Use these links to rapidly review the documentINVESTOOLS INC. FORM 10-K REPORT INDEX PART IV



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K

|(Mark One)                                  |                                                                                     
|------------------------------------------- | ------------------------------------------------------------------------------------
|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the fiscal year ended December 31, 2007

Commission File Number: 000-52012

INVESTOOLS INC.(Exact name of Registrant as specified in its charter)

|Delaware                                                       |  | 76-0685039                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                               |  |                                     
|45 Rockefeller Plaza, Suite 2012, New York, New York           |  | 10111                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrant's
telephone number, including area code: (801) 816-6918

|Name of exchange on which registered:                       |  | The NASDAQ Stock Market LLC           
|----------------------------------------------------------- |  | --------------------------------------
|Securities registered pursuant to Section 12(b) of the Act: |  | Common Stock, $.01 par value per share
|Securities registered pursuant to Section 12(g) of the Act: |  | NONE                                  
|                                                            |  | (Title of Class)                      

Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes o    No ý

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

|Large accelerated filer o |  | Accelerated filer ý |  | Non-accelerated filer o (Do not check if a smaller reporting company) |  | Smaller reporting company o
|------------------------- |  | ------------------- |  | --------------------------------------------------------------------- |  | ---------------------------

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

The aggregate market value of voting and non-voting common equity held by non-affiliates of the Registrant as of June 30, 2007 (the
last business day of the Registrant's most recently completed second fiscal quarter) based on the closing price of the common stock on the NASDAQ Global Market for such date, was
$429.0 million. The number of shares of the Registrant's common stock outstanding on March 12, 2008 was 66,013,765.

Documents Incorporated by Reference:

The registrant's definitive proxy statement filed or to be filed with the Securities and Exchange Commission pursuant to Regulation 14A involving the
election of directors at the annual meeting of the shareholders of the registrant scheduled to be held on June 6, 2008 is incorporated by reference in Part III of the
Form 10-K.



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INVESTOOLS INC.  FORM 10-K REPORT INDEX



|FORWARD LOOKING STATEMENT |          | 3
|------------------------- | -------- | -
|PART I                    |          |  
|                          | ITEM 1.  |  
|                          | ITEM 1A. |  
|                          | ITEM 1B. |  
|                          | ITEM 2.  |  
|                          | ITEM 3.  |  
|                          | ITEM 4.  |  
|PART II                   |          |  
|                          | ITEM 5.  |  
|                          | ITEM 6.  |  
|                          | ITEM 7.  |  
|                          | ITEM 7A. |  
|                          | ITEM 8.  |  
|                          | ITEM 9.  |  
|                          | ITEM 9A. |  
|PART III                  |          |  
|PART IV                   |          |  
|                          | ITEM 15. |  

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Forward Looking Statement

Certain statements in this Annual Report on Form 10-K that are not purely historical information, including, without limitation, estimates,
projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking" statements within
the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Examples of such
forward-looking statements include, but are not limited to, the statements concerning trends in revenue, costs and expenses; our accounting estimates, assumptions and judgments; our business plans
relating to each of our products and services; our ability to scale our operations in response to changing demands and expectations of our customers; the level of demand for our products and services;
and the competitive nature of and anticipated growth in our markets. Such forward-looking statements may be identified by words such as "believe", "intend", "expect", "may", "could", "would", "will",
"will be", "will continue", "should", "plan", "estimate", "project", "contemplate", "anticipate", or other words and terms of similar meaning. In addition, from time to time, we (or our
representatives) may make forward-looking statements of this nature in our annual report to shareholders, proxy statement, quarterly reports on Form 10-Q, current reports on
Form 8-K, webcasts, press releases or in oral or written presentations to shareholders, securities analysts, members of the financial press or others. All such forward-looking
cautionary statements, whether written or oral, and whether made by us or on our behalf, are expressly qualified by these cautionary statements and any other cautionary statements which may accompany
the forward-looking statements.

Forward-looking
statements are based on current expectations and assumptions that are subject to risks and uncertainties, many of which are beyond our control, which may cause actual
results, performance or trends to differ materially from those expressed in the forward-looking statements. Potential risks, among others, that could cause actual results to differ materially are
discussed under "Item 1A Risk Factors." We assume no obligation to update or revise any forward-looking statements made herein or any other forward-looking statements we make, whether as a
result of new information, future events, or otherwise.

PART I

ITEM 1.    BUSINESS

Overview

Investools Inc. (referred to as "Investools", the "Company", "we", "us", or "our") operates in two reportable segments: Investor Education and Brokerage
Services. We entered the Brokerage Services segment on February 15, 2007, through a merger with thinkorswim Group, Inc. You will find information concerning the financial results and the
total assets of each segment in Note 17 to the Consolidated Financial Statements. Information concerning the merger with thinkorswim Group, Inc. will be discussed further in this Annual
Report on Form 10-K, which is incorporated herein by reference.

The
Company offers market-leading investor education and brokerage and related financial products and services for self-directed investors. Our Investor Education segment
offers a full range of investor education products and services that provide lifelong learning in a variety of interactive delivery formats. Our educational products and services cover a broad range
of financial products, including equity securities, options, fixed income, index products, futures, other derivatives and foreign exchange. Our Investor Education segment's mission is to educate and
empower individual investors to make their own financial decisions to achieve their financial goals at any time or place live or online. Our education products and services offer a unique integration
of a disciplined investing process, web-based tools, personalized instruction and support. We have more than 337,000 graduates of our foundation courses and 102,800 active subscribers to
our websites.

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On
February 15, 2007, the Company merged with thinkorswim Group, Inc. ("thinkorswim"), a leading online brokerage firm and provider of related technology-based financial
services to self-directed options traders and retail investors. thinkorswim offers customers a broad range of products including equity securities, index products, exchange traded options,
futures, mutual funds, bonds and foreign exchange. Since it began its brokerage operations in 2001, thinkorswim has been creating innovative technology for its customers. thinkorswim provides
sophisticated trading tools and analytics, including tools for devising and implementing complex, multi-leg options strategies as well as other investment strategies. thinkorswim also
provides unique scalable software, desktop, mobile and wireless front-end trading platforms that allow its customers to trade electronically and to implement these complex strategies with
single clicks. thinkorswim offers its
customers an automated and user friendly account opening process and provides its customers access to its trade desk, which is staffed with experienced traders, who provide real-time
customer support via email, chat and telephone. thinkorswim customers are able to monitor their positions, view their account balances, positions, profits and losses on a real time basis. The
combination of thinkorswim's unique technology and its customer service has resulted in a high degree of customer loyalty. thinkorswim, Inc. is registered as a broker-dealer with the Securities
and Exchange Commission ("SEC") and is registered as an introducing broker with the Commodity Futures Trading Commission ("CFTC"). It is a member of and regulated by the Financial Industry Regulatory
Authority ("FINRA") and the National Futures Association ("NFA"). All securities transactions are cleared on a fully disclosed basis pursuant to a clearing agreement with our primary clearing broker,
Penson Financial Services.

In
connection with the merger with thinkorswim, we acquired thinkorswim Advisors, Inc. ("Advisors"), a subsidiary of thinkorswim and an SEC registered investment advisor. Advisors
provides investment management services based upon diversified portfolios, which include alternative investment styles. It also offers traditional and return enhanced investment strategies. Advisors'
Red Option division provides a monthly subscription service that provides trade recommendations for a number of options trading strategies. Advisors has an educational division focused on options
trading, called Option Planet.

The
products and services offered by Investools Inc. have received numerous accolades from third parties including thinkorswim's ranking by Barron's as its top rated
software-based online broker and best for options traders in 2006 and 2007, and Prophet's top Barron's ranking for best technical analysis tools from 2002 to 2006.

Investools
is a Delaware corporation that was incorporated in 2001. Our corporate offices are located at 45 Rockefeller Plaza, Suite 2012, New York, New York 10111, and our
telephone number is 801-816-6918. We also maintain significant operational offices in Draper, Utah and Chicago, Illinois.

We
maintain an Internet website at www.investools.com and www.thinkorswim.com. We make available on the Investor Relations section of our website, free of charge, our Annual Reports to
shareholders, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and Forms 3, 4,
5 as soon as reasonably practicable after filing such documents with, or furnishing such documents to, the SEC.

We
include our website addresses throughout this filing only as textual references. The information contained on our websites is not incorporated by reference into this
Form 10-K.

2007 Significant Business Developments

Acquisition of thinkorswim Group, Inc.

On February 15, 2007, Atomic Acquisition Corp., a wholly-owned subsidiary of Investools merged with and into thinkorswim Group, Inc., a Delaware
corporation, and a leading online brokerage company specializing in options. thinkorswim shareholders received merger consideration of $181.7 million in cash and 19.1 million shares of
stock valued at $8.75 per share. Also on February 15, 2007, we entered into a Credit Agreement with JPMorgan which provided us with a senior secured

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term
loan of $125 million to fund a portion of the cash consideration and, separately, also provided us with a committed senior secured revolving credit facility of $25 million.
Immediately following the transaction, thinkorswim shareholders held approximately 30 percent of the ownership of Investools, and two former thinkorswim shareholders became members of our
expanded, eight-member Board of Directors. In connection with the merger with thinkorswim, certain employees and consultants of thinkorswim will now be eligible to participate in a retention bonus
pool which equals, in the aggregate, $20 million conditioned upon continued employment. The bonuses will be paid in equal annual installments over the three-year period following
the closing of the merger. Such amounts are being expensed over the retention period of three years. The first payment was made in February 2008. In addition, we granted employees and consultants of
thinkorswim options to purchase 2,255,563 shares of Common Stock under our 2001 Stock Option Plan, half with an exercise price equal to the fair market value of the underlying Common Stock at the time
of grant, and half with an exercise price equal to 150% of such fair market value. Approximately 125,000 of these stock options were granted to consultants to thinkorswim. We have accounted for these
in accordance with EITF No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling
Goods or Services".

Acquisition of Certain Exclusivity Rights and Expanded Relationship

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

Business Strategy

We offer retail investors a full range of financial services technology as a leading online broker for the educated investor. Our diverse portfolio of student and
brokerage account acquisition channels seeks to initiate each customer relationship based on consistent use of our products and services to create maximum lifetime value per customer. We achieve this
goal by offering our students and traders a full range of investor education and transaction services through a broad curriculum of courses in equity securities, options, forex, futures, index
products, other derivates and fixed income investment analysis integrated with award winning online brokerage services accessed through software, web-based and mobile applications.

Our
business strategy is based on educating our students and accounts to understand, analyze and manage investment and portfolio risk with the objective of preserving capital. Customers
are instructed in a seven step disciplined, risk-adjusted approach to the capital markets which includes creating a watch list of investments in our paperMoney application to practice
trading strategies prior to entering the markets. Building our retail customer relationships on the foundation of investor education, we have created a high value, active account base for our
brokerage services with a profitable customer acquisition model for students sourced through our investor education business unit. We believe that this business strategy is scalable and positions us
for continued growth in customer acquisition, sales and profitability.

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Investor Education Business Strategy

We offer a comprehensive suite of investor education products and services for stock, option, foreign exchange, futures, mutual fund and fixed-income investors.
Our products and services are primarily built around an investing method that is designed to teach both experienced and beginning investors how to approach the selection process for investment
securities and actively manage their investment portfolios. Course offerings are generally combined with web-based tools, personalized instruction techniques and ongoing service and
support and are offered in a variety of learning formats, which solidify the students' understanding of the investing process and help in their effort to take control of their financial future.

We
seek to offer students a full range of investor education products that provide lifelong learning. Generally, students are introduced to our products and services through a free
preview event, either live or online. Attendees of the preview event also have the opportunity to attend a more comprehensive instructor-led live workshop or an in-depth online
home study program. Following completion of the initial workshop or home study program, graduates are offered continuing education and advanced courses to build on what they have learned. These
continuing education bundles often contain personalized one-on-one coaching and one-to-many online coaching sessions, which are spread out over a period
of time and include ongoing support through a live 800-number and a live-chat hotline for continuing education assistance.

Investor Education Segment Learning Formats / Course Offerings

The content and services available to students, i.e., length of workshop, types of coaching services, length of time over which services are performed, and
access to certain Investools Online features may vary. The different learning formats are as follows:



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The
different course offerings are as follows:



Continuing Education Programs

Designed for the advanced student, our continuing education programs offer students comprehensive access to a multitude of products and services at a bundled
price. Typically included in the continuing education bundles are additional curriculum, online courses, live workshops, coaching services and extended access to Investools Online.

Pre-bundled
continuing education programs offered in our workshop events include: Trading Rooms, Associate Investor Program, Master Investor Program and Program of High
Distinction. In addition, the Company offers additional continuing education including: Active Investing Workshops, Interactive Stock and Options, High Probability Trading, and Capital Markets.
Programs range from six months to 24 months and are priced between approximately $800 and $25,000. Students also have the option of purchasing products and services a la carte or bundled from
our telesales organizations.

Brokerage Services Business Strategy

We have created a suite of award-winning trading products that harness the latest technology to allow our customers to securely trade stocks, options, bonds,
mutual funds, futures and forex with easy-to-use interfaces. Our brokerage products are targeted to both novice investors and active traders, both large and small. We believe
that the level of our customer support, educational materials, professional-level trade analysis tools and order execution capabilities differentiate us from our competitors, and give us a customer
retention rate significantly higher than industry averages. We are

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committed
to building better products for our customers through tighter integration of content and technology.

Brokerage Services Platform / Products

The different brokerage platforms are as follows:



We
schedule approximately 12 releases each year with multiple new features and enhancements. Recent developments include:



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Marketing

We engage in a broad range of activities that include:



We
track leads for every direct mail campaign and direct response television campaign by allowing potential students the opportunity to respond using the following methods:



Competition

We are aware of several companies that offer competing educational products or services. While these companies may have greater resources, we believe that:
(i) the depth and quality of our curriculum and training, (ii) the range of our foundation and continuing education course offerings, from beginner to advanced, (iii) our
portfolio of channel partners, (iv) the quality of our instructors and coaches, (v) our database of prospects and students, and (vi) our focus on improved learning formats such as
online and on-demand access to expert instructors provide us with a considerable competitive advantage compared to other investor education providers.

The
online brokerage market is rapidly evolving and highly competitive. Our direct competitors in this market include broker-dealers that offer online services, "niche-market" online or
licensed software-based brokers, full commission brokerage firms as well as mutual fund sponsors, banks and other organizations that provide online brokerage services. A representative list of
competitors includes

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Charles
Schwab & Co., Inc., Fidelity Brokerage Services, LLC, E*TRADE Group, Inc., TD Ameritrade, Inc., TradeStation Group, Inc.,
OptionsXpress, Inc., TradeKing, Interactive Brokers Group, Inc., Merrill Lynch & Co. Inc. and Scottrade, Inc.

In
the Investor Education segment and Brokerage Services segment, we attribute our competitive success to the overall quality of our education and trading products, leading edge
technology and superior customer service. Although competition may increase in either segment, we believe we will maintain our competitive advantage as the online broker for the educated investor.

Intellectual Property

Our success and ability to compete are dependent on our intellectual property, which includes our proprietary technology, trademarks, trade secrets, tradenames
and client base. We rely on a combination of patent, trademark, copyright, contract provisions, licensing agreements, nondisclosure agreements with employees and contractors, unfair competition and
trade secret laws in the United States and other jurisdictions to protect our proprietary technology and other intellectual property.

We
have registered and received approval for a number of trademarks in the United States and foreign countries that are important to our future success. Of critical importance to us is
the Investools trademark. The Investools trademark is a widely recognized, adopted and endorsed approach to investor education and is associated with quality and reliable service. In addition, as a
result of various mergers or acquisitions, we have acquired the trademarks and tradenames of:



We
have registered and maintain a multitude of domain names to ensure continuity of delivery for all of our websites. Management believes that our products, trademarks and other
proprietary rights do not infringe on the proprietary rights of third parties, and management is not aware of any current infringement claims against us.

Regulatory Compliance

Overview

Our products and services offered through our Investor Education segment are not currently subject to the prior approval of any government regulatory body.
However, certain foreign countries require that we register with their respective securities commissions before conducting investment-related
workshops; for example, we are registered with the Australian Securities and Investment Commission ("ASIC").

Our
brokerage subsidiary, thinkorswim, Inc., is subject to extensive securities and futures industry regulation under both federal and state laws as a broker-dealer with respect
to its equities and equity options business and as an introducing broker with respect to its futures and forex business. In general, broker-dealers that conduct retail business are required to
register with the SEC and to be members of FINRA. thinkorswim Inc. is registered as a broker-dealer in every U.S. state and the District of Columbia, and is subject to regulation under the laws
of those jurisdictions. thinkorswim Inc. is registered through the NFA as an introducing broker. thinkorswim is also a member of the Securities Investor Protection Corporation.

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As
a registered broker-dealer and a member of FINRA, thinkorswim is subject to the requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder relating to broker-dealers and to the membership and Conduct Rules of FINRA. These regulations establish, among other things, categories of persons that must be registered, standards of
conduct for dealing with customers and minimum net capital requirements. These laws, rules and regulations affect all facets of thinkorswim Inc.'s securities business, including trading
practices, risk disclosure, marketing activities and record-keeping practices. thinkorswim, Inc. is also subject to regulation under various state laws, including registration requirements.
thinkorswim Canada Inc., our Canadian subsidiary, is registered with the IDA.

thinkorswim
also provides futures brokerage services and is subject to regulation by the Commodity Futures Trading Commission ("CFTC"), NFA and other self-regulatory
organizations ("SROs"), such as the futures exchanges. The regulation of futures transactions in the United States is an extensive and rapidly changing area of law and is subject to modification by
government and judicial action. thinkorswim is also subject to the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the
Patriot Act.

Our
investment advisory subsidiary, Advisors, is registered with and regulated by the SEC and is subject to the regulations of the states in which it does business. Such regulations
include, among other things, disclosure requirements, books and record keeping requirements, and rules governing advertising.

thinkorswim
Canada Inc., our Canadian subsidiary, is a registered investment dealer subject to regulation by Investment Dealers Association ("IDA") and Ontario Securities
Commission ("OSC") in Canada.

Net Capital Rule and Marketing Material Rules

thinkorswim has net capital requirements under SEC, CFTC and NFA regulations, which require minimum net capital requirements. Because it is an introducing broker
in the futures business and its net capital requirements under the SEC rules are greater than its net capital requirements would be if it were only registered as an introducing broker, the SEC net
capital rule governs our capital requirements on the futures side as well.

thinkorswim
is required to maintain net capital of the greater of 62/3% of aggregate indebtedness, or $0.25 million and requires that the ratio of aggregate
indebtedness to net capital, both as defined, shall not exceed 15 to 1. thinkorswim is also subject to the CTFC Regulation 1.17 ("Reg 1.17") under the Commodity Exchange Act, administered by
the Commodity Futures Trading Commission and the National Futures Association, which also requires the maintenance of minimum net capital to be the greater of its SEC and FINRA net capital requirement
or $45,000. At December 31, 2007, the Company had net capital of $37.6 million which was $36.2 million in excess of its required net capital of $1.4 million. The Company's
net capital ratio was 0.55 to 1.

Marketing
campaigns by thinkorswim Inc. to bring brand name recognition to its services and to promote the benefit of those services are regulated by FINRA and NFA. All marketing
materials are reviewed by an appropriately-licensed thinkorswim securities principal prior to release and must conform to standards articulated by the SEC, FINRA and NFA.

Foreign Jurisdictions and Regulation

thinkorswim has a Canadian subsidiary that began operations in mid-December 2007, and provides brokerage services to self-directed traders and is
therefore subject to that country's laws, rules and regulations. Foreign laws, rules and regulation differ from jurisdiction to jurisdiction.

Customers
can access thinkorswim's services through the Internet, including in foreign jurisdictions. It is possible that foreign authorities in jurisdictions where we are not registered
could attempt to assert jurisdiction over our activities or that such authorities could require thinkorswim to become registered,

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be
subject to regulation and enforcement action, or require thinkorswim to cease activities in those jurisdictions.

Human Resources

At December 31, 2007, we had a total of 653 employees, of which 513 were employed by the Investor Education segment and 140 were employed by the Brokerage
Services segment.

Our
key personnel are covered by employment and confidentiality agreements. No person employed by us, either full-time, part-time or on a contract basis, is
covered by a collective bargaining agreement or represented by a union, and we have never experienced a work stoppage due to a protest or related activities. Management considers relations with our
personnel to be good.

ITEM 1A.    RISK FACTORS

Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business,
financial condition, results of operations, cash flows, and trading price of our common stock. The risks and uncertainties described below are not the only ones we face. Other events that we do not
currently anticipate or that we currently deem immaterial also may affect our results of operations and financial condition.

Risks Related to Our Business

If we do not successfully introduce new programs, products and services, our growth rate and revenue will be reduced.

Our growth strategy for the educational segment of our business is dependent on our ability to sell existing training programs, products and services to new
students, to open new markets and to develop and introduce new educational programs, products and services. If we are unable to expand our markets and products, our growth rate and revenue will be
reduced. Market conditions and the level of customer interest may be different for our current products than for new products and marketing costs and methods may differ in new markets, and there can
be no assurance that we will be able to compete
favorably with, and obtain market acceptance for, any such new programs, products or services. thinkorswim's growth strategy also is dependent upon the development of new and the enhancement of
existing products and services. The financial services industry involves rapid technological change and continually evolving industry standards and practices. Our failure to keep abreast of such
changes could result in our technology and systems and our product offerings becoming obsolete. The development of new products involves significant risks. We may not be able to adapt our new products
or services to new standards in the marketplace. In addition, changes in technologies could force us to incur substantial expenditures to appropriately modify our infrastructure and our products and
services.

If we are not able to continually enhance our web-based products and services and adapt them to changes in technology, our future revenue
growth could be adversely affected.

If our improvement and adaptation of our web-based products and services is delayed, results in systems interruptions or is not aligned with market
expectations or preferences, our revenue growth could be adversely affected. The online environment is rapidly evolving, and the technology used in web-based products changes quickly. We
must therefore be able to quickly modify our solutions to adapt to emerging online standards and practices, technological advances, and changing user and sponsor preferences. Ongoing enhancement of
our web site, web-based products and related technology will entail significant expense and technical risk. We may use new technologies ineffectively or fail to adapt our web site,
web-based products and related technology on a timely and cost-effective basis.

Our corporate debt levels may limit our ability to obtain additional financing.

At December 31, 2007, we had an outstanding balance of $117.5 million in senior secured term loans and $25 million in available senior
secured revolving loan facilities. Our ratio of debt (our senior

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secured
term loans and capital lease obligations) to equity (expressed as a percentage) was 73% at December 31, 2007.

Our
loan agreements, which contain a number of restrictive covenants that affect our business, restrict our ability to, among other things, sell or lease assets, pay dividends or other
distributions to stockholders, engage in mergers or consolidations, create liens on assets, and borrow money or issue guarantees.

In
addition, as a result of the covenants and restrictions contained in our loan agreements, we are limited in how we conduct our business and we may be unable to raise additional debt
or equity
financing to compete effectively or to take advantage of new business opportunities either through acquisitions or internal expansion. The terms of any future indebtedness could include more
restrictive covenants.

We
cannot assure you that we will be able to remain in compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the appropriate
parties and/or amend the covenants.

We
may incur additional indebtedness in the future, including in connection with future acquisitions. Our level of indebtedness, among other things could:



We
may desire or need to raise additional capital in the future, which may not be available on terms acceptable to us.

If
we need, but are unable to obtain, additional capital to expand our operations and invest in new products and services, our business may be adversely affected. In the future we may
require substantial additional capital to finance ongoing operations or the growth of our business. To the extent that our existing sources of liquidity and cash flow from operations are insufficient
to fund our activities, we may need to raise additional funds. We cannot be certain that we will be able to obtain additional financing on favorable terms. If we fail to raise additional funds, we may
need to sell debt or additional equity securities or to reduce our growth to a level that can be supported by our cash flow. Without additional capital, we may not be able to: further develop or
enhance our services and products; acquire necessary technologies, products or businesses; expand operations in the United States or internationally; make acquisitions; hire, train and retain
employees; market our services and products; or respond to competitive pressures or unanticipated capital requirements.

We may experience difficulties integrating recent and future acquisitions.

As a result of recent acquisitions and as part of our general business strategy, we expect to make more acquisitions and to experience significant growth, and
expect such growth to continue into the future. There are numerous risks involved in the acquisition of other businesses, including difficulties in the integration of acquired companies and their
operations, products and services; failure to achieve projected synergies; requiring the focus of management to the detriment of other aspects of our business; possible assumption of unknown
liabilities; loss of customers or employees of acquired businesses; dilution to our shareholders and the reduction of our reported earnings as a result of the amortization of intangible assets
acquired. This growth is expected to place a significant strain on our management, financial, operating and technical resources. Failure to manage this growth effectively could have a material adverse
effect on our financial condition or results of operations. There can be no assurance that we will be able to effectively integrate the acquired companies, including thinkorswim and mytrade, with our
own operations. Expansion will place significant demands on our marketing, sales, administrative, operational, financial and management information systems, controls and

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procedures.
Accordingly, our performance and profitability will depend on the ability of our officers and key employees to (i) manage our business and our subsidiaries as a cohesive enterprise,
(ii) manage expansion through the timely implementation and maintenance of appropriate administrative, operational, financial and management information systems, controls and procedures,
(iii) add internal capacity, facilities and third-party sourcing arrangements as and when needed, (iv) maintain service quality controls, and (v) attract, train, retain, motivate
and manage effectively our employees. There can be no assurance that we will integrate and manage successfully new systems, controls and procedures for our business, or that our systems, controls,
procedures, facilities and personnel, even if successfully integrated, will be adequate to support our projected future operations. Any failure to implement and maintain such systems, controls and
procedures, add internal capacity, facilities and third-party sourcing arrangements or attract, train, retain, motivate and manage effectively our employees could have a material adverse effect on our
business, financial condition and results of operations.

thinkorswim operates in a highly regulated industry and compliance failures could adversely affect our business.

Our securities broker-dealer operates under extensive regulation, which increases our cost of doing business and may be a limiting factor on the operations and
development of our business. Our securities broker-dealer business and operations are subject to regulation by the SEC, FINRA f/k/a NASD, IDA and OSC in Canada, national security exchanges and state
securities commissions. We also may be subject to regulation by securities regulatory authorities in foreign countries where our customers are located. The securities industry in the United States
covers all aspects of the securities business, including:



Our
securities broker also provides futures brokerage services and is registered through the NFA as an introducing broker. The futures industry is also subject to comprehensive statutes,
rules and regulations, including margin requirements, trading restrictions, customer regulations and net capital requirements. Participants in the futures industry are subject to regulation by the
CFTC, NFA or other SROs, including futures exchanges and boards of trade. The regulation of futures transactions in the United States is an extensive and rapidly changing area of law and is subject to
modification by government and judicial action.

Our
investment advisory subsidiary is registered with and regulated by the SEC and is subject to the regulations of the states in which it does business.

As
thinkorswim grows, it is subject to increasing attention from regulators, even for routine audits and examinations. This higher level of scrutiny requires that thinkorswim's
management devote more time to regulatory matters.

Failure
to comply with any of the laws, rules or regulations applicable to us, even inadvertently, could lead to adverse consequences including investigation, censure, fine, the issuance
of cease-and-desist orders, other penalties from regulatory agencies, criminal penalties, civil lawsuits, or the suspension or disqualification of our subsidiaries, directors,
officers or employees. Any of these consequences could adversely affect our securities broker-dealer business, our futures business and/or our advisory business.

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If we fail to attract students and brokerage customers in a cost-effective manner, our financial position may be negatively impacted.

Our profitability and growth depends on increasing our student base and our brokerage customer base in a cost-effective manner. We incur significant
marketing expenses in connection with our educational operations. Although we have spent significant financial resources on advertising and related expenses and plan to continue to do so, there can be
no assurance that these efforts will be cost-effective at increasing our student base and that our students and their contacts will continue to open brokerage accounts at thinkorswim.
Advertising and marketing costs are likely to increase in the foreseeable future, and we may not have the same ability to expand our advertising and marketing budgets as our larger competitors.
Finally, the advertising and marketing activities of thinkorswim are subject to regulation by FINRA and the NFA. These SROs impose limitations on our sales methods and our ability to make payments to
third party marketers. Our failure to successfully market our products and services to student and brokerage customers can negatively impact our business and financial condition.

We rely on our strategic partners to provide us with access to leads and customers.

We currently access approximately 43 percent of our Investor Education sales transaction volume through co-marketing relationships. Our
strategic partners may enter into identical or similar relationships with our competitors, which could diminish the value of the partners for customer acquisition. Our strategic partners could
terminate their relationship with us. The businesses of our strategic partners could contract or such strategic partners could experience financial difficulties. If any of our strategic partners, and
in particular Success Magazine Investor Education, LLC, were to terminate their relationship with us or were to decrease operations or experience serious financial difficulties, our ability to
distribute our educational products and services could be materially impaired. In addition, since our merger with thinkorswim, our educational subsidiaries have been the referral source for a
substantial percentage of thinkorswim's new customers. Any reduction in our sales of education products and services are likely to decrease our referral of new customers to thinkorswim. We may not be
able to maintain our existing relationships or enter into new strategic relationships with co-marketing partners.

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

The regulatory environment in which we operate may change. These changes may affect our ability to conduct our business or reduce our profitability. Our
activities may be affected not only by legislation or regulations of general applicability, but also by industry-specific legislation or regulations. Our brokerage customers may also be affected by
changes in rules and regulations that could negatively impact us. The SEC, other U.S. or foreign governmental authorities, FINRA, the NFA or other SROs may adopt new or revised regulations which
affect our business. Changes in the interpretation or enforcement of existing laws and rules by those entities may also affect our business.

In
addition, we use the Internet as the distribution channel to provide services to our customers. We must comply with a variety of federal and state laws affecting the content of
materials distributed over the Internet, as well as regulations and other laws restricting the collection, use and disclosure of personal information that we may obtain in the course of providing our
online services. As online advertising becomes more popular and more complex, it is possible that such activities will become more tightly regulated. Any new law or regulation pertaining to the
Internet, or the application or interpretation of existing laws, could increase our cost of doing business, decrease the demand for our products and services, or otherwise harm our business. A number
of regulatory agencies have recently adopted regulations regarding customer privacy and the use of customer information by service providers. Additional laws and regulations relating to the Internet
may be adopted in the future, including regulations regarding the pricing, privacy, taxation, content and quality of products and

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services
delivered over the Internet. Compliance with future laws and regulations, or existing laws as they may be interpreted in the future, could be expensive, time consuming, impractical or
impossible.

Failure
to comply with any of the laws, rules or regulations applicable to us, even inadvertently, could lead to adverse consequences including censure, fine, the issuance of
cease-and-desist orders or the suspension or disqualification of directors, officers or employees. It is also possible that any noncompliance could subject us to criminal
penalties and civil lawsuits. An adverse ruling against us or our officers or other employees could cause us or our subsidiaries or our officers and other employees to pay a substantial fine or
settlement, and could result in their suspension or expulsion. Any of these consequences or events could have a material adverse effect on our business and financial condition.

Our broker-dealer subsidiary has experienced substantial growth.

thinkorswim has experienced substantial growth over the past year and its rate of growth has increased significantly since our merger with them. Such rapid growth
has placed significant demands on thinkorswim's management and other resources. As a result, thinkorswim will need to attract, hire and
retain highly skilled and motivated officers and employees. We cannot assure you that we will be able to attract or retain the officers and employees necessary to manage this growth effectively.

Many of our competitors have greater financial, technical, marketing and other resources.

Many of our competitors have longer operating histories and greater resources than we do and offer a wider range of brokerage, brokerage related and educational
products and services. Many also have greater name recognition, greater market acceptance and larger customer bases. These competitors may conduct extensive promotional activities and offer better
terms, lower prices and/or different products and services than we do. Moreover, some of our competitors have established relationships among themselves or with third parties to enhance their products
and services. This means that our competitors may be able to respond more quickly to new or changing opportunities and demands and withstand changing market conditions better than we can.

The
market for electronic brokerage services is rapidly evolving and intensely competitive. We expect the competitive environment to continue in the future. Our brokerage operations face
direct competition from numerous online and software-based brokerage firms, including Charles Schwab & Co., Inc., E*TRADE Group, Inc., Fidelity Brokerage
Services, LLC, OptionsXpress, Inc., TD Ameritrade, Inc., TradeKing, and TradeStation Group, Inc. Our brokerage operations also encounter competition from the broker-dealer
affiliates of established full commission brokerage firms as well as from mutual fund sponsors, banks and other organizations that provide online brokerage services. Many of our competitors in the
brokerage industry have greater financial, technical, marketing and other resources, and have greater name recognition and a more extensive customer base than we do.

This
intense competition in the brokerage industry has resulted in several trends that may adversely affect our financial condition and results of operations, including the
implementation of new pricing strategies; the development by our competitors of products and services and enhancements; consolidation in the industry and increased emphasis on advertising and
promotional efforts. In addition, some of our competitors are actively pursuing a larger share of the options trading market.

We
believe that the general financial success of brokerage operations within the online brokerage industry will continue to attract new competitors to the industry, such as banks,
software development companies, insurance companies, providers of online financial information and others. These companies may provide a more comprehensive suite of services than we do. We may not be
able to compete effectively with our current or future competitors.

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Downturns or disruptions in the securities markets could reduce trade volumes and margin borrowing and increase our dependence on our more active
customers who receive lower pricing.

A significant portion of our revenues now comes from online investing services; we expect this business to continue to account for an increasingly significant
portion of our revenues in the foreseeable future. Like other financial services firms, we are affected directly by national and global economic, political and market conditions, broad trends in
business and finance, distributions to the securities markets and changes in volume and price levels of securities and futures transactions. Historically, securities trading volume in the United
States has fluctuated considerably. We expect our revenues to be adversely affected by periods of low trading volume. Decreases in trade volume may be more significant for us with respect to our less
active customers, increasing our dependence on our more active trading customers who receive more favorable pricing based on their trade volume. Decreases in volumes, as well as securities prices, are
also typically associated with a decrease in margin borrowing. Because we receive a portion of the revenue our clearing firms generate from interest charged on margin borrowing by our customers, such
decreases result in a reduction of revenue. When transaction volume is low, our operating results may suffer in part because some of our overhead costs may remain relatively fixed.

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

Our brokerage operations are subject to substantial credit risk. Credit risk may arise, for example, from holding securities of third parties; executing
securities or futures trades that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other
financial intermediaries; and extending credit to our clients through margin loans or other arrangements, including forex transactions.

Many
of the customer accounts of our brokerage business are margin accounts. Our customer futures accounts trade on margin as well. In margin transactions, we may be obligated for credit
extended to our customers by our clearing firms, because we indemnify our clearing firms for our customers' debits and defaults. Margin credit is collateralized by cash and securities in the
customers' accounts. We also execute customer transactions involving the sale of securities not yet purchased which result in our clearing firms extending leverage to our customers for which we may be
ultimately responsible. Leverage involves securing a large potential future obligation with a proportional amount of cash or securities. We introduce forex transactions to Penson Financial
Services, Inc. ("Penson"), which involve substantial amounts of leverage. The risks associated with margin credit and leverage increase during periods of fast market movements or in cases where
leverage or collateral is concentrated and market movements occur. During such times, customers who utilize margin credit or leverage and who have collateralized their obligations with securities may
find that the securities have a rapidly depreciating value and may not be sufficient to cover their obligations in the event of liquidation. When our clearing firms extend margin or our customers use
leverage, our clearing firms may be exposed to significant off-balance-sheet credit risk in the event customer collateral is not sufficient to fully cover losses that customers may incur.
In the event customers fail to satisfy their obligations, our
clearing firms may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customers' obligations.

We
expect this kind of exposure to increase with growth in our overall securities broker-dealer and other brokerage business. Because we indemnify and hold harmless our clearing firms
from certain liabilities or claims, the use of margin credit, leverage and short sales may expose us to significant off-balance-sheet risk in the event that collateral requirements are not
sufficient to fully cover losses that customers may incur and those customers fail to satisfy their obligations. The amount of risk to which we are exposed from the leverage our clearing firms extend
to our customers and from short sale

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transactions
by our customers is unlimited and not quantifiable as the risk is dependent upon analysis of a potential significant and undeterminable rise or fall in stock prices.

Our exposure to litigation could adversely affect our business and results of operations.

We are from time to time involved in various lawsuits and legal proceedings. Although we currently are not a defendant in any material legal proceedings, any
claim, with or without merit, could result in costly litigation, subject us to undetermined penalties, or require us to modify or cease sales of our products or services, any of which could have a
material adverse effect on our business and results of operations.

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

We rely on a number of third parties for various services. These include the services of other broker-dealers, market makers and exchanges to execute customer
orders and other third parties for clearing and related back-office services and other information necessary to run our business, including transaction summaries, data feeds for compliance
and risk management, execution reports and trade confirmations. Third-party content providers provide us with all of the financial information, market news, charts, option and stock quotes, research
reports and other fundamental data that we offer to customers. Furthermore, we have offsite third-party data center operations that are critical to our business.

We
cannot assure you that any of these providers will be able to continue to provide these services in an efficient, cost-effective manner or that they will be able to
adequately expand their services to meet our needs. An interruption in or the cessation of service by any third-party service provider as a result of systems failures, capacity constraints, financial
constraints or problems,
unanticipated trading market closures or for any other reason, and our inability to make alternative arrangements in a smooth and timely manner, if at all, may impact our ability to process trades and
have other material adverse effects on our business, financial condition and operating results.

We rely on a few key employees whose absence or loss could disrupt our operations or be adverse to our business.

We are highly dependent on the experience of our senior management team in the continuing development of our operations. The loss of the services of certain of
these individuals would have a material adverse effect on our business. Although we have employment and non-competition agreements with certain of our key employees, as a practical matter,
those agreements will not assure the retention of our employees. We currently do not maintain key man insurance on any member of our senior management team.

We are subject to interest rate risk exposure.

thinkorswim's clearing firms pay us a portion of the revenue they generate from the difference between the interest they earn by investing our customer cash and
the interest they pay to our customers on such cash. A rising interest rate environment will generally result in an increase in the spread our clearing firms generate and a corresponding increase in
the amounts of that spread that is paid to us. A declining interest rate environment will generally result in a decrease in the spread our clearing firms generate and a corresponding decrease in the
amounts of that spread that is paid to us.

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

Our policies, procedures and practices used to identify, monitor and control a variety of risks may fail to be effective. thinkorswim is particularly dependent
upon risk management systems because it has

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indemnified
its clearing firms for any losses incurred by its clearing firms from thinkorswim's customers. As a result, we face the risk of losses, including losses resulting from firm errors,
customer defaults, market movements, fraud and money laundering. Our risk management methods rely on a combination of technical and human controls and supervision that are subject to error and
failure. Some of our methods of managing risk are based on internally developed controls and observed historical market behavior, and also involve reliance on industry standard practices. These
methods may not adequately prevent futures losses, particularly when there are extreme market movements that exceed historical precedent. These methods may not adequately prevent losses due to
technical errors or the failure of our software or systems.

Systems failures and delays could harm our business.

We deliver educational products and services and receive and process trade orders through a variety of electronic channels. Our online services are heavily
dependent on the integrity of the systems supporting them. Our systems and operations, including our Web servers and those of our third-party service providers, are vulnerable to damage or
interruption from human error, sabotage, encryption failures, break-ins, intentional acts of vandalism, earthquakes, terrorist attacks, floods, fires, power loss, telecommunications
failures, computer viruses, computer denial of service attacks or other attempts to harm our systems and operations, and similar events. Our disaster recovery planning cannot account for all
eventualities. In addition, unusually high trading volumes could cause our computer systems to operate at an unacceptably low speed or even fail. While we have invested significant amounts to upgrade
the reliability and scalability of our systems, there can be no assurance that our systems will be sufficient to handle such extraordinary trading volumes.

Systems
failures or delays may occur in the future and could cause, among other things, unanticipated disruptions in service to our customers, slower system response time resulting in
transactions not being processed as quickly as our customers desire, decreased levels of customer service and customer satisfaction and harm to our reputation. If any of these events were to occur, we
could lose customers, incur additional expenses or financial losses, become involved in customer litigation or become subject to regulatory sanctions.

Our
business also depends on the continued reliability of the Internet infrastructure. Internet infrastructure may be unable to support the demands placed on it if the number of Internet
users continues to increase or if existing or future Internet users access the Internet more often or increase their bandwidth requirements. In addition, viruses, worms and similar programs may harm
the performance of the Internet. The Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and it could face outages and delays in the
future. These outages and delays could reduce the level of Internet usage and our business could be materially adversely affected.

Our business may suffer if we are not successful in developing, maintaining and defending proprietary aspects of technology used in our products and
services.

Our success and ability to compete are dependent on our ability to develop and maintain the proprietary aspects of our technology. Litigation may be necessary in
the future to enforce our intellectual property rights, to protect trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or
invalidity. Any such litigation, even if we prevailed, could be costly, divert resources and could have a material adverse effect on our business, operating results and financial condition. We can
give no assurance that our means of protecting our proprietary rights will be adequate, or that our competitors will not independently develop similar technology. Any failure by us to protect our
intellectual property could have a material adverse effect on our business, operating results and financial condition. We integrate third-party software into code creating and supporting some of our
products and services. This

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third-party
software may not continue to be available on commercially reasonable terms. If we are unable to maintain licenses to the third-party software included in the code
supporting our product services, features of our products or services could be unavailable, until equivalent software could be developed or licensed and integrated. This delay could adversely affect
our business, operating results and financial condition.

We depend on continued growth in use of the Internet and online commerce.

Our ability to expand our delivery platforms and penetrate new markets could be stagnated without continued growth in the use and efficient operation of the
Internet. Web-based markets for information, products and services are new and rapidly evolving. If Internet usage does not continue to grow or grows slower than anticipated, we may be
unable to secure new sponsorship and subscription arrangements for our offerings. To the extent the investor education portion of our business relies on web-based delivery platforms, our
operations will also be dependent on adequate network infrastructure, consistent quality of service and availability to customers of cost-effective, high-speed Internet access.
Our brokerage business is online and is entirely dependent on the Internet. If our systems cannot meet customer demand for
access and reliability, these requirements will not be satisfied, and customer satisfaction could degrade substantially, adversely affecting our prospects for market penetration and profitability.

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

Patents of third parties may have an important bearing on our ability to offer certain of our products and services. Our major competitors as well as other
companies and individuals may obtain and may have obtained patents related to the educational tools and the technologies for trading the types of products and providing the services we offer or plan
to offer. We cannot assure you that we are or will be aware of all patents containing claims that may pose a risk of infringement by our products and services. In addition, some patent applications in
the United States are confidential until a patent is issued and, therefore, we cannot evaluate the extent to which technology concerning our products and services may be covered or asserted to be
covered by claims contained in pending patent applications. In general, if one or more of our products or services were found by a court to infringe patents held by others, we may be required to stop
developing or marketing the products or services, to obtain licenses to develop and market the services from the holders of the patents or to redesign the products or services in such a way as to
avoid infringing those patents. An adverse ruling arising out of any intellectual property dispute could also subject us to significant liability for damages.

We
cannot assess the extent to which we may be required in the future to obtain licenses with respect to patents held by others, whether such license would be available or, if available,
whether we would be able to obtain such licenses on commercially reasonable terms. If we are unable to obtain licenses with respect to patents held by others, and are unable to redesign our products
or services to avoid infringement of any such patents, this could materially adversely affect our business, financial condition and operating results.

Also,
protection may not be available for our intellectual property. Although we have numerous registered trademarks in the United States and other countries, we do not have any patents
on our educational tools or trading related technology and there can be no assurance that we will be able to secure significant protection for any of this intellectual property. It is possible that
our competitors will adopt technology or product or service names similar to ours, thereby impeding our ability to distinguish our technology and build brand identity, possibly leading to customer
confusion. Our inability to adequately protect our marks could have material adverse effect on our business, financial condition and operating results.

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

As a public company, we are subject to the reporting requirements of the Exchange Act and the other rules and regulations of the SEC and the NASDAQ Global Market.
We continue to work with our independent legal, accounting and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our
growth and our obligations. These areas include corporate governance, internal controls, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will
continue to make, changes in these and other areas, including our internal control over financial reporting. However, we cannot assure you that these and other measures we may take will be sufficient
to allow us to satisfy our obligations as a public company on a timely basis. In addition, compliance with reporting and other requirements applicable to public companies, including under the
Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the SEC and the Public Company Accounting Oversight Board, create additional costs for us and require substantial amounts of
time and attention of our management. We cannot predict or estimate the future amount of the costs we may incur, the timing of such costs or the degree of impact that our management's attention to
these matters will have on our business.

Failure to maintain adequate internal controls could adversely affect our business.

We are subject to internal control requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the SEC and the Public Company
Accounting Oversight Board. These laws, rules and regulations continue to evolve and could become increasingly stringent in the future. We have undertaken actions to enhance our ability to comply with
the requirements of the Sarbanes-Oxley Act of 2002, including, but not limited to, the increased allocation of the accounting department resources, documentation of existing controls and
implementation of new controls or modification of existing controls as deemed appropriate. Control deficiencies have been identified from time to time, and we have undertaken actions to remediate
them.

We
continue to devote substantial time and resources to the documentation and testing of our controls, and to planning for and implementation of remedial efforts in those instances where
remediation is indicated. If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time; we could be subject to regulatory
actions, civil or criminal penalties or shareholder litigation. In addition, failure to maintain adequate internal controls could result in financial statements that do not accurately reflect our
financial condition, results of operations and cash flows.

We may be liable for invasion of privacy or misappropriation by others of our users' information, which could adversely affect our reputation and
financial results.

Some of our services require the disclosure of sensitive information by the user. We rely on a number of security systems for our services to protect this
information from unauthorized use or access. We cannot predict whether new technological developments could circumvent these security measures. If the security measures that we use to protect personal
information or credit card information are ineffective, we may be subject to liability, including claims for invasion of privacy, impersonation, unauthorized purchases with credit card information or
other similar claims. In addition, the Federal Trade Commission and several states have investigated the use of personal information by certain Internet companies. We could incur significant expenses
if new regulations regarding the use of personal information are introduced or if our privacy practices are investigated.

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Downturns in the securities markets increase the credit risk associated with margin.

We permit customers to purchase securities on margin. Our clearing firms provide margin financing to our customers. Under the terms of our clearing agreements, we
indemnify our clearing firms for our customer debit balances. When the market declines rapidly, there is an increased risk that the value of the collateral our clearing firms hold in connection with
these transactions could fall below the amount of a customer's indebtedness, which increases the risk of customer debit balances.

Reduced spreads in securities pricing and reduced levels of trading activity could harm our business.

In addition to commissions, we generate a portion of our brokerage revenue from payment for order flow. As is customary in the industry, our payment for order
flow arrangements are not subject to written agreements. Consequently, they could be adjusted or terminated at any time. If these payments were reduced or eliminated, our business could be adversely
affected. The increase in computer generated buy/sell programs in the marketplace has continued to tighten spreads, resulting in reduced revenue capture per share by the specialist and market-making
community and reduced payment for order flow revenues for a brokerage firm like us. Any changes in the marketplace, such as quoting of options in smaller increments, that reduce the spread available
for market makers and other liquidity providers, who are the parties that pay us for order flow, could negatively impact our cash flow from these sources.

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

We are exposed to potential losses resulting from fraud and other misconduct by employees, customers or third parties. Employees may bind us to transactions that
exceed authorized limits or present unacceptable risks, hide from us unauthorized or unsuccessful activities or improperly use confidential information. Third parties may engage in fraudulent
activities, including fraudulent access to legitimate customer accounts, the use of false identities to open accounts, or the use of forged or counterfeit checks for payment. Such types of fraud may
be difficult to prevent or detect, and we may not be able to recover the losses caused by such activities. Any such losses could have a material adverse effect on our business, financial condition and
operating results.

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

Since our services are available over the Internet in foreign countries and we have customers residing in foreign countries, foreign jurisdictions may claim that
we are required to qualify to do business in their country. We believe that the number of our customers residing outside of the United States will increase over time. We may be required to comply with
the laws and regulations of each country in which we conduct business, including laws and regulations currently in place or which may be enacted related to Internet services available to their
citizens from service providers located elsewhere. Any failure to develop effective compliance and reporting systems could result in regulatory penalties in the applicable jurisdiction, which could
have a material adverse effect on our business, financial condition and operating results.

Our operations outside of the United States are subject to political, investment and local business risks.

In 2007, thinkorswim organized Canadian and Australian subsidiaries. The Canadian subsidiary is currently operating as a registered brokerage firm, and the
Australian subsidiary is in the process of registering as a brokerage firm. While the amount of revenues from such operations are not currently material to the Company, operations outside of the
United States are subject to a variety of risks which

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are
different from or additional to the risks we face within the United States. Among others, these risks include:



The
occurrence of one or more of the foregoing factors could have a material adverse effect on our international operations.

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

The SEC and the NASD have strict rules with respect to the maintenance of specific levels of net capital by securities broker-dealers and introducing brokers.
thinkorswim is required to comply with these net capital requirements. If it fails to maintain the required net capital, the SEC could fine thinkorswim or even suspend or revoke its registration, or
FINRA could sanction thinkorswim, including by limiting its growth or expelling it from membership. Any of these actions could have a material adverse effect on our securities broker-dealer business.
If such net capital rules are changed or expanded, or if there is an unusually large charge against our net capital, operations that require the use of capital would be restricted. A large operating
loss or charge against net capital could adversely affect our ability to expand or even maintain our then present levels of business, which could have a material adverse effect on our business,
financial condition, results of operations and prospects.

thinkorswim
has net capital requirements under CFTC and NFA regulations; however, because it is an introducing broker and its net capital requirements under the SEC rules are greater
than its net capital requirements would be if it were only registered as an introducing broker, the SEC net capital rule governs our capital requirements on the futures side as well.

As
a holding company, we access the earnings of our broker-dealer subsidiary through the receipt of dividends from that subsidiary. Net capital requirements may limit our ability to
access those earnings.

We are dependent on clearing agents, including Penson Financial Services, Inc., and any failures by them or difficulties in our relationships
could materially harm our business.

Our securities broker-dealer business and our futures brokerage business is dependent on Penson and certain other clearing agents, including Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("ML"), for the clearing and orderly processing of our transactions and the holding of our customers accounts and securities and futures
positions. Our clearing agreements with Penson, ML, and our other clearing firms may be terminated by any of the parties upon prior written notice. Breaches or termination of these agreements or the
clearing firms' agreements with their third-party suppliers and sources of financing could harm our securities broker-dealer business and our futures business.

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Termination
of our relationship with Penson, ML, or any of our other clearing firms could have a material adverse effect on our business. We would have to enter into agreements with other clearing
firms and there is no assurance we could enter into agreements on favorable or satisfactory terms. Moreover, we have agreed to indemnify and hold harmless our clearing firms from certain liabilities
or claims, including claims arising from the transactions of our customers, and may incur significant costs as a result of customer losses.

Any negative changes in economic conditions, significant price increases, inflation or adverse events related to various industries, or the willingness
of investors to trade could harm discretionary spending and have a material adverse effect.

We believe that the level of public interest in investing, particularly in the securities and option markets as well as electronic trading has significantly
influenced the market for these products and services. The securities markets have experienced substantial volatility in recent periods. Sharp drops or sustained or gradual declines in securities
prices or other developments in the securities markets typically could cause individual investors to be less inclined to invest in the securities markets, which would be likely to result in reduced
interest in our investor educational products and services.

Laws and regulations can affect the operations of the education segment of our business and may limit our ability to operate in certain jurisdictions.

Federal, state and international laws and regulations impact our operations and may limit our ability to obtain authorization to operate in some states or
countries. Many federal, state and international governmental agencies assert authority to regulate providers of investment education programs. Although we believe that we are currently in compliance
with all such regulations, there can be no assurance that the federal, state or international regulatory structure will not change. For example, if we were required to comply with, or found to be in
violation of, a regulatory body's current or future licensing or regulatory requirements, we could be subject to civil or criminal sanctions, including monetary penalties. Additionally, we could be
required to incur significant on-going expenses to comply with regulatory requirements or, conceivably, could be barred from providing investment education services in that jurisdiction.
If any of these things occur, it could have a material adverse effect on our business and results of operations and may cause our stock price to decline.

Our ability to offer courses may be affected by natural disaster, strikes and other unpredictable events.

Natural disasters, external labor disruptions and other adverse events may affect our ability to conduct our business, resulting in loss of revenue. Severe
blizzards or floods may reduce the ability of our course participants to travel to our courses. These natural disasters may also disrupt the printing and transportation of the materials used in our
direct mail campaigns. Furthermore, postal strikes could occur in the countries where we operate which could delay and reduce delivery of our direct mail marketing materials. Transportation strikes
could also occur in the countries where we operate, adversely affecting course attendance. The future occurrence of any of these events could have a material adverse effect on our business and results
of operations and may cause our stock price to decline.

We may suffer losses if our reputation is harmed.

Our ability to attract and retain customers and employees may be adversely affected to the extent our reputation is damaged. If we fail, or appear to fail, to
deal with various issues that may give rise to reputational risk, we could harm our business prospects. These issues include, but are not limited to, appropriately dealing with potential conflicts of
interest, legal and regulatory requirements, ethical issues, money-laundering, privacy, record-keeping, marketing and sales practices, delivering products and services of high quality and the proper
identification of the legal, credit, liquidity, and market risks

24

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inherent
in our business. Failure to appropriately address these issues could also give rise to additional legal risk to us, which could, in turn, increase the size and number of claims and damages
asserted against us or subject us to regulatory enforcement actions, fines, and penalties.

Risks Related to Our Common Stock

The market price of our common stock is subject to significant fluctuations due to a number of factors that are beyond our control.

The market price of our common stock has experienced, and may continue to experience, substantial volatility. During the twelve-month period ended
December 31, 2007, the close price of our common stock on the NASDAQ Global Market has ranged from a low of $9.36 to a high of $18.15 per share. We expect our common stock to continue to be
subject to fluctuations. Factors that could cause fluctuation in the stock price may include, among other things:



Broad
market and industry factors could also adversely affect the market price of our common stock, regardless of our actual operating performance. The realization of any of these risks
and other factors beyond our control could cause the market price of our common stock to decline significantly.

If a large number of shares of our common stock are sold in the public market, the sales could reduce the trading price of our common stock and impede
our ability to raise future capital.

We cannot predict what effect, if any, future issuances by us of our common stock will have on the market price of our common stock. We issued approximately
19.1 million shares of our common stock in connection with our merger with thinkorswim. We have registered approximately 10.3 million shares of such common stock for resale under a
registration statement effective August 7, 2007. In addition we
are obligated to file a shelf registration statement for approximately 3 million shares of common stock in the aggregate on or before April 14, 2008 and effect a shelf
registration for an additional approximately 3 million shares of common stock in the aggregate on or before February 15, 2009, for the benefit of Tom Sosnoff and Scott Sheridan;
provided, that upon the termination of their employment for other than cause, death or disability, such registration statement for the terminating employee's shares must be filed within thirty days of
the terminating event. The market price of our common stock could drop significantly if certain large holders of our common stock, or recipients of our common stock in connection with an acquisition,
including thinkorswim, sell all or a significant portion of their shares of common stock or are perceived by the market as intending to sell these shares other than in an orderly manner. In addition,
these sales could impair our ability to raise capital through the sale of additional common stock in the capital markets.

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Our ability to issue preferred stock could adversely affect the rights of holders of our common stock.

Our certificate of incorporation authorizes us to issue up to 1,000,000 shares of preferred stock in one or more series on terms that may be determined at the
time of issuance by our Board of Directors. Accordingly, subject to any contractual limitation, we may issue shares of any series of preferred stock that would rank senior to the common stock as to
voting or dividend rights or rights upon our liquidation, dissolution or winding up without the consent of the holders of common stock.

Certain provisions in our charter documents have anti-takeover effects.

Certain provisions of our certificate of incorporation and bylaws may have the effect of delaying, deferring or preventing a change in control of us. Such
provisions, including those limiting who may call special stockholders' meetings, the possible issuance of our preferred stock without stockholder approval, and a classified Board of Directors with
staggered three year terms, may make it more difficult for other persons, without the approval of our Board of Directors, to make a tender offer or otherwise acquire substantial amounts of our common
stock or to launch other takeover attempts that a stockholder might consider to be in such stockholder's best interest.

Because we have no plans to pay any dividends for the foreseeable future, investors must look solely to stock appreciation for a return on their
investment in us.

We have never paid cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain any
future earnings to support our operations and growth. Any payment of cash dividends in the future will be dependent on the amount of funds legally available, our earnings, financial condition, capital
requirements and other factors that our Board of Directors may deem relevant. Additionally, our credit facility restricts the payment of dividends. Accordingly, investors must rely on sales of their
common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.

ITEMS 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

Our corporate headquarters are located in New York, NY and occupy approximately 700 square feet. The Investor Education segment operates its sales, service and
operations out of Draper, UT and has a technology center in Palo Alto, CA, together utilizing approximately 70,000 total square feet between these two locations. The Brokerage Services segment
operates primarily out of a facility in Chicago, IL, with approximately 23,000 square feet. We also lease office space in other cities throughout the United States.

While
we believe our existing facilities are adequate to meet our immediate needs, it may become necessary to lease or acquire additional or alternative space to accommodate future
growth.

ITEM 3.    LEGAL PROCEEDINGS

From time to time we are involved in certain legal actions arising in the ordinary course of business, including inquiries, investigations and proceedings with
government agencies and other regulators. We believe that such litigation and proceedings will be resolved without a material adverse effect to our liquidity, financial position or results of
operations.

We
have applied for rulings from various states on the taxability of our products to determine if our sales tax policy is supported by the various state taxing jurisdictions. During
2006, we received

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rulings
from a majority of the states to which we applied. Based on these rulings, we adjusted amounts owing to various states, which aggregated to $0.8 million of additional accrued sales
taxes payable. These amounts are included in selling expenses.

We
are not aware of any material pending legal proceedings that may have a material adverse impact on our liquidity, financial position or results of operations.

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

During the fourth quarter of 2007, there were no matters submitted to a vote of the stockholders.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES

Price Range of Common Stock

Our common stock is traded on the Nasdaq Global Market. Effective February 21, 2007, our common stock is traded under the symbol SWIM. The following table
sets forth, for the periods indicated, the high and low closing sales prices for our common stock based on actual transactions on the Nasdaq Global Market. The prices do not include retail markups,
markdowns or commissions.

Company Common Stock Closing Sales PricesHigh

Low2007Quarter ended March 31

$
17.11

$
12.92Quarter ended June 30


16.01


9.90Quarter ended September 30


14.09


9.36Quarter ended December 31


18.15


12.442006Quarter ended March 31

$
8.78

$
5.35Quarter ended June 30


9.70


7.79Quarter ended September 30


10.64


7.03Quarter ended December 31


13.96


11.01


On
March 12, 2008, the closing price of our common stock as reported by the Nasdaq Global Market was $10.35. As of March 12, 2008, we had 679 stockholders of record based
on information provided by our transfer agent. The number of stockholders of record does not reflect the actual number of individual or institutional stockholders that own our stock because most stock
is held in the name of nominees. Based on information previously provided to us by depositories and brokers, we believe there are more than 6,000 beneficial holders.

Dividend Policy

We have never declared a cash dividend on our common stock. The Board of Directors currently intends to retain any earnings for use in our business, and
therefore, does not anticipate paying any cash dividends on our common stock in the foreseeable future.

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

In connection with the definitive agreement to enter into a long-term relationship with and acquisition of certain exclusive rights and intellectual
property of a group of active option traders on February 27, 2007, we issued 650,000 unregistered common shares. Subject to meeting certain thresholds over annual and cumulative
three-year periods, we will issue an additional 950,000 contingent shares of unregistered common shares. On February 27, 2008, we issued 200,000 of the contingent shares as they
were earned during the fiscal year ended December 31, 2007.

In
connection with our acquisition of mytrade on December 10, 2007, we issued 145,160 unregistered shares of our common stock to the prior owners of mytrade and paid approximately
$1.0 million in cash. We relied on Section 4(2) of the Securities Act of 1933 as amended, and Regulation D promulgated thereunder to issue such shares of common stock.

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Equity Compensation Plan Information

The following table sets forth information about the total number of outstanding options and shares available for future issuance under all of our existing equity
plans as of December 31, 2007 including our Telescan and Ziasun Stock Option Plans, our 2001 Investools Stock Option Plan and our 2004 Restricted Stock Plan.

|                                                   |  | Equity Compensation Plan Information
|-------------------------------------------------- |  | ------------------------------------
|
|Equity compensation plans approved by stockholders |  | 6,129,122                           
|Total                                              |  | 6,129,122                           

Performance Measurement Comparison

The Company performance information shall not be deemed "soliciting material" or be deemed to be "filed" with the SEC nor shall such information be incorporated
by reference into any prior or subsequent filing by the Company under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate it by reference
into such filing.

The
graph below shows the cumulative total stockholder return on an investment of $100.00 over the last five years for Investools. The return is compared to the Russell 2000 Stock Index
and a peer group which represents both the brokerage industry and the education industry, assuming in each case dividend reinvestment. The peer group is comprised of the following companies:



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The
stockholder return shown on the graph below is not necessarily indicative of future performance.

Performance Graph

|                   |  | 2002 |     | 2003 |   | 2004 |  | 2005 |       | 2006 |   | 2007 
|------------------ |  | ---- | --- | ---- | - | ---- |  | ---- | ----- | ---- | - | -----
|Investools Inc     |  | $    | 100 |      | $ | 700  |  | $    | 1,478 |      | $ | 2,348
|Russell 2000 Index |  | $    | 100 |      | $ | 145  |  | $    | 170   |      | $ | 176  
|Peer group         |  | $    | 100 |      | $ | 179  |  | $    | 178   |      | $ | 166  

Issuer Purchases of Equity Securities

There were no stock repurchases during the year ended December 31, 2007.

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ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below should be read in conjunction with the Consolidated Financial Statements of Investools and related
footnotes included elsewhere in this annual report on Form 10-K and the discussion under Item 7"Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected consolidated financial data has been derived from the Consolidated Financial Statements of Investools. The historical financial and operating information may not
be indicative of our future performance.

Results of Operations(in thousands, except for per share data)

|                                     |         | Years Ended December 31, |        
|------------------------------------ | ------- | ------------------------ | -------
|
|Revenue                              |         | $                        | 318,009
|Cost of revenue                      |         |                          | 143,511
|Selling expense                      |         |                          | 70,860 
|General and administrative expense   |         |                          | 69,574 
|Net income (loss)                    |         |                          | 22,435 
|Net income (loss) per common share:  |         |                          |        
|                                     | Basic   |                          | $      
|                                     | Diluted |                          | $      
|Weighted average shares outstanding: |         |                          |        
|                                     | Basic   |                          |        
|                                     | Diluted |                          |        

Balance Sheet Data(in thousands)

|                                                 |  | Years Ended December 31,
|------------------------------------------------ |  | ------------------------
|
|Cash, cash equivalents and marketable securities |  | $                       
|Total assets                                     |  |                         
|Deferred revenue                                 |  |                         
|Total liabilities                                |  |                         
|Total stockholders' equity/(deficit)             |  |                         

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

Investools Inc. offers market-leading investor education and brokerage and related financial products and services for self-directed investors.
Our Investor Education segment offers a full range of investor education products and services that provide lifelong learning in a variety of interactive delivery formats. Our educational products and
services cover a broad range of financial products, including equity securities, options, fixed income, index products, futures, other derivatives and foreign exchange. We have more than 337,000
graduates of our foundation courses and 102,800 active subscribers to our websites.

On
February 15, 2007, we merged with thinkorswim Group, Inc., a leading online brokerage firm and provider of related technology-based financial services to
self-directed options traders and retail investors. thinkorswim® offers customers a broad range of products including equity securities, index products, exchange traded
options, futures, mutual funds, bonds and foreign exchange. All securities

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transactions
are cleared on a fully disclosed basis pursuant to a clearing agreement with our primary clearing broker, Penson Financial Services.

See
Note 3 to the Consolidated Financial Statements for a discussion regarding Business Acquisitions that took place during 2007.

Segment Summary Results of Operations

During 2007, the operations of thinkorswim have been included in the Company's operations since the date of the merger. Previously reported amounts reported by
the Company do not include the consolidated results of thinkorswim. As a result of the merger, we operate in the following two principal business segments:

Investor
Education segmentThis business segment provides a full range of investor education products and services that provide lifelong learning and support to
self-directed investors. The Company has more than 337,000 graduates of our Foundation course and 102,800 paid subscribers to our websites. The investor education products and services are
offered in a variety of learning formats with courses ranging from beginning to advanced, to address the needs of students on all investor levels.

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

See
Note 17 to the Consolidated Financial Sheets for additional disclosure regarding Segment Reporting.

Consolidated Revenue

Investor Education segment sales transaction volume ("STV"), a non-GAAP measure, represents sales transactions generated in each period before the impact of
recognition of deferred revenue from prior periods, for services performed in the current period, and the deferral of current period sales for services to be performed in the future. We believe that
STV is an important measure of business performance for the Investor Education segment.

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The
following table sets forth our total consolidated revenues and segment operating data for the periods presented (in thousands):

|                                                          |                                   | Years Ended December 31, |        
|--------------------------------------------------------- | --------------------------------- | ------------------------ | -------
|
|Investor Education segment revenue                        |                                   |                          |        
|                                                          | Workshop                          |                          | $      
|                                                          | Coaching services                 |                          |        
|                                                          | Home study/Online courses         |                          |        
|                                                          | Webtime renewals                  |                          |        
|                                                          | Other revenue                     |                          |        
|                                                          |                                   |                          |        
|Total Investor Education sales transaction volume ("STV") |                                   |                          | 210,655
|                                                          | Change in deferred revenue        |                          |        
|                                                          |                                   |                          |        
|Investor Education segment revenue                        |                                   |                          | 207,127
|                                                          |                                   |                          |        
|Brokerage Services segment revenue                        |                                   |                          |        
|                                                          | Commissions                       |                          |        
|                                                          | Interest and dividends            |                          |        
|                                                          | Other & brokerage related revenue |                          |        
|                                                          |                                   |                          |        
|Brokerage Services segment revenue                        |                                   |                          | 110,882
|                                                          |                                   |                          |        
|Total Consolidated Revenue                                |                                   | $                        | 318,009
|                                                          |                                   |                          |        

Cost of Revenue(in thousands)

|Cost of Revenue                            |  | 2007 |         | % of
STV |    | % of
Revenue |    | 2006 |   | % of
STV |  | % of
Revenue |   | 2005 |   | % of
STV |        | % of
Revenue |   
|------------------------------------------ |  | ---- | ------- | -------- | -- | ------------ | -- | ---- | - | -------- |  | ------------ | - | ---- | - | -------- | ------ | ------------ | --
|Partner Commissions                        |  | $    | 33,468  |          | 10 | %            | 10 | %    | $ | 48,477   |  | 19           | % | 29   | % | $        | 30,688 |              | 17
|Payroll cost                               |  |      | 40,234  |          | 13 | %            | 13 | %    |   | 39,838   |  | 16           | % | 23   | % |          | 32,858 |              | 19
|Brokerage, clearing and other related fees |  |      | 17,361  |          | 5  | %            | 5  | %    |   |         |  |             |   |     |   |          |       |              |  
|Depreciation and amortization              |  |      | 15,572  |          | 5  | %            | 5  | %    |   | 2,278    |  | 1            | % | 1    | % |          | 1,534  |              | 1 
|Other                                      |  |      | 36,876  |          | 12 | %            | 12 | %    |   | 30,677   |  | 12           | % | 18   | % |          | 27,081 |              | 15
|                                           |  |      |         |          |    |              |    |      |   |          |  |              |   |      |   |          |        |              |   
|Cost of Revenue                            |  | $    | 143,511 |          | 45 | %            | 45 | %    | $ | 121,270  |  | 48           | % | 71   | % | $        | 92,161 |              | 52
|                                           |  |      |         |          |    |              |    |      |   |          |  |              |   |      |   |          |        |              |   

Selling Expense(in thousands)

|                      |  | 2007 |        | % of
Revenue |    | 2006 |   | % of
Revenue |  | 2005 |   | % of
Revenue |       
|--------------------- |  | ---- | ------ | ------------ | -- | ---- | - | ------------ |  | ---- | - | ------------ | ------
|Marketing             |  | $    | 53,211 |              | 16 | %    | $ | 38,109       |  | 23   | % | $            | 26,510
|Payroll               |  |      | 8,522  |              | 3  | %    |   | 5,781        |  | 3    | % |              | 4,512 
|Other                 |  |      | 9,127  |              | 3  | %    |   | 9,057        |  | 5    | % |              | 6,310 
|                      |  |      |        |              |    |      |   |              |  |      |   |              |       
|Total selling expense |  | $    | 70,860 |              | 22 | %    | $ | 52,947       |  | 31   | % | $            | 37,332
|                      |  |      |        |              |    |      |   |              |  |      |   |              |       

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General and Administrative Expense(in thousands)

|                  |  | 2007 |        | % of
Revenue |    | 2006 |   | % of
Revenue |  | 2005 |   | % of
Revenue |       
|----------------- |  | ---- | ------ | ------------ | -- | ---- | - | ------------ |  | ---- | - | ------------ | ------
|Payroll           |  | $    | 38,554 |              | 12 | %    | $ | 15,318       |  | 9    | % | $            | 12,723
|Other             |  |      | 31,020 |              | 10 | %    |   | 17,328       |  | 10   | % |              | 11,552
|                  |  |      |        |              |    |      |   |              |  |      |   |              |       
|Total G&A expense |  | $    | 69,574 |              | 22 | %    | $ | 32,646       |  | 19   | % | $            | 24,275
|                  |  |      |        |              |    |      |   |              |  |      |   |              |       

Operating Data

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

|                                                   |  | Years Ended December 31, |           
|-------------------------------------------------- |  | ------------------------ | ----------
|
|Investor Education segment operating data:         |  |                          |           
|Initial Education Sales Transaction Volume %(1)    |  |                          | 14        
|Continuing Education Sales Transaction Volume %(2) |  |                          | 86        
|Total Paid Graduates(3)                            |  |                          | 43,090    
|Active Subscribers(4)                              |  |                          | 102,800   
|Brokerage Service segment operating data:(5)       |  |                          |           
|Trading days                                       |  |                          | 219       
|New retail accounts opened(6)                      |  |                          | 67,975    
|New funded retail accounts                         |  |                          | 34,675    
|Period-end funded retail accounts                  |  |                          | 57,775    
|Retail Daily Average Revenue Trades ("DARTs")(7)   |  |                          | 28,800    
|Active trader DARTs(8)                             |  |                          | 23,800    
|                                                   |  |                          |           
|Total DARTs                                        |  |                          | 52,600    
|Total trades                                       |  |                          | 11,482,000
|Ending client assets ($MM)                         |  | $                        | 2,580     
|Average client equity/retail account               |  |                          | 44,600    
|Retail commission per trade                        |  |                          | 9.44      

---

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Revenue

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

Our
primary source of revenue for the Brokerage Services segment is commissions earned from our brokerage activities, which are driven largely by our customer's trading activities. The
Company derives commission revenues from customer transactions in options, stock, mutual funds, fixed income securities, spot forex and futures. Commission revenues and related brokerage and clearing
related
costs are recognized on a trade-date basis. Interest revenue and fees consists primarily of income generated by customer cash and money market funds held by our clearing broker, net of
interest paid to customers on their credit balances and charged to customers on margin balances. Interest income is recorded when earned. The Company receives payment for order flow from exchanges,
forex dealers and liquidity providers where its customers' orders are routed. Payment for order flow is accrued when earned based on the respective trades generating such payments.

Operating Expenses

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

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

The
largest component of general and administrative expenses is the salary, bonus and related benefit costs for employees in both segments. Lease expenses on office space, professional
fees, technology, licensing, hosting, depreciation expenses related to the deployment of internal system and general travel and other miscellaneous expenses are also included in general and
administrative expenses.

Year Ended December 31, 2007 versus Year Ended December 31, 2006

thinkorswim operations are included in the Consolidated Financial Statements from the merger date of February 15, 2007 through December 31, 2007.

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Consolidated Revenue

Revenue increased by $147.7 million for the year ended December 31, 2007, when compared to the prior year, of which $110.9 million of the
increase resulted from the acquisition of thinkorswim. The increase is also attributable to continued fulfillment of a growing base of deferred revenue related to education products and services sold
in current and prior periods.

Investor Education Segment

Investor Education Sales Transaction Volume decreased approximately 16 percent on a year over year basis. The decrease was attributed to a number of factors,
including an over 35 percent decrease in the number of graduates from our partner marketed channels, mostly attributed to the loss of one of our partners (NET Marketing Alliance) during the year. The
Company implemented a 45 percent price reduction, on a year over year basis, for the initial education product, resulting in an over 45 percent volume increase in Investools marketed graduates. The
decline in partner marketed graduates was mostly offset by this increase in the number of Investools marketed graduates. The decrease in leads from our partner marketed channels was also partially
offset by an improvement in sales effectiveness and the sales mix of our advanced products. In addition, the Company introduced a 6 month $199 per month subscription for the initial education course.
The lower priced initial education products led to the increased volume of graduates available for continuing education product offerings and brokerage services.

Brokerage Services Segment

The Company entered into the Brokerage Services segment on February 15, 2007 with the merger with thinkorswim. During the ten and a half months included in the
Consolidated Financial Statements of the Company, the Brokerage Services segment had approximately $110.9 million of revenue. Commission revenue, which made up $67.7 million was primarily a result of
the commissions earned on the trading activity of the 57,775 retail funded accounts that existed at year end. Those accounts had daily average revenue trades of 28,800 during this period. Interest
income is primarily earned from our clearing firm based on a negotiated rate that takes into account interest earned by our clearing firm on customer credit cash balances and charges to customers on
margin balances. At year end, the average client balance was $44,600, of which a portion was held in cash. The Company also earned payment for
order flow on trades made during the year. Total trades were 11,482,000 during the ten and a half months included in the accompanying Consolidated Financial Statements.

Change in Deferred Revenue

Change in deferred revenue decreased $78.9 million for the year ended December 31, 2007, when compared to the prior year. The change in deferred
revenue is made up of two components. Additions to deferred revenue include current period sales of products and services that have a future fulfillment date, which include coaching services,
workshops, online courses and website subscription renewals. Bundled sales including deferred revenue components are added to deferred revenue and revenue is recognized as services to the student are
rendered. Recognition of previously deferred revenue includes revenue recognized over either (1) the passage of time for subscription based products such as toolbox or online courses or
(2) based on fulfillment of products or services for coaching and workshops. The primary reason for the decrease was the combination of products and services sold during the current year, as
well as the mix of products that existed in our deferred revenue liability account, as well as a decrease in sales transaction volume during the year.

Cost of Revenues

Overall cost of revenue increased during the year ended December 31, 2007 compared to the year ago period by $22.2 million primarily related to the
merger with thinkorswim. As a percentage of STV, cost of revenues decreased during the year ended December 31, 2007 compared to the same period in

36

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2006
as the results include partial period operations for the merged entity which have lower cost of revenues as a percentage of STV.

Partner
commissions, which relate solely to the Investor Education segment, decreased $15.0 million from 2006 amounts, due to a change in the mix of STV generated through
partnership channels. This is partially due to the loss of a marketing partner during the year and reflective of the decreased number of partner marketed graduates compared to the same period in 2006.

Payroll
costs include employee commissions based on a percentage of sales achieved from our Investor Education events or telesales groups, certain fixed wages related to the brokerage
trade desk and education coaching services and the associated employee benefit costs. Payroll costs, which increased by $0.4 million when compared to the same period in 2006, were impacted by
incremental costs associated with thinkorswim, not included in previous year amounts. Additionally, certain Investor Education
fulfillment costs declined as a result of the continued transition to online coaching formats that provide efficiencies as we service more students.

Brokerage,
clearing and other related fees, which totaled $17.4 million for fiscal year 2007, relate solely to the Brokerage Services segment and include fees to clearing
organizations, exchanges, third-party broker dealers and independent registered representatives. As a result of the merger with thinkorswim, the current year period includes operations for the merged
entity which was not included in prior year amounts.

Depreciation
and amortization increased $13.3 million during 2007, when compared to the prior year primarily due to amortization of intangibles and other assets related to the
thinkorswim merger.

Other
cost of revenue is primarily comprised of amounts directly related to sales transaction volume including travel expenditures, venue costs, material costs and credit card fees. In
addition, data and quotation service costs related to the brokerage segment are also included in other cost of revenue and are incremental on a comparable year over year basis given the merger with
thinkorswim. Travel and venue were impacted by incremental costs associated with the Investools investor conference of $2.8 million and higher costs to fulfill workshops held compared to 2006
given we held more workshops in higher priced markets. This increase was partially offset by efforts to fulfill more products and services online along with fewer partner events in the current year.

Selling Expense

Total selling expense increased during the year ended December 31, 2007 by approximately $17.9 million, primarily due to an increase in marketing
expense for the acquisition of new graduates in the Investor Education segment and due to incremental costs associated with the merger of thinkorswim.

Marketing
costs increased $15.1 million for the year ended December 31, 2007 when compared to the same period in 2006, primarily due to increased spending related to our
Investools branded events, which are marketed via various media channels including television, online, print and radio. In addition, we increased national advertising spending in both our television
and online channels which resulted in increased traffic towww.investools.com.

During
the year ended December 31, 2007, payroll costs increased primarily as a result of the incremental payroll costs associated with the education group within thinkorswim,
known as OptionPlanet. The costs associated with delivering the OptionPlanet courses are included in selling expense from the date of the merger.

General and Administrative

General and administrative expenses increased $37.0 million for the year ended December 31, 2007 when compared to the same period in 2006. The
increase was primarily attributed to the inclusion of general and administrative expenses associated with thinkorswim from the merger date, which includes payroll, retention bonus accruals and other
general and administrative expenses. thinkorswim general and administrative expenses were not included in the prior year amounts. In addition, we incurred an $8.5 million increase in
compensation expenses during the year relating to the modification of an option agreement in connection with the merger with thinkorswim. During the current year, the Company has also experienced an
increase in technology, licensing and hosting expenses as well as depreciation expenses related to the current year deployment of internal systems.

37

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Income (Loss) from Operations

The Investor Education segment operating margin improved by $34.3 million on a year over year basis. The decline in loss from operations is mostly
attributed to a $36.8 million increase in revenue fulfilled and recognized during the year with only a slight increase in the level of operating expenses in the business. The Brokerage Services
segment had operating margin of $42.6 million from the merger date through fiscal year end.

Interest Income

Interest income for the year ended December 31, 2007 decreased by $0.8 million due to lower balances of cash, cash equivalents and marketable
securities maintained during 2007 as compared to amounts maintained during 2006. The decrease in the balances was a result of the merger with thinkorswim, given the Company paid for a portion of the
merger consideration in cash.

Interest Expense

Interest expense for the year ended December 31, 2007 increased by $11.0 million over the same period for 2006, due to the interest recognized on
notes payable incurred as a result of the thinkorswim merger.

Income Taxes

During the year ended December 31, 2007 income tax expense of approximately $1.2 million was recorded due to the utilization of a portion of net
operating losses associated with a prior acquisition. Because there was a valuation allowance established in purchase accounting, subsequent usage of net
operating losses in fiscal year 2007 resulted in a decrease to goodwill and an offsetting increase in income tax expense.

Year Ended December 31, 2006 versus Year Ended December 31, 2005

Revenue

Revenue increased by $31.7 million for the year ended December 31, 2006, when compared to the prior year. The majority of the increase resulted from
an increased number of graduates acquired during the year. The increase in graduates was primarily due to an increased number of preview events, improved rates of customer response, and improved sales
efforts. We also increased our internal sales force and received more sales leads, due to the increased volume of events. The increase is also attributable to improved sales percentages, sales mix of
continuing education products, partner pricing initiatives and sales performance results from workshops and telesales teams. In addition, during 2006, the Company recorded sales related to the
Investools investor conference held in the first quarter of 2006. There was no investor conference held during 2005.

In
addition, during 2006, the Company introduced online courses as a replacement to the hardcopy course materials that were previously distributed to graduates. This change impacted the
corresponding revenue recognition, given the Company ceased delivering hard copy course manuals which were recognized upon delivery, and began the fulfillment of education via online courses which are
deferred and recognized over the estimated life of the subscription.

Change in Deferred Revenue

Change in deferred revenue increased $44.9 million for the year ended December 31, 2006, when compared to the prior year. This was due to the
combination of products and services sold during the current year, as well as the mix of products that existed in our deferred revenue liability account. The change in deferred revenue is made up of
two components. The increase was a result of increased sales of continuing education products, which include coaching sessions, advanced workshops and webtime

38

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subscription
renewals. During 2005, the Company introduced the online delivery format for all of its education courses. Sales of online courses are deferred for recognition over the estimated life of
the customer relationship, and results in higher deferred revenue balances. The online courses augment live workshops which are recognized upon attendance. The introduction of online courses increases
the proportion of current period sales deferred to future periods, given the length of time over which the online courses are available to students.

The
Investor Education segment defers a significant portion of revenues associated with subscription and continuing education products to future periods and recognizes the revenue as
services are rendered. We generally recognize costs as they are incurred. These costs consist of solicitation and fulfillment costs, which include employee sales commissions, partner commissions,
credit card fees, and materials. Since the majority of these costs are incurred at the inception of the education sales transaction, and not as the revenue is recognized, the analysis in the table
above is a tool for analyzing these costs as the ratios are also calculated as a percentage of STV generated in each period. Refer to the Revenue section above for a further description of STV. Each
of the cost components as a percent of STV in the table above is a non-GAAP financial measure, which management believes provides useful information for the Investor Education segment as
it compares the cost of generating sales with the sales recorded in a period. See the consolidated revenue table for the reconciliation of STV to revenue.

Approximately
51 percent of deferred revenue amounts relate to website subscriptions and online courses for which the remaining fulfillment cost represents an allocation of
website costs, which are substantially fixed in nature at current subscriber levels. Another 21 percent of the deferred revenue amounts relate to online and telephonic coaching services, of
which the remaining fulfillment cost represents labor costs of approximately 10 to 15 percent of related coaching service revenue. The balance of deferred revenue corresponds to additional
workshops and workshop certificates for our advanced product sales, for which the remaining fulfillment cost represents the incremental costs of the workshop attendee.

Costs
associated with the Brokerage Services segment are illustrated as a percentage of revenue and STV for ease of presentation. The majority of cost drivers within the brokerage
business key off of revenue, and therefore should be analyzed in that manner.

Cost of Revenues

Cost of revenues as a percentage of STV decreased for the year ended December 31, 2006 when compared to the same period in 2005. While the dollar amounts
of each of the components increased along with the growth in the number of workshops and events conducted for the year ended December 31, 2006, when compared to 2005, we experienced a decrease
as a percentage of STV in payroll costs and other cost of revenues.

Partner
commissions as a percent of STV increased, and consist of amounts paid to co-branding and co-marketing partners based on sales achieved through these
channels. The primary reason for the increase in the amount of partner commissions as a percentage of STV was due to various modifications to agreements with existing partners, the establishment of
new partnerships, as well as the change in the mix of STV generated through co-marketing channels.

Payroll
costs include employee commissions based on a percentage of sales achieved from our events or telesales groups, certain fixed wages, and the associated employee benefit costs.
The primary reason for the decrease in payroll costs as a percentage of STV was due to a change in the commission structure for sales staff and other sales employees, which resulted in a reduction of
payroll costs proportionate to the increase in the sales transaction volume for the year ended December 31, 2006. Additionally, payroll costs declined as a result of the continued transition to
online coaching formats that allow fewer coaches to service more students.

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Other
cost of revenue consists of amounts directly related to sales transaction volume including material costs, credit card fees, travel expenditures, venue costs, material costs and
other costs. Reasons for the decrease in other costs as a percentage of STV were due to a decrease in inventory costs resulting from the transition to online courses that do not have significant
material costs and a decrease in travel and venue costs related to fulfillment of workshops, partially offset by the costs associated with the Investools Investor Conference held in the first quarter
2006. No comparable event was held in 2005.

Selling Expense

Total selling expenses increased during the year ended December 31, 2006 by approximately $15.6 million, primarily due to an increase in marketing
expense related to the Company's ongoing emphasis on Investools marketed events advertised online and through direct response television (DRTV) presentations. The Company increased the Investools
marketed graduates by 56 percent for the year ended December 31, 2006, based on this increased marketing spend. These marketing channels proved effective, and as a result we reduced
spending on direct mail and traditional radio, newspaper, and TV ads by approximately two-thirds. Other selling expenses also increased due to a higher number of preview events held during
2006, which resulted in an increase in preview registrations. Expenses for 2006 also increased as a result of the investor conference held in Las Vegas, an event not held during 2005.

General and Administrative

General and administrative expenses increased 35 percent during the year ended December 31, 2006 as compared to the year ended December 31,
2005. Payroll expense included in general and administrative expenses remained relatively flat as a percentage of revenue compared to 2005, although increased in dollar amount due mostly to increased
staffing in the areas of technology and administration. This increase relates to the system implementation and toolbox development efforts that were underway during the year ended December 31,
2006. In addition, we also experienced an increase in professional fees related to our system implementation and legal fees related to litigation and compliance efforts, and an increase in
compensation for stock options issued.

Special Charges(in thousands)

Years Ended December 31,2007

2006

2005Severance costs

$
165

$
746

$
77Litigation settlement charges


1,130


5,448


Impairment of internal use software





1,414


1,000Total

$
1,295

$
7,608

$
1,077


We
recorded severance costs associated with the involuntary termination of 15, 18, and 12 employees for the years ended December 31, 2007, 2006 and 2005, respectively. The costs
were not strictly proportionate to the number of employees, because there were different severance packages involved in the various termination situations.

During
2007 and 2006, we established liabilities for certain legal contingencies that became probable and estimable. During 2006 and 2007, we incurred net costs of $1.1 million
and $5.4 million during the years ended December 31, 2007 and 2006, respectively. Also during 2006, we completed a review of the existing user interface features component of the ongoing
Investor Toolbox development project. As a result of the review, we decided to abandon the user interface component and redevelop

40

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it.
Accordingly, we wrote off the capitalized costs of $1.4 million related to the existing user interface component.

We
had earlier also capitalized $1.0 million related to certain projects to enhance our internal use software during the year ended December 31, 2005. Subsequently, we
abandoned these projects and the $1.0 million was written-off.

Interest Income

Interest income for the year ended December 31, 2006 increased by $2.0 million, due to higher balances of cash, cash equivalents and marketable
securities maintained during 2006 as compared to amounts maintained during 2005.

Interest Expense

Interest expense for the year ended December 31, 2006 remained flat when compared to the year ended December 31, 2005.

Income Taxes

In 2006, an income tax benefit of approximately $1.0 million was recorded for receipt of an income tax refund. No similar refund was recorded during fiscal
year 2005.

Concentration Risk

During the years ended December 31, 2007, 2006, and 2005, we accessed approximately 43 percent, 56 percent, and 69 percent,
respectively, of our STV for the Investor Education segment through co-marketing (Success Magazine and NET Marketing Alliance) and, prior to June 2005, co-branding (CNBC and
BusinessWeek) relationships. Effective August 2007, we ceased our relationship with NET Marketing Alliance as a co-marketing partner. We do not expect this to have a material impact on
long term operations. We are constantly pursuing new student acquisition channels and believe business from new and existing channels would eventually replace such lost volumes if they were to occur.
There can be no assurance that we would be successful in establishing new channels.

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

In
the normal course of business, our clearing brokers make margin loans to our customers which are collateralized by customer securities. In permitting the customers to purchase
securities on margin, the clearing broker is exposed to the risk of a market decline that could reduce the value of the collateral held below the customers' indebtedness before the collateral can be
sold which could result in losses to the clearing broker. Our agreement with the clearing brokers require us to reimburse the clearing brokers for any losses incurred related to customers introduced
by us. Our exposure to credit risk associated with the nonperformance of counterparties in fulfilling their contractual obligations pursuant to securities transactions can be directly impacted by
volatile securities markets, credit markets and regulatory changes. We seek to control the risk associated with customer activities by making credit inquiries when establishing customer relationships
and by monitoring customer trading activity.

Liquidity

Cash Flows

At December 31, 2007, our principal sources of liquidity consisted of $63.1 million of cash and cash equivalents and marketable securities, as
compared to $75.1 million of cash and cash equivalents

41

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and
marketable securities at December 31, 2006. Subsequent to December 31, 2006, we used $45.0 million as part of the purchase price of the thinkorswim merger.

Net
cash provided by operating activities was $53.1 million for the year ended December 31, 2007, compared to $56.2 million for the year ended December 31,
2006. The primary reason for the decrease in operating cash flows was a decrease of $78.9 million in the change in deferred revenue. This decrease was partially offset by a $63.2 million
increase in net income.

At
December 31, 2007, net working capital decreased by $18.4 million to $37.6 million, compared to $56.0 million at December 31, 2006, after excluding
the change in the current portion of deferred revenue, which is substantially a non-cash liability. The decrease in net working capital was partially due to a decrease in marketable
securities in 2007 compared to 2006. In addition, we have the current portion of our notes payable recorded as of December 31, 2007, in which there was no comparable liability as of
December 31, 2006.

We
invest our excess cash balances in government agency securities that earned approximately a 5 percent average rate of interest during the year. At December 31, 2007, we
had invested in securities with a fair value of $1.5 million, compared to $22.1 million at December 31, 2006. During the year ended December 31, 2007, investments matured
which provided $20.6 million in proceeds, as compared to $18.2 million in proceeds provided from the maturity of investments during 2006. We did not purchase any additional securities
during the year ended December 31, 2007, compared to $23.4 million in additional securities purchased during 2006. Most of the Company's marketable securities outstanding as of
December 31, 2006, were converted into cash in connection with the February 15, 2007 close of the merger with thinkorswim. The balance in marketable securities as of December 31,
2007 consisted of two investments, which were both redeemed in February 2008.

In
June 2004, the board of directors authorized a stock repurchase program under which we can repurchase up to 3.5 million shares of our common stock over a two-year
period. In June 2006, the Board of Directors extended the program for an additional two years. There were no repurchases of stock during 2007. During May 2006, we repurchased 160,000 shares for
$1.4 million under the terms of the program and during 2005, we repurchased 343,400 shares for a cost of $1.4 million. As of December 31, 2007, a total of 1.6 million
shares had been repurchased for a total cumulative cost of $5.0 million.

During
2007 and 2006, we added $0.1 million and $0.2 million, respectively, in equipment financed with capital leases. We expect to continue to use our liquid assets to
invest in our infrastructure and fund our operations.

Credit Agreement with JPMorgan

In connection with the merger with thinkorswim (see Note 3), on February 15, 2007 the Company entered into a Credit Agreement with JPMorgan Chase
Bank, N.A. ("JPMorgan"), as administrative agent, and with other lenders from time to time parties thereto.

The
Credit Agreement provides for $125 million in senior secured term loan facilities and a $25 million senior secured revolving loan facility. The senior secured term loan
facilities are comprised of a five-year $50 million senior secured term loan A facility, and a five-and-a-half year $75 million senior
secured term loan B facility. The revolving loan facility has a five-year term. The Credit Agreement includes an expansion feature with respect to the term loans pursuant to which the
Company may request an increase in the permitted aggregate term loan borrowings of up to $25 million. The borrowings under the new senior credit facilities are guaranteed by substantially all
of the material wholly-owned domestic subsidiaries of the Company (other than thinkorswim, Inc. and certain immaterial subsidiaries).

Loans
under the term loan A facility bear interest, at the borrower's option, initially, at (1) a rate equal to the London interbank offered rate (with adjustments for statutory
reserve requirements), or

42

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LIBOR,
plus an applicable margin or (2) a rate equal to the higher of (a) the prime rate of JPMorgan and (b) the federal funds effective rate plus 0.50 percent (the "ABR"),
plus an applicable margin. After the delivery by the borrower to the administrative agent of the borrower's financial statements for the second full fiscal quarter completed after the closing date,
the applicable margins for borrowings under the term loan A facility and the revolving credit facility were reduced subject to a leverage-based pricing grid. Loans under the term B facility bear
interest at fixed rates of (1) ABR plus 2.25 percent per annum in the case of ABR loans, or (2) LIBOR plus 3.25 percent per annum in the case of LIBOR loans.

Interest
payments on both the term loan A and B facilities are due beginning March 15, 2007, and thereafter at the end of every calendar quarter. In addition to interest,
principal payments of $2.5 million are due on the term loan A facility at the end of every calendar quarter, beginning June 30, 2007 through February 2012. In addition to quarterly
interest payments, principal payments of $7.5 million are due annually on the term loan B facility, beginning at the end of March 2008 through March 2012. In August 2012, a $37.5 million
balloon payment on the term loan B facility is due.

The
Credit Agreement also calls for prepayment of loan facilities if certain conditions are met. This prepayment requirement commences with the fiscal year ended December 31,
2007, and is calculated as an amount equal to 50% of "excess cash flow" for each fiscal year. Excess cash flow is defined within the Credit Agreement as consolidated net income plus certain
non-cash items and decreases in net working capital; minus capital expenditures and decreases, changes in deferred revenue and various changes in other balance sheet accounts. If
applicable, the annual prepayment is due within 90 days of each fiscal year end. The Company did not meet the requirements to make a prepayment under this provision for the fiscal year ended
December 31, 2007.

The
Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries, including, among
other things, restrictions on indebtedness, liens, fundamental changes, investments and acquisitions, sales of assets, sale leasebacks, mergers and consolidations, dividends and other distributions,
redemptions, hedging agreements, transactions with affiliates, and maximum fixed charge and total leverage ratios. The Credit Agreement also includes customary events of default, including the
occurrence of a change in control.

If
an event of default under the Credit Agreement shall occur and be continuing, the commitments thereunder may be terminated and the principal amount outstanding thereunder, together
with all accrued unpaid interest and other amounts owed thereunder, may be declared immediately due and payable.

Summary

We expect that our current cash, cash equivalents and marketable securities balances, credit amounts available through JPMorgan, along with our cash flows from
operations, will be sufficient to meet our working capital and other capital requirements for the foreseeable future. We anticipate allocating our cash resources among three primary areas: internal
growth strategies, additional acquisition opportunities, and the continuing buyback of our common stock.

Contractual Obligations and Commercial Commitments

We have various financial obligations and commitments in the ordinary course of conducting business. We have contractual obligations requiring future cash
payments under existing contractual arrangements, such as management and consulting agreements.

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The
following table details our known future cash payments (on an undiscounted basis) related to various contractual obligations as of December 31, 2007 (in thousands):

|Payments due by period                    |                                 | Capital
leases(1) |     | Operating
leases(2) |   | Data &
communication
purchase
agreements(3) |       | Notes
Payable(4) |       | Management
employment
agreements(5) |   | Total
contractual
obligations
|----------------------------------------- | ------------------------------- | ----------------- | --- | ------------------- | - | ------------------------------------------- | ----- | ---------------- | ----- | ----------------------------------- | - | -----------------------------
|2008                                      |                                 | $                 | 247 |                     | $ | 1,656                                       |       | $                | 3,002 |                                     | $ | 17,500                       
|1-3 Years                                 |                                 |                   | 350 |                     |   | 2,735                                       |       |                  | 668   |                                     |   | 35,000                       
|Thereafter                                |                                 |                   |    |                     |   | 921                                         |       |                  |      |                                     |   | 65,000                       
|                                          |                                 |                   |     |                     |   |                                             |       |                  |       |                                     |   |                              
|                                          | Total Payments                  |                   |     | 597                 |   | $                                           | 5,312 |                  | $     | 3,670                               |   | $                            
|                                          |                                 |                   |     |                     |   |                                             |       |                  |       |                                     |   |                              
|Less: Amount representing interest (8.0%) |                                 |                   | 55  |                     |   |                                             |       |                  |       |                                     |   |                              
|                                          |                                 |                   |     |                     |   |                                             |       |                  |       |                                     |   |                              
|                                          | Present value of lease payments |                   |     | 542                 |   |                                             |       |                  |       |                                     |   |                              
|Less: Current portion                     |                                 |                   | 212 |                     |   |                                             |       |                  |       |                                     |   |                              
|                                          |                                 |                   |     |                     |   |                                             |       |                  |       |                                     |   |                              
|                                          | Long-term portion               |                   | $   | 330                 |   |                                             |       |                  |       |                                     |   |                              
|                                          |                                 |                   |     |                     |   |                                             |       |                  |       |                                     |   |                              

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Critical Accounting Policies

Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon the Consolidated Financial Statements, which have been
prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

We
base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions.

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An
accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is
made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial
statements. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of the Consolidated Financial Statements.

Income Taxes

The provision for income taxes is calculated using the asset and liability method. Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We provide valuation allowances against the deferred tax assets
if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on all available information, we do not believe it is more
likely than not that our deferred tax assets will be utilized. In determining the adequacy of the valuation allowance we assess our profitability by taking into account the present and anticipated
amounts of domestic and international earnings, as well as the anticipated taxable income as a result of the reversal of future taxable temporary differences. For financial reporting purposes, we
generally provide taxes at the rate applicable for the appropriate tax jurisdiction.

We
adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in income
Taxesan interpretation of FASB Statement No. 109", on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FASB Statement 109, "Accounting for Income Taxes", and prescribes a
recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making
this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must
assume that the tax position will be examined by taxing authorities. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition.

Valuation of Long-Lived Assets, Including Goodwill

We review annually or more often if events or circumstances indicate a potential impairment exists, goodwill and indefinite lived intangibles for impairment in
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." We completed our annual impairment review during the fourth quarter of
2007. We did not identify any impairment to our goodwill or indefinite lived intangibles as a result of this review.

We
review long-lived assets, including certain amortizable identifiable intangibles, for impairment whenever events or changes in circumstances indicate that we will not be
able to recover the asset's carrying amount in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets."

For
long-lived assets held and used, including acquired intangibles, we initiate our review whenever events or changes in circumstances indicate that the carrying amount of a
long-lived asset may not be recoverable. Recoverability of an asset is measured by comparing its carrying amount to the expected undiscounted cash flows expected to result from the use and
eventual disposition of that asset, excluding future interest costs that would be recognized as an expense when incurred. Any impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds its fair market value. Significant management judgment is required in:



45

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Revenue Recognition

Investor Education Segment

We recognize revenue in accordance with SAB No. 104, "Revenue Recognition," and EITF
No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." Revenue is not recognized until it is realized or
realizable and earned. The criteria to meet this guideline are: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered,
(iii) the price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured.

We
sell our products separately and in various bundles that contain multiple deliverables that include one-on-one coaching sessions, website subscriptions,
educational workshops, online courses, along with other products and services. In accordance with EITF 00-21, sales arrangements with multiple deliverables are divided into separate
units of accounting if the deliverables in the arrangement meet the following criteria: (i) the product has value to the customer on a standalone basis; (ii) there is objective and
reliable evidence of the fair value of undelivered items; and (iii) delivery or performances of any undelivered item is probable and substantially in our control. The fair value of each
separate element is generally determined by prices charged when sold separately. In certain arrangements, we offer these products bundled together at a discount. The discount is allocated pro rata to
each element based on the relative fair value of each element when fair value support exists for each element in the arrangement. If fair value of all undelivered elements in an arrangement exists,
but fair value does not exist for a delivered element, then revenue is recognized using the residual method. Under the residual method, the fair value of undelivered elements is deferred and the
remaining portion of the arrangement fee (after allocation of 100 percent of any discount to the delivered item) is recognized as revenue. We provide some limited rights of return in connection
with our arrangements. We estimate our returns based on historical experience and maintain an allowance for estimated returns, which has been reflected as an accrued liability. Each transaction is
separated into its specific elements and revenue from each element is recognized according to the following policies:

|Product                        |  | Recognition policy                                                                                         
|------------------------------ |  | -----------------------------------------------------------------------------------------------------------
|Workshop/workshop certificates |  | Deferred and recognized as the workshop is provided or certificate expires                                 
|Home study programs            |  | Recognized upon delivery of home study materials to the customer                                           
|Online courses                 |  | Deferred and recognized over the estimated subscription period                                             
|Coaching services              |  | Deferred and recognized as services are delivered, or on a straight-line basis over the subscription period
|Website subscription services  |  | Deferred and recognized on a straight-line basis over the subscription period                              
|Data licenses                  |  | Recognized monthly based on data usage                                                                     

Throughout
2006, the Company introduced certain online courses. The terms and conditions of those online courses provide customers with access to and the ability to take these courses on
an unlimited basis as long as they have an active website subscription. As the Company currently does not have sufficient historical usage data related to how these online courses are utilized,
revenue is being recognized over the estimated expected customer life. However, as historical usage patterns become evident, the Company will recognize revenue consistent with the actual usage
patterns.

Deferred
revenue arises from subscriptions to the websites, workshops, online courses and coaching services because the payments are received before the service has been rendered.
Deferred

46

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revenue
is recognized into revenue over the period that the services are performed or the contract period expires. Deferred revenue for online courses is recognized over the estimated time the
customers are expected to be retained. We also sell certificates to attend workshops in the future. Revenue from these sales is deferred until the certificate is used or expires.

Brokerage Services Segment

The types of revenues associated with thinkorswim include brokerage commissions, interest rebates and other brokerage related revenue. Revenues for commissions
and other brokerage related are recorded on a trade date basis. Interest rebate revenues are recorded when earned.

Accounting for Stock-Based Compensation

In 2003, we adopted the fair value expense recognition method available under SFAS No. 123, "Accounting for Stock-Based
Compensation""("SFAS 123"). Effective January 1, 2006, we adopted SFAS No. 123(R), "Share-Based Payment"
("SFAS 123(R)") utilizing the modified prospective approach. Under this approach we recognize compensation expense for all share-based payments granted on or after January 1, 2006, and
those granted prior to but not yet vested as of January 1, 2006, according to the provisions of SFAS 123(R). We recognize stock-based compensation net of estimated forfeiture rates and
record compensation expense for those shares expected to vest over the service period of the award using a straight-line method.

We
estimate the value of share-based payments on the date of grant using the Black-Scholes pricing model. The fair value calculation of share-based payment awards includes the use of
subjective assumptions, including the expected term, stock price volatility and risk-free interest rate. We use the simplified method for determining the expected term of options granted
with exercise prices equal to the fair market value of the stock on the grant date. For options with exercise prices higher than fair market value on the grant date, the expected term represents the
period of time the options are expected to be outstanding, given the anticipated behavior of different groups of grantees. The expected volatility is based on a blend of the historical volatility of
our stock price and the stock price of one of our industry peers. The risk-free interest rate is based on the yield curve of U.S. Treasury securities for a period consistent with the
expected life of the share-based award at the time of grant. These assumptions represent management's best estimates, however, such estimates involve inherent uncertainties. If factors change and we
utilize different assumptions in the future, our stock based compensation expense could be significantly different.

Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". SFAS 157 defines fair
value, establishes a framework for measuring fair value, and requires enhanced disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. Subsequently, the FASB provided for a one-year deferral of the provisions of SFAS 157 for non-financial assets and liabilities that are recognized or disclosed at
fair-value in the Consolidated Financial Statements on a non-recurring basis. We are currently evaluating the impact of adopting the provisions of SFAS 157 for non-financial assets and
liabilities that are recognized or disclosed on a non-recurring basis. The Company does not expect this guidance for financial assets and liabilities to have a material impact on its results of
operations or financial position.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities".
SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after
November 15, 2007.

47

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The
Company does not expect this guidance to have a material impact on its results of operations or financial position.

In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business Combinations". This standard establishes that an acquiring
entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. This standard also defines
how goodwill acquired in a business combination or a gain from a bargain purchase should be recognized and updates certain disclosure requirements for business combinations. This standard applies
prospectively to business combinations for which the acquisition date is on or after December 15, 2008.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB
No. 51". This standard establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.
This standard is effective for fiscal years beginning on or after December 15, 2008.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk generally represents the risk of loss that may result from the potential change in the value of a financial instrument as a result of fluctuations in
interest rates or market prices. We are subject to the risk of fluctuating interest rates in the normal course of business, primarily as a result of our credit agreement with JPMorgan Chase Bank,
investment activities that generally bear interest at variable rates, and net interest spread earned through our subsidiary, thinkorswim, Inc. We do not hold any market risk sensitive
instruments for proprietary trading purposes.

As
an introducing broker, our subsidiary, thinkorswim, Inc., is the guarantor on margin credit and leverage extended to customers by our outsourced clearing firm, subject to
various regulatory and clearing firm margin requirements. Margin credit is collateralized by cash and securities in the customers' accounts. Leverage involves securing a large potential future
obligation with a proportional amount of cash or securities. The risks associated with margin credit and leverage increase during periods of fast market movements or in cases where leverage or
collateral is concentrated and market movements occur. During such times, customers who utilize margin credit or leverage and who have
collateralized their obligations with securities may find that the securities have a rapidly depreciating value and may not be sufficient to cover their obligations in the event of liquidation. We are
also exposed to credit risk when customers execute transactions, such as short sales of options and equities that can expose them to risk beyond their invested capital. Our clearing firm's account
level margin credit and leverage requirements meet or exceed those required by Regulation T of the Board of Governors of the Federal Reserve. thinkorswim, Inc. monitors required margin
levels on an intra-day basis and pursuant to such guidelines, requires customers to deposit additional collateral, or to reduce positions, when necessary.

In
connection with the merger with thinkorswim on February 15, 2007, we entered into a credit agreement with JPMorgan Chase Bank wherein we were provided a senior secured variable
rate term loan of $125 million to fund a portion of the cash purchase price. On March 30, 2007, we entered into an interest rate swap that fixed approximately half of the loan facility
(see Note 7 for more details regarding the nature of the credit facility and the rate structure). Based on this outstanding debt obligation, a 100 basis point increase in interest rates would
have increased our annual interest expense and related cash payments by approximately $0.6 million; a decrease of 1.0% in interest rates would decrease our annualized interest expense and
related cash payments by approximately $0.6 million. Such potential increases or decreases are based on certain simplified assumptions, including minimum quarterly principal repayments made on
variable-rate debt for all maturities and an immediate, across-the-board increase or decrease in the level of interest rates with no other subsequent changes for
the remainder of the periods.

48

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thinkorswim, Inc. earns a net interest spread from our outsourced clearing firm on the difference between amounts earned on customer margin loans and amounts paid on customer cash
balances. The profitability of our margin lending activities depends to a great extent on the difference between interest income earned on margin loans and investments of customer cash and the
interest expense paid on customer cash balances and borrowings through our clearing firms. Based on our interest income during the year-ended December 31, 2007, a 1.0% decline in
interest rates would have resulted in a $1.3 million decline in interest income. Further, a 1.0% increase in interest rates would have resulted in a $2.4 million increase in interest
income.

We
have invested excess cash in marketable securities that are subject to interest rate risk, which is not considered to be material to us. Based on our average holdings of marketable
securities during the year ended December 31, 2007 a 1.0% change in average interest rates would have impacted our pre-tax net income or loss for the year by $120,000.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements are filed pursuant to Item 15(a)1.

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

None.

ITEM 9A.    CONTROLS AND PROCEDURES

Controls and Procedures

We have established and maintained disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") designed to ensure that information required to be disclosed in the reports that it files or submits pursuant to the Exchange Act, is
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures.

Our
Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent or detect all errors and
fraud. Disclosure controls and procedures, no matter how well designed, operated and managed, can provide only reasonable assurance that the objectives of the disclosure controls and procedures are
met. Because of the inherent limitations of disclosure controls and procedures, no evaluation of such disclosure controls and procedures can provide absolute assurance that all control issues and
instances of fraud, if any, have been detected.

Disclosure Controls and Procedures

Management's Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act
Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations.

We
conducted an assessment of the effectiveness of our system of internal control over financial reporting as of December 31, 2007. This assessment was based on criteria
established in the framework

49

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Internal ControlIntegrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation of internal control
over financial reporting, our management concluded that our internal control over financial reporting was effective as of December 31, 2007.

The
Company's independent registered public accounting firm, KPMG LLP, has issued an audit report on our internal control over financial reporting.

Changes in Internal Controls Over Financial Reporting

As previously noted in the Company's Annual Report on Form 10-K, as of December 31, 2006, and Quarterly Reports on
Form 10-Q and Form 10-Q/A, for the quarterly periods in 2007, we noted a material weakness related to the following areas: revenue recognition systems and
processes and financial reporting over the preparation of the statement of cash flows. In addition to the new financial system implementation completed during the year, we implemented additional
internal controls surrounding the systematic and manual processes involved in the recognition of revenue. The controls spanned the order entry and revenue recognition process. Throughout the remainder
of 2007, we tested the internal controls in the newly upgraded environment and have concluded that they are effective to ensure the accuracy of our revenue recognition. We have also enhanced our
internal control over financial reporting with regard to the preparation of the statement of cash flows by having, among other controls, multiple levels of review.

We
have monitored the operating effectiveness of these controls during 2007 and have determined the material weakness was remediated at December 31, 2007.

There
were no changes in our internal control over financial reporting, other than described above, during the period ended December 31, 2007 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.

Scope of Management's Evaluation and Report on Internal Control over Financial Reporting

The Company acquired thinkorswim Group, Inc. and MyTrade, Inc. during 2007. The acquired assets related to these acquisitions totaled
$423.5 million as of December 31, 2007 and represented $110.9 million of revenues for 2007. The Company did not conduct an assessment of the effectiveness of internal control over
financial reporting for these entities as permitted by the rules and regulations of the SEC.

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

The
Board of Directors and Shareholders
Investools Inc.:

We
have audited Investools Inc.'s internal control over financial reporting as of December 31, 2007, based on criteria established inInternal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Investools Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial
reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over

50

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financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, Investools Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria
established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission.

Investools Inc.
acquired thinkorswim Group, Inc. and MyTrade, Inc. during 2007, and management excluded from its assessment of the effectiveness of
Investools Inc.'s internal control over financial reporting as of December 31, 2007, thinkorswim Group, Inc.'s and MyTrade, Inc.'s internal control over financial reporting
associated with total assets of $423,457,000 and total revenues of $110,882,000 included in the consolidated financial statements of Investools Inc. and subsidiaries as of and for the year
ended December 31, 2007. Our audit of internal control over financial reporting of Investools Inc. also excluded an evaluation of the internal control over financial reporting of
thinkorswim Group, Inc. and MyTrade, Inc.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Investools Inc. as of
December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders' equity (deficit) and comprehensive income (loss), and cash flows for each of the years in
the three-year period ended December 31, 2007, and our report dated March 17, 2008 expressed an unqualified opinion on those consolidated financial statements.

KPMG
LLP

Salt
Lake City, Utah
March 17, 2008

51

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PART III

In accordance with paragraph (3) of General Instruction G to Form 10-K, Part III of this Report is omitted because we will
file a definitive proxy statement involving the election of directors with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year pursuant to
Regulation 14A.

The
information required to be furnished pursuant to Items 10, 11, 12, 13, and 14 is incorporated by reference from portions of such proxy statement under "Nominees for Director",
"Organization of the Board of Directors", "Meetings and Committees of the Board of Directors", "Executive Officers", "Compensation Discussion and Analysis", "Report of the Compensation Committee",
"Summary Compensation Table", "Grants of Plan-Based Awards", "Outstanding Equity Awards at Fiscal Year-End", "Option Exercises and Stock Vested", "Potential Payments Upon
Termination or Change in Control", "Director Compensation", "Compensation Committee Interlocks and Insider Participation", "Section 16(a) Beneficial Ownership Reporting Compliance", "Code of
Business Conduct and Ethics", "Security Ownership of Certain Beneficial Owners and Management", "Certain Relationships and Related Transactions and Principal Accounting Fees and Services"; provided
that the information under "Report of the Compensation Committee", shall not be deemed filed for purposes of Section 18 of the Securities and Exchange Act of 1934, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933. See also "Equity Compensation Plan Information" under Item 5 of this Form 10-K, which is
incorporated herein to this Part III of Form 10-K.

52

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENTS

The following documents are filed as part of this Annual Report on Form 10-K:

Consolidated Financial Statements



Report of Independent Registered Public Accounting Firm

57Consolidated Balance Sheets as of December 31, 2007 and 2006

58Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006, and 2005

59Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income (Loss) for the Years Ended December 31, 2007, 2006 and 2005

60Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005

61Notes to Consolidated Financial Statements

62


Except
for Schedule IIValuation and Qualifying Accounts and Reserves, all other schedules have been omitted since the required information is not present or is not
present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements or notes thereto.

2.     Exhibits

|2.1  |  | Agreement and Plan of Merger dated February 26, 2004, by and among Investools Inc., SES Acquisition Corp., Service Enhancement Systems, Inc., Ted B. Shuel and Jamie Lynn Speas Shuel, as Trustee of The Shuel Family Trust, Scott K. Waltz,
 individually, Ted B. Shuel, individually, and Jamie Lynn Speas Shuel, individually. (Incorporated by reference from Investools' Current Report on Form 8-K filed on March 10, 2004.)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.2  |  | Stock Purchase Agreement dated as of January 26, 2005, among the Company, Prophet Financial, each of Timothy Knight and Andreas Bechtolsheim, and each of the individuals or entities listed on Exhibit A thereto. (Incorporated by reference
from Investools' Current Report on Form 8-K filed on February 1, 2005.)                                                                                                             
|2.3  |  | Agreement and Plan of Merger, dated September 18, 2006, among Investools Inc., thinkorswim Group, Inc. and Atomic Acquisition Corp. (Incorporated by reference from Investools' Current Report on Form 8-K filed on September 20,
2006.)                                                                                                                                                                                          
|3.1  |  | Amended and Restated Certificate of Incorporation of Investools Inc. (Included as Annex V to the joint proxy statement/prospectus filed in Registration No. 333-67454.)                                                                                                                                                                                                                                                           
|3.2  |  | By-laws of Investools Inc. (Included as Annex VI to the joint proxy statement/prospectus filed in Registration No. 333-67454.)                                                                                                                                                                                                                                                                                                    
|3.3  |  | Certificate of Amendment of the Certificate of Incorporation of Investools Inc. (Incorporated by reference from Investools' Annual Report on Form 10-K filed March 16, 2007.)                                                                                                                                                                                                                                                     
|10.1 |  | Amended Stock Option Plan of Telescan. (Incorporated by reference from Telescan's Post-Effective Amendment No. 1 to Form S-8 filed February 2, 1994.)(1)                                                                                                                                                                                                                                                                          
|10.2 |  | Amended and Restated 1995 Stock Option Plan of Telescan. (Incorporated by reference from Telescan's Registration Statement on Form S-8 filed November 21, 2000.)(1)                                                                                                                                                                                                                                                               

53

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|10.3  |  | 2000 Stock Option Plan of Telescan. (Incorporated by reference from Telescan's Registration Statement on Form S-8 filed November 21, 2000.)(1)                                                                                                                                            
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.4  |  | Amended 1999 Stock Option Plan of ZiaSun. (Incorporated by reference from ZiaSun's Post-Effective Amendment No. 1 to Form S-8 filed June 14, 2000.)(1)                                                                                                                                    
|10.5  |  | Executive Employment Agreement dated January 26, 2005, by and between Investools and Timothy Knight. (Incorporated by reference from Investools' Current Report on Form 8-K filed on February 1, 2005.)(1)                                                                                
|10.6  |  | Transition Agreement dated May 2, 2005, by and between Investools and CNBC, Inc. (Incorporated by reference from Investools' Current Report on Form 8-K filed May 4, 2005.)                                                                                                               
|10.7  |  | Amendment to Executive Employment Agreement, dated March 3, 2006, between Investools and Timothy Knight. (Incorporated by reference from Investools' Annual Report on Form 10-K filed March 7, 2006.)(1)                                                                                  
|10.8  |  | Investools Inc. 2004 Restricted Stock Plan. (Incorporated by reference to Appendix B to Investools' Schedule 14A filed with the SEC on April 29, 2004.)(1)                                                                                                                                
|10.9  |  | Stockholders' Agreement dated as of February 15, 2007. (Incorporated by reference from Exhibit 2 to Schedule 13D filed by Tom Sosnoff with respect to Investools Inc. with the SEC on February 23, 2007.)                                                                                 
|10.10 |  | Credit Agreement, dated as of February 13, 2007, among Investools Inc., the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent. (Incorporated by reference from Investools' Quarterly Report on
Form 10-Q filed with the SEC on May 10, 2007.)
|10.11 |  | Amended and Restated Executive Employment Agreement, dated February 15, 2007, between Investools and Lee Barba. (Incorporated by reference from Investools' Quarterly Report on Form 10-Q filed with the SEC on May 10, 2007.)(1)                                                         
|10.12 |  | Amended and Restated Executive Employment Agreement, dated February 15, 2007, between Investools and Ida Kane. (Incorporated by reference from Investools' Quarterly Report on Form 10-Q filed with the SEC on May 10, 2007.)(1)                                                          
|10.13 |  | Amended and Restated Executive Employment Agreement, dated February 15, 2007, between Investools and Ainslie J. Simmonds. (Incorporated by reference from Investools' Quarterly Report on Form 10-Q filed with the SEC on May 10,
2007.)(1)                                               
|10.14 |  | Executive Employment Agreement, dated February 15, 2007, between Investools and Tom Sosnoff. (Incorporated by reference from Investools' Quarterly Report on Form 10-Q filed with the SEC on May 10, 2007.)(1)                                                                            
|10.15 |  | Option Grant Agreement, dated February 15, 2007, between Investools and Tom Sosnoff. (Incorporated by reference from Investools' Quarterly Report on Form 10-Q filed with the SEC on May 10, 2007.)(1)                                                                                    
|10.16 |  | Executive Employment Agreement, dated February 15, 2007, between Investools and Scott Sheridan. (Incorporated by reference from Investools' Quarterly Report on Form 10-Q filed with the SEC on May 10, 2007.)(1)                                                                         
|10.17 |  | Option Grant Agreement, dated February 15, 2007, between Investools and Scott Sheridan. (Incorporated by reference from Investools' Quarterly Report on Form 10-Q filed with the SEC on May 10, 2007.)(1)                                                                                 
|21.1* |  | Subsidiaries of Investools.                                                                                                                                                                                                                                                               

54

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|23.1* |  | Consent of KPMG LLP.                                
|----- |  | ----------------------------------------------------
|31.1* |  | Section 302 Certification of Chief Executive Officer
|31.2* |  | Section 302 Certification of Chief Financial Officer
|32.1* |  | Section 906 Certification of Chief Executive Officer
|32.2* |  | Section 906 Certification of Chief Financial Officer

---

55

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of Draper, State of Utah, on March 17, 2008.

| |  | INVESTOOLS INC.
| |  | ---------------
| |  | By:            

Pursuant
to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated

|Signature                               |  | Title                                             |  | Date          
|--------------------------------------- |  | ------------------------------------------------- |  | --------------
|                                        |  |                                                   |  |               
|PRINCIPAL EXECUTIVE OFFICER:            |  |                                                   |  |               
|/s/LEE K. BARBALee K. Barba             |  | Chief Executive Officer and Chairman of the Board |  | March 17, 2008
|PRINCIPAL FINANCIAL/ACCOUNTING OFFICER: |  |                                                   |  |               
|/s/IDA K. KANEIda K. Kane               |  | Chief Financial Officer                           |  | March 17, 2008
|DIRECTORS:                              |  |                                                   |  |               
|/s/F. WARREN MCFARLANF. Warren McFarlan |  | Director                                          |  | March 17, 2008
|/s/LISA POLSKYLisa Polsky               |  | Director                                          |  | March 17, 2008
|/s/SCOTT D. SHERIDANScott D. Sheridan   |  | Director                                          |  | March 17, 2008
|/s/TOM SOSNOFFTom Sosnoff               |  | Director                                          |  | March 17, 2008
|/s/DOUGLAS T. TANSILLDouglas T. Tansill |  | Director                                          |  | March 17, 2008
|/s/HANS VON MEISSHans von Meiss         |  | Director                                          |  | March 17, 2008

56

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Report of Independent Registered Public Accounting Firm

The
Board of Directors and Shareholders
Investools Inc.:

We
have audited the accompanying consolidated balance sheets of Investools Inc. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements
of operations, stockholders' equity (deficit) and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2007. In connection
with our audits of the consolidated financial statements, we also have audited financial statement schedule II. These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Investools Inc. and subsidiaries as of
December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity
with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth therein.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Investools Inc.'s internal control over financial
reporting as of December 31, 2007, based on criteria established inInternal ControlIntegrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 17, 2008 expressed an unqualified opinion on the effectiveness of the Company's internal control over
financial reporting.

KPMG
LLP

Salt
Lake City, Utah
March 17, 2008

57

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INVESTOOLS INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (in thousands)

|                                                                                            |                                                                                                                                                       | December 31, |        
|------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | -------
|
|ASSETS                                                                                      |                                                                                                                                                       |              |        
|Current assets:                                                                             |                                                                                                                                                       |              |        
|                                                                                            | Cash and cash equivalents                                                                                                                             |              | $      
|                                                                                            | Marketable securities                                                                                                                                 |              |        
|                                                                                            | Accounts receivable, net of allowances of $198 and $74, respectively                                                                                  |              |        
|                                                                                            | Receivable from clearing brokers                                                                                                                      |              |        
|                                                                                            | Deferred tax assets                                                                                                                                   |              |        
|                                                                                            | Other current assets                                                                                                                                  |              |        
|                                                                                            |                                                                                                                                                       |              |        
|Total current assets                                                                        |                                                                                                                                                       |              | 102,832
|Long-term restricted cash                                                                   |                                                                                                                                                       |              | 389    
|Goodwill                                                                                    |                                                                                                                                                       |              | 208,776
|Intangible assets, net of accumulated amortization of $17,330 and $4,154, respectively      |                                                                                                                                                       |              | 132,587
|Software development cost, net of accumulated depreciation of $3,363 and $274, respectively |                                                                                                                                                       |              | 26,939 
|Furniture and equipment, net of accumulated depreciation of $8,726 and $4,790, respectively |                                                                                                                                                       |              | 8,007  
|Deferred tax assets                                                                         |                                                                                                                                                       |              |       
|Other long-term assets                                                                      |                                                                                                                                                       |              | 29,800 
|                                                                                            |                                                                                                                                                       |              |        
|Total assets                                                                                |                                                                                                                                                       | $            | 509,330
|                                                                                            |                                                                                                                                                       |              |        
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                              |                                                                                                                                                       |              |        
|Current liabilities:                                                                        |                                                                                                                                                       |              |        
|                                                                                            | Current portion of deferred revenue                                                                                                                   |              | $      
|                                                                                            | Other current liabilities                                                                                                                             |              |        
|                                                                                            | Accounts payable                                                                                                                                      |              |        
|                                                                                            | Accrued payroll                                                                                                                                       |              |        
|                                                                                            | Accrued tax liabilities                                                                                                                               |              |        
|                                                                                            | Deferred tax liability                                                                                                                                |              |        
|                                                                                            | Current portion of capitalized lease obligations                                                                                                      |              |        
|                                                                                            | Current portion of notes payable                                                                                                                      |              |        
|                                                                                            |                                                                                                                                                       |              |        
|Total current liabilities                                                                   |                                                                                                                                                       |              | 189,741
|Long-term portion of deferred revenue                                                       |                                                                                                                                                       |              | 37,384 
|Long-term portion of capital lease obligations                                              |                                                                                                                                                       |              | 330    
|Long-term portion of notes payable                                                          |                                                                                                                                                       |              | 100,000
|Deferred tax liabilities                                                                    |                                                                                                                                                       |              | 18,487 
|Other long-term accrued liabilities                                                         |                                                                                                                                                       |              | 1,493  
|                                                                                            |                                                                                                                                                       |              |        
|Total liabilities                                                                           |                                                                                                                                                       |              | 347,435
|Commitments and contingencies (Note 8)                                                      |                                                                                                                                                       |              |        
|Stockholders' equity (deficit):                                                             |                                                                                                                                                       |              |        
|                                                                                            | Preferred stock, $0.01 par value; 1,000 shares authorized; no shares issued and outstanding December 31, 2007 and 2006, respectively                  |              |        
|                                                                                            | Common stock, $0.01 par value; 100,000 shares authorized; 65,655 and 45,264 shares issued and outstanding at December 31, 2007 and 2006, respectively |              |        
|                                                                                            | Additional paid-in capital                                                                                                                            |              |        
|                                                                                            | Accumulated other comprehensive income                                                                                                                |              |        
|                                                                                            | Accumulated deficit                                                                                                                                   |              |        
|                                                                                            |                                                                                                                                                       |              |        
|Total stockholders' equity (deficit)                                                        |                                                                                                                                                       |              | 161,895
|                                                                                            |                                                                                                                                                       |              |        
|Total liabilities and stockholders' equity (deficit)                                        |                                                                                                                                                       | $            | 509,330
|                                                                                            |                                                                                                                                                       |              |        

See accompanying notes to these Consolidated Financial Statements.

58

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INVESTOOLS INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share amounts)

|                                                                                 |                                    | Years Ended December 31,               |        
|-------------------------------------------------------------------------------- | ---------------------------------- | -------------------------------------- | -------
|
|Revenue                                                                          |                                    | $                                      | 318,009
|Costs and expenses:                                                              |                                    |                                        |        
|                                                                                 | Cost of revenue                    |                                        |        
|                                                                                 | Selling expense                    |                                        |        
|                                                                                 | General and administrative expense |                                        |        
|                                                                                 | Special charges                    |                                        |        
|                                                                                 |                                    |                                        |        
|                                                                                 |                                    | Total costs and expenses               |        
|                                                                                 |                                    |                                        |        
|                                                                                 |                                    | Income (loss) from operations          |        
|Other (expense) income:                                                          |                                    |                                        |        
|                                                                                 | Interest expense                   |                                        |        
|                                                                                 | Interest income                    |                                        |        
|                                                                                 | Other                              |                                        |        
|                                                                                 |                                    |                                        |        
|                                                                                 |                                    | Total other (expense) income           |        
|                                                                                 |                                    |                                        |        
|Net income (loss) before income taxes and cumulative effect of accounting change |                                    |                                        | 23,585 
|                                                                                 |                                    | Income tax provision (benefit)         |        
|                                                                                 |                                    |                                        |        
|Net income (loss) before cumulative effect of accounting change                  |                                    |                                        | 22,435 
|                                                                                 |                                    | Cumulative effect of accounting change |        
|                                                                                 |                                    |                                        |        
|Net income (loss)                                                                |                                    | $                                      | 22,435 
|                                                                                 |                                    |                                        |        
|Net income (loss) per Common Share:                                              |                                    |                                        |        
|                                                                                 | Basic                              |                                        | $      
|                                                                                 |                                    |                                        |        
|                                                                                 | Diluted                            |                                        | $      
|                                                                                 |                                    |                                        |        
|Weighted average common shares outstandingbasic                                 |                                    |                                        | 62,942 
|                                                                                 |                                    |                                        |        
|Weighted average common shares outstandingdiluted                               |                                    |                                        | 65,790 
|                                                                                 |                                    |                                        |        

See
accompanying notes to these Consolidated Financial Statements.

59

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INVESTOOLS INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)  AND COMPREHENSIVE INCOME (LOSS)        (in thousands)

|                                                                             |  |   |         | Common Stock |        |   |   |     |   |   |         |   |   |      |  
|---------------------------------------------------------------------------- |  | - | ------- | ------------ | ------ | - | - | --- | - | - | ------- | - | - | ---- | -
|
|
|Balance, December 31, 2004                                                   |  | $ | (11,757 | )            | 44,966 |   | $ | 449 |   | $ | 129,097 |   | $ | (32  | )
|                                                                             |  |   |         |              |        |   |   |     |   |   |         |   |   |      |  
|Repurchase of common stock                                                   |  |   |        |              | (343   | ) |   | (3  | ) |   | (1,391  | ) |   |     |  
|Stock issued due to option exercise                                          |  |   |        |              | 126    |   |   | 1   |   |   | 136     |   |   |     |  
|Issuance of restricted stock                                                 |  |   |        |              | 5      |   |   |    |   |   | 16      |   |   |     |  
|Deferred stock compensation                                                  |  |   |        |              |       |   |   |    |   |   | 3,304   |   |   |     |  
|Amortization of deferred stock compensation                                  |  |   |        |              |       |   |   |    |   |   |        |   |   |     |  
|Net loss                                                                     |  |   | (15,742 | )            |       |   |   |    |   |   |        |   |   |     |  
|Unrealized losses on marketable securities, net                              |  |   | (84     | )            |       |   |   |    |   |   |        |   |   | (84  | )
|                                                                             |  |   |         |              |        |   |   |     |   |   |         |   |   |      |  
|Balance, December 31, 2005                                                   |  | $ | (15,826 | )            | 44,754 |   | $ | 447 |   | $ | 131,162 |   | $ | (116 | )
|                                                                             |  |   |         |              |        |   |   |     |   |   |         |   |   |      |  
|Reclassification of deferred stock compensation upon adoption of SFAS 123(R) |  |   |        |              |       |   |   |    |   |   | (3,742  | ) |   |     |  
|Repurchase of common stock                                                   |  |   |        |              | (160   | ) |   | (2  | ) |   | (1,358  | ) |   |     |  
|Stock issued due to option exercise                                          |  |   |        |              | 670    |   |   | 8   |   |   | 874     |   |   |     |  
|Stock compensation                                                           |  |   |        |              |       |   |   |    |   |   | 1,179   |   |   |     |  
|Net loss                                                                     |  |   | (40,732 | )            |       |   |   |    |   |   |        |   |   |     |  
|Reclassification adjustment for recognized losses included in net loss       |  |   | 85      |              |       |   |   |    |   |   |        |   |   | 85   |  
|Unrealized gain on marketable securities, net                                |  |   | 34      |              |       |   |   |    |   |   |        |   |   | 34   |  
|                                                                             |  |   |         |              |        |   |   |     |   |   |         |   |   |      |  
|Balance, December 31, 2006                                                   |  | $ | (40,613 | )            | 45,264 |   | $ | 453 |   | $ | 128,115 |   | $ | 3    |  
|                                                                             |  |   |         |              |        |   |   |     |   |   |         |   |   |      |  
|Stock issued for acquisitions                                                |  |   |        |              | 19,250 |   |   | 192 |   |   | 169,362 |   |   |     |  
|Stock issued for settlement of lawsuit                                       |  |   |        |              | 206    |   |   | 2   |   |   | 2,760   |   |   |     |  
|Stock issued for brokerage service agreement                                 |  |   |        |              | 700    |   |   | 7   |   |   | 10,703  |   |   |     |  
|Restricted stock compensation                                                |  |   |        |              |       |   |   |    |   |   | 1,124   |   |   |     |  
|Issuance of restricted stock                                                 |  |   |        |              | 8      |   |   |    |   |   | 88      |   |   |     |  
|Stock issued due to option exercise                                          |  |   |        |              | 227    |   |   | 2   |   |   | 880     |   |   |     |  
|Stock compensation                                                           |  |   |        |              |       |   |   |    |   |   | 14,424  |   |   |     |  
|Contingent shares in connection with exclusivity rights                      |  |   |        |              |       |   |   |    |   |   | 3,550   |   |   |     |  
|Net income                                                                   |  |   | 22,435  |              |       |   |   |    |   |   |        |   |   |     |  
|Translation gains                                                            |  |   | 14      |              |       |   |   |    |   |   |        |   |   | 14   |  
|Unrealized gain on marketable securities                                     |  |   | 3       |              |       |   |   |    |   |   |        |   |   | 3    |  
|                                                                             |  |   |         |              |        |   |   |     |   |   |         |   |   |      |  
|Balance, December 31, 2007                                                   |  | $ | 22,452  |              | 65,655 |   | $ | 656 |   | $ | 331,006 |   | $ | 20   |  
|                                                                             |  |   |         |              |        |   |   |     |   |   |         |   |   |      |  

See accompanying notes to these Consolidated Financial Statements.

60

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INVESTOOLS INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)

|                                                      |                                                             | Years Ended December 31,                                                           |                                 
|----------------------------------------------------- | ----------------------------------------------------------- | ---------------------------------------------------------------------------------- | --------------------------------
|
|Cash flows from operating activities:                 |                                                             |                                                                                    |                                 
|Net income (loss)                                     |                                                             | $                                                                                  | 22,435                          
|                                                      | Reconciling adjustments:                                    |                                                                                    |                                 
|                                                      |                                                             | Depreciation and amortization                                                      |                                 
|                                                      |                                                             | Deferred taxes                                                                     |                                 
|                                                      |                                                             | Stock compensation expense                                                         |                                 
|                                                      |                                                             | Amortization of exclusivity rights                                                 |                                 
|                                                      |                                                             | Contingent shares in connection with exclusivity rights                            |                                 
|                                                      |                                                             | Amortization of debt issuance costs                                                |                                 
|                                                      |                                                             | Decrease in fair value of interest rate swap, included in interest expense         |                                 
|                                                      |                                                             | Provision for sales return reserve                                                 |                                 
|                                                      |                                                             | Provision for lease termination                                                    |                                 
|                                                      |                                                             | Provision for bad debt expense                                                     |                                 
|                                                      |                                                             | Provision for inventory reserve                                                    |                                 
|                                                      |                                                             | Loss (gain) on sale of assets                                                      |                                 
|                                                      |                                                             | Loss on marketable securities                                                      |                                 
|                                                      |                                                             | Impairment of capitalized software development                                     |                                 
|                                                      |                                                             | Changes in operating assets and liabilities, net of effect of acquired businesses: |                                 
|                                                      |                                                             |                                                                                    | Accounts receivable             
|                                                      |                                                             |                                                                                    | Receivable from clearing brokers
|                                                      |                                                             |                                                                                    | Restricted cash                 
|                                                      |                                                             |                                                                                    | Other assets                    
|                                                      |                                                             |                                                                                    | Accounts payable                
|                                                      |                                                             |                                                                                    | Deferred revenue                
|                                                      |                                                             |                                                                                    | Accrued payroll                 
|                                                      |                                                             |                                                                                    | Other liabilities               
|                                                      |                                                             |                                                                                    | Accrued tax liabilities         
|                                                      |                                                             |                                                                                    |                                 
|                                                      |                                                             |                                                                                    |                                 
|                                                      |                                                             |                                                                                    |                                 
|Cash flows from investing activities:                 |                                                             |                                                                                    |                                 
|                                                      | Purchases of marketable securities                          |                                                                                    |                                 
|                                                      | Proceeds from the sale or maturity of marketable securities |                                                                                    |                                 
|                                                      | Proceeds from the sale of equipment                         |                                                                                    |                                 
|                                                      | Payments for capitalized software development costs         |                                                                                    |                                 
|                                                      | Purchases of furniture and equipment                        |                                                                                    |                                 
|                                                      | Cash held in escrow                                         |                                                                                    |                                 
|                                                      | Deferred acquisition costs                                  |                                                                                    |                                 
|                                                      | Cash paid in business acquisitions, net of cash received    |                                                                                    |                                 
|                                                      |                                                             |                                                                                    |                                 
|                                                      |                                                             |                                                                                    |                                 
|                                                      |                                                             |                                                                                    |                                 
|Cash flows from financing activities:                 |                                                             |                                                                                    |                                 
|                                                      | Payment on capital leases                                   |                                                                                    |                                 
|                                                      | Payments on note payable                                    |                                                                                    |                                 
|                                                      | Changes in restricted cash                                  |                                                                                    |                                 
|                                                      | Proceeds from note payable                                  |                                                                                    |                                 
|                                                      | Payment of debt issuance costs                              |                                                                                    |                                 
|                                                      | Repurchase of stock                                         |                                                                                    |                                 
|                                                      | Proceeds from exercise of stock options                     |                                                                                    |                                 
|                                                      |                                                             |                                                                                    |                                 
|                                                      |                                                             |                                                                                    |                                 
|                                                      |                                                             |                                                                                    |                                 
|Effect of exchange rates on cash and cash equivalents |                                                             |                                                                                    | 14                              
|                                                      |                                                             |                                                                                    |                                 
|Increase in cash and cash equivalents:                |                                                             |                                                                                    |                                 
|Cash and cash equivalents:                            |                                                             |                                                                                    | 8,656                           
|                                                      |                                                             | Beginning of year                                                                  |                                 
|                                                      |                                                             |                                                                                    |                                 
|                                                      |                                                             | End of year                                                                        |                                 
|                                                      |                                                             |                                                                                    |                                 

See Note 15 for supplemental cash flow disclosures.

See accompanying notes to these Consolidated Financial Statements.

61

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INVESTOOLS INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

Investools Inc. ("the Company") operates in two principal business segments: Investor Education and Brokerage Services.

Investools Inc.
offers investor education and brokerage and related financial products and services for self-directed investors. The Company's Investor Education
segment offers a full range of investor education products and services that provide lifelong learning in a variety of interactive
delivery formats, including instructor-led synchronous and asynchronous online courses, in-person workshops, one-on-one and
one-to-many online coaching programs and telephone, live-chat and email support. The Company's educational products and services cover a broad range of financial
products, including equity securities, options, fixed income, index products, futures, other derivatives and foreign exchange.

On
February 15, 2007, the Company merged with thinkorswim Group, Inc. ("thinkorswim"), a leading online brokerage firm and provider of related technology-based financial
services to self-directed options traders and retail investors. thinkorswim offers customers a broad range of products including equity securities, index products, exchange traded options,
futures, mutual funds, bonds and foreign exchange. All securities transactions are cleared on a fully disclosed basis pursuant to a clearing agreement with our primary clearing broker, Penson
Financial Services. thinkorswim is also a registered investment dealer subject to regulation by Investment Dealers Association of Canada ("IDA") and Ontario Securities Commission ("OSC") in Canada.

In
connection with the merger with thinkorswim, the Company acquired thinkorswim Advisors, Inc. ("Advisors"), a subsidiary of thinkorswim and a SEC registered investment advisor.
Advisors provides investment management services based upon diversified portfolios, which include alternative investment styles. It also offers traditional and return enhanced investment strategies.
Advisors' Red Option division provides a monthly subscription service that provides trade recommendations for a number of options trading strategies. Advisors has an educational division focused on
options trading, called Option Planet.

See
Note 3 for a further discussion of business acquisitions.

Concentration Risk

During the years ended December 31, 2007, 2006, and 2005, the Investor Education segment accessed approximately 43 percent, 56 percent, and
69 percent, respectively, of our sales transaction volume through co-marketing (Success Magazine and NET Marketing Alliance) and, prior to June 2005, co-branding (CNBC
and BusinessWeek) relationships.

The
Company pays commissions to its co-marketing and co-branding partners for sales that are generated through the various partners' channels. The rates at which
partners are paid commissions vary depending on the partner, the products sold to the customer, and the sales channel through which the sale is made. Commissions are recorded as cost of revenue as
incurred at the time of sale.

2. SIGNIFICANT ACCOUNTING POLICIES AND RELATED INFORMATION

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.

62

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES AND RELATED INFORMATION (Continued)

Use of Estimates

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

Financial Instruments

Financial instruments consist primarily of cash and cash equivalents, marketable securities, accounts receivable, accounts payable, other accrued liabilities,
interest rate swap and notes payable. SFAS No. 107 ("SFAS 107"),"Disclosure about Fair Value of Financial Instruments", requires the
disclosure of the fair value of financial instruments, including assets and liabilities recognized in the balance sheets. Fair value for securities owned and securities sold, not yet purchased, is
estimated using market quotations. The fair value of the interest rate swap is marked to market each reporting period. The notes payable bear interest at current market rates and accordingly, carrying
value approximates fair value. Management estimates the aggregate fair value of other financial instruments recognized on the balance sheets (including receivables, payables and accrued liabilities)
approximates their fair value, as such financial instruments are short-term in nature, bear interest at current market rates or are subject to frequent repricing.

Cash Equivalents

The Company considers all investments with an original maturity of three months or less to be cash equivalents. These investments primarily consist of
money-market accounts. At December 31, 2007 and 2006, cash equivalents were $1.4 million and $46.8 million, respectively.

The
amounts included in the Consolidated Financial Statements approximate fair value at the balance sheet date. The Company maintains deposits in banks, which may exceed the amount of
federal deposit insurance available. Management believes the potential risk of loss on these accounts to be minimal.

Marketable Securities

The Company invests excess cash in marketable securities, primarily government backed securities with maturities of less than three years. At December 31,
2007, the fair market value of these securities was $1.5 million. The Company has classified these marketable securities as available for sale under Statement of Financial Accounting Standards
No. 115 ("SFAS 115"),"Accounting for Certain Investments in Debt and Equity Securities". Accordingly, the securities are recorded at fair
value and any unrealized gains or losses are included in accumulated other comprehensive income (loss) within stockholders' equity (deficit). Gains are recognized when realized and are recorded in the
Consolidated Statements of Operations in other income. Losses are recognized as realized or when management has determined an other-than-temporary decline in fair value has
occurred.

63

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES AND RELATED INFORMATION (Continued)

Accounts Receivable

Receivables from customers are reserved when collection becomes doubtful.

Receivables from Clearing Brokers

Receivables from clearing brokers consists of cash deposits and receivables from revenues earned, net of expenses incurred, from customer transactions conducted
through the clearing brokers.

Allowance for Sales Returns

Provisions for sales return reserves primarily relate to products and service arrangements and are recorded as a reduction to revenue and deferred revenue. These
provisions are made based on historical experience and changes in customer preferences. At December 31, 2007 and 2006, allowance for sales returns of $1.7 million and
$2.0 million, respectively, are included as part of other current liabilities in the accompanying Consolidated Balance Sheets.

Securities Owned and Securities Sold, Not Yet Purchased

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

Securities
owned and securities sold, not yet purchased, are composed of the following at December 31, 2007 (in thousands):

Securities
Owned

Securities
Sold, Not Yet
PurchasedOptions

$
152

$
240Equities and other


553


2$
705

$
242


Securities
sold, not yet purchased result in exposure to market risk as the Company's ultimate obligation may exceed the amount recognized. Securities owned and securities sold, not yet
purchased are included in other current assets and other current liabilities, respectively, within the accompanying Consolidated Balance Sheets.

Restricted Cash

The Company uses merchant account vendors to process credit card transactions. Under the terms of these agreements, the merchant account vendor has the right to
withhold credit card funds to cover charge backs in the event the Company is unable to honor its commitments. Such funds can be held for up to a year after the Company has terminated its relationship
with the merchant account vendor. At

64

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES AND RELATED INFORMATION (Continued)

both
December 31, 2007 and 2006 the Company had $0.4 million in restricted cash due from merchant account vendors.

Capitalized Software Development Costs

For internal use software the Company complies with the American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP")
No. 98-1,"Accounting For Cost of Computer Software Developed or Obtained for Internal Use", and EITF No. 00-2, Accounting for Website Development Costs. In accordance with SOP 98-1, software development costs incurred as part of an approved
project plan that result in additional functionality to internal use software are capitalized and amortized on a straight-line basis over the estimated useful life of the software. During
the years ended December 31, 2007 and 2006, the Company capitalized $17.4 million and $9.2 million, respectively, of software development costs related to internal use software
for the development of the Investor Toolbox website, the implementation of the Company's integrated enterprise resource planning and customer relationship management software solution and software and
website assets developed for internal use by thinkorswim. Approximately $0.4 million of interest expense was capitalized in relation to the implementation of the customer relationship
management software during 2007.

Amortization
of software developed for internal use begins when the internal use software is ready for its intended use, and is calculated on a straight-line basis over the
estimated use of the product. The integrated enterprise resource planning software was placed in service in March 2007 and the Investor Toolbox application was placed in service during 2006. The
software and website assets developed for internal use by thinkorswim were placed in service on various dates. The customer relationship management software was placed in service during the fourth
quarter of 2007. Amortization expense during the years ended December 31, 2007 and 2006 was approximately $3.1 million and $0.3 million, respectively.

Furniture and Equipment

Furniture and equipment is stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line method over the estimated
useful lives of the assets, which range from two to five years. Depreciation expense was approximately $3.9 million, $2.4 million, and $1.3 million for the years ended
December 31, 2007, 2006 and 2005, respectively.

The
following is a detail of our furniture and equipment (in thousands):

2007

2006Furniture and equipment:Computer and office equipment

$
12,715

$
8,179Furniture


2,018


1,325Leasehold improvements


2,000


539Total furniture and equipment


16,733


10,043Less: accumulated depreciation and amortization


(8,726
)

(4,790
)Furniture and equipment, net

$
8,007

$
5,253


65

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES AND RELATED INFORMATION (Continued)

Goodwill and Other Indefinite Lived Intangible Assets

Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses
acquired. Goodwill and other intangible assets with indefinite lives are not amortized, but instead are tested for impairment annually, or, more frequently upon the occurrence of a triggering event.
The Company evaluates the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step the fair value for the reporting unit is
compared to its net book value including goodwill. In the event that the fair value of the reporting unit is less than the book value, a second step is performed which compares the implied fair value
of the reporting unit's goodwill to the book value of the goodwill. The fair value for the goodwill is determined based on the difference between the fair values of the reporting units and the net
fair values of the identifiable assets and liabilities of such reporting units. If the fair value of the goodwill is less than the book value, the difference is recognized as an impairment. The
Company performed its impairment assessment on goodwill, in accordance with
the methods prescribed above. The Company concluded that no impairment existed as of December 31, 2007.

Indefinite
lived intangible assets are tested for impairment annually, or, more frequently upon the occurrence of a triggering event. The Company evaluates the recoverability of
indefinite lived intangible assets by comparing the indefinite lived intangible assets book value to its estimated fair value. The fair value for indefinite lived intangible assets is determined by
performing cash flow analysis and other market evaluations. If the fair value of the indefinite lived intangible assets is less than book value, the difference is recognized as an impairment.

Long Lived Assets

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", long-lived assets, such as property, equipment and definite-lived intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset or asset group to estimated future undiscounted net cash flows of the related asset or group of assets over their remaining lives. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the estimated fair value of the asset. Impairment of
long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent of other groups of assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value, less the estimated costs to sell.

Income Taxes

We adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), "Accounting for
Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109", on January 1, 2007. FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement 109, "Accounting for Income Taxes", and prescribes
a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making
this assessment, a company must determine whether it is more likely

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES AND RELATED INFORMATION (Continued)

than
not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities.
FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The
Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases, and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is
provided when it is more likely than not that some or all of the deferred tax assets may not be realized. We recognize interest and penalties related to income tax matters as a component of tax
expense in the Consolidated Statements of Operations, consistent with prior years.

Sales Taxes

The Company records taxes collected from customers on a net basis.

Foreign Currency Translation

The assets and liabilities of foreign operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date, with the related
translation gains and losses reported as a separate
component of shareholders' equity and comprehensive income. Results of operations are translated using the average exchange rates prevailing throughout the period. Transactions denominated in
currencies other than the functional currency are translated at exchange rates in effect at the balance sheet date or upon settlement of the transaction. Gains and losses from such translation are
recorded to other income (expense) in the Consolidated Statements of Operations.

Revenue Recognition

The following paragraphs summarize the revenue recognition policies for each reporting segment.

Investor Education Segment

The Company recognizes revenue in accordance with Staff Accounting Bulletin ("SAB") No. 104, "Revenue
Recognition", and EITF No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables". Revenue
is not recognized until it is realized or realizable and earned. The criteria to meet this guideline are: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or
services have been rendered; (iii) the price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.

The
Company sells its products separately and in various bundles that contain multiple deliverables that include on-demand coaching services, website subscriptions,
educational workshops, online courses, along with other products and services. In accordance with EITF 00-21, sales arrangements with multiple deliverables are divided into separate
units of accounting if the deliverables in the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES AND RELATED INFORMATION (Continued)

arrangement
meet the following criteria: (i) the product has value to the customer on a standalone basis; (ii) there is objective and reliable evidence of the fair value of undelivered
items; and (iii) delivery or performance of any undelivered item is probable and substantially in our control. The fair value of each separate element is generally determined by prices charged
when sold separately. In certain arrangements, Investools offers these products bundled together at a discount. The discount is allocated pro rata to each element based on the relative fair value of
each element when fair value support exists for each element in the arrangement. If fair value of all undelivered elements in an arrangement exists, but fair value does not exist for a delivered
element, then revenue is recognized using the residual method. Under the residual method, the fair value of undelivered elements is deferred and the remaining portion of the arrangement fee (after
allocation of 100 percent of any discount to the delivered item) is recognized as revenue. The Company provides some limited rights of return in connection with its arrangements. The Company
estimates its returns based on historical experience and maintains an allowance for estimated returns, which has been reflected as an accrued liability. Each transaction is separated into its specific
elements and revenue from each element is recognized according to the following policies:

|Product                        |  | Recognition policy                                                                                         
|------------------------------ |  | -----------------------------------------------------------------------------------------------------------
|Workshop/workshop certificates |  | Deferred and recognized as the workshop is provided or certificate expires                                 
|Home study programs            |  | Recognized upon delivery of home study materials to the customer                                           
|Online courses                 |  | Deferred and recognized over the estimated subscription period                                             
|Coaching services              |  | Deferred and recognized as services are delivered, or on a straight-line basis over the subscription period
|Website subscription services  |  | Deferred and recognized on a straight-line basis over the subscription period                              
|Data licenses                  |  | Recognized monthly based on data usage                                                                     

Deferred
revenue arises from subscriptions to the websites, workshops, online courses and coaching services because the payments are received before the service has been rendered.
Deferred revenue is recognized into revenue over the period that the services are performed or the time that the contract period expires, as shown in the above table.

Throughout
2006, the Company introduced certain online courses. The terms and conditions of those online courses provide customers with access to and the ability to take these courses on
an unlimited basis as long as they have an active website subscription. As the Company currently does not have sufficient historical usage data related to how these online courses are utilized,
revenue is being recognized over the estimated expected customer life. However, as historical usage patterns become evident, the Company will recognize revenue consistent with the actual usage
patterns.

Brokerage Services Segment

The types of revenues associated with thinkorswim include brokerage commissions, interest rebates and other brokerage related revenue. The Company derives
commission revenues from customer transactions in options, stock, mutual funds, fixed income securities and futures. Commission revenues and related brokerage and clearing related costs are recognized
on a trade-date basis. Interest revenue and fees consists primarily of income generated by customer cash and money market funds held by our

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES AND RELATED INFORMATION (Continued)

clearing
broker, net of interest paid to customers on their credit balances and charged to customers on margin balances. Interest income is recorded when earned. The Company receives payment for order
flow from liquidity providers where its customers' orders are routed. Payment for order flow is accrued when earned based on the respective trades generating such payments.

Stock-Based Compensation

Beginning in 2003, the Company adopted the fair value expense recognition method available under SFAS No. 123,"Accounting for
Stock-Based Compensation"("SFAS 123") in accounting for share based awards granted after 2002. Effective January 1, 2006, the Company adopted SFAS No. 123
(revised),"Share-Based Payment"("SFAS 123(R)") utilizing the modified prospective approach.

Under
the modified prospective approach, SFAS 123(R) applies to new awards and to unvested awards that were outstanding on January 1, 2006 that are subsequently exercised,
modified, repurchased, or cancelled. In addition, compensation cost recognized since January 1, 2006 includes compensation cost, net of estimated forfeitures, for all share based awards granted
prior to, but not yet vested as of
January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all share based awards granted
subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). The Company's share based compensation strategy
utilizes a combination of stock options and non-vested stock that vests over time based on service period. Compensation expense is recognized over the vesting period from the vesting
commencement date using the straight-line method. The total cost related to the Company's share-based compensation plans, recorded pursuant to the methods then in effect, was
$15.6 million, $1.2 million and $0.6 million for the years ended December 31, 2007, 2006, and 2005, respectively. In accordance with the modified prospective approach,
prior years were not restated to reflect the impact of adopting the new standard. Included in the $15.6 million of total costs are $0.3 million which was capitalized and included in
software development costs during the year ended December 31, 2007. No costs were capitalized for the years ended 2006 and 2005.

The
Company receives a tax deduction for certain stock option exercises during the period the awards are exercised, generally for the excess of the fair market value of the underlying
stock on the exercise date over the exercise price of the options. Prior to the adoption of SFAS 123(R), the Company reported all tax benefits resulting from the exercise of stock options as
cash flows from operating activities in its Consolidated Statements of Cash Flows. In accordance with SFAS 123(R), beginning January 1, 2006, the Company records in its Consolidated
Statements of Cash Flows the tax benefits from the exercise of stock options as cash flows from financing activities. Cash proceeds from the exercise of stock options were $0.9 million,
$0.9 million, and $0.1 million for the years ended December 31, 2007, 2006, and 2005, respectively. The 2007 and 2006 tax benefit potentially realizable from stock option
exercises was $0.4 million and $0.8 million, respectively and none in 2005. However, the Company was not able to recognize this tax benefit due to its existing reserve against its net
operating loss carryforward. Therefore, until the tax deduction reduces taxes payable, the realization of this tax benefit is not recognized, and cash flows from financing activities presented in the
accompanying statement of cash flows do not include the tax effect of the option exercises. During the years under audit, there was no vesting of non vested stock that would have resulted in any tax
benefit to the Company.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES AND RELATED INFORMATION (Continued)

Beginning
in 2006, SFAS 123(R) requires the Company to recognize compensation expense related to share based awards based on the estimated number of awards that will ultimately
vest. Accordingly, the Company is required to estimate what the forfeitures will be. The estimate of such forfeitures serves to reduce the compensation expense that would otherwise be recorded. The
Company recognizes stock based compensation net of estimated forfeiture rates and records compensation expense for those shares expected to vest over the service period of the award using a
straight-line method. Prior to 2006, the Company did not estimate such expense reductions, and accounted for forfeitures by reducing the recognized expense as they occurred. Changing this principle of
accounting is required by the adoption of SFAS 123(R), and as a result the Company estimated the cumulative amount of potential pre-vesting forfeitures relating to unvested share
based awards as of January 1, 2006. The reduction in compensation expense that would have been recognized during prior periods resulting from this change in accounting principle was
approximately $48,000, and was recognized effective January 1, 2006. The reduction in deferred tax assets associated with decreasing the estimated future tax
deduction, which resulted from decreasing the related estimated option exercises, was offset by an equal reduction in the valuation allowance. Accordingly, there was no net tax effect recognized.

As
a result of adopting SFAS 123(R) on January 1, 2006, the Company's loss before taxes and its net loss for the year ended December 31, 2006 were both approximately
$8,000 lower than if the Company had continued to account for stock options under the combination of APB Opinion No. 25 and SFAS 123. There was no change to basic and diluted loss per
share. There were no remaining unrecognized costs that would, during 2006 and later, be included in compensation expense related to pre-2003 grants, and which were previously accounted for
under APB Opinion No. 25. In addition, as mentioned in the preceding paragraph, SFAS 123(R) requires the Company to begin estimating forfeitures of options which have yet to fully vest.
The effect on expenses of estimating forfeitures relating to the cost of unvested options results in lower compensation costs recognized than if SFAS 123(R) had not been adopted.

The
Company was also required to calculate the additional paid-in capital ("APIC") pool of excess tax benefits available to absorb tax deficiencies, if any, subsequent to the
adoption of SFAS 123(R). Upon adoption of SFAS 123(R) on January 1, 2006, the Company elected to use the permitted "short-cut" method in determining this APIC pool.
Based on applying the short-cut method, it was determined that the Company had no APIC pool of tax benefits against which to absorb future tax deficiencies. Because of the Company's
existing net operating loss carryover as mentioned above, there was no effect on the accompanying statement of cash flows as a result of changing the accounting principle by electing to use the
short-cut method.

Prior
to 2003, the Company accounted for stock option grants in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees" (the intrinsic value method), and accordingly recognized no compensation expense for stock option grants because the options' exercise price equaled the
fair market value of the Company's stock price on the measurement date. As mentioned above, the Company then adopted SFAS 123 on January 1, 2003. The following table illustrates the
effect on operating results and per share information had the Company accounted for share-based compensation, including that related to pre-2003 option grants, in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES AND RELATED INFORMATION (Continued)

accordance
with SFAS 123 for the year ended December 31, 2005 (in thousands, except per share amounts):

|                                                                                      |                    | Year Ended
December 31,
2005 |        
|------------------------------------------------------------------------------------- | ------------------ | ---------------------------- | -------
|Net loss as reported                                                                  |                    | $                            | (15,742
|Add: Option-based employee compensation reported in net loss, net of taxes            |                    |                              | 576    
|Deduct: Pro forma option-based compensation under the fair value method, net of taxes |                    |                              | (732   
|                                                                                      |                    |                              |        
|                                                                                      | Pro forma net loss |                              | $      
|                                                                                      |                    |                              |        
|Basic and diluted net loss per shareas reported                                      |                    | $                            | (0.35  
|Basic and diluted net loss per sharepro forma                                        |                    | $                            | (0.35  

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

|                                               |  | 2007 |           | 2006 |   | 2005      |  
|---------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|Risk free interest rate factors                |  |      | 4.7       | %    |   | 5.1       | %
|Volatility factors                             |  |      | 55        | %    |   | 56        | %
|Expected lives                                 |  |      | 6.7 years |      |   | 6.3 years |  
|Assumed dividend yield                         |  |      |          |      |   |          |  
|Weighted average fair value of options granted |  | $    | 8.62      |      | $ | 5.33      |  

The
assumptions above are based on multiple factors, including historical exercise patterns of employees in relatively homogeneous groups with respect to exercise and
post-vesting employment termination behaviors, and the expected future exercising patterns for those same homogeneous groups. The Company uses the simplified method for determining
expected lives of options granted with exercise prices equal to the stock's fair market value on the grant date. For options with exercise prices higher than fair market value on the grant date, the
expected term represents the period of time the options are expected to be outstanding, given the anticipated behavior of different groups of employees. The expected volatility is based upon a blend
of the historical volatility of the Company's stock price, and the historical volatility of the stock price of one of the Company's industry peers.

Advertising Costs

The Company expenses the production costs of advertising the first time the advertising takes place. Advertising costs are included in selling expenses.
Advertising costs for the years ended December 31, 2007, 2006, and 2005 were $46.1 million, $34.7 million, and $26.5 million, respectively. As of December 31, 2007
and 2006, the Company had $2.4 million and $3.0 million, respectively, in prepaid advertising costs included in other current assets.

Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income (loss) (numerator) by the weighted average number of shares of common stock outstanding
(denominator) during the periods. Diluted net income (loss) per share gives effect to common share equivalents considered to be potential common shares, if dilutive, computed using the treasury stock
method. At December 31, 2007,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES AND RELATED INFORMATION (Continued)

2006
and 2005, there were approximately 1.1 million, 3.5 million, and 4.1 million shares, respectively, of common stock potentially issuable with respect to stock options, which
were excluded from the net income (loss) per share calculation because the shares were anti-dilutive.

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

|                                                                                                          |  | Years Ending December 31,
|--------------------------------------------------------------------------------------------------------- |  | -------------------------
|
|Weighted average shares used to calculate basic net income (loss) per share                               |  | 62,942                   
|Dilutive effect of stock options                                                                          |  | 2,684                    
|Dilutive effect of non-vested restricted stock                                                            |  | 164                      
|                                                                                                          |  |                          
|Weighted average common and potential common shares used to calculate diluted net income (loss) per share |  | 65,790                   
|                                                                                                          |  |                          

Comprehensive Income (Loss)

Comprehensive income (loss) includes changes to equity accounts that were not the result of transactions with stockholders. Comprehensive income (loss) is
comprised of net income (loss), foreign currency gains and losses, other comprehensive income and loss items and changes in the fair value of the Company's marketable securities.

Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". SFAS 157 defines fair
value, establishes a framework for measuring fair value, and requires enhanced disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. Subsequently, the FASB provided for a one year deferral of the provisions of SFAS 157 for non-financial assets and liabilities that are recognized or
disclosed at fair value in the consolidated financial statements on a non-recurring basis. We are currently evaluating the impact of adopting the provisions of SFAS 157 for
non-financial assets and liabilities that are recognized or disclosed on a non-recurring basis. The Company does not expect this guidance for financial assets and liabilities
to have a material impact on its results of operations or financial position.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities".
SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after
November 15, 2007. The Company does not expect this guidance to have a material impact on its results of operations or financial position.

In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business Combinations". This standard establishes that an acquiring
entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. This standard also defines
how goodwill acquired in a business combination or a gain from a bargain purchase should be recognized and updates certain disclosure requirements for business combinations.

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2. SIGNIFICANT ACCOUNTING POLICIES AND RELATED INFORMATION (Continued)

This
standard applies prospectively to business combinations for which the acquisition date is on or after December 15, 2008. The Company is still in the process of evaluating the impact that
this statement will have on its results of operations or financial position.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB
No. 51". This standard establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.
This standard is effective for fiscal years beginning on or after December 15, 2008.

Reclassifications

Certain prior years' balances have been reclassified to conform to the current year's presentation. In the Consolidated Statements of Cash Flows for the year
ended December 31, 2005, $4.5 million related to payments for capitalized software development costs have been reclassified from purchases of furniture and equipment to conform to the
current period's presentation.

3. ACQUISITIONS

Prophet Financial Systems

In January 2005, the Company acquired Prophet Financial Systems ("Prophet"), a California corporation located in Palo Alto, for $7.9 million in cash.
Prophet creates web-based products that enable active investors to use technical analysis to trade more profitably. The Company acquired Prophet to add more functionality to its Investor
Toolbox® website as well as to attract and retain new and existing customers. At closing, the sellers received a cash payment of $7.9 million. In addition, the Company incurred
$0.6 million of costs related to the acquisition. During the three months ended June 30, 2005, the Company recorded a receivable amount of $0.1 million from the shareholders of
Prophet based on a net working capital adjustment provided for in the merger agreement for a total adjusted purchase price of $8.4 million. The $0.1 million working capital adjustment
was recorded as a reduction in goodwill as this represented an adjustment to the purchase price. The working capital adjustment receivable was paid to the Company during the three months ended
September 30, 2005. In connection with the transaction, Prophet's chief executive officer, president and founder, entered into a two-year employment agreement with the Company as
Vice President of Technology. The goodwill recorded in this acquisition is associated with the Investor Education segment.

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3. ACQUISITIONS (Continued)

The
following table summarizes the allocation of the purchase price for Prophet and the estimated amortization period for the acquired intangibles and includes the receivable for the
working capital adjustment discussed above (in thousands):

Current assets

$
1,092Furniture and equipment


201Acquired intangiblesDeveloped technology (5 years)


3,220Trademarks and tradename (indefinite)


820Non-competition agreements (3 years)


390Goodwill


3,770Assets acquired


9,493Liabilities assumed


1,100Net Assets Acquired

$
8,393


thinkorswim Group, Inc.

In September 2006, the Company and thinkorswim, a Delaware corporation, entered into an Agreement and Plan of Merger pursuant to which Investools would acquire
100% of the outstanding stock of thinkorswim. On February 15, 2007, the Company's wholly-owned subsidiary, Atomic Acquisition Corp., merged with and into thinkorswim, and the results of
thinkorswim's operations have been included in the Consolidated Financial Statements since that date. The total purchase price of $359.9 million included cash of $181.7 million, shares
of common stock worth $167.1 million (19.1 million shares of common stock), and $11.0 million in direct acquisition costs. In connection with the merger, JPMorgan Chase Bank, N.A.
and J.P. Morgan Securities Inc. provided the Company a senior secured term loan of $125.0 million to fund a portion of the cash purchase price.

As
part of the Merger Agreement, Investools agreed to issue up to a maximum of 728,608 additional shares of common stock to thinkorswim shareholders in the event the stock's average
trading price fell below $8.75 per share during the twenty-day period prior to certain dates subsequent to the Merger (with an $8.00 floor on such share price). The various dates are those
on which specific groups of thinkorswim shareholders are first permitted to sell Investools shares, or portions thereof, that they received as merger consideration. The potential dates specified fall
between six months and three years after the Merger closes, with the first such date being August 15, 2007. No additional shares have been issued as of December 31, 2007. At the time the
Merger was announced, the fair market
value of Investools stock was $8.59. Because the additional shares are contingently issuable if the price falls below $8.75 per share, the value of the portion of the purchase price attributable to
the issuance of common stock has been increased to $8.75 per share in accordance with EITF No. 97-15, "Accounting for Contingency Arrangements Based on
Security Prices in a Purchase Business Combination".

The
purchase price has been allocated to tangible and intangible assets acquired and liabilities assumed based on their respective fair values. The excess purchase price over the fair
value of tangible and intangible assets and liabilities assumed was recorded as goodwill. The fair values of intangible assets were based upon cash flow analysis and other market considerations of
identifiable intangible

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3. ACQUISITIONS (Continued)

assets
acquired, including useful lives. The following table summarizes the allocation of the purchase consideration (in thousands) and the estimated amortization period for the acquired intangibles:

Current assets (including cash of $40.9 million)

$
57,280Property and equipment


2,411Intangible assets:Customer relationships (13 years)


93,400Trade name (indefinite)


16,100Non-compete agreements (3 years)


2,500Technology (7 years)


28,950Goodwill


190,485Deferred tax assets


48,533Total assets acquired


439,659Current liabilities


(25,392
)Deferred tax liability related to value assigned to intangibles


(54,385
)Total liabilities assumed


(79,777
)Net assets acquired

$
359,882


The
goodwill that was recorded in this acquisition is associated with the Brokerage Services segment. None of the recorded goodwill is tax deductible. Of the total value assigned to
intangible assets, $16.1 million was allocated to trade names, which are not subject to amortization.

In
connection with the merger with thinkorswim, certain employees and consultants of thinkorswim have the opportunity to participate in a retention bonus pool which equals, in the
aggregate, $20 million conditioned upon continued employment. The bonuses will be paid in equal annual installments over the three-year period following the closing of the Merger.
Such amounts are being expensed over the retention period of three years. The first payment was made in February 2008. The accrual for retention bonuses is included in the Consolidated Balance Sheets
within accrued payroll.

In
addition, the Company granted certain employees and consultants of thinkorswim options to purchase 2,255,563 shares of Common Stock which vest over four years, under the Company's
2001 Stock Option Plan, half with an exercise price equal to the fair market value of the underlying Common Stock at the time of grant, and half with an exercise price equal to 150% of such fair
market value. Approximately 125,000 of these stock options were granted to consultants to thinkorswim. We have accounted for these in accordance with EITF No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services."

At
the time of the acquisition, approximately $8.5 million was placed in escrow pending the resolution of various contingencies and tax-related matters. When the
resolution of these contingencies is determinable beyond a reasonable doubt, this amount will be recorded as goodwill. Subsequent to the merger date such payments totaled $0.2 million as of
December 31, 2007 and are included in the total purchase price. The remaining escrow balance related to these contingencies was $8.3 million as of December 31, 2007.

Additionally,
in November 2007, the Company received a refund of approximately $8.5 million related to carryback claims generated by stock option exercises of
pre-merger thinkorswim

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. ACQUISITIONS (Continued)

shareholders.
This amount was recorded as an income tax receivable and as a corresponding payable at the time of the merger. The refund was placed in escrow upon receipt. The escrow amounts are
included in the Consolidated Balance Sheets within other long-term assets.

The
following table contains unaudited and pro forma results of operations for the years ending December 31, 2007 and 2006. The pro forma results of operations give pro forma
effect as if the thinkorswim merger had occurred on January 1, 2006, after giving effect to certain adjustments including the amortization of the intangible assets, interest expense, tax
adjustments, and assumes the purchase
price has been allocated to the assets purchased and the liabilities assumed based on their values at the date of purchase. The effect of the change in fair value of the interest rate swap (See
Note 7) has not been included in the following pro forma results of operations. The following unaudited pro forma results of operations are presented for illustrative purposes only, and are not
necessarily indicative of the operating results that would have occurred had the transaction been consummated for the dates indicated. Furthermore, such unaudited pro forma results of operations are
not necessarily indicative of future operating results of the combined companies, due to changes in operating activities following the purchase, and should not be construed as representative of the
operating results of the combined companies for any future dates or periods.

Years Ended December 31,2007

2006(in thousands, except per share data)Revenue

$
328,125

$
228,107Net income (loss)

$
21,732

$
(57,451
)Net income (loss) per share:Basic

$
0.33

$
(0.90
)Diluted

$
0.32

$
(0.90
)


MyTrade, Inc.

On December 10, 2007, the Company acquired MyTrade, Inc. ("mytrade"), an online social-networking content platform for investors at all experience
levels. mytrade aggregates news and market data searchable by ticker, insight from over 200 top financial blogs, charts, watch lists, streaming audio and video market commentary and investor education
content in a user-customized interface. Total consideration paid for the acquisition was approximately $3.5 million, which consisted of approximately $1.0 million in cash and
145,160 shares of stock valued at $16.92 per share. The Company
acquired $1.0 million of net assets, primarily intangible assets, and recorded $1.4 million of goodwill as a result of the acquisition.

In
connection with the acquisition 66,666 shares of common stock, with a value of $1.1 million, were placed in escrow pending the resolution of various contingencies involving
legal and tax-related matters. When the resolution of the contingencies is determinable beyond a reasonable doubt, this amount will be recorded as goodwill. The escrow amount is included
in the Consolidated Balance Sheets within other long-term assets.

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4. MARKETABLE SECURITIES

The Company invests excess cash in marketable securities, primarily government sponsored securities with maturities of less than three years. The Company has
classified these marketable securities as available for sale under SFAS 115. Accordingly, the securities are recorded at fair value and any unrealized gains or losses are included in
accumulated other comprehensive income (loss) within Stockholders' equity (deficit) in the Consolidated Balance Sheets. Gains are recognized when realized and are recorded in the Company's
Consolidated Statement of Operations in other income. Losses are recognized as realized or when management has determined an other-than-temporary decline in fair value has
occurred.

The
following table summarizes unrealized gains and losses on the Company's investments in marketable securities that have been in an unrealized loss position for less than twelve months
based on quoted market prices as of December 31, 2007 and 2006 (in thousands):

|                             |  | As of December 31, 2007 |       | As of December 31, 2006
|---------------------------- |  | ----------------------- | ----- | -----------------------
|
|Government backed securities |  | $                       | 1,494 |                        
|                             |  |                         |       |                        
|Total                        |  | $                       | 1,494 |                        
|                             |  |                         |       |                        

The
following table summarizes unrealized gains and losses on the Company's investments in marketable securities that have been in an unrealized loss position for greater than twelve
months based on quoted market prices as of December 31, 2007 and 2006 (in thousands):

|                             |  | As of December 31, 2007 |   | As of December 31, 2006
|---------------------------- |  | ----------------------- | - | -----------------------
|
|Government backed securities |  | $                       |  |                        
|                             |  |                         |   |                        
|Total                        |  | $                       |  |                        
|                             |  |                         |   |                        

The
following table summarizes contractual maturities of the Company's investments in marketable securities as of December 31, 2007 (in thousands):

Amortized Cost

Estimated
Fair ValueCurrently due through one year

$
498

$
500Due after one year through three years


996


1,001


The
balance in marketable securities as of December 31, 3007 consisted of two investments, which were both redeemed in January 2008.

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5. INTANGIBLE ASSETS AND GOODWILL

Amortizable Intangibles

Acquired intangible assets with finite lives as of December 31, 2007 and 2006 were as follows (in thousands):

|                              |  | As of December 31, 2007 |         | As of December 31, 2006
|----------------------------- |  | ----------------------- | ------- | -----------------------
|
|Customer relationships        |  | $                       | 93,440  |                        
|Technology and other          |  |                         | 35,920  |                        
|Non competition               |  |                         | 3,630   |                        
|                              |  |                         |         |                        
|Total amortizable intangibles |  | $                       | 132,990 |                        
|                              |  |                         |         |                        

The
increase in total amortizable intangible assets in 2007 over 2006 is primarily due to the acquisitions that were completed during 2007, as discussed in Note 3.

Amortization
expense was $13.2 million, $2.3 million, and $1.4 million for the years ended December 31, 2007, 2006, and 2005, respectively. Customer
relationships are being amortized on an accelerated basis.

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

2008

$
14,9492009


15,3482010


13,6402011


12,8212012


12,128Thereafter


46,774Total estimated amortization expense

$
115,660


Non-Amortizable Acquired Intangibles

As a result of the Prophet acquisition in January 2005, trademarks and tradenames which are not amortized and have indefinite lives as of December 31, 2007
were $0.8 million. As a result of the thinkorswim acquisition in February 2007, trademarks and tradenames which are not amortized and have indefinite lives as of December 31, 2007 were
$16.1 million.

Goodwill

The Company has recorded goodwill for purchase business combinations to the extent the purchase price of each completed acquisition exceeded the fair value of the
net identifiable tangible

78

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. INTANGIBLE ASSETS AND GOODWILL (Continued)

and
intangible assets of the acquired company. The changes in the carrying amount of goodwill for the year ended December 31, 2007 is as follows (in thousands):

Balance at December 31, 2006

$
18,085thinkorswim acquisition


190,485mytrade acquisition


1,356Change in goodwill associated with release of valuation allowance


(1,150
)Balance at December 31, 2007

$
208,776


6. INCOME TAXES

The provision for income tax expense (benefit) consists of the following (in thousands):

Years Ended December 31,2007

2006

2005Current:Federal

$
1,113

$
(936
)
$
State





(53
)

Deferred:Federal


(173
)

99


99State


210


15


15Total income tax expense (benefit)

$
1,150

$
(875
)
$
114


The
following table reconciles the differences between the statutory federal income tax rate of 35 percent, 34 percent, and 34 percent for the years ended
December 31, 2007, 2006, and 2005, respectively, and the effective tax rate for continuing operations (in thousands):

Years Ended December 31,2007

2006

2005Tax at federal statutory rate

$
8,255

$
(14,145
)
$
(5,314
)State income taxes, net of federal income tax benefit


137


(25
)

10Expenses not deductible for tax purposes


3,579


175


69Refund from utilization of net operating losses





(936
)

Change in valuation allowance


(10,919
)

14,056


5,430Other


98





(81
)Total income tax expense (benefit)

$
1,150

$
(875
)
$
114


79

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. INCOME TAXES (Continued)

The
tax effects of temporary differences that give rise to significant portions of the federal and state deferred tax assets are comprised of the following (in thousands):

Years Ended December 31,2007

2006Deferred tax assets:Accrued liabilities

$
2,480

$
862Deferred revenue


15,364


3,649Reserves and allowances


3,509


3,072Book/tax depreciation





777Net operating loss carryforwards


43,492


25,508Tax credit carryforwards


1,635


Other


1,777


346Gross deferred tax assets


68,257


34,214Valuation allowance


(12,890
)

(32,809
)Net deferred tax assets


55,367


1,405Deferred tax liabilities:Prepaid assets


1,174


1,405Book/tax depreciation


8,831


Intangible assets


50,353


228Gross deferred tax liabilities


60,358


1,633Net deferred tax liability

$
(4,991
)
$
(228
)


At
December 31, 2007, the Company had approximately $109 million of federal, and state net operating loss carryforwards, which will begin to expire in 2008 through 2026.
Aggregated tax credit carryforwards were $1.6 million as of December 31, 2007 and have no expiration date.

In
assessing the realizability of deferred tax assets at December 31, 2007, the Company considered whether it was more likely than not that some portion or all of the deferred tax
assets would not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become
deductible. The Company considers availability of income in prior carryback years, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based on available information, management does not believe it is more likely than not that its deferred tax assets will be utilized. Accordingly, the Company has established a
valuation allowance equal to the net deferred tax assets plus an amount for deferred tax liabilities which relate to goodwill and indefinite lived intangibles that cannot be considered future sources
of taxable income.

The
valuation allowance decreased $19.9 million during 2007 and increased by $15.2 million and $6.3 million during 2006 and 2005, respectively. In addition to the
change in valuation allowance from operations, the valuation allowance changes include the impact of acquisition related items.

80

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. INCOME TAXES (Continued)

Subsequently
recognized tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 2007, will be allocated as follows:

Income tax benefit that would be reported in the consolidated statement of operations

$
10,886Goodwill and other non-current intangible assets


1,944Additional paid-in capital


60Total

$
12,890


The
Company adopted the provisions of FIN 48, on January 1, 2007. There was no cumulative effect related to adoption. The Company had no unrecognized tax positions at the
end of either period. During the current period there was no interest or penalty recognized with respect to income taxes.

The
Company files federal and state income tax returns in the United States. Years from 2004 to the current year remain subject to examination in the U.S.

7. NOTES PAYABLE

In connection with the merger with thinkorswim (see Note 3), on February 15, 2007 the Company entered into a Credit Agreement with JPMorgan Chase
Bank, N.A. ("JPMorgan"), as administrative agent, and with other lenders from time to time parties thereto.

The
Credit Agreement provides for $125 million in senior secured term loan facilities and a $25 million senior secured revolving loan facility. The senior secured term loan
facilities are comprised of a five-year $50 million senior secured term loan A facility, and a five-and-a-half year $75 million senior
secured term loan B facility. The revolving loan facility has a five-year term. The Credit Agreement includes an expansion feature with respect to the term loans pursuant to which the
Company may request an increase in the permitted aggregate term loan borrowings of up to $25 million. The borrowings under
the new senior credit facilities are guaranteed by substantially all of the material wholly-owned domestic subsidiaries of the Company (other than thinkorswim, Inc. and certain immaterial
subsidiaries).

Loans
under the term loan A facility bear interest, at the borrower's option, at (1) a rate equal to the London interbank offered rate (with adjustments for statutory reserve
requirements), or LIBOR, plus an applicable margin, which is currently 2.0 percent, or (2) a rate equal to the higher of (a) the prime rate of JPMorgan and (b) the federal
funds effective rate plus 0.50 percent (the "ABR"), plus an applicable margin, which is currently 1.0 percent. Such rates were determined by the administrative agent after receipt of the
borrowers financial statements based on a leverage-based pricing grid. Loans under the term B facility bear interest at fixed rates of (1) ABR plus 2.25 percent per annum in the case of
ABR loans, or (2) LIBOR plus 3.25 percent per annum in the case of LIBOR loans.

Interest
payments on both the term loan A and B facilities are due beginning March 15, 2007, and thereafter at the end of every calendar quarter. In addition to interest,
principal payments of $2.5 million are due on the term loan A facility at the end of every calendar quarter, beginning June 30, 2007 through February 2012. In addition to quarterly
interest payments, principal payments of $7.5 million are due annually on the term loan B facility, beginning at the end of March 2008 through March 2012. In August 2012, a $37.5 million
balloon payment on the term loan B facility is due.

81

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. NOTES PAYABLE (Continued)

The
Credit Agreement also calls for prepayment of loan facilities if certain conditions are met. This prepayment requirement commences with the fiscal year ending December 31,
2007, and is calculated as an amount equal to 50% of "excess cash flow" for each fiscal year. Excess cash flow is defined within the Credit Agreement as consolidated net income plus certain
non-cash items and decreases in net working capital; minus capital expenditures and decreases in deferred revenue and various changes in other balance sheet accounts. If applicable, the
annual prepayment is due within 90 days of each fiscal year end. The Company did not meet the requirements for prepayment under this provision for the fiscal year ended December 31,
2007.

The
Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries, including, among
other things, restrictions on indebtedness, liens, fundamental changes, investments and acquisitions, sales of assets, sale leasebacks, mergers and consolidations, dividends and other distributions,
redemptions, hedging agreements, transactions with affiliates, and maximum fixed charge and total leverage ratios. The Credit Agreement also includes customary events of default, including a change in
control. If an event of default occurs, the commitments under the Agreement may be terminated and the principal amount outstanding, together with all accrued unpaid interest and other amounts owed may
be declared immediately due and payable.

The
Credit Agreement also requires that the Company maintain hedging agreements for at least three years in order to cap variable interest rates applicable to at least 50 percent
of the combined term loans. Accordingly, the Company entered into a four-year, interest rate swap arrangement with JPMorgan, effective beginning March 30, 2007. The swap changes the
variable-rate cash flow exposure on half the term loans' outstanding balances to a fixed-rate cash flow. Under the terms of the swap, at the end of each calendar quarter the
Company receives variable interest rate payments based on the same rate index applicable to the term loans' LIBOR-based alternative, and makes 4.955 percent fixed interest rate payments. Both
rates are applied to amounts equal to 50 percent of the then outstanding term loan balances. The Company has not entered into any other such derivative agreement, and does not speculate using
derivative instruments.

After
initially reviewing the critical terms of the interest rate swap, along with internal cash flow forecasts related to the hedged debt obligation, the Company determined it did not
qualify for hedge accounting according to the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". As a
result, the entire amount of net gains (losses) resulting from changes in the fair value of the swap is reported in the Consolidated Statements of Operations, and will be for the foreseeable future.
During the year ended December 31, 2007 the loss resulting from the change in fair value of the swap was $1.5 million and was classified into interest expense as a yield adjustment to
that portion of the term loans designated as a hedged debt obligation.

Amounts
outstanding under these credit facilities as of December 31, 2007, were $117.5 million. In addition, as of December 31, 2007, there were no outstanding
letters of credit against the revolving loan facility. Accordingly, the remaining borrowing capacity under the revolving loan facility is $25.0 million. The weighted average interest rate as of
December 31, 2007, was 7.64 percent.

82

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. NOTES PAYABLE (Continued)

The
aggregate maturities of notes payable were as follows as of December 31, 2007 (in thousands):

2008

$
17,5002009


17,5002010


17,5002011


17,5002012


47,500Total

$
117,500


The
Company incurred approximately $4.5 million of debt issuance costs related to these notes payable. The debt issuance costs are being amortized using the effective interest
rate method over the notes payable term.

8. COMMITMENTS AND CONTINGENCIES

Commitments

Leases

Equipment and facilities are leased under various non-cancelable operating leases and capital leases expiring at various dates through the year 2012.
Rent expense was $2.7 million for 2007, $2.2 million for 2006, and $1.7 million for 2005. Sub-lease income was $0.1 million for each of 2007, 2006 and 2005. The
Company recognizes lease expense based upon the straight line basis of its minimum payments. Leasehold improvements are depreciated over the shorter of the life of the improvement or the lease term.
Included in certain of the Company facility leases are rent escalation and rent holidays.

At
December 31, 2007, the acquisition cost and accumulated amortization of assets under capital leases were $1.0 million and $0.4 million, respectively, and are
included in computer and office equipment. At December 31, 2006, the acquisition cost and accumulated amortization of assets under capital leases were $0.9 million and
$0.3 million, respectively. Amortization applicable to capitalized assets is included in depreciation expense.

83

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. COMMITMENTS AND CONTINGENCIES (Continued)

At
December 31, 2007, future minimum lease payments under non-cancelable operating leases, related sub-leases, and capital leases were as follows:

|                                          |                                 | Capital
leases |     | Operating
leases |   | Sub-lease
income |       | Net operating
leases
|----------------------------------------- | ------------------------------- | -------------- | --- | ---------------- | - | ---------------- | ----- | --------------------
|For the fiscal years:                     |                                 |                |     |                  |   |                  |       |                     
|2008                                      |                                 | $              | 247 |                  | $ | 1,656            |       | $                   
|2009                                      |                                 |                | 246 |                  |   | 1,585            |       |                     
|2010                                      |                                 |                | 104 |                  |   | 1,150            |       |                     
|2011                                      |                                 |                |    |                  |   | 627              |       |                     
|2012                                      |                                 |                |    |                  |   | 294              |       |                     
|Thereafter                                |                                 |                |    |                  |   |                 |       |                     
|                                          |                                 |                |     |                  |   |                  |       |                     
|                                          | Total Lease Payments            |                |     | 597              |   | $                | 5,312 |                     
|                                          |                                 |                |     |                  |   |                  |       |                     
|Less: Amount representing interest (8.0%) |                                 |                | 55  |                  |   |                  |       |                     
|                                          |                                 |                |     |                  |   |                  |       |                     
|                                          | Present value of lease payments |                |     | 542              |   |                  |       |                     
|Less: Current portion                     |                                 |                | 212 |                  |   |                  |       |                     
|                                          |                                 |                |     |                  |   |                  |       |                     
|                                          | Long-term portion               |                | $   | 330              |   |                  |       |                     
|                                          |                                 |                |     |                  |   |                  |       |                     

In
January 2006, the Company ceased the use of leased office space in San Rafael, California, and moved all operations to our leased offices in Palo Alto, California. In accordance with
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," the Company recorded a liability of $0.2 million in
lease termination costs related to the remaining lease payments, net of estimated sub-lease rentals. As of December 31, 2007, the remaining liability was immaterial to the Company's
statement of financial position.

In
March 2007, the Company exercised its first right of refusal to lease additional space at the Draper, Utah facility, but in June 2007 determined not to occupy the space. In accordance
with SFAS No. 146, the Company recorded a liability of $0.1 million in lease termination costs related to those future lease payments, net of estimated sub-lease rentals. In
September 2007, a portion of this space was leased by the leasing agent to a different entity, but the Company is a guarantor on the lease for the initial term of the Company's lease which was thru
July 2010 at a rate no greater than the Company's obligation under the original lease. The total potential liability to the Company is $0.5 million.

Contingencies

From time to time we are involved in certain legal actions arising in the ordinary course of business, including inquiries, investigations and proceedings with
government agencies and other regulators. We believe that such litigation and proceedings will be resolved without a material adverse effect to our liquidity, financial position or results of
operations.

We
establish liabilities when a particular contingency is probable and estimable. During the year ended December 31, 2007, amounts were accrued for certain contingencies which
became both probable and estimable. We have certain contingencies which are reasonably possible, with exposure to

84

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. COMMITMENTS AND CONTINGENCIES (Continued)

loss
in excess of the amount accrued. However, the remaining reasonably possible exposure to loss cannot currently be estimated.

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

The
Company has applied for rulings from various states on the taxability of its products to determine if its sales tax policy is supported by the various state taxing jurisdictions.
During 2006, the Company received rulings from a majority of the states to which it applied. Based on these rulings, the Company reversed $0.8 million of accrued sales tax payable, which is
included in selling expenses.

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

9. STOCKHOLDERS' EQUITY (DEFICIT)

The Company has two classes of capital stock: convertible preferred stock and common stock. As of December 31, 2007, the Company was authorized to issue up
to 100 million shares of common stock with a par value of $.01 per share and 1 million shares of convertible preferred stock with a par value of $.01 per share. On January 17,
2007, stockholders voted to increase the number of common stock shares the Company was authorized to issue to 100 million.

10. STOCK PLANS

The Company currently administers six stock-based compensation plans. These plans are administered by the compensation committee of the Board of Directors, which
directly or through delegated
authority selects persons eligible to receive awards and determines the number of shares and/or options subject to each award, the terms, conditions, performance measures, and other provisions of the
award.

Employee Stock Option Plans

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

Description
of Plans

Investools 2001 Stock Option PlanThis plan is the only plan out of which the Company currently can grant options. The plan
was approved by stockholders in December 2001. On June 15, 2006 stockholders approved a proposal amending the plan to increase the total number of shares available for grant under this plan for
issuance to officers, directors and employees from six million to eight million. In connection with its proposed merger with thinkorswim, the Company filed a proxy statement with the SEC on
December 13, 2006 that contained a proposal to increase the total number of shares available for grant under this plan to 12 million, and to also make options available thereafter to
consultants of the Company. The proposal was approved by stockholders in January 2007. Incentive options have typically been granted at fair market value of the Company's common stock at the date of
grant, and generally expire ten years from the date of grant. The shares are issuable from the

85

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. STOCK PLANS (Continued)

Company's
authorized but unissued shares, or they may be issued out of treasury stock, if any. Based on awards previously granted to employees and directors, the number of shares available for future
stock option grants was 5,231,160 at December 31, 2007.

Telescan Stock Option PlansThe Company reserved 427,456 shares of its common stock for issuance under three stock option
plans for the employees and former directors of Telescan, Inc., a wholly-owned subsidiary of the Company. No new options are being granted under these plans. Options granted under these plans
were granted at fair market value at the date of grant and generally expire ten years from the date of grant. At December 31, 2007, there were 285,045 shares outstanding under this plan.

ZiaSun Stock Option PlanThe Company reserved 1,296,600 shares of its common stock for issuance under one stock option plan
for the officers, employees and former directors of ZiaSun Technologies, Inc., a wholly-owned subsidiary of the Company. No new options are being granted under this plan. Options granted under
this plan were granted at fair market value at the date of grant and
generally expire ten years from the date of grant. At December 31, 2007, there were 30,000 shares outstanding under this plan.

Employee Stock Option Plan Activity

The following table represents stock option activity for the year ended December 31, 2007:

|                                       |  | Number of shares |   | Weighted-average
exercise price |       | Weighted-average
remaining
contract life
|-------------------------------------- |  | ---------------- | - | ------------------------------- | ----- | ----------------------------------------
|Outstanding options at January 1, 2007 |  | 3,475,890        |   | $                               | 3.00  |                                         
|Granted                                |  | 3,032,313        |   |                                 | 15.70 |                                         
|Exercised                              |  | (226,908         | ) |                                 | 3.89  |                                         
|Expired                                |  |                 |   |                                 |      |                                         
|Forfeited                              |  | (152,173         | ) |                                 | 11.14 |                                         
|                                       |  |                  |   |                                 |       |                                         
|Outstanding at December 31, 2007       |  | 6,129,122        |   |                                 | 9.05  |                                         
|                                       |  |                  |   |                                 |       |                                         
|Exercisable December 31, 2007          |  | 3,028,747        |   |                                 | 1.62  |                                         
|                                       |  |                  |   |                                 |       |                                         

At
December 31, 2007, the aggregate intrinsic value of options outstanding was $60.0 million and the aggregate intrinsic value of exercisable options was
$49.1 million. The total intrinsic value of options exercised was $2.1 million, $5.5 million, and $0.4 million for the years ended December 31, 2007, 2006, and 2005,
respectively.

At
December 31, 2007, there was $17.4 million of unrecognized compensation cost related to options which is expected to be recognized over a weighted-average period of
3.1 years.

During
2002, the Company's chief executive officer was granted an option for up to 550,000 shares of common stock, the vesting of which was contingent upon an event occurring in the
future that as of December 31, 2006 was not probable of taking place. In February 2007, the terms were modified by the Board of Directors so that the option for 550,000 shares is now fully
vested which resulted in recording $8.5 million in compensation expense in general and administrative expenses in the accompanying Consolidated Statements of Operations.

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. STOCK PLANS (Continued)

Restricted Stock

In April 2004, the Board of Directors approved the Investools Inc. 2004 Restricted Stock Plan (the "Plan"), which was ratified by the Company's
stockholders in June 2004. The purpose of the Plan is to (a) attract and retain employees of the Company and its subsidiaries, qualified individuals to serve as members of the Board, and
consultants to provide services to the Company; (b) motivate participating employees, directors and consultants, by means of appropriate incentives, to achieve long-range goals;
(c) provide incentive compensation opportunities that are competitive with those of other similarly situated companies; and (d) further align Plan participants' interests with those of
the Company's other stockholders through compensation alternatives based on the Company's stock and thereby promote the long-term financial interest of the Company and its subsidiaries,
including the growth in value of the Company's equity and enhancement of long-term stockholder return. The Plan is administered by the Compensation Committee (the "Committee") of the Board
of Directors, which is comprised of two or more directors of the Company appointed by the Board of Directors.

There
are 500,000 shares of Company common stock available for issuance under the 2004 Restricted Stock Plan. The shares of Company common stock awarded under the plan may be either
previously authorized but unissued shares or issued shares which have been reacquired by the Company after their original issuance (including but not limited to shares purchased on the open market).

Shares
of Company common stock awarded under the Plan and later reacquired by the Company pursuant to the Plan will again become available for awards under the Plan.

Unless
otherwise provided for in the Plan, awards granted under the Plan may not be sold, assigned, transferred, pledged or otherwise encumbered for a period of four years or such
shorter period as the Committee may determine (the "Restricted Period"). At its discretion, the Committee may, at any time after the date of an award, adjust the length of the Restricted Period to
account for individual circumstances of a participant or group of participants.

There
are 282,250 shares of Company common stock available for issuance under the 2004 Restricted Stock Plan as of December 31, 2007. Shares of Company common stock awarded under
the Plan may be either previously authorized but unissued shares or issued shares which have been reacquired by the Company after their original issuance (including but not limited to shares purchased
on the open market).

A
summary of the status of the Company's nonvested shares as of December 31, 2007, and changes during the year ended December 31, 2007, is as follows:

Number of nonvested shares

Weighted-average
fair value at
the grant dateNonvested shares at January 1, 2007

3,000

$
5.18Granted

214,750


14.53Vested

(8,000
)

12.52Forfeited

(5,000
)

16.40Nonvested shares at December 31, 2007

204,750


14.43


87

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. STOCK PLANS (Continued)

As
of December 31, 2007, there was $1.8 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2004
Plan. The expense is expected to be recognized over a weighted-average period of 2.0 years. The compensation cost related to restricted stock issued under the 2004 Plan and included in
operating expenses within the Consolidated Statements of Operations during the years ended December 31, 2007, 2006 and 2005 was $1.2 million, $8,000 and $0, respectively. The fair value
of the restricted stock awards is recognized in compensation expense as the restrictions lapse over their respective vesting periods based on their fair value on the date of grant.

The
total fair value of shares vested during the years ended December 31, 2007, 2006 and 2005 was $100,140, $0 and $0, respectively.

Stock Repurchase Program

In June 2004, the board of directors authorized a stock repurchase program under which the Company can repurchase up to 3.5 million shares of its common
stock over a two-year period. In June 2006, the board of directors extended the program for an additional two years.

In
May 2006, the Company repurchased 0.2 million shares of common stock from one of its directors for $1.4 million or $8.50 per share, under the terms of the program. The
price of the shares was the closing market price on the date of repurchase, less a discount of 5 percent. During 2005, the Company repurchased and retired 0.3 million shares of common
stock for a total cost of $1.4 million. Of these shares, 0.2 million shares were repurchased from a member of the Company's board of directors. There were no shares repurchased during
2007. As of the end of 2007, a total of 1.6 million shares had been repurchased for a total cumulative cost of $5.0 million.

11. BROKERAGE SERVICE AGREEMENT

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

Of
the $10.7 million of consideration in shares issued, $1.0 million was recorded based upon the fair value of the intellectual property received and recorded in intangible
assets and the remaining $9.7 million was recorded in other long-term assets in the accompanying Consolidated Balance Sheets. Both of these assets are being amortized over a useful
life of 11 years. During 2007, the Company amortized $1.2 million of these assets, of which $1.0 million was recorded as an offset to
revenue and $0.2 million was recorded in cost of revenue, within the accompanying Consolidated Statements of Operations. Amortization is being recognized on an accelerated basis.

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. BROKERAGE SERVICE AGREEMENT (Continued)

Shares
that are contingent upon certain thresholds being met are recorded over the remaining performance period at the time it is probable that the performance conditions will be met.
The performance conditions for the year ended December 31, 2007 were met and the offset to revenue and cost of revenue was based upon a common share value of $17.74 as of December 31,
2007. The Company subsequently issued the shares pursuant to the agreement. Included in the accompanying Consolidated Statements of Operations for 2007 is approximately $3.5 million related to
the contingent shares, of which $3.2 million has been recorded as an offset to revenue based on the provisions of EITF 01-9, "Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendors Products)" and $0.3 million has been recorded in cost of revenue, within the accompanying Consolidated
Statements of Operations.

12. OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK

Credit risk is the amount of loss the Company would incur if the counterparty failed to perform its obligations under contractual terms. Substantially all of the
clearing and depository operations of the Company are performed by its clearing brokers pursuant to clearance agreements. The Company's exposure to credit risk associated with the nonperformance of
counterparties in fulfilling their contractual obligations pursuant to securities transactions can be directly impacted by volatile securities markets, credit markets and regulatory changes.

In
the normal course of business, the Company's clearing brokers make margin loans to the Company's customers, which are collateralized by customer securities. In permitting the
customers to purchase securities on margin, the clearing brokers are exposed to the risk of a market decline that could reduce the value of the collateral held below the customers' indebtedness before
the collateral can be sold, which could result in losses to the clearing brokers. The Company's agreement with the clearing brokers requires the Company to reimburse the clearing brokers for any
losses incurred related to customers introduced by the Company. The Company seeks to control the risk associated with
customer activities by making credit inquiries when establishing customer relationships and by monitoring customer trading activity.

The
Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. Management
believes that the Company is not exposed to any significant credit risk on bank deposits.

13. SPECIAL CHARGES

Special charges consisted of the following (in thousands):

Years Ended December 31,2007

2006

2005Severance costs

$
165

$
746

$
77Litigation settlement charges


1,130


5,448


Impairment of internal use software





1,414


1,000Total

$
1,295

$
7,608

$
1,077


The
Company recorded severance costs associated with the involuntary termination of 15, 18, and 12 employees for the years ended December 31, 2007, 2006 and 2005, respectively.
The costs were not

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. SPECIAL CHARGES (Continued)

strictly
proportionate to the number of employees, because there were different severance packages involved in the various termination situations.

During
2007 and 2006, the Company concluded several litigation issues. In connection with these matters, the Company recorded charges of $1.1 million and $5.4 million,
respectively. Legal costs incurred in connection with these settlements have been included in general and administrative expense.

During
2006, the Company completed a review of the existing user interface features component of the ongoing Investor Toolbox development project. As a result of feedback from Company
instructors and coaches, the Company determined to abandon the component and redevelop it. Accordingly, the Company wrote off the capitalized costs related to the existing user interface component in
accordance with SOP 98-1 and SFAS 144. These costs totaled $1.4 million. The Company also capitalized $1.0 million related to certain projects to enhance the
Company's internal use software in 2005. Subsequently, the Company abandoned this project and the $1.0 million was written-off in 2005.

14. EMPLOYEE BENEFITS

The Company sponsors defined contribution 401(k) plans for employees. For the Investor Education segment the Company offers a discretionary match whereby the
Company matched participant contributions at 50 percent up to 6 percent of salary during 2007 and 2006, and 50 percent up to 4 percent
of salary during 2005. During 2007, employees of the Brokerage Services segment participated in a plan which provided a match of contributions equal to 100 percent of the first 3 percent
of employee salary and 50 percent of the next 2 percent of salary. During the years ended December 31, 2007, 2006, and 2005, the Company made matching contributions in the amount
of $0.9 million, $0.5 million and $0.3 million, respectively.

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The supplemental cash flow information and non-cash disclosures for December 31, 2007, 2006 and 2005, are as follows (in thousands):

|                                             |                                                                                                          | 2007 |   | 2006   |   | 2005 |      
|-------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ---- | - | ------ | - | ---- | -----
|Cash paid (received) during the year for:    |                                                                                                          |      |   |        |   |      |      
|                                             | Interest, net of amounts capitalized                                                                     |      | $ | 8,471  |   | $    | 74   
|                                             | Income taxes                                                                                             |      |   | (1,139 | ) |      | (989 
|Non-cash investing and financing activities: |                                                                                                          |      |   |        |   |      |      
|                                             | Exclusivity rights and intellectual property financed through stock                                      |      |   | 10,710 |   |      |     
|                                             | Deferred stock compensation resulting from option and restricted stock grants                            |      |   |       |   |      |     
|                                             | Software development and furniture and equipment financed through accounts payable and other liabilities |      |   | 1,903  |   |      | 1,208
|                                             | Licensing contracts financed with vendors                                                                |      |   |       |   |      | 350  
|                                             | Software development costs financed with stock                                                           |      |   | 311    |   |      |     
|                                             | Litigation settled with stock                                                                            |      |   | 2,762  |   |      |     
|                                             | Unrealized (gain) loss on marketable securities                                                          |      |   | 3      |   |      | 34   
|                                             | Equipment financed through capital lease obligations                                                     |      |   | 52     |   |      | 195  
|                                             | Reversal of deferred tax valuation allowance through goodwill                                            |      |   | 1,150  |   |      |     

See Note 3 for additional non-cash disclosures related to acquisitions.

16. REGULATORY REQUIREMENTS

thinkorswim is subject to the SEC Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934, as amended, administered by
the SEC and FINRA, which requires the maintenance of minimum net capital. thinkorswim is required to maintain net capital of the greater of 62/3% of aggregate indebtedness, or
$0.25 million and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. thinkorswim is also subject to the CTFC Regulation 1.17
("Reg 1.17") under the Commodity Exchange Act, administered by the Commodity Futures Trading Commission and the National Futures Association, which also requires the maintenance of minimum net capital
to be the greater of its SEC and FINRA net capital requirement or $45,000. At December 31, 2007, the Company had net capital of $37.6 million which was $36.2 million in excess of
its required net capital of $1.4 million. The Company's net capital ratio was 0.55 to 1.

17. SEGMENT REPORTING

During 2007, the operations of thinkorswim have been included in the consolidated operations since the date of the merger. Previously reported amounts by
Investools do not include the consolidated results of thinkorswim. As a result of the merger, Investools operates in the following two principal business segments:

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

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. SEGMENT REPORTING (Continued)

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

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

Years Ended December 31,Revenue

2007

2006

2005Investor Education

$
207,127

$
170,330

$
138,621Brokerage Services


110,882





Total

$
318,009

$
170,330

$
138,621


|
|

Years Ended December 31,Income (Loss) from Operations

2007

2006

2005Investor Education

$
(9,829
)
$
(44,141
)
$
(16,224
)Brokerage Services


42,598





Total

$
32,769

$
(44,141
)
$
(16,224
)


|
|

As of December 31,Identifiable Assets

2007

2006Investor Education

$
85,873

$
131,637Brokerage Services


423,457


Total

$
509,330

$
131,637


18. UNAUDITED QUARTERLY FINANCIAL DATA

|                                     |  | Fiscal Year 2007 Quarters Ended |       
|------------------------------------ |  | ------------------------------- | ------
|
|
|Statements of Operations             |  |                                 |       
|Revenue                              |  | $                               | 94,076
|Net income (loss) from operations    |  |                                 | 20,607
|Net income (loss)                    |  |                                 | 17,809
|Net income (loss) per common share:  |  |                                 |       
|Basic                                |  | $                               | 0.27  
|                                     |  |                                 |       
|Diluted                              |  | $                               | 0.26  
|                                     |  |                                 |       
|Weighted average shares outstanding: |  |                                 |       
|Basic                                |  |                                 | 65,510
|                                     |  |                                 |       
|Diluted                              |  |                                 | 68,497
|                                     |  |                                 |       

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INVESTOOLS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. UNAUDITED QUARTERLY FINANCIAL DATA (Continued)

|
|

|                                                      |  | Fiscal Year 2006 Quarters Ended |        
|----------------------------------------------------- |  | ------------------------------- | -------
|
|
|Statements of Operations                              |  |                                 |        
|Revenue                                               |  | $                               | 44,166 
|Net loss from operations                              |  |                                 | (14,580
|Net loss                                              |  |                                 | (13,661
|Net loss per common sharebasic and diluted           |  | $                               | (0.30  
|                                                      |  |                                 |        
|Weighted average shares outstandingbasic and diluted |  |                                 | 45,168 
|                                                      |  |                                 |        

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INVESTOOLS INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)

Schedule II

|                                                                      |                               |                        |       | Addition |       |       |   |      
|--------------------------------------------------------------------- | ----------------------------- | ---------------------- | ----- | -------- | ----- | ----- | - | -----
|
|Deducted from asset accounts:                                         |                               |                        |       |          |       |       |   |      
|Provisions for losses on trade accounts receivable and sales returns: |                               |                        |       |          |       |       |   |      
|                                                                      | Year Ended December 31, 2007: |                        |       |          |       |       |   |      
|                                                                      |                               | Bad debt allowance     |       | $        | 74    |       | $ | 313  
|                                                                      |                               | Sales return allowance |       |          | 1,957 |       |   | 1,363
|                                                                      |                               |                        |       |          |       |       |   |      
|                                                                      |                               |                        | Total |          | $     | 2,031 |   | $    
|                                                                      |                               |                        |       |          |       |       |   |      
|                                                                      | Year Ended December 31, 2006: |                        |       |          |       |       |   |      
|                                                                      |                               | Bad debt allowance     |       | $        | 55    |       | $ | 19   
|                                                                      |                               | Sales return allowance |       |          | 1,548 |       |   | 1,419
|                                                                      |                               |                        |       |          |       |       |   |      
|                                                                      |                               |                        | Total |          | $     | 1,603 |   | $    
|                                                                      |                               |                        |       |          |       |       |   |      
|                                                                      | Year Ended December 31, 2005: |                        |       |          |       |       |   |      
|                                                                      |                               | Bad debt allowance     |       | $        | 7     |       | $ | 54   
|                                                                      |                               | Sales return allowance |       |          | 1,160 |       |   | 1,882
|                                                                      |                               |                        |       |          |       |       |   |      
|                                                                      |                               |                        | Total |          | $     | 1,167 |   | $    
|                                                                      |                               |                        |       |          |       |       |   |      

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94

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