |         |   |      |   |        |      |  |   | (2,000  | )
|Dividends paid                                                                    |  |                         | (40,938  | ) |      |   | (7,014  | )    |  |   | (9,455  | )
|Proceeds from initial public offering                                             |  |                         | 76,725   |   |      |   |        |      |  |   |        |  
|Redemption of common stock                                                        |  |                         |         |   |      |   | (88,708 | )    |  |   |        |  
|Issuance of convertible preferred stock                                           |  |                         |         |   |      |   | 88,390  |      |  |   |        |  
|Issuance of common stock                                                          |  |                         |         |   |      |   | 2,654   |      |  |   |        |  
|Direct costs of capital raised                                                    |  |                         | (1,885   | ) |      |   | (2,491  | )    |  |   |        |  
|                                                                                  |  |                         |          |   |      |   |         |      | 
|Net cash provided by (used) in financing activities                               |  |                         | 34,840   |   |      |   | (6,831  | )    |  |   | (11,293 | )
|                                                                                  |  |                         |          |   |      |   |         |      | 
|Net increase (decrease) in cash and cash equivalents                              |  |                         | (14,501  | ) |      |   | 21,982  |      |  |   | 173     |  
|Cash, beginning of year                                                           |  |                         | 24,759   |   |      |   | 2,777   |      |  |   | 2,604   |  
|                                                                                  |  |                         |          |   |      |   |         |      | 
|Cash and cash equivalents, end of year                                            |  | $                       | 10,258   |   |      | $ | 24,759  |      |  | $ | 2,777   |  
|                                                                                  |  |                         |          |   |      |   |         |      | 
|Supplemental disclosure of cash flow information:                                 |  |                         |          |   |      |   |         |      |  |   |         |  
|Income taxes paid                                                                 |  | $                       | 30,507   |   |      | $ | 18,950  |      |  | $ | 11,729  |  
|Interest paid                                                                     |  |                         | 17       |   |      |   | 7       |      |  |   |        |  
|Supplemental disclosure of non-cash activity:                                     |  |                         |          |   |      |   |         |      |  |   |         |  
|Non-cash exercise of options                                                      |  | $                       |         |   |      | $ | 37      |      |  | $ |        |  
|Non-cash unrealized loss on short-term investments                                |  |                         | (24      | ) |      |   |        |      |  |   |        |  
|Non-cash foreign currency translation                                             |  |                         | 9        |   |      |   | 2       |      |  |   |        |  



F-6



---



##### Table of Contents



optionsXpress Holdings, Inc.





Notes to Consolidated Financial Statements


(In thousands, except per share data)




|   |                                                   
|-- | --------------------------------------------------
|1. | Basis of Presentation and Corporate Reorganization



| |                      
| | ---------------------
| | Basis of Presentation







| |                         
| | ------------------------
| | Corporate Reorganization





|   |                     
|-- | --------------------
|2. | Nature of Operations





|   |                                           
|-- | ------------------------------------------
|3. | Summary of Significant Accounting Policies



| |                 
| | ----------------
| | Use of Estimates



F-7



---



##### Table of Contents



optionsXpress Holdings, Inc.


Notes to Consolidated Financial
Statements  (Continued)




| |            
| | -----------
| | Commissions





| |                                
| | -------------------------------
| | Other Brokerage-Related Revenue





| |                
| | ---------------
| | Interest Income





| |            
| | -----------
| | Advertising





| |             
| | ------------
| | Income Taxes





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                                                           
| | ----------------------------------------------------------
| | Cash Segregated in Compliance with Federal
    Regulations





| |                       
| | ----------------------
| | Short-term Investments



F-8



---



##### Table of Contents



optionsXpress Holdings, Inc.


Notes to Consolidated Financial
Statements  (Continued)




| |                  
| | -----------------
| | Security Deposits





| |             
| | ------------
| | Fixed Assets



Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use,




| |                                              
| | ---------------------------------------------
| | Investment in optionsXpress Australia Pty Ltd

Consolidation of
Variable Interest Entities






| |                      
| | ---------------------
| | Payables to Customers





| |                   
| | ------------------
| | Earnings Per Share



F-9



---



##### Table of Contents



optionsXpress Holdings, Inc.


Notes to Consolidated Financial
Statements  (Continued)




| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments

Disclosure about Fair Value of Financial
Instruments,




| |                         
| | ------------------------
| | Stock-Based Compensation



Accounting for Stock-Based
Compensation  Transition and Disclosure. Accounting for Stock-Based Compensation,


Accounting for Stock
Issued to Employees.


|                                                                                                                                     |  |                         |        |  |      |   |        |      |  |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                                                                                                     |  | Years Ended December 31 |       
|                                                                                                                                     |  |                         |       
|                                                                                                                                     |  | 2005                    |        |  | 2004 |   |        | 2003 | 
|                                                                                                                                     |  |                         |        |  |      |   |        |      | 
|Net income, as reported                                                                                                              |  | $                       | 48,741 |  |      | $ | 31,210 |      |  | $ | 16,356 | 
|Deduct  Total stock-based employee compensation
    expense determined under fair value-based method for all awards,
    net of tax |  |                         | 375    |  |      |   | 196    |      |  |   | 93     | 
|                                                                                                                                     |  |                         |        |  |      |   |        |      | 
|Pro forma net income                                                                                                                 |  |                         | 48,366 |  |      |   | 31,014 |      |  |   | 16,263 | 
|Less income allocable to preferred stock                                                                                             |  |                         | 1,020  |  |      |   | 9,989  |      |  |   | 4,250  | 
|                                                                                                                                     |  |                         |        |  |      |   |        |      | 
|Pro forma net income applicable to common stockholders                                                                               |  | $                       | 47,346 |  |      | $ | 21,025 |      |  | $ | 12,013 | 
|                                                                                                                                     |  |                         |        |  |      |   |        |      | 
|Income per share:                                                                                                                    |  |                         |        |  |      |   |        |      |  |   |        | 
|Basic, as reported                                                                                                                   |  | $                       | 0.79   |  |      | $ | 0.56   |      |  | $ | 0.30   | 
|Basic, pro forma                                                                                                                     |  |                         | 0.79   |  |      |   | 0.55   |      |  |   | 0.30   | 
|Diluted, as reported                                                                                                                 |  |                         | 0.79   |  |      |   | 0.55   |      |  |   | 0.29   | 
|Diluted, pro forma                                                                                                                   |  |                         | 0.79   |  |      |   | 0.54   |      |  |   | 0.29   | 



F-10



---



##### Table of Contents



optionsXpress Holdings, Inc.


Notes to Consolidated Financial
Statements  (Continued)




| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

Shared-Based Accounting for
Stock-Based
Compensation Accounting for Stock Issued to Employees share-based grant-date


value-based


share-based




|   |                       
|-- | ----------------------
|4. | Short-Term Investments



|                                   |  |                  |                           |           |      |   |            |        |  |   |            |  |  |   |        | 
|---------------------------------- |  | ---------------- | ------------------------- | --------- | ---- | - | ---------- | ------ |  | - | ---------- |  |  | - | ------ | 
|                                   |  |                  |                           | Amortized |      |   | Unrealized |        |  |  
|Maturity Period                    |  | Type of Security |                           |           | Cost |   |            | Losses |  |   | Fair Value | 
|                                   |  |                  |                           |           |      |   |            |        |  |   |            | 
|Maturity of one year or less       |  |                  | Municipal Notes           |           |      | $ | 7,999      |        |  | $ | 24         |  |  | $ | 7,975  | 
|Maturity of greater than ten years |  |                  | Auction Rate Certificates |           |      |   | 87,300     |        |  |   |           |  |  |   | 87,300 | 
|                                   |  |                  |                           |           |      |   |            |        |  |   |            | 
|                                   |  |                  |                           |           |      | $ | 95,299     |        |  | $ | 24         |  |  | $ | 95,275 | 
|                                   |  |                  |                           |           |      |   |            |        |  |   |            | 



|   |                        
|-- | -----------------------
|5. | Receivable from Brokers



|                                     |  |      |        |  |      |   |       | 
|------------------------------------ |  | ---- | ------ |  | ---- | - | ----- | 
|                                     |  | 2005 |        |  | 2004 |  
|                                     |  |      |        |  |      |  
|Receivable:                          |  |      |        |  |      |   |       | 
|Net settlement with clearing brokers |  | $    | 8,419  |  |      | $ | 6,075 | 
|Order flow receivable from brokers   |  |      | 3,346  |  |      |   | 3,224 | 
|                                     |  |      |        |  |      |  
|                                     |  | $    | 11,765 |  |      | $ | 9,299 | 
|                                     |  |      |        |  |      |  

F-11



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##### Table of Contents



optionsXpress Holdings, Inc.


Notes to Consolidated Financial
Statements  (Continued)






|   |             
|-- | ------------
|6. | Fixed Assets



|                                               |  |      |       |  |      |   |       | 
|---------------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                                               |  | 2005 |       |  | 2004 |  
|                                               |  |      |       |  |      |  
|Computer software                              |  | $    | 4,574 |  |      | $ | 3,188 | 
|Computer equipment                             |  |      | 3,566 |  |      |   | 2,602 | 
|Office furniture                               |  |      | 401   |  |      |   | 182   | 
|Leasehold improvements                         |  |      | 173   |  |      |   | 93    | 
|                                               |  |      |       |  |      |  
|                                               |  |      | 8,714 |  |      |   | 6,065 | 
|Less accumulated depreciation and amortization |  |      | 4,626 |  |      |   | 2,333 | 
|                                               |  |      |       |  |      |  
|                                               |  | $    | 4,088 |  |      | $ | 3,732 | 
|                                               |  |      |       |  |      |  





|   |             
|-- | ------------
|7. | Other Assets



|                                          |  |      |       |  |      |   |       | 
|----------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                                          |  | 2005 |       |  | 2004 |  
|                                          |  |      |       |  |      |  
|Exchange membership                       |  | $    | 160   |  |      | $ | 160   | 
|Prepaid expenses                          |  |      | 925   |  |      |   | 258   | 
|Deferred initial public offering expenses |  |      |      |  |      |   | 1,426 | 
|Interest receivable                       |  |      | 485   |  |      |   |      | 
|Loan receivable                           |  |      | 2,000 |  |      |   |      | 
|Other                                     |  |      | 85    |  |      |   | 48    | 
|                                          |  |      |       |  |      |  
|                                          |  | $    | 3,655 |  |      | $ | 1,892 | 
|                                          |  |      |       |  |      |  



|   |                                         
|-- | ----------------------------------------
|8. | Accounts Payable and Accrued Liabilities



|                              |  |      |       |  |      |   |       | 
|----------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                              |  | 2005 |       |  | 2004 |  
|                              |  |      |       |  |      |  
|Accrued employee compensation |  | $    | 2,801 |  |      | $ | 1,636 | 
|Accounts payable              |  |      | 564   |  |      |   | 1,200 | 
|Other accrued expenses        |  |      | 3,205 |  |      |   | 2,187 | 
|                              |  |      |       |  |      |  
|                              |  | $    | 6,570 |  |      | $ | 5,023 | 
|                              |  |      |       |  |      |  

F-12



---



##### Table of Contents



optionsXpress Holdings, Inc.


Notes to Consolidated Financial
Statements  (Continued)




|   |                                           
|-- | ------------------------------------------
|9. | Commitments, Contingencies, and Guarantees



| |            
| | -----------
| | Commitments



|     |  |              |     | 
|---- |  | ------------ | --- | 
|     |  | December 31, |    
|     |  |              |    
|2006 |  |              | 494 | 
|2007 |  |              | 403 | 
|     |  |              |    
|     |  | $            | 897 | 
|     |  |              |    









| |              
| | -------------
| | Contingencies





| |           
| | ----------
| | Guarantees





F-13



---



##### Table of Contents



optionsXpress Holdings, Inc.


Notes to Consolidated Financial
Statements  (Continued)






|    |               
|--- | --------------
|10. | Capitalization



| |             
| | ------------
| | Common Stock













| |                
| | ---------------
| | Preferred Stock





F-14



---



##### Table of Contents



optionsXpress Holdings, Inc.


Notes to Consolidated Financial
Statements  (Continued)








| |          
| | ---------
| | Dividends





|                             |  |      |      |   |      |   |      |      |  |   |      | 
|---------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | 
|                             |  | 2005 |      |   | 2004 |   |      | 2003 | 
|                             |  |      |      |   |      |   |      |      | 
|Common stock:                |  |      |      |   |      |   |      |      |  |   |      | 
|March 31                     |  | $    | 0.60 | * |      | $ | 0.00 |      |  | $ | 0.02 | 
|June 30                      |  |      | 0.04 |   |      |   | 0.13 | **   |  |   | 0.05 | 
|September 30                 |  |      | 0.04 |   |      |   | 0.00 |      |  |   | 0.07 | 
|December 31                  |  |      | 0.04 |   |      |   | 0.00 |      |  |   | 0.03 | 
|Convertible preferred stock: |  |      |      |   |      |   |      |      |  |   |      | 
|March 31                     |  | $    | 0.60 | * |      | $ | 0.00 |      |  | $ | 0.02 | 
|June 30                      |  |      | 0.00 |   |      |   | 0.00 |      |  |   | 0.05 | 
|September 30                 |  |      | 0.00 |   |      |   | 0.00 |      |  |   | 0.07 | 
|December 31                  |  |      | 0.00 |   |      |   | 0.00 |      |  |   | 0.03 | 






|  |                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------
|* | Dividend paid to all stockholders of record immediately prior to
    the Companys initial public offering.



|   |                                                                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Dividend paid to all stockholders of record immediately prior to
    the issuance of the new series of convertible preferred stock on
    January 15, 2004.



|    |                      
|--- | ---------------------
|11. | Employee Benefit Plan





|    |                             
|--- | ----------------------------
|12. | Employee Stock Purchase Plan





|    |                      
|--- | ---------------------
|13. | Equity Incentive Plan



F-15



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##### Table of Contents



optionsXpress Holdings, Inc.


Notes to Consolidated Financial
Statements  (Continued)






|                                        |  |           |       |           |         |   |       |           |           |  |         |  |  |           |       |  |         |  |       |  |  |   |      | 
|--------------------------------------- |  | --------- | ----- | --------- | ------- | - | ----- | --------- | --------- |  | ------- |  |  | --------- | ----- |  | ------- |  | ----- |  |  | - | ---- | 
|                                        |  | 2005      |       |           | 2004    |   |       | 2003      |          
|                                        |  |           |       |           |         |   |       |           |          
|                                        |  |           |       | Weighted- |         |   |       |           | Weighted- |  |         |  |  | Weighted- |      
|                                        |  | Number of |       |           | Average |   |       | Number of |           |  | Average |  |  | Number of |       |  | Average | 
|                                        |  | Options   |       |           | Price   |   |       | Options   |           |  | Price   |  |  | Options   |       |  | Price   | 
|                                        |  |           |       |           |         |   |       |           |           |  |         |  |  |           |       |  |         | 
|Outstanding, January 1                  |  |           | 1,276 |           |         | $ | 4.10  |           |           |  | 1,951   |  |  | $         | 0.69  |  |         |  | 2,156 |  |  | $ | 0.25 | 
|Granted to employees                    |  |           | 145   |           |         |   | 16.07 |           |           |  | 371     |  |  |           | 11.91 |  |         |  | 735   |  |  |   | 1.38 | 
|Exercised by employees                  |  |           | 609   |           |         |   | 1.52  |           |           |  | 986     |  |  |           | 0.38  |  |         |  | 764   |  |  |   | 0.21 | 
|Forfeited by employees                  |  |           | 26    |           |         |   | 4.90  |           |           |  | 60      |  |  |           | 2.60  |  |         |  | 176   |  |  |   | 0.20 | 
|                                        |  |           |       |           |         |   |       |           |           |  |         |  |  |           |       |  |         | 
|Outstanding, December 31                |  |           | 786   |           |         |   | 8.25  |           |           |  | 1,276   |  |  |           | 4.10  |  |         |  | 1,951 |  |  |   | 0.69 | 
|                                        |  |           |       |           |         |   |       |           |           |  |         |  |  |           |       |  |         | 
|Exercisable, December 31                |  |           | 361   |           |         |   | 4.95  |           |           |  | 393     |  |  |           | 0.84  |  |         |  | 538   |  |  |   | 0.25 | 
|Available for future grant, December 31 |  |           | 1,105 |           |         |   |      |           |           |  | 1,940   |  |  |           |      |  |         |  | 1,035 |  |  |   |     | 
|Weighted-average remaining life (years) |  |           | 8.1   |           |         |   |      |           |           |  | 8.4     |  |  |           |      |  |         |  | 8.6   |  |  |   |     | 



|                |       |  |      |                     |             |        |           |           |      |  |          |             |      |  |       |  |     |  |  |  |       | 
|--------------- | ----- |  | ---- | ------------------- | ----------- | ------ | --------- | --------- | ---- |  | -------- | ----------- | ---- |  | ----- |  | --- |  |  |  | ----- | 
|                |       |  |      | Options Outstanding |             |        |           |           |     
|                |       |  |      |                     |             |        |          
|Range of        |       |  |      |                     |             |        | Weighted- |          
|Exercise Prices |       |  |      |                     | Remaining   |        |           | Number of |      |  | Average  |            
|                |       |  |      |                     | Contractual |        |           | Options   |      |  | Exercise |            
|Low             |       |  | High |                     |             | Number |           |           | Life |  |          | Exercisable |      |  | Price | 
|                |       |  |      |                     |             |        |           |           |      |  |          |             |      |  |       | 
|$               | 0.17  |  |      | $                   | 0.33        |        |           |           | 103  |  |          |             | 6.36 |  |       |  | 103 |  |  |  | 0.30  | 
|                | 0.96  |  |      |                     | 0.96        |        |           |           | 193  |  |          |             | 7.35 |  |       |  | 110 |  |  |  | 0.96  | 
|                | 3.33  |  |      |                     | 10.73       |        |           |           | 214  |  |          |             | 8.30 |  |       |  | 97  |  |  |  | 8.58  | 
|                | 14.34 |  |      |                     | 16.00       |        |           |           | 218  |  |          |             | 8.91 |  |       |  | 51  |  |  |  | 15.63 | 
|                | 16.50 |  |      |                     | 18.98       |        |           |           | 58   |  |          |             | 9.35 |  |       |  |    |  |  |  | 17.51 | 
|                |       |  |      |                     |             |        |           |           |      |  |          |             |      |  |       | 
|                |       |  |      |                     |             |        |           |           | 786  |  |          |             |      |  |       |  | 361 |  |  |  |       | 
|                |       |  |      |                     |             |        |           |           |      |  |          |             |      |  |       | 

Accounting for Stock-Based
Compensation,




F-16



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##### Table of Contents



optionsXpress Holdings, Inc.


Notes to Consolidated Financial
Statements  (Continued)




|                        |  |      |         |   |      |  |         |      |  |  |         |  
|----------------------- |  | ---- | ------- | - | ---- |  | ------- | ---- |  |  | ------- | -
|                        |  | 2005 |         |   | 2004 |  |         | 2003 | 
|                        |  |      |         |   |      |  |         |      | 
|Risk-free interest rate |  |      | 4.35    | % |      |  | 3.65    | %    |  |  | 3.27    | %
|Expected volatility     |  |      | 42      | % |      |  | 30      | %    |  |  | 37      | %
|Annual dividend yield   |  |      | 1       | % |      |  | 3       | %    |  |  | 3       | %
|Expected life           |  |      | 5 years |   |      |  | 5 years |      |  |  | 5 years |  





|    |            
|--- | -----------
|14. | Credit Risk





|    |                        
|--- | -----------------------
|15. | Regulatory Requirements

15c3-1) 2 3 2 3


15c3-1; 15c3-1




|                   |  |                              |     |        |         |   |                    |         |  |   |                 |  |  |  |           | 
|------------------ |  | ---------------------------- | --- | ------ | ------- | - | ------------------ | ------- |  | - | --------------- |  |  |  | --------- | 
|                   |  | Year Ended December 31, 2005 |    
|                   |  |                              |    
|                   |  |                              |     | Excess |         |   | Ratio of Aggregate |        
|                   |  | Required                     |     |        | Net     |   |                    | Net     |  |   | Indebtedness to | 
|                   |  | Net Capital                  |     |        | Capital |   |                    | Capital |  |   | Net Capital     | 
|                   |  |                              |     |        |         |   |                    |         |  |   |                 | 
|optionsXpress, Inc |  | $                            | 592 |        |         | $ | 5,480              |         |  | $ | 4,888           |  |  |  | 1.62 to 1 | 
|brokersXpress LLC  |  |                              | 50  |        |         |   | 1,000              |         |  |   | 950             |  |  |  | 0.58 to 1 | 

F-17



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##### Table of Contents



optionsXpress Holdings, Inc.


Notes to Consolidated Financial
Statements  (Continued)


|                    |  |                              |     |        |         |   |                    |         |  |   |                 |  |  |  |           | 
|------------------- |  | ---------------------------- | --- | ------ | ------- | - | ------------------ | ------- |  | - | --------------- |  |  |  | --------- | 
|                    |  | Year Ended December 31, 2004 |    
|                    |  |                              |    
|                    |  |                              |     | Excess |         |   | Ratio of Aggregate |        
|                    |  | Required                     |     |        | Net     |   |                    | Net     |  |   | Indebtedness to | 
|                    |  | Net Capital                  |     |        | Capital |   |                    | Capital |  |   | Net Capital     | 
|                    |  |                              |     |        |         |   |                    |         |  |   |                 | 
|optionsXpress, Inc. |  | $                            | 396 |        |         | $ | 23,454             |         |  | $ | 23,058          |  |  |  | 0.25 to 1 | 
|brokersXpress LLC   |  |                              | 50  |        |         |   | 269                |         |  |   | 219             |  |  |  | 0.55 to 1 | 





|    |             
|--- | ------------
|16. | Income Taxes



|                         |  |                         |        |  |      |   |        |      |  |   |        | 
|------------------------ |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                         |  | Years Ended December 31 |       
|                         |  |                         |       
|                         |  | 2005                    |        |  | 2004 |   |        | 2003 | 
|                         |  |                         |        |  |      |   |        |      | 
|Current:                 |  |                         |        |  |      |   |        |      |  |   |        | 
|Federal                  |  | $                       | 25,421 |  |      | $ | 16,727 |      |  | $ | 8,723  | 
|State                    |  |                         | 5,896  |  |      |   | 3,819  |      |  |   | 1,919  | 
|                         |  |                         |        |  |      |   |        |      | 
|                         |  |                         | 31,317 |  |      |   | 20,546 |      |  |   | 10,642 | 
|Deferred:                |  |                         |        |  |      |   |        |      |  |   |        | 
|Federal                  |  |                         | 149    |  |      |   | 382    |      |  |   | 180    | 
|State                    |  |                         | 46     |  |      |   | 87     |      |  |   | 40     | 
|                         |  |                         |        |  |      |   |        |      | 
|                         |  |                         | 195    |  |      |   | 469    |      |  |   | 220    | 
|                         |  |                         |        |  |      |   |        |      | 
|Total income tax expense |  | $                       | 31,512 |  |      | $ | 21,015 |      |  | $ | 10,862 | 
|                         |  |                         |        |  |      |   |        |      | 





|                                              |  |                         |      |   |      |  |      |      |  |  |      |  
|--------------------------------------------- |  | ----------------------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                              |  | Years Ended December 31 |     
|                                              |  |                         |     
|                                              |  | 2005                    |      |   | 2004 |  |      | 2003 | 
|                                              |  |                         |      |   |      |  |      |      | 
|Federal income tax at statutory rate          |  |                         | 35.0 | % |      |  | 35.0 | %    |  |  | 35.0 | %
|State income taxes, net of federal tax effect |  |                         | 4.8  |   |      |  | 4.8  |      |  |  | 4.7  |  
|Other                                         |  |                         | (0.5 | ) |      |  | 0.4  |      |  |  | 0.2  |  
|                                              |  |                         |      |   |      |  |      |      | 
|                                              |  |                         | 39.3 | % |      |  | 40.2 | %    |  |  | 39.9 | %
|                                              |  |                         |      |   |      |  |      |      | 



F-18



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##### Table of Contents



optionsXpress Holdings, Inc.


Notes to Consolidated Financial
Statements  (Continued)




|    |                   
|--- | ------------------
|17. | Earnings Per Share



|                                                                   |  |                         |        |  |      |   |        |      |  |   |        | 
|------------------------------------------------------------------ |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                                   |  | Years Ended December 31 |       
|                                                                   |  |                         |       
|                                                                   |  | 2005                    |        |  | 2004 |   |        | 2003 | 
|                                                                   |  |                         |        |  |      |   |        |      | 
|Reported net income                                                |  | $                       | 48,741 |  |      | $ | 31,210 |      |  | $ | 16,356 | 
|Less income allocable to preferred stock                           |  |                         | 1,028  |  |      |   | 10,052 |      |  |   | 4,275  | 
|                                                                   |  |                         |        |  |      |   |        |      | 
|Adjusted net income applicable to common stockholders              |  | $                       | 47,713 |  |      | $ | 21,158 |      |  | $ | 12,081 | 
|                                                                   |  |                         |        |  |      |   |        |      | 
|Weighted-average number of common shares outstanding 
    basic   |  |                         | 60,136 |  |      |   | 37,956 |      |  |   | 40,583 | 
|Effect of dilutive securities                                      |  |                         | 1,919  |  |      |   | 19,308 |      |  |   | 16,200 | 
|                                                                   |  |                         |        |  |      |   |        |      | 
|Weighted-average number of common shares outstanding 
    diluted |  |                         | 62,055 |  |      |   | 57,264 |      |  |   | 56,783 | 
|                                                                   |  |                         |        |  |      |   |        |      | 
|Basic EPS                                                          |  | $                       | 0.79   |  |      | $ | 0.56   |      |  |   | 0.30   | 
|Diluted EPS                                                        |  |                         | 0.79   |  |      |   | 0.55   |      |  |   | 0.29   | 



|    |                           
|--- | --------------------------
|18. | Related Party Transactions







month-to




|    |                  
|--- | -----------------
|19. | Subsequent Events



F-19



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##### Table of Contents



optionsXpress Holdings, Inc.


Notes to Consolidated Financial
Statements  (Continued)




|    |                                            
|--- | -------------------------------------------
|20. | Quarterly Financial Information (Unaudited)



|                           |  |         |        |  |         |   |        |         |  |   |         |  |  |           |        |  |  |   |         | 
|-------------------------- |  | ------- | ------ |  | ------- | - | ------ | ------- |  | - | ------- |  |  | --------- | ------ |  |  | - | ------- | 
|                           |  | 2005    |       
|                           |  |         |       
|                           |  | First   |        |  | Second  |   |        | Third   |  |   | Fourth  |  |  |          
|                           |  | Quarter |        |  | Quarter |   |        | Quarter |  |   | Quarter |  |  | Full Year |       
|                           |  |         |        |  |         |   |        |         |  |   |         |  |  |           |       
|Revenues                   |  | $       | 26,866 |  |         | $ | 28,581 |         |  | $ | 33,611  |  |  | $         | 39,925 |  |  | $ | 128,983 | 
|Income before income taxes |  |         | 16,242 |  |         |   | 17,501 |         |  |   | 20,902  |  |  |           | 25,608 |  |  |   | 80,253  | 
|Net income                 |  |         | 9,804  |  |         |   | 10,656 |         |  |   | 12,651  |  |  |           | 15,630 |  |  |   | 48,741  | 
|Basic earnings per share   |  |         | 0.16   |  |         |   | 0.17   |         |  |   | 0.20    |  |  |           | 0.25   |  |  |   | 0.79    | 
|Diluted earnings per share |  |         | 0.16   |  |         |   | 0.17   |         |  |   | 0.20    |  |  |           | 0.25   |  |  |   | 0.79    | 

|                               |  |         |        |  |         |   |        |         |  |   |         |  |  |           |        |  |  |   |        | 
|------------------------------ |  | ------- | ------ |  | ------- | - | ------ | ------- |  | - | ------- |  |  | --------- | ------ |  |  | - | ------ | 
|                               |  | 2004    |       
|                               |  |         |       
|                               |  | First   |        |  | Second  |   |        | Third   |  |   | Fourth  |  |  |          
|                               |  | Quarter |        |  | Quarter |   |        | Quarter |  |   | Quarter |  |  | Full Year |       
|                               |  |         |        |  |         |   |        |         |  |   |         |  |  |           |       
|Revenues                       |  | $       | 23,803 |  |         | $ | 23,986 |         |  | $ | 19,717  |  |  | $         | 25,563 |  |  | $ | 93,069 | 
|Net income before income taxes |  |         | 15,236 |  |         |   | 14,042 |         |  |   | 8,451   |  |  |           | 14,496 |  |  |   | 52,225 | 
|Net income                     |  |         | 9,178  |  |         |   | 8,457  |         |  |   | 4,921   |  |  |           | 8,654  |  |  |   | 31,210 | 
|Basic earnings per share       |  |         | 0.17   |  |         |   | 0.15   |         |  |   | 0.09    |  |  |           | 0.15   |  |  |   | 0.56   | 
|Diluted earnings per share     |  |         | 0.16   |  |         |   | 0.15   |         |  |   | 0.09    |  |  |           | 0.15   |  |  |   | 0.55   | 

F-20



---



##### Table of Contents






Schedule I  Condensed Financial Information
of the Registrant.


optionsXpress Holdings, Inc.


(Parent Company)


Statement of Operations


|                                                                               |  |                |         |         |                  |   |        | 
|------------------------------------------------------------------------------ |  | -------------- | ------- | ------- | ---------------- | - | ------ | 
|                                                                               |  |                |         | For the |                 
|                                                                               |  | For the        |         |         | Period from      |  
|                                                                               |  | Year Ended     |         |         | July 31, 2004 to |  
|                                                                               |  | December 31,   |         |         | December 31,     |  
|                                                                               |  | 2005           |         |         | 2004             |  
|                                                                               |  |                |         |         |                  |  
|                                                                               |  | (In thousands) |        
|Revenues                                                                       |  |                |         |         |                  |   |        | 
|Interest income                                                                |  | $              | 1,955   |         |                  | $ | 2      | 
|Dividend income from subsidiary                                                |  |                | 66,000  |         |                  |   | 1,000  | 
|                                                                               |  |                |         |         |                  |  
|                                                                               |  |                | 67,955  |         |                  |   | 1,002  | 
|                                                                               |  |                |         |         |                  |  
|Expenses                                                                       |  |                |         |         |                  |   |        | 
|Stock based compensation                                                       |  |                |        |         |                  |   | 654    | 
|Other                                                                          |  |                | 1,980   |         |                  |   | 154    | 
|                                                                               |  |                |         |         |                  |  
|Total expenses                                                                 |  |                | 1,980   |         |                  |   | 808    | 
|                                                                               |  |                |         |         |                  |  
|Income before income taxes                                                     |  |                | 65,975  |         |                  |   | 194    | 
|Income tax benefit                                                             |  |                | 308     |         |                  |   | 399    | 
|                                                                               |  |                |         |         |                  |  
|Income before equity distributed in excess of net income from
    subsidiaries |  |                | 66,283  |         |                  |   | 593    | 
|Equity distributed in excess of net income from subsidiaries                   |  |                | (17,542 | )       |                  |   | 10,804 | 
|                                                                               |  |                |         |         |                  |  
|Net income                                                                     |  | $              | 48,741  |         |                  | $ | 11,397 | 
|                                                                               |  |                |         |         |                  |  

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##### Table of Contents



optionsXpress Holdings, Inc.


(Parent Company)


Statement of Financial Condition


|                                           |  |                |         |  |              |   |        | 
|------------------------------------------ |  | -------------- | ------- |  | ------------ | - | ------ | 
|                                           |  | At             |         |  | At           |  
|                                           |  | December 31,   |         |  | December 31, |  
|                                           |  | 2005           |         |  | 2004         |  
|                                           |  |                |         |  |              |  
|                                           |  | (In thousands) |        
|ASSETS                                    
|Cash                                       |  | $              | 488     |  |              | $ | 199    | 
|Short-term investments                     |  |                | 95,275  |  |              |   |       | 
|Current income taxes receivable            |  |                | 2,937   |  |              |   | 421    | 
|Due from subsidiary                        |  |                | 3,132   |  |              |   | 57     | 
|Deferred initial public offering costs     |  |                |        |  |              |   | 1,426  | 
|Other assets                               |  |                | 715     |  |              |   |       | 
|Investment in subsidiaries                 |  |                | 16,535  |  |              |   | 32,267 | 
|                                           |  |                |         |  |              |  
|Total assets                               |  | $              | 119,082 |  |              | $ | 34,370 | 
|                                           |  |                |         |  |              |  
|                                          
|LIABILITIES AND STOCKHOLDERS EQUITY      
|Accounts payable and accrued liabilities   |  | $              | 473     |  |              | $ | 536    | 
|Due to subsidiary                          |  |                |        |  |              |   | 806    | 
|Deferred income tax payable                |  |                | 90      |  |              |   | 22     | 
|                                           |  |                |         |  |              |  
|Total liabilities                          |  |                | 563     |  |              |   | 1,364  | 
|Total stockholders equity                 |  |                | 118,519 |  |              |   | 33,006 | 
|                                           |  |                |         |  |              |  
|Total liabilities and stockholders equity |  | $              | 119,082 |  |              | $ | 34,370 | 
|                                           |  |                |         |  |              |  

S-2



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##### Table of Contents



optionsXpress Holdings, Inc.


(Parent Company)


Statement of Cash Flows


|                                                                                  |  |                |          |         |                  |   |         |  
|--------------------------------------------------------------------------------- |  | -------------- | -------- | ------- | ---------------- | - | ------- | -
|                                                                                  |  |                |          | For the |                 
|                                                                                  |  | For the        |          |         | Period from      |  
|                                                                                  |  | Year Ended     |          |         | July 31, 2004 to |  
|                                                                                  |  | December 31,   |          |         | December 31,     |  
|                                                                                  |  | 2005           |          |         | 2004             |  
|                                                                                  |  |                |          |         |                  |  
|                                                                                  |  | (In thousands) |         
|Operating activities                                                              |  |                |          |         |                  |   |         |  
|Net income                                                                        |  | $              | 48,741   |         |                  | $ | 11,397  |  
|Adjustments to reconcile net income to cash provided by
    operating activities: |  |                |          |         |                  |   |         |  
|Equity in earnings from operations of subsidiaries                                |  |                | 17,542   |         |                  |   | (10,804 | )
|Deferred income tax payable                                                       |  |                | 68       |         |                  |   | 22      |  
|Tax benefit                                                                       |  |                | 1,923    |         |                  |   |        |  
|Stock options expensed                                                            |  |                | 24       |         |                  |   |        |  
|Stock based compensation                                                          |  |                |         |         |                  |   | 654     |  
|Changes in operating assets and liabilities:                                      |  |                |          |         |                  |   |         |  
|(Increase) decrease in:                                                           |  |                |          |         |                  |   |         |  
|Current income taxes receivable                                                   |  |                | (2,516   | )       |                  |   | (421    | )
|Due from subsidiary                                                               |  |                | (3,075   | )       |                  |   | (57     | )
|Deferred initial public offering costs                                            |  |                | 1,426    |         |                  |   | (1,426  | )
|Other assets                                                                      |  |                | (715     | )       |                  |   |        |  
|Increase (decrease) in:                                                           |  |                |          |         |                  |   |         |  
|Accounts payable and accrued liabilities                                          |  |                | (63      | )       |                  |   | 536     |  
|Due to subsidiary                                                                 |  |                | (806     | )       |                  |   | 353     |  
|                                                                                  |  |                |          |         |                  |  
|Net cash provided by operating activities                                         |  |                | 62,549   |         |                  |   | 254     |  
|Investing activities                                                              |  |                |          |         |                  |   |         |  
|Purchases of short-term investments                                               |  |                | (240,464 | )       |                  |   |        |  
|Proceeds from short-term investments                                              |  |                | 145,165  |         |                  |   |        |  
|Equity investment in subsidiary                                                   |  |                | (1,801   | )       |                  |   | (200    | )
|                                                                                  |  |                |          |         |                  |  
|Net cash used in investing activities                                             |  |                | (97,100  | )       |                  |   | (200    | )
|Financing activities                                                              |  |                |          |         |                  |   |         |  
|Exercise of employee stock options                                                |  |                | 924      |         |                  |   | 145     |  
|Purchases through employee stock purchase plans                                   |  |                | 14       |         |                  |   |        |  
|Dividends paid                                                                    |  |                | (40,938  | )       |                  |   |        |  
|Redemption of common stock                                                        |  |                | 76,725   |         |                  |   |        |  
|Exercise of stock options                                                         |  |                | (1,885   | )       |                  |   |        |  
|                                                                                  |  |                |          |         |                  |  
|Net cash provided by financing activities                                         |  |                | 34,840   |         |                  |   | 145     |  
|Net increase in cash                                                              |  |                | 289      |         |                  |   | 199     |  
|Cash, beginning of period                                                         |  |                | 199      |         |                  |   |        |  
|                                                                                  |  |                |          |         |                  |  
|Cash, end of period                                                               |  | $              | 488      |         |                  | $ | 199     |  
|                                                                                  |  |                |          |         |                  |  
|Supplemental disclosure of non-cash activity:                                     |  |                |          |         |                  |   |         |  
|Non-cash foreign currency translation                                             |  | $              | 9        |         |                  | $ | 2       |  
|Non-cash unrealized loss on short-term investments                                |  |                | (24      | )       |                  |   |        |  
|Non-cash investment in subsidiary                                                 |  |                |         |         |                  |   | 453     |  

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##### Table of Contents



Notes to Condensed Financial Statements (in thousands)






S-4