UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2006

or

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

For the transition period            to           

Thomas Weisel Partners Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware		20-3550472
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
One Montgomery Street, San Francisco, California		94104
(Address of principal executive offices)		(Zip Code)

(415) 364-2500

(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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. þ Yes o No

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

     As of August 8, 2006 there were 25,843,612 shares of the registrant’s common stock outstanding.

 

 

TABLE OF CONTENTS

Item No.		Page No.
PART I. FINANCIAL INFORMATION
1. Unaudited Condensed Consolidated Financial Statements			1
Consolidated Statements of Financial Condition			1
Consolidated Statements of Operations			2
Consolidated Statements of Changes in Shareholders’ and Members’ Equity (Deficit)			3
Consolidated Statements of Cash Flows			4
Notes to Unaudited Condensed Consolidated Financial Statements			5
Note 1 - Organization and Basis of Presentation			5
Note 2 - Recent Accounting Pronouncements			6
Note 3 - Shareholders’ and Members’ Equity (Deficit)			7
Note 4 - Securities Owned and Securities Sold, But Not Yet Purchased			8
Note 5 - Investments in Partnerships and Other Securities			8
Note 6 - Other Investments			9
Note 7 - Related Party Transactions			9
Note 8 - Notes Payable			10
Note 9 - Earnings Per Share			11
Note 10 - Share-Based Compensation			13
Note 11 - Income Taxes			15
Note 12 - Commitments, Guarantees and Contingencies			17
Note 13 - Financial Instruments with Off-Balance Sheet Risk, Credit Risk or Market Risk			21
Note 14 - Regulated Subsidiaries			22
Note 15 - Subordinated Borrowings			22
Note 16 - Pro Forma, As Adjusted			22
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
3. Quantitative and Qualitative Disclosures About Market Risk			41
4. Controls and Procedures			41
PART II. OTHER INFORMATION
1. Legal Proceedings			42
1A. Risk Factors			42
2. Unregistered Sales of Equity Securities and Use of Proceeds			44
3. Defaults Upon Senior Securities			44
4. Submission of Matters to a Vote of Security Holders			44
5. Other Information			44
6. Exhibits			44
SIGNATURES			S-1
EXHIBIT INDEX			E-1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

-i-

Where You Can Find More Information

     We are required to file current, annual and quarterly reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission, or SEC. You may read and copy any document we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549, U.S.A. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public from the SEC’s internet site at http://www.sec.gov.

     We maintain a public internet site at http://www.tweisel.com and make available free of charge through our internet site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers and any amendments to those reports filed or furnished pursuant to the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Also posted on our website are charters for our Board of Directors’ Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee as well as our Corporate Governance Guidelines, our Code of Conduct and Ethics governing our directors, officers and employees and other related materials. The information on our website is not part of this Quarterly Report.

     When we use the terms “Thomas Weisel Partners”, “we”, “us”, “our”, and the “firm” we mean Thomas Weisel Partners Group, Inc., a Delaware corporation, and its consolidated subsidiaries, taken as a whole, as well as any predecessor entities, unless the context otherwise indicates.

-ii-

Special Note Regarding Forward-Looking Statements

     This Quarterly Report on Form 10-Q in Item 2 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other sections includes forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may”, “might”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “intend” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include expectations as to our future financial performance, which in some cases may be based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks outlined under Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, as supplemented and amended by the risks outlined under Part II, Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q. See “Where You Can Find More Information” on the preceding page.

     Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this filing to conform our prior forward-looking statements to actual results or revised expectations.

     Forward-looking statements include, but are not limited to, the following:

•		the statement about our intention to maintain aggregate compensation and benefits expense, excluding expenses relating to equity awards made in connection with our initial public offering, within the range of 55% to 58% of annual net revenues (excluding investment gains and losses attributable to investments in partnerships and other securities) in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Expenses” in this Quarterly Report on Form 10-Q;
•		the statement in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview” in this Quarterly Report on Form 10-Q about our belief that historical venture capital investment is an important indicator of future investment banking activity in our target sectors;
•		the statements in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q about our estimates of the total maximum amount of waived management fees available to be recognized as revenue in the future;
•		the discussion of our ability to meet liquidity and regulatory capital requirements with our current level of equity capital, net proceeds to us from our initial public offering, our May 2006 offering and funds anticipated to be provided by operating activities in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in this Quarterly Report on Form 10-Q; and
•		the statement in Part II, Item IA – “Risk Factors” in this Quarterly Report on Form 10-Q about our belief that the SEC’s July 2006 interpretive guidance relating to “soft dollar” practices will not materially affect our brokerage business.

-iii-

PART I — FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

THOMAS WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES
(formerly Thomas Weisel Partners Group LLC and Subsidiaries)

		June 30,				December 31,
		2006				2005
ASSETS
Cash and equivalents		$	121,378			$	90,193
Restricted cash and cash required to be segregated under Federal or other regulations			6,468				10,517
Securities owned — at market value			138,833				98,527
Receivable from clearing broker			—				9,555
Corporate finance and syndicate receivables (net of allowance for doubtful accounts of $70 at June 30, 2006 and $0 at December 31, 2005)			20,618				10,479
Investments in partnerships and other securities			39,185				38,920
Other investments			80,172				4,632
Property and equipment, net			26,746				29,600
Receivables from related parties (net of allowance for doubtful loans of $2,585 at June 30, 2006 and $3,316 at December 31, 2005)			3,216				4,911
Deferred tax assets, net of valuation allowance			13,763				—
Other assets (net of allowance for doubtful accounts of $39 at June 30, 2006 and $0 at December 31, 2005)			17,553				15,489
Total assets		$	467,932			$	312,823
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERENCE STOCK, SHAREHOLDERS’ AND MEMBERS’ EQUITY (DEFICIT)
Liabilities:
Securities sold, but not yet purchased — at market value		$	58,867			$	84,986
Payable to clearing broker			46,368				—
Payables to customers			—				3,343
Accrued compensation			26,766				42,889
Accrued expenses and other liabilities			47,104				48,671
Capital lease obligations			261				445
Notes payable			35,424				19,094
Total liabilities			214,790				199,428
Redeemable Convertible Preference Stock:
Class C redeemable preference shares			—				48,792
Class D redeemable convertible shares			—				100,000
Class D-1 redeemable convertible shares			—				75,000
Total redeemable convertible preference stock			—				223,792
Shareholders’ and Members’ Equity (Deficit):
Class A shares			—				26,442
Common stock, par value $0.01 per share, 100,000,000 shares authorized, 25,843,612 and 0 shares issued and outstanding at June 30, 2006 and December 31, 2005, respectively			258				—
Additional paid-in capital			348,721				—
Retained earnings (accumulated deficit)			(95,500	)			(136,530	)
Accumulated other comprehensive income (loss)			(337	)			(309	)
Total shareholders’ and members’ equity (deficit)			253,142				(110,397	)
Total liabilities, redeemable convertible preference stock, shareholders’ and members’ equity (deficit)		$	467,932			$	312,823

See accompanying notes to unaudited condensed consolidated financial statements.

THOMAS WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES

		Three Months Ended June 30,								Six Months Ended June 30,
		2006				2005				2006				2005
Revenues:
Brokerage		$	29,776			$	33,817			$	64,163			$	69,690
Investment banking			28,156				15,138				64,650				31,423
Asset management			5,383				10,035				12,335				17,955
Interest income			3,062				892				5,274				1,963
Total revenues			66,377				59,882				146,422				121,031
Interest expense			(2,643	)			(885	)			(4,712	)			(2,071	)
Net revenues			63,734				58,997				141,710				118,960
Expenses excluding interest:
Compensation and benefits			35,398				38,184				77,334				79,013
Floor brokerage and trade execution			6,388				6,752				13,084				13,938
Communications and data processing			4,218				4,084				8,567				8,721
Depreciation and amortization			2,127				2,334				4,481				4,670
Marketing and promotion			2,759				3,373				5,692				6,850
Occupancy and equipment			3,603				3,938				8,264				7,283
Other expense			4,730				5,274				9,299				9,164
Total expenses			59,223				63,939				126,721				129,639
Income (loss) before taxes			4,511				(4,942	)			14,989				(10,679	)
Provision for taxes (tax benefit)			1,191				818				(9,640	)			1,282
Net income (loss)			3,320				(5,760	)			24,629				(11,961	)
Preferred dividends and accretion:
Class D redeemable convertible shares			—				(1,750	)			(710	)			(3,500	)
Class D-1 redeemable convertible shares			—				(937	)			(380	)			(1,875	)
Accretion of Class C redeemable preference stock			—				(1,381	)			(518	)			(2,725	)
Net income (loss) attributable to common shareholders and to class A, B and C shareholders		$	3,320			$	(9,828	)		$	23,021			$	(20,061	)
Earnings per share:
Basic earnings per share		$	0.14				—			$	1.04				—
Diluted earnings per share		$	0.14				—			$	1.02				—
Weighted average shares used in computation of per share data:
Basic weighted average shares outstanding			23,994				—				22,126				—
Diluted weighted average shares outstanding			24,535				—				22,569				—
Pro forma, as adjusted:*
Pro forma net revenues										$	141,572
Pro forma income (loss) before taxes											14,850
Pro forma provision for taxes (tax benefit)											(8,207	)
Pro forma net income (loss)											23,056
Pro forma preferred dividends and accretion											—
Pro forma net income (loss) attributable to common shareholders											23,056
Pro forma earnings per share:
Pro forma basic earnings per share										$	1.04
Pro forma diluted earnings per share										$	1.02
Pro forma weighted average shares used in the computation of per share data:
Pro forma basic weighted average shares outstanding											22,126
Pro forma diluted weighted average shares outstanding											22,569

See accompanying notes to unaudited condensed consolidated financial statements.

THOMAS WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES

																		Retained				Accumulated				Total				Total
										Paid-In				Additional				Earnings				Other				Shareholders’ and				Comprehensive
		Common Stock								Capital				Paid-in				(Accumulated				Comprehensive				Members’ Equity				Income
		Shares				Amount				Class A				Capital				Deficit)				Income (Loss)				(Deficit)				(Loss)
Balance, December 31, 2005			—			$	—			$	26,442			$	—			$	(136,530	)		$	(309	)		$	(110,397	)		$	—
Net income for the period January 1, through February 7, 2006			—				—				—				—				3,551				—				3,551				3,551
Distributions:
Class D redeemable convertible shares			—				—				—				—				(710	)			—				(710	)			—
Class D-1 redeemable convertible shares			—				—				—				—				(380	)			—				(380	)			—
Accretion of Class C redeemable preference shares			—				—				—				—				(518	)			—				(518	)			—
Contributions — Class A shares			—				—				283				—				—				—				283				—
Currency translation adjustment			—				—				—				—				—				(28	)			(28	)			(28	)
Reorganization from an LLC to a C Corporation:
Issuance of common shares for Class A and A-1 shares			13,274				133				(26,725	)			26,592				—				—				—				—
Issuance of common shares for Class C redeemable preference shares			1,304				13				—				31,287				18,009				—				49,309				—
Issuance of common shares for Class D and D-1 redeemable convertible shares			2,769				28				—				145,244				—				—				145,272				—
Issuance of common stock in initial public offering, net of underwriting discounts			4,915				49				—				71,626				—				—				71,675				—
Direct costs of initial public offering			—				—				—				(5,330	)			—				—				(5,330	)			—
Share-based compensation expense			—				—				—				2,966				—				—				2,966				—
Issuance of common stock in follow-on offering, net of underwriting discounts			3,582				35				—				76,811				—				—				76,846				—
Direct costs of follow-on offering			—				—				—				(475	)			—				—				(475	)			—
Net income from February 8, 2006 to June 30, 2006			—				—				—				—				21,078				—				21,078				21,078
Balance, June 30, 2006			25,844			$	258			$	—			$	348,721			$	(95,500	)		$	(337	)		$	253,142			$	24,601

See accompanying notes to unaudited condensed consolidated financial statements.

THOMAS WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES

		Six Months Ended June 30,
		2006				2005
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)		$	24,629			$	(11,961	)
Non-cash items included in net income (loss):
Depreciation and amortization of property and equipment			4,481				4,670
Share-based compensation expense			2,966				—
Deferred tax provision (benefit)			(13,763	)			—
Provision for doubtful accounts			109				13
Provision for facility lease loss			1,474				200
Deferred rent expense			(204	)			354
Unrealized and realized (gains) losses on partnership and other investments			(5,601	)			(654	)
Other			446				(12	)
Net effect of changes in operating assets and liabilities:
Cash segregated under federal or other regulations			4,049				755
Securities owned and securities sold, but not yet purchased—net			(66,425	)			35,408
Corporate finance and syndicate receivables			(7,798	)			2,757
Distributions from investment partnerships			9,155				(24	)
Other assets			(2,192	)			658
Receivable from/payable to clearing broker—net			55,923				(18,914	)
Accrued expenses and other liabilities			1,870				541
Payable to customers			(3,343	)			(50	)
Accrued compensation			(16,123	)			(4,241	)
Net cash provided by (used in) operating activities			(10,347	)			9,500
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(1,625	)			(626	)
Sale of property and equipment			—				282
Acquisition of intangible asset			—				(253	)
Restricted cash deposits			—				(2,000	)
Partnership investments purchased			(1,718	)			(1,173	)
Other investments purchased			(107,720	)			—
Proceeds from sale of investments			32,277				488
Net cash used in investing activities			(78,786	)			(3,282	)
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of capital lease obligation			(184	)			(485	)
Repayments of notes payable			(13,833	)			(2,000	)
Proceeds from issuance of common stock, net of expenses			142,098				—
Contributions from members			283				1,497
Distributions to members			(6,465	)			(5,375	)
Withdrawals of capital			(1,581	)			(202	)
Net cash provided by (used in) financing activities			120,318				(6,565	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			31,185				(347	)
CASH AND CASH EQUIVALENTS—Beginning of period			90,193				57,993
CASH AND CASH EQUIVALENTS—End of period		$	121,378			$	57,646
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest		$	4,248			$	1,836
Cash paid for taxes		$	6,930			$	—
Non-cash financing activities:
Issuance of common shares and warrant for Class C, D and D-1 redeemable convertible preference shares		$	194,581			$	—
Issuance of senior notes for Class D and D-1 redeemable convertible preference shares		$	29,728			$	—
Acquired property and equipment under capital lease		$	—			$	374

See accompanying notes to unaudited condensed consolidated financial statements.

THOMAS WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

Organization

     Thomas Weisel Partners Group, Inc., a Delaware corporation, together with its subsidiaries (collectively, the “Firm”), is an investment banking firm headquartered in San Francisco, with additional offices in Silicon Valley, Boston, New York City and Mumbai, India.

     The Firm operates and is managed as a single operating segment providing investment services that include securities brokerage, investment banking, equity research and asset management. The Firm operates on an integrated basis to best meet the needs of its clients.

     The Firm primarily conducts its securities brokerage, investment banking and equity research business through Thomas Weisel Partners LLC (“TWP”). TWP is a registered broker-dealer under the Securities Exchange Act of 1934, is a member of the New York Stock Exchange, Inc. (“NYSE”), American Stock Exchange and the National Association of Securities Dealers, Inc. (“NASD”) and is also a registered introducing broker under the Commodity Exchange Act and member of the National Futures Association. TWP introduces on a fully disclosed basis its proprietary and customer securities transactions to another broker-dealer for clearance and settlement. TWP conducts certain activities through its wholly-owned subsidiary, Thomas Weisel International Private Limited (“TWIPL”), a company formed under the laws of India and approved by the NYSE as a branch of TWP in October 2005.

     The Firm primarily conducts its asset management business through Thomas Weisel Capital Management LLC (“TWCM”), a registered investment adviser under the Investment Advisers Act of 1940, which manages a series of investment funds in venture capital and fund of funds through the following subsidiaries (the “Asset Management Subsidiaries”):

	•		Thomas Weisel Venture Partners LLC (“TWVP”), the managing general partner of an early stage venture capital fund that invests in emerging information technology companies;
	•		Thomas Weisel Healthcare Venture Partners LLC (“TWHVP”), the managing general partner of a venture capital fund that invests in the emerging life sciences and medical technology sectors, including medical devices, specialty pharmaceuticals, emerging biopharmaceuticals, drug delivery technologies and biotechnology; and
	•		Thomas Weisel Global Growth Partners LLC (“TWGGP”), a registered investment adviser under the Investment Advisers Act of 1940, which provides fund management and private investor access to premier emerging growth funds in private equity. TWGGP also manages investment funds that are active buyers of secondary interests in private equity funds, as well as portfolios of direct interests in venture-backed companies.

Initial Public Offering and Reorganization Transactions

     Thomas Weisel Partners Group, Inc. completed its initial public offering on February 7, 2006. The Firm’s net proceeds from the initial public offering were $66.3 million.

     In connection with the closing of the initial public offering, a number of reorganization transactions were carried out in order to cause Thomas Weisel Partners Group, Inc. to succeed to the business of Thomas Weisel Partners Group LLC. In the reorganization transactions, the members of Thomas Weisel Partners Group LLC received shares of common stock of Thomas Weisel Partners Group, Inc. and, in the case of holders of Class D and D-1 shares, received additional consideration in the form of notes and warrants of Thomas Weisel Partners Group, Inc., in exchange for all of their membership interests and shares of redeemable convertible preference stock of Thomas Weisel Partners Group LLC. The notes that certain members received resulted in $33.0 million of additional debt for the Firm, recorded at the date of issuance at the estimated fair value of the debt of $29.7 million. See Note 8 — Notes Payable for details on the notes issued and Note 9 — Earnings Per Share for details on the warrants issued.

Follow-On Offering

     On May 23, 2006, Thomas Weisel Partners Group, Inc. completed a follow-on offering of its common stock in which it issued and sold 3,581,902 shares of common stock. The Firm received net proceeds from the sale of shares of common stock in this follow-on offering of $76.4 million. As of June 30, 2006 there were 25,843,612 shares of common stock of Thomas Weisel Partners Group, Inc. outstanding.

Basis of Presentation

     These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and Regulation S-X, Article 10 under the Securities Exchange Act of 1934. Because the Firm provides investment services to its clients, it follows certain accounting guidance used by the brokerage and investment industry.

     The condensed consolidated financial statements and these notes are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The results of operations for the three and six months ended June 30, 2006 may not be indicative of future results.

     These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of Thomas Weisel Partners Group, Inc. included in the Firm’s Annual Report on Form 10-K for the year ended December 31, 2005.

NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS

     Statement of Financial Accounting Standards No. 123(R)—“Share-Based Payment”(SFAS No. 123(R)). In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), Share-Based Payment. This statement replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (“APB”) Opinion No. 25, and its related implementation guidance. The statement establishes accounting standards for transactions in which an entity exchanges its equity instruments for goods and services. The primary focus of this statement is accounting for transactions in which an entity obtains employee services in share-based payment transactions; requiring public companies to expense employee share-based payments at their fair value through earnings as such awards vest. This statement was originally effective for public companies as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. In April 2005, the Securities and Exchange Commission (“SEC”) announced that the effective date was delayed to no later than fiscal years beginning after June 15, 2005. The Firm has adopted, beginning January 1, 2006, and reports share-based compensation in accordance with the provisions of SFAS No. 123(R). Prior to February 7, 2006, the Firm operated as a limited liability company and had not historically issued share-based compensation awards. Accordingly, the impact of adopting SFAS No. 123(R) was not material. Because the Firm did not have share-based payment awards outstanding prior to the adoption of SFAS No. 123(R), the Firm was not required to apply any of the transition requirements of this standard. The implementation of this standard is discussed in Note 10 — Share-Based Compensation.

     Staff Accounting Bulletin No. 107—“Share-Based Payment” (SAB No. 107). In March 2005, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment, which expresses the SEC staff’s views on SFAS No. 123(R). In particular, SAB No. 107 describes the SEC staff’s views on share-based payment transactions with non-employees; topics relating to valuation methods, such as guidance regarding estimates of expected volatility and term; the classification of share-based compensation expense; non-GAAP financial measures in the financial statements relating to share-based payments; capitalization of compensation cost related to share-based payment arrangements; accounting for income tax effects of share-based payment arrangements upon adoption of SFAS No. 123(R); and disclosure in Management’s Discussion and Analysis of Financial Condition and Results of Operations relating to share-based payments subsequent to adoption of SFAS No. 123(R). The Firm has adopted SAB No. 107 in conjunction with its adoption of SFAS No. 123(R).

     Statement of Financial Accounting Standards No. 154 —“Accounting Changes and Error Corrections”(SFAS No. 154). In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This statement supersedes APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. The statement applies to all voluntary changes in accounting principle; changing the requirements for accounting for and reporting of a change in accounting principle. SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. The statement requires that a change in method of depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate that is affected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The statement does not change the transition provisions of any existing accounting pronouncements, including

those that are in a transition phase as of the effective date of this statement. The Firm has adopted this statement effective January 1, 2006. The adoption of SFAS No. 154 did not have a material effect on the Firm’s condensed consolidated financial statements.

     Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (FIN No. 48). In June 2006, the FASB issued Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Firm is currently evaluating the impact, if any, that the adoption of FIN No. 48 will have on the Firm’s condensed consolidated financial statements.

NOTE 3 — SHAREHOLDERS’ AND MEMBERS’ EQUITY (DEFICIT)

     Prior to the Firm’s initial public offering, the Firm operated as a limited liability company. The Limited Liability Company Agreement (the “LLC Agreement”) set forth the rights and obligations of members of the Firm and provided that the Firm’s Executive Committee was responsible for managing the affairs of the Firm. In connection with the Firm’s conversion to a corporation, a Board of Directors (the “Board”) was constituted with ultimate responsibility for management of the Firm.

Classes of Stock prior to the Initial Public Offering

     Under the LLC Agreement, the Firm had the following classes of shares: (i) Class A shares, (ii) Class A-1 shares, (iii) Class B shares, (iv) Class C shares, (v) Class D shares and (vi) Class D-1 shares. The Class A, A-1 and B shares were held by the current and former partners of the Firm and represented equity interests and certain rights with respect to distributions of operating profits. In addition, holders of Class A shares had rights to a guaranteed return, paid at the end of each quarter based on the prime rate for the prior quarter. The Class C, D and D-1 shares were issued to strategic investors, including California Public Employees’ Retirement System, Nomura America Investment, Inc., private equity investors and venture capital investors. The Class C, D and D-1 shares were redeemable convertible shares and included certain preferred dividend and liquidation rights. In particular, holders of Class C shares had the right to sell all or a portion of their Class C shares back to the Firm at any time at a price that would result in a 12% internal rate of return. Holders of Class D shares were entitled to a 7% annual preferred return that was distributed semiannually. Holders of Class D-1 shares were entitled to a 5% annual preferred return that was distributed semiannually.

Income (Loss) Attributable to Class A, B and C Shareholders

     The Firm’s net income (loss) for the six months ended June 30, 2005 is shown after deducting the guaranteed return to Class A shareholders included in compensation and benefits expense. The Firm deducts all preferred returns payable from net income, including preferred dividends payable to Class D and D-1 shareholders and accretion of Class C shares to arrive at net income (loss) attributable to Class A, B and C shareholders.

NOTE 4 — SECURITIES OWNED AND SECURITIES SOLD, BUT NOT YET PURCHASED

     Securities owned and securities sold, but not yet purchased, consist of securities at quoted market prices, as follows (in thousands):

		June 30, 2006								December 31, 2005
						Sold, But								Sold, But
						Not Yet								Not Yet
		Owned				Purchased				Owned				Purchased
Equity securities		$	5,845			$	51,868			$	15,232			$	74,685
Convertible bonds			132,988				6,999				83,295				4,321
U.S. Treasury Securities			—				—				—				5,980
Total securities owned and securities sold, but not yet purchased		$	138,833			$	58,867			$	98,527			$	84,986

     At June 30, 2006 and December 31, 2005, securities sold, but not yet purchased are collateralized by securities owned that are held at the clearing broker.

     Convertible bonds include certain securities that are not readily marketable. These are investment securities that cannot be publicly offered or sold unless registration has been affected under the Securities Act of 1933. The estimated fair value of the securities not readily marketable included in the convertible bonds is approximately $0.6 million and $0.0 million at June 30, 2006 and December 31, 2005, respectively.

NOTE 5 — INVESTMENTS IN PARTNERSHIPS AND OTHER SECURITIES

     Investments in partnerships and other securities consist of investments recorded at estimated fair value, as follows (in thousands):

		June 30, 2006				December 31, 2005
Private equity investments		$	38,673			$	38,292
Other investments in partnerships and securities			512				628
Total investments in partnerships and other securities		$	39,185			$	38,920

     Private equity investments primarily include general partner and limited partner investments in investment partnerships. These investments are carried at fair value in accordance with industry guidance. The Firm waived and continues to waive certain management fees with respect to certain of these partnerships. These waived fees constitute deemed contributions to the investment partnerships that serve to satisfy the Firm’s general partner capital commitments, as provided in the underlying investment partnerships’ partnership agreements. The Firm does not recognize revenue or increase its carrying value in the investment partnerships with respect to the waived fees until the investment partnerships realize gains and provide a special allocation of the gains to the Firm.

NOTE 6 — OTHER INVESTMENTS

     Other investments consist of investments recorded at market prices as follows (in thousands):

		June 30, 2006				December 31, 2005
Auction rate securities		$	50,000			$	—
Equity securities			4,110				4,632
Municipal debt securities			26,062				—
Total other investments		$	80,172			$	4,632

     Other investments does not include (i) private equity investments (see Note 5 — Investments in partnerships and other securities) or (ii) securities owned and securities sold, not yet purchased, for the purpose of conducting the Firm’s brokerage operations (see Note 4 — Securities owned and securities sold, but not yet purchased).

     During the six months ended June 30, 2006, Thomas Weisel Partners Group, Inc. completed its initial public offering and a follow-on offering of common stock. Of the $142.7 million of net proceeds from these offerings, $76.1 million has been invested in auction rate securities and municipal debt securities that have been included in other investments. The auction rate securities represent short-term municipal securities of high investment grade rating, interest on which is exempt from federal income tax.

NOTE 7 — RELATED PARTY TRANSACTIONS

     Receivables from related parties consist of the following (in thousands):

		June 30, 2006				December 31, 2005
Co-Investment Fund loans to employees and former employees		$	4,709			$	6,480
Employee loans and other employee receivables			1,092				1,747
Allowance for doubtful loans			(2,585	)			(3,316	)
Total receivables from related parties		$	3,216			$	4,911

Related Party Loans

     Co-Investment Funds — In 2000 and 2001 the Firm established an investment program for employees wherein employees who qualified as accredited investors were able to contribute up to 4% of their compensation to private equity funds (the “Co-Investment Funds”). The Co-Investment Funds were established solely for employees of the Firm and invested side-by-side with the Firm’s affiliates, Thomas Weisel Capital Partners, L.P. (a private equity fund formerly managed by the Firm) and Thomas Weisel Venture Partners L.P. As part of this program, the Firm made loans to employees for capital contributions to the Co-Investment Funds in amounts up to 400% of employees’ contributions. The Firm holds as collateral the investment in the Co-Investment Funds and establishes a reserve that reduces the carrying value of the receivable to the fair value of the collateralized ownership interest of the employees and former employees in the Co-Investment Funds. The Firm discontinued the investment program for employees in 2002. For the three and six months ended June 30, 2006, the Co-Investment Funds distributed $0.3 million and $1.7 million, respectively, which was credited towards repayment of loans to employees. There were no distributions for the three and six months ended June 30, 2005.

     Employee Loans — The Firm from time to time prior to its initial public offering made unsecured loans to its employees. These loans were not part of a Firm program, but were made as a matter of course. The Firm has established a reserve for the face value of these loans.

Other Related Party Transactions

     The Firm provides personal office services to Mr. Weisel, its Chairman and Chief Executive Officer. Beginning January 1, 2006 the Firm reached an agreement with Mr. Weisel that he would reimburse the Firm for expenses the Firm incurs for these services. Amounts incurred by the Firm for these services for the three and six months ended June 30, 2006 were $60,119 and $122,233, respectively.

     In addition, Mr. Weisel and certain other employees of the Firm from time to time use an airplane owned by Ross Investments Inc., an entity wholly owned by Mr. Weisel, for business travel. The Firm and Ross Investments, Inc. have adopted a

time-sharing agreement in accordance with Federal Aviation Regulation 91.501 to govern the Firm’s use of the Ross Investments, Inc. aircraft, pursuant to which the Firm reimburses Ross Investments Inc. for the travel expenses in an amount generally comparable to the expenses the Firm would have incurred for business travel on commercial airlines for similar trips. For the three months ended June 30, 2006 and 2005 the Firm paid $337,419 and $18,903, respectively, to Ross Investments Inc. on account of such expenses. For the six months ended June 30, 2006 and 2005 the Firm paid $365,552 and $63,888, respectively, to Ross Investments Inc. on account of such expenses.

NOTE 8 — NOTES PAYABLE

Senior Notes

     Concurrent with its initial public offering, the Firm issued three separate unsecured senior notes in the aggregate principal amount of $33 million. Two notes, each $10.0 million in principal, were issued to California Public Employees’ Retirement System. The first $10.0 million note was called “Senior Note” and the second $10 million note was called “Contingent Payment Senior Note”. The third note, in the principal amount of $13.0 million, was issued to Nomura America Investment, Inc. and was also called “Senior Note” with similar terms and covenants to the Senior Note issued to California Public Employees’ Retirement System. Both note holders were investors in Thomas Weisel Partners Group LLC, the predecessor to Thomas Weisel Partners Group, Inc., and received the notes in partial consideration of exchange of their Class D and D-1 redeemable convertible shares. See Note 1 – Organization and Basis of Presentation for details on the reorganization transactions.

     The two Senior Notes in the aggregate principal amount of $23.0 million bear interest at a floating rate equal to the mid-term applicable federal rate in effect from time to time and mature in 2011. The Contingent Payment Senior Note bears no interest and provides for payments as and when certain distributions from Thomas Weisel Capital Partners, L.P. (a private equity fund formerly managed by the Firm), are made, with a maximum term of five years. As the interest rate terms for all three notes are at amounts more favorable than the current market incremental borrowing rate for the Firm, the notes were recorded at fair value and the discounts are being amortized over the terms of the loans. As the term of the Contingent Payment Senior Note is linked to distributions, as described above, estimates were made by the Firm and applied in determining the estimated term of the Contingent Payment Senior Note and the associated discount. The discount for the Contingent Payment Senior Note is being amortized over its full expected term maturing in 2011.

Covenants

     The Senior Notes, Contingent Payment Senior Note and Secured Note shown below include financial covenants including restrictions on additional indebtedness and requirements that the notes be repaid should the Firm enter into a transaction to liquidate or dispose of all or substantially all of its property, business or assets. The Secured Note also contains various covenants and restrictions, the most restrictive of which require the Firm to maintain a minimum net worth. The Firm was in compliance with all covenants at June 30, 2006 and December 31, 2005.

     Notes payable consists of the following (in thousands):

										December 31, 2005
		June 30, 2006								(principal amount
		Principal Amount				Carrying Amount				and carrying amount)
Senior Note (a)		$	13,000			$	11,957			$	—
Senior Note (a)			10,000				9,197				—
Contingent Payment Senior Note (b)			5,927				4,937				—
Secured Note, floating at LIBOR + 2.85%(c)			9,333				9,333				11,200
Note at LIBOR + 2.00% (d)			—				—				2,894
Note at Prime + 0.50% (d)			—				—				5,000
Total notes payable		$	38,260			$	35,424			$	19,094

     The Firm also pays a commitment fee of 1.0% on a $40.0 million subordinated borrowing facility (see Note 15 – Subordinated Borrowings), which was not drawn upon during 2006.

     The following are the weighted-average interest rates for these borrowings:

		June 30, 2006				December 31, 2005
Weighted-average interest rate			7.37	%			6.28	%

     Scheduled principal payments for borrowings at June 30, 2006 are as follows (in thousands):

			June 30, 2006
	July 1, 2006 through December 31, 2006		$	1,867
	2007			6,136
	2008			3,733
	2009			—
	2010			1,024
	Thereafter			25,500
	Total		$	38,260

NOTE 9 — EARNINGS PER SHARE

     The Firm calculates its basic and diluted earnings per share in accordance with SFAS No. 128, Earnings per Share. Basic shares outstanding for the six months ended June 30, 2006 are calculated assuming exchange of the Firm’s Class C, D and D-1 redeemable convertible preference shares and Class A shares for shares of common stock, notes payable and a warrant as if these transactions had been consummated on January 1, 2006. The sales of shares of common stock pursuant to the Firm’s initial public offering are considered outstanding from the date of the initial public offering and the sales of shares of common stock pursuant to the Firm’s follow-on offering are considered outstanding from the date of the follow-on offering. See Note 1 — Organization and Basis of Presentation for discussion of the initial public offering and reorganization transactions and the follow-on offering.

     Diluted shares outstanding for the three and six months ended June 30, 2006 are calculated including the effect of the dilutive instruments. The Firm uses the treasury stock method to reflect the potential dilutive effect of the unvested restricted stock units, warrant and unexercised stock options.

     For purposes of computing dilutive shares outstanding, the shares of common stock underlying unvested restricted stock units of 1,847,972 as of June 30, 2006 are assumed to have been delivered at the times of the grants. In applying the treasury stock method, the assumed proceeds from the assumed vesting and delivery were equal to the sum of (a) the amount of compensation cost attributed to future services and not yet recognized as of June 30, 2006 and (b) the amount of tax benefit that was credited to additional paid-in capital assuming vesting and delivery of the restricted stock units. The tax benefit is the amount resulting from a tax deduction for compensation in excess of compensation expense recognized for financial reporting purposes. The proceeds for the three and six months ended June 30, 2006 were assumed to be used to purchase the shares of common stock at the average market

price during the three months ended June 30, 2006 and the period February 7, 2006 to June 30, 2006, respectively. The incremental shares of 408,450 and 309,043 for the three and six months ended June 30, 2006, respectively, were equal to the difference between the number of shares assumed issued on grant dates and the number of shares assumed purchased and were included in the denominator of the diluted earnings per share computations for the periods that they were outstanding during the three and six months ended June 30, 2006, respectively.

     For purposes of computing dilutive shares outstanding for the three and six months ending June 30, 2006, exercise of the warrant was assumed at the beginning of each period and shares of common stock of 486,486 were assumed to be issued. The incremental shares of 132,946 and 133,492 for the three and six months ended June 30, 2006, respectively, were calculated as the difference between the number of shares assumed issued and the number of shares assumed purchased at the average share price during each period and were included in the denominator of the diluted EPS computation.

     Stock options for 32,831 shares of common stock were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2006 as they were anti-dilutive.

     The following table is a reconciliation of basic and diluted income per share (in thousands, except per share data):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
BASIC:
Numerator:
Net income (loss)		$	3,320			$	(5,760	)		$	24,629			$	(11,961	)
Less: Preferred dividends and accretion			—				4,068				1,608				8,100
Net income (loss) attributable to common shareholders		$	3,320			$	(9,828	)		$	23,021			$	(20,061	)
Denominator:
Basic weighted average shares outstanding			23,994				—				22,126				—
Per Share:
Earnings per share		$	0.14			$	—			$	1.04			$	—
DILUTED:
Numerator:
Net income (loss)		$	3,320			$	(5,760	)		$	24,629			$	(11,961	)
Less: Preferred dividends and accretion			—				4,068				1,608				8,100
Net income (loss) attributable to common shareholders		$	3,320			$	(9,828	)		$	23,021			$	(20,061	)
Denominator:
Basic weighted average shares outstanding			23,994				—				22,126				—
Effect of dilutive securities:
Weighted average restricted stock units			408				—				309				—
Weighted average warrant			133				—				134				—
Diluted weighted average shares outstanding			24,535				—				22,569				—
Per Share:
Earnings per share		$	0.14				—			$	1.02				—

NOTE 10 — SHARE-BASED COMPENSATION

     On January 27, 2006 the Board approved and the Firm adopted the Thomas Weisel Partners Group, Inc. Equity Incentive Plan (the “2006 Equity Incentive Plan”) which provides for the awards of non-qualified and incentive stock options, restricted stock and restricted stock units and other share-based awards to officers, directors, employees, consultants and advisors of the Firm. The 2006 Equity Incentive Plan provides for shares to be issued up to a maximum of 5,000,000 shares, with certain restrictions regarding the amount of awards granted in any calendar year.

Stock Options

     The 2006 Equity Incentive Plan provides for the grant of non-qualified or incentive stock options (“options”) to officers, directors, employees, consultants and advisors for the purchase of newly issued shares of the Firm’s common stock at a price determined by the Compensation Committee (the “Committee”) of the Board at the date the option is granted. Options vest and are

exercisable ratably over a four-year period from the date the option is granted and expire within ten years from the date of grant. The exercise prices, as determined by the Committee, can not be less than the fair market value of the shares on the grant date. Certain options provide for accelerated vesting upon a change in control determinable by the Committee.

     The fair value of each option award is estimated on the date of grant using a Black-Scholes Merton option pricing model that uses the assumptions noted in the table below. The weighted-average grant-date fair value of the option awards granted during the six months ended June 30, 2006 was $9.90.

Expected volatility - Based on the lack of historical data for the Firm’s own shares, the Firm based its expected volatility on a representative peer group that took into account the criteria outlined in SAB No. 107: industry, market capitalization, stage of life cycle and capital structure.

Expected term - Expected term represents the period of time that options granted are expected to be outstanding. The Firm elected to use the “simplified” calculation method, which was provided for by SAB No. 107 to be used for companies that lack extensive historical data. Under the “simplified” calculation method, the expected term was calculated as an average of the vesting period and the contractual life of the options.

Risk-free interest rate - Based on the U.S. Treasury zero-coupon bond rate with a remaining term approximate of the expected term of the option.

Dividend yield - As the Firm has not paid, nor does it plan to pay, dividends in the future, the assumed dividend yield is zero.

										Six Months Ended
										June 30,
										2006				2005
Expected volatility											35	%			—	%
Expected term (in years)											6.25				—
Risk-free interest rate											4.71	%			—	%
Dividend yield											—	%			—	%

     A summary of option activity under the 2006 Equity Incentive Plan is presented below:

										Weighted Avg.				Aggregate
						Weighted Avg.				Remaining				Intrinsic
		Options				Exercise Price				Contractual Life				Value
										(in years)
Outstanding, December 31, 2005			—			$	—				—			$	—
Granted			32,831				22.70				10.00				—
Exercised			—				—				—				—
Cancelled			—				—				—				—
Expired			—				—				—				—
Outstanding, June 30, 2006			32,831			$	22.70				9.73			$	—
Exercisable, June 30, 2006			—			$	—				—			$	—

     As of June 30, 2006 the total unrecognized compensation expense related to non-vested options is approximately $0.3 million. This cost is expected to be recognized over a weighted-average period of 3.7 years. Expense and tax benefit recognized in the three and six months ending June 30, 2006 were not material.

Restricted Stock Units

     Upon completion of its initial public offering, the Firm granted to a broad group of its employees and advisors and each of its independent directors’ restricted stock units with respect to which shares of the Firm’s common stock are deliverable. The allocation of these restricted stock units to the employees was determined on a discretionary basis and the grants to our independent directors were determined in accordance with our director compensation policy. These restricted stock units will vest in three equal installments on February 7, 2007, 2008 and 2009, subject to the employee’s continued employment with the Firm, but will vest earlier in the event of a change of control. After vesting, the shares of common stock underlying most of these restricted stock units will be deliverable in three equal installments on or about February 7, 2009, 2010 and 2011, respectively, but may be deliverable earlier in the event of a change in control.

     In addition to the grant of restricted stock units made in connection with completion of the Firm’s initial public offering, the Firm makes grants of restricted stock units from time to time in connection with its regular compensation and hiring process. Although the terms of individual grants vary, as a general matter, grants of restricted stock units made in connection with the Firm’s regular compensation and hiring process will vest over a four-year service period, subject to the employee’s continued employment with the Firm, and the shares of common stock underlying these restricted stock units will be deliverable on or about the related vesting date.

     The Firm recorded $1.9 million and $3.0 million in non-cash compensation expense for the three and six months ended June 30, 2006, respectively, with respect to grants of restricted stock units. After giving effect to our estimated actual federal and state tax rate of 42%, this resulted in $1.1 million and $1.7 million in after tax non-cash compensation expense for the three and six months ended June 30, 2006, respectively. For the three and six months ended June 30, 2005 there were no restricted stock units outstanding.

     A summary of non-vested restricted stock unit activity is presented below:

						Weighted Average
						Grant Date
		Shares				Fair Value
Non-vested, December 31, 2005			—			$	—
Issued			1,884,723				15.05
Vested			—				—
Cancelled			(36,751	)			15.00
Non-vested, June 30, 2006			1,847,972			$	15.05

     As of June 30, 2006 there was $19.8 million of total unrecognized compensation expense related to non-vested restricted stock unit awards. This cost is expected to be recognized over a weighted-average period of 2.6 years.

NOTE 11 — INCOME TAXES

     Prior to the reorganization of the Firm from a limited liability company to a corporation, all income and losses of the Firm were reportable by the individual members of the limited liability company in accordance with the Internal Revenue Code and, as required under generally accepted accounting principles, the U.S. federal and state income taxes payable by the members, based upon their share of the Firm’s net income, have not been reflected in the accompanying consolidated financial statements for periods prior to the reorganization. The Firm was liable for local unincorporated business tax on business conducted in New York City, City of San Francisco business tax and income tax on current income realized by its foreign subsidiary. Accordingly, the provisions for taxes for the three and six months ended June 30, 2005 of $0.8 million and $1.3 million, respectively, exclude U.S. federal and state income

taxes as the Firm operated in the U.S. as a limited liability company that was treated as a partnership for U.S. federal and state income tax purposes. In 2006, the provision for taxes includes solely federal, state and local corporate income and franchise tax.

     As a result of the reorganization, the Firm became a C Corporation subject to federal and state income taxes. The Firm accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities based upon temporary differences between the financial reporting and tax bases of its assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized. During the six months ended June 30, 2006, the Firm recognized a one-time tax benefit upon conversion to a C corporation of $13.8 million in connection with the establishment of its deferred tax asset balances of $22.4 million, partially offset by a valuation allowance of $8.6 million. The valuation allowance was recorded because management had concluded that a portion of the deferred tax benefit, which results from unrealized capital losses, more likely than not will not be realized due to the uncertainty of the Firm’s ability to generate future capital gains to offset such capital losses. For the three months ended June 30, 2006, capital gains of $2.1 million were recorded resulting in a decrease to the valuation allowance of $0.5 million and a corresponding 10.0% decrease to the effective tax rate.

     The components of the provision for taxes (tax benefit) for the three and six months ended June 30, 2006 are as follows (in thousands):

		Three months				Six months
		ended				ended
		June 30, 2006				June 30, 2006
Current:
Federal		$	1,442			$	2,979
State			613				1,144
Total current expense			2,055				4,123
Deferred:
Federal			(624	)			(10,284	)
State			(240	)			(3,479	)
Total deferred benefit			(864	)			(13,763	)
Total provision for taxes (tax benefit)		$	1,191			$	(9,640	)

     A reconciliation of the statutory federal income tax rate to the Firm’s effective tax rate for the three and six months ended June 30, 2006 is as follows:

		Three months				Six months
		ended				ended
		June 30, 2006				June 30, 2006
Tax at U.S. statutory rate			35.0	%			35.0	%
State tax expense			7.0				7.0
Adjustment for permanent items			(5.6	)			(1.0	)
Rate before adjustment to valuation allowance and one-time events			36.4	%			41.0	%
Adjustment to valuation allowance			(10.0	)			(3.0	)
Rate before one-time events			26.4	%			38.0	%
Earnings from nontaxable limited liability company through February 7, 2006			—				(9.9	)
Recognition of deferred tax asset upon change from a limited liability company to a taxable C Corporation			—				(92.4	)
Effective tax rate			26.4	%			(64.3	)%

As of June 30, 2006, the components of deferred tax assets and liabilities are as follows (in thousands):

Deferred tax assets:
Accrued compensation and related expenses		$	5,051
Equity based compensation			1,246
Depreciation and amortization			2,805
Nondeductible reserves and allowances			5,772
Net unrealized capital losses			8,118
Other			138
Total deferred tax assets			23,130
Deferred tax liabilities:
Prepaid expenses			(1,249	)
Total deferred tax liabilities			(1,249	)
Valuation allowance			(8,118	)
Net deferred tax asset		$	13,763

     The valuation allowance has been recorded because management has concluded that a portion of the tax benefit, which results from unrealized capital losses, more likely than not will not be realized due to the uncertainty of the Firm’s ability to generate future capital gains to offset such capital losses.

NOTE 12 — COMMITMENTS, GUARANTEES AND CONTINGENCIES

Commitments

Lease Commitments

     The Firm leases office space and computer equipment under noncancelable operating leases which extend to 2016 and which may be extended as prescribed under renewal options in the lease agreements. The Firm has entered into several noncancelable sub-lease agreements for certain facilities or floors of facilities for partial and full lease terms.

     As of June 30, 2006, the Firm’s minimum annual lease commitments and related sub-lease income were as follows (in thousands):

		Minimum								Net Minimum
		Lease				Sub-Lease				Lease
		Payments				Rental Income				Payments
July 1, 2006 through December 31, 2006		$	10,479			$	1,485			$	8,994
2007			20,668				2,027				18,641
2008			20,641				1,838				18,803
2009			20,339				1,088				19,251
2010			16,035				657				15,378
Thereafter			42,895				—				42,895
Total		$	131,057			$	7,095			$	123,962

     Office rent and computer equipment lease expenses charged to operations for the three months ended June 30, 2006 and 2005 were $4.9 million and $4.4 million, respectively. Office rent and computer equipment lease expenses charged to operations for the six months ended June 30, 2006 and 2005 were $9.7 million and $9.4 million, respectively.

     The Firm signed a forbearance agreement with the lessor of certain office space it occupies in San Francisco that provided a reduction in the rent payments from January 1, 2004 to March 16, 2005. The forbearance is to be reimbursed in the event the Firm merges with another entity or meets certain financial thresholds as described in the agreement. The Firm believes it is not probable

that the forbearance will be reimbursed in the foreseeable future. The maximum potential amount of future payments that could be required to be made is $3.3 million. There has been no liability recorded on the Firm’s consolidated statements of financial condition for this contingent obligation.

Fund Capital Commitments

     The Firm’s Asset Management Subsidiaries are the general partners and sponsors of several affiliated investment partnerships. At June 30, 2006, the Firm’s Asset Management Subsidiaries had commitments to invest an additional $5.2 million into these investment partnerships as set forth in the table below. Such commitments may be satisfied by direct investments or through waived management fee contributions and are generally required to be made as investment opportunities are identified by the underlying partnerships.

		As of
		June 30,
Fund Capital Commitments (in thousands):		2006
Tailwind Capital Partners		$	202
Thomas Weisel Venture Partners			76
Global Growth Partners I			2,070
Global Growth Partners II			2,042
Thomas Weisel Healthcare Venture Partners			780
Total Fund Capital Commitments		$	5,170

     In addition to the above commitments by the Firm’s Asset Management Subsidiaries, in March 2006, the Firm itself committed $15.0 million to an investment in an unaffiliated Mauritius private equity fund focused on infrastructure investing in India. This commitment may be called in full at any time, although the Firm currently anticipates the funding of this commitment will occur within the next three to four years. During the three months ended June 30, 2006, the Mauritius private equity fund called $0.7 million of this commitment, which was funded by the Firm. The remaining unfunded portion of this commitment as of June 30, 2006 is $14.3 million. The Firm currently anticipates transferring this investment and the related commitment to a private equity fund to be sponsored by the Firm, subject to the successful launch of such fund. This commitment is not reflected in the table above.

Guarantees

Broker-Dealer Guarantees and Indemnification

     The Firm’s customers’ transactions are introduced to the clearing broker for execution, clearance and settlement. Customers are required to complete their transactions on settlement date, generally three business days after the trade date. If customers do not fulfill their contractual obligations to the clearing broker, the Firm may be required to reimburse the clearing broker for losses on these obligations. The Firm has established procedures to reduce this risk by monitoring trading within accounts and requiring deposits in excess of regulatory requirements. In addition, the Firm has agreed to indemnify the clearing broker for certain other types of losses that may be incurred in connection with the provision of clearing and settlement services to the Firm. The Firm’s liability under these arrangements is not quantifiable. Accordingly, the Firm has not recorded any loss contingency for this indemnification.

     The Firm is a member of various securities exchanges. Under the standard membership agreement, members are required to guarantee the performance of other members and, accordingly, if another member becomes unable to satisfy its obligations to the exchange, all other members would be required to meet the shortfall. The Firm’s liability under these arrangements is not quantifiable and could exceed the cash and securities it has posted as collateral. However, management believes that the potential for the Firm to be required to make payments under these arrangements is considered remote. Accordingly, no contingent liability is carried in the accompanying consolidated statements of financial condition for these arrangements.

Guaranteed Compensation

     Consistent with practice in prior years, guaranteed compensation agreements were entered into during the three and six months ended June 30, 2006. These obligations are being accrued ratably over the service period of the contracts. Total unaccrued obligations at June 30, 2006 for services to be provided subsequent to June 30, 2006 were $5.9 million, of which $1.0 million, $4.6 million and $0.3 million is to be paid in 2006, 2007 and 2008, respectively.

Director and Officer Indemnification

     In connection with the initial public offering of Thomas Weisel Partners Group, Inc. on February 7, 2006, the Firm entered into agreements that provide indemnification to its directors, officers and other persons requested or authorized by the Board to take

actions on behalf of the Firm for all losses, damages, costs and expenses incurred by the indemnified person arising out of such person’s service in such capacity, subject to the limitations imposed by Delaware law. The Firm has not recorded any loss contingency for this indemnification.

Tax Indemnification Agreement

     In connection with the initial public offering, the Firm entered into a tax indemnification agreement to indemnify the members of Thomas Weisel Partners Group LLC against the full amount of certain increases in taxes that relate to activities of Thomas Weisel Partners Group LLC and its affiliates prior to the Firm’s initial public offering. The tax indemnification agreement included provisions that permit the Firm to control any tax proceeding or contest which might result in it being required to make a payment under the tax indemnification agreement. The Firm has not recorded any loss contingency for this indemnification.

Contingencies

Loss Contingencies

     The Firm is involved in a number of judicial, regulatory and arbitration matters arising in connection with its business, including those listed below. The outcome of matters the Firm is involved in cannot be determined at this time, and the results cannot be predicted with certainty. There can be no assurance that these matters will not have a material adverse effect on the Firm’s results of operations in any future period and a significant judgment could have a material adverse impact on the Firm’s financial condition, results of operations and cash flows. The Firm may in the future become involved in additional litigation in the ordinary course of its business, including litigation that could be material to the Firm’s business.

     In accordance with SFAS No. 5, Accounting for Contingencies, the Firm reviews the need for any loss contingency reserves and establishes reserves when, in the opinion of management, it is probable that a matter would result in liability, and the amount of loss, if any, can be reasonably estimated. Generally, with respect to matters the Firm is involved in, in view of the inherent difficulty of predicting the outcome of these matters, particularly in cases in which claimants seek substantial or indeterminate damages, it is not possible to determine whether a liability has been incurred or to reasonably estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case no reserve is established until that time.

     In re Initial Public Offering Securities Litigation — The Firm is a defendant in several purported class actions brought against numerous underwriters in connection with certain initial public offerings in 1999 and 2000. These cases have been consolidated in the United States District Court for the Southern District of New York and generally allege that underwriters accepted undisclosed compensation in connection with the offerings, entered into arrangements designed to influence the price at which the shares traded in the aftermarket and improperly allocated shares in these offerings. The actions allege violations of federal securities laws and seek unspecified damages. Of the 310 issuers named in these cases, the Firm acted as a co-lead manager in one offering, a co-manager in 32 offerings, and as a syndicate member in 10 offerings. The Firm has denied liability in connection with these matters. On June 10, 2004, plaintiffs entered into a definitive settlement agreement with respect to their claims against the issuer defendants and the issuers’ present or former officers and directors named in the lawsuits. On June 14, 2004, those parties jointly moved for approval of the proposed settlement. By a decision dated October 13, 2004, the federal district court granted plaintiffs’ motion for class certification, and the underwriter defendants have petitioned the U.S. Court of Appeals for the Second Circuit to review that certification decision. The Second Circuit granted that petition, oral arguments have been made and the Court’s decision is pending. The Firm believes it has meritorious defenses to these actions and intends to vigorously defend such actions as they apply to the Firm.

     Research Matters — During 2004, the Firm entered into a settlement with the SEC, NYSE, NASD and various state securities regulators to resolve charges that a portion of our research was improperly influenced in order to obtain investment banking business in violation of federal or state securities law. During the year ended December 31, 2004, we settled the matter with the various regulators for a total of $10 million in fines and disgorgement and $2.5 million for the provision of independent research over a five-year period. These settlement amounts had previously been accrued by the Firm during the year ended December 31, 2002. Additionally, in 2004, the Firm escrowed $1.25 million to pay costs associated with an independent consultant to procure the independent research noted above. Such costs will be expensed by the Firm as they are incurred. On February 14, 2006, Newline Corporate Name Ltd. (UK), a member of the syndicate that underwrote our investment banking errors and omissions insurance policy, filed a complaint seeking declaratory relief regarding insurance obligations in connection with this matter and seeking repayment of approximately $3.8 million of amounts previously disbursed to the Firm in connection with this settlement. The Firm believes it has meritorious defenses to these actions and intends to vigorously defend against them.

     In re Friedman’s Inc. Securities Litigation — In September 2003, the Firm acted as lead manager on a follow-on offering of common stock of Friedman’s Inc. Plaintiffs have filed a purported class action suit against Friedman’s and its directors, senior officers and outside accountant as well as Friedman’s underwriters, including the Firm, in the United States District Court for the Northern District of Georgia, alleging that the registration statement for the offering and a previous registration statement dated February 2,

2002 were fraudulent and materially misleading because they overstated revenue and inventory, understated allowances for uncollectible accounts, and failed to properly account for impairment of a particular investment. Friedman’s is currently operating its business in bankruptcy. The Firm has denied liability in connection with this matter. A consolidated amended complaint has been filed in this matter. On September 7, 2005, the court denied the underwriters’ motion to dismiss. The Firm believes it has meritorious defenses to these actions and intends to vigorously defend such actions as they apply to the Firm.

     In re Tellium, Inc. Securities Litigation — The Firm is a defendant in a purported class action litigation brought in connection with Tellium, Inc.’s initial public offering in May 2001. The most recent amended complaint, filed in the United States District Court for the District of New Jersey, alleges claims for securities fraud against Tellium and certain of its directors and senior officers as well as Tellium’s underwriters, including the Firm and one of its former employees. The Firm has denied liability in connection with this matter. On June 30, 2005, the court entered an order that dismissed all of the claims against the Firm and the former employee of the Firm, except for a claim limited to an alleged misstatement in the registration statement relating to the relationship between Tellium and one of its customers. With respect to the remaining claim, on May 19, 2006 the parties, including the Firm, entered into a proposed settlement to resolve the claim, which proposed settlement would not require the Firm to make any settlement payment. The proposed settlement remains subject to several contingencies, including final court approval, which may not be obtained or satisfied. In the event that the proposed settlement is not finalized, the Firm believes that it has meritorious defenses to these actions and would continue to vigorously defend such actions as they apply to the Firm.

     In re AirGate PCS, Inc. Securities Litigation — The Firm is a defendant in a purported class action litigation brought in connection with a secondary offering of AirGate PCS, Inc. in December 2001. The complaint, filed in the United States District Court for the Northern District of Georgia on May 17, 2002, alleges violations of federal securities laws against AirGate and certain of its directors and officers as well as AirGate’s underwriters, including the Firm, based on alleged misstatements and omissions in the registration statement. The underwriters’ motion to dismiss was granted by the court in September 2005. The Firm believes it has meritorious defenses to these actions and intends to vigorously defend such actions as they apply to the Firm should these claims be reasserted.

     In re First Horizon Pharmaceutical Corporation Securities Litigation — The Firm is a defendant in a purported class action litigation brought in connection with a secondary offering of First Horizon Pharmaceutical Corporation in April 2002. The consolidated amended complaint, filed in the United States District Court for the Northern District of Georgia on September 2, 2003, alleges violations of federal securities laws against First Horizon and certain of its directors and officers as well as First Horizon’s underwriters, including the Firm, based on alleged false and misleading statements in the registration statement and other documents. The underwriters’ motion to dismiss was granted by the court in September 2004. The plaintiffs have appealed to the United States Court of Appeals for the 11th Circuit. The Firm believes it has meritorious defenses to these actions and intends to vigorously defend such actions as they apply to the Firm.

     In re Merix Securities Litigation — The Firm is a defendant in a purported class action suit brought in connection with an offering involving Merix Corporation in which it served as co-lead manager for Merix. Plaintiffs have filed suit against Merix and certain of its directors and senior officers as well as Merix’s underwriters, alleging false and misleading statements in the registration statement. On September 15, 2005, the United States District Court for the District of Oregon entered an order dismissing all claims against the underwriter defendants, including the Firm, and the Merix defendants. A portion of the claim under Section 12(a)(2) of the Securities Exchange Act of 1934 was dismissed with prejudice, and the remainder of that claim and the Section 11 claim were dismissed with leave to re-file. Plaintiffs have subsequently filed an amended complaint. The Firm has denied liability in connection with this matter. The Firm believes it has meritorious defenses to these actions and intends to vigorously defend such actions as they apply to the Firm.

     Borghetti v. Campus Pipeline — A putative shareholder derivative action was brought in the Third Judicial District Court in Salt Lake County, Utah on October 5, 2004 against Campus Pipeline in connection with a sell-side mergers and acquisitions engagement in which the Firm acted as a financial advisor to Campus Pipeline. Plaintiffs alleged breach of fiduciary duty, fraud and similar related claims against Campus Pipeline’s directors, officers, attorneys and the Firm. On May 3, 2005, the court granted in part and denied in part the Firm’s motion to dismiss, dismissing all claims against us except the breach of fiduciary duty claim. The Firm has denied liability in connection with this matter. The Firm believes it has meritorious defenses to these actions and intends to vigorously defend such actions as they apply to the Firm.

     In re Leadis Technology, Inc. Securities Litigation. The Firm has been a defendant in a purported class action litigation brought in connection with Leadis Technology, Inc.’s initial public offering in June 2004. The consolidated complaint, filed in the United States District Court for the Northern District of California on August 8, 2005, alleged violations of federal securities laws against Leadis and certain of its directors and officers as well as the company’s underwriters, including the Firm, based on alleged misstatements and omissions in the registration statement. On March 1, 2006 the complaint against the Firm in this matter was

dismissed by the court with prejudice. Subsequently, on March 28, 2006, the plaintiffs in this matter appealed the dismissal. The Firm believes it has meritorious defenses to these actions and intends to vigorously defend against them.

     IRS Information Requests Relating to Tax Products — The Firm has received requests for information from the Internal Revenue Service, or IRS, regarding its referrals of clients to a third-party provider of tax products in 1999, 2000 and 2001. The Firm has cooperated with these requests and believes to have complied with all material regulatory requirements as a referring party. The IRS has recently extended offers of settlement to promoters and organizers of similar tax planning products. The Firm has also received one of these offers of settlement, which contains a methodology for potential resolution of this matter, but the Firm continues to believe that it was a referring party and not a promoter or organizer of these tax products. However, if the IRS subsequently charges that these products were “tax shelters” and that the Firm was required to make certain disclosures and registrations as a promoter or organizer of these tax products, the Firm could be liable for monetary penalties. The Firm believes it has substantial support for its position and intends to vigorously defend against any alleged penalties should they be assessed.

     In re Vonage Holdings Corp. Securities Litigation — The Firm is a defendant named in purported class action lawsuits filed in June 2006 arising out of the May 2006 initial public offering of Vonage Holdings Corp. The complaints, filed in the United States District Court for the District of New Jersey and in the Supreme Court of the State of New York, County of Kings, allege misuse of Vonage’s directed share program and violations of federal securities laws against Vonage and certain of its directors and senior officers as well as Vonage’s underwriters, including the Firm, based on alleged false and misleading statements in the registration statement and prospectus. The Firm believes it has meritorious defenses to these actions and intends to vigorously defend such actions as they apply to the Firm.

     In Re SeraCare Life Sciences, Inc. Securities Litigation — The Firm has been named a defendant in a purported class action lawsuit filed in July 2006 arising out of alleged false and misleading financial statements issued between 2003 and 2006 by SeraCare Life Sciences, Inc. The complaint was filed in the United States District Court for the Southern District of California, and alleges violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 against certain of SeraCares’s current and former officers and directors, its former auditor, and its controlling shareholders and investment bankers, including the Firm due to the Firm having been a co-manager of SeraCare’s 2005 secondary offering of common stock. SeraCare has disclosed that it filed for bankruptcy in March 2006. The Firm believes it has meritorious defenses to these actions and intends to vigorously defend such actions as they apply to the Firm.

NOTE 13 — FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, CREDIT RISK OR MARKET RISK

Concentration of Credit Risk and Market Risk

     The majority of TWP’s transactions, and consequently the concentration of its credit exposure, is with its clearing broker. The clearing broker is also the primary source of short-term financing for both securities purchased and securities sold, not yet purchased for the Firm. TWP’s securities owned may be pledged by the clearing broker. The amount receivable from or payable to the clearing broker in the Firm's consolidated statements of financial condition represents amounts receivable or payable in connection with the trading of proprietary positions and the clearance of customer securities transactions. As of June 30, 2006 and as of December 31, 2005, TWP’s cash on deposit with the clearing broker was not collateralizing any liabilities to the clearing broker.

     In addition to the clearing broker, TWP is exposed to credit risk from other brokers, dealers and other financial institutions with which it transacts business. In the event counterparties do not fulfill their obligations, TWP may be exposed to credit risk. TWP seeks to control credit risk by following an established credit approval process and monitoring credit limits with counterparties.

     TWP’s trading activities include providing securities brokerage services to institutional and retail clients. To facilitate these customer transactions, TWP purchases proprietary securities positions (“long positions”) in equity securities, convertible and other fixed income securities. TWP also enters into transactions to sell securities not yet purchased (“short positions”), which are recorded as liabilities on the statements of financial condition. TWP is exposed to market risk on these long and short securities positions as a result of decreases in market value of long positions and increases in market value of short positions. Short positions create a liability to purchase the security in the market at prevailing prices. Such transactions result in off-balance sheet market risk as TWP’s ultimate obligation to satisfy the sale of securities sold, not yet purchased may exceed the amount recorded in the statements of financial condition. To mitigate the risk of losses, these securities positions are marked to market daily and are monitored by management to assure compliance with limits established by TWP. The associated interest rate risk of these securities is not deemed material to TWP. Brokerage revenue is primarily attributable to commissions paid by customers from brokerage transactions in equity and convertible debt securities, net trading gains and losses and advisory fees paid to the Firm in the Firm’s private client services group.

     The Firm is also exposed to market risk through its investments in partnership investments and through certain loans to employees collateralized by such investments.

     In addition, as part of our asset management activities, and generally in connection with the development of new asset management products, the Firm from time to time takes long and short positions in publicly traded equities and related options and other derivative instruments and makes private equity investments, all of which expose the Firm to market risk. These activities are subject, as applicable, to risk guidelines and procedures designed to manage and monitor market risk.

     Included in accrued compensation is an employment agreement whose value is indexed to publicly traded shares of an unrelated entity. This agreement is considered a derivative under applicable GAAP and, accordingly, is being marked to market through compensation and benefits expense in the statements of operations. The fair value of this derivative is $2.4 million and $2.1 million at June 30, 2006 and December 31, 2005, respectively. The Firm has also reduced its exposure to fluctuations in the

underlying security by purchasing an identical number of shares of the underlying security. In accordance with the Firm’s stated accounting policy, these shares are carried at market value with fluctuations in value reflected in brokerage revenues in the statements of operations.

NOTE 14 — REGULATED SUBSIDIARIES

     TWP is a registered U.S. broker-dealer that is subject to the Uniform Net Capital Rule (the “Net Capital Rule”) under the Securities Exchange Act of 1934 administered by the SEC and NYSE, which requires the maintenance of minimum net capital. TWP has elected to use the alternative method to compute net capital as permitted by the Net Capital Rule, which requires that TWP maintain minimum net capital, as defined, of $1.0 million. These rules also require TWP to notify and sometimes obtain approval from the SEC and NYSE for significant withdrawals of capital or loans to affiliates.

     Under the alternative method, a broker-dealer may not repay subordinated borrowings, pay cash dividends or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar amount requirement.

     The table below summarizes the net capital requirement at June 30, 2006 for TWP (in thousands):

		June 30, 2006
		Required								Excess
		Net Capital				Net Capital				Net Capital
Thomas Weisel Partners LLC		$	1,000			$	32,741			$	31,741

     In addition, TWPIL, a registered U.K. broker-dealer, is subject to the capital requirements of the Securities and Futures Authority Limited. As of June 30, 2006, TWPIL was in compliance with its local capital adequacy requirements.

NOTE 15 — SUBORDINATED BORROWINGS

     In 2005, the Firm put in place a new subordinated borrowing facility in the amount of $40.0 million with National Financial Services LLC, the clearing broker to which the Firm transferred its clearing activities in the three months ended June 30, 2006. The facility is in the form of a revolving note and cash subordination agreement. The terms of the revolving note are defined in an agreement approved by the NYSE and such borrowings, if drawn upon, are available to the Firm in computing net capital under the Net Capital Rule. To the extent that this note would be required for the Firm’s continued compliance with minimum net capital requirements (see Note 14 — Regulated Subsidiaries), it may not be repaid. No amounts were drawn on the facility during the six months ended June 30, 2006.

NOTE 16 — PRO FORMA, AS ADJUSTED

     The Firm completed its initial public offering on February 7, 2006 and converted to a C corporation from a limited liability company on this date. This conversion was the result of a series of reorganization transactions that were carried out to cause Thomas Weisel Partners Group, Inc. to succeed to the business of the Thomas Weisel Partners Group LLC (also see Note 1 — Organization and Basis of Presentation). The pro forma, as adjusted amounts presented on the face of the Firm’s consolidated statements of operations are based upon the Firm’s historical consolidated financial statements as adjusted to reflect the reorganization transactions as though they had taken place on January 1, 2006.

Interest expense, preferred dividends and accretion

     The pro forma, as adjusted information included in the consolidated statements of operations reflects interest expense that would have been incurred and preferred dividends and accretion that would not have been incurred had the following taken place on January 1, 2006:

	•		the issuance of common stock in exchange for all of the Class A members’ interests and all of the Class C convertible preference stock;
	•		the issuance of common stock, a $10.0 million principal unsecured, senior floating-rate note and a $10.0 million principal unsecured, senior non-interest bearing note in exchange for all of the Class D convertible preference stock;

•

the issuance of common stock, a $13 million principal unsecured, senior floating-rate note and a warrant, with a fair value of $4.6 million determined by applying the Black-Scholes option pricing model with an exercise price of $15 based on the initial public offering price of $15 per share, for the purchase of 486,486 of the Firm’s common shares.

          On a pro forma basis, net revenues for the six months ended June 30, 2006 were decreased by the estimated interest expense for the notes payable of $0.1 million. In addition, net income attributable to common shareholders was increased by $1.6 million to reflect the elimination of preferred dividends and accretion.

Income taxes

          The pro forma, as adjusted information included in the consolidated statements of operations reflects income taxes that would have been incurred had the Firm been converted to a C corporation and subjected to tax on its income beginning January 1, 2006. Prior to the reorganization of the Firm from a limited liability company to a corporation, all income and losses of the Firm were reportable by the individual members of the limited liability company in accordance with U.S. federal and state income tax regulations.

          On a pro forma basis, tax benefit for the six months ended June 30, 2006 was decreased by the estimated additional tax expense of $1.5 million as if the Firm was a corporation beginning January 1, 2006. The additional tax expense is attributable to the Firm’s estimated actual tax rate, a combination of federal, state and local income tax rates, of 42% applied to the Firm’s pro forma net income for the period beginning January 1, 2006 through February 6, 2006.

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

          The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of events may differ significantly from those projected in forward-looking statements due to a number of factors, including those set forth in Item 1A — “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, as supplemented and amended by the risks outlined under Part II, Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q. See “Where You Can Find More Information” on page -ii- of this Quarterly Report on Form 10-Q.

Overview

          We are an investment bank focused principally on the technology, healthcare and consumer sectors of the economy, which we refer to as our target sectors. We were founded in 1998 and initially capitalized through investments from our founding partners and more than 20 venture capital and private equity firms.

          On February 7, 2006, Thomas Weisel Partners Group, Inc. succeeded to the business of Thomas Weisel Partners Group LLC and completed an initial public offering of its common stock.

          Our business is managed as a single operating segment and we generate revenues by providing investment services that include securities brokerage, investment banking, equity research and asset management. Our brokerage group provides equity and convertible debt securities sales and trading services to institutional investors, and offers brokerage, advisory and cash management services to high-net-worth individuals and corporate clients. Our investment banking group is comprised of two disciplines: corporate finance and strategic advisory. Our asset management group is divided into two units: private equity and distribution management.

          Our focus on our target sectors exposes us to volatility and trends in these sectors, independent of general securities market conditions and economic trends, although we are also exposed to volatility and trends in the general securities market and to general economic trends. Since our firm was founded in 1998, the U.S. economy in general, and our target sectors in particular, have experienced periods of expansion and contraction, as well as periods of uncertainty and cautious optimism. Notwithstanding this exposure to volatility and trends in our target sectors, in order to provide value to our clients we have made a long-term commitment to maintaining a substantial, full-service integrated business platform.

Revenues

          Our revenues and results of operations depend on a number of market factors. These factors include market conditions and valuations for companies in the technology, healthcare and consumer sectors, as well as general securities market conditions. Trends in the securities markets are also affected by general economic trends, including fluctuations in interest rates, flows of funds into and out of the markets and other conditions. In addition to these market factors, our revenues from period to period are substantially affected by the timing of transactions in which we are involved. Fees for many of the services we provide are earned only upon the

completion of a transaction. Accordingly, our results of operations in any individual year or quarter may be affected significantly by whether and when significant transactions are completed.

     Brokerage

          Our brokerage revenues include (i) commissions paid by customers from brokerage transactions in listed and over-the-counter, or OTC, equity and convertible debt securities, (ii) trading gains and losses which result from market making activities and from our commitment of capital to facilitate customer transactions, (iii) advisory fees paid to us by high-net-worth individuals and institutional clients of our private client services group, which are generally based on the value of the assets we manage and (iv) fees paid to us for equity research.

          Our brokerage revenues may vary between periods, in part depending on commission rates, trading volumes and the perceived value of and our ability to continue to deliver research and other value-added services we provide to our clients. The ability to execute trades electronically, through the Internet and through other alternative trading systems, have increased pricing pressure on full-service trading commissions and we expect the trend toward alternative trading systems to continue to put pricing pressure on trading commissions in our brokerage business.

          For the three months ended June 30, 2006 the combined average daily volume on the New York Stock Exchange and Nasdaq was approximately 3.7 billion shares, a 1% increase from the three months ended March 31, 2006. By way of comparison, our combined average daily customer trading volume (listed and OTC) for the three months ended June 30, 2006 decreased from the three months ended March 31, 2006. This decline in our combined average daily customer trading volume both in absolute terms and as compared to the market as a whole is due in large part to declines in the volume of shares we traded for some of our historically largest brokerage customers. These declines contributed to reduced brokerage revenues in the three months ended June 30, 2006 and may be due to increased use of alternative trading systems by our customers, as discussed in the paragraph above, to decreased trading in growth sector stocks by our customers (which may, in turn, be due to market declines in growth sector stocks) or to other factors. We are not certain whether or when our customer trading volumes or brokerage revenues will return to levels we experienced in prior periods.

          We are, to some extent, compensated by our clients through brokerage commissions for the value of the proprietary research we provide to our customers. These “soft dollar” practices (i.e., arrangements under which an investment adviser directs client brokerage transactions to a broker in exchange for research products or services in addition to brokerage services) have been the subject of discussion among regulators, the investment banking community and our brokerage clients. Recently, in July 2006, the SEC published interpretive guidance regarding the scope of permitted brokerage and research services in connection with soft dollar practices and solicited further public comment regarding soft dollar practices involving third party providers of research. Although we do not believe that the July 2006 SEC interpretive guidance will materially affect our brokerage business, we cannot predict whether it or future changes in laws or regulations may prompt brokerage customers to revisit or alter the manner in which they pay for research or brokerage services.

          In March 2006, we entered into an arrangement with Fidelity Management & Research Company, one of our largest institutional brokerage clients in terms of commission revenue, under which Fidelity will separate payments for research products or services from trading commissions for brokerage services and will pay for research directly in cash, instead of compensating us through trading commissions as under soft dollar practices. Since entering into this agreement, our brokerage revenues from Fidelity have materially decreased compared to 2005 and we do not currently anticipate a return to 2005 levels. If other institutional brokerage clients adopt similar practices in the future, there may be additional pricing pressure on trading commissions and the value our clients place on high-quality research may fall, both of which would likely reduce our brokerage revenues.

          As of June 30, 2006, we had 34 publishing research analysts covering 526 companies, or an average of approximately 15 companies per publishing analyst. For the three months ended June 30, 2006, our average daily brokerage revenues were $0.47 million as compared to $0.55 million for the three months ended March 31, 2006.

     Investment Banking

          Our investment banking revenues include (i) management fees, underwriting fees, selling concessions and agency placement fees earned through our participation in public offerings and private placements of equity and convertible debt securities and (ii) fees earned as strategic advisor in mergers and acquisitions and similar transactions. Investment banking revenues are typically recognized at the completion of each transaction. As a result, our investment banking revenues have and likely will continue to vary significantly between periods. Our investment banking engagements typically relate to only one potential transaction and do not provide us with long-term contracted sources of revenue. Underwriting revenues are presented net of related expenses. Unreimbursed expenses associated with private placement and advisory transactions are recorded as non-compensation expenses.

          Our investment banking revenues are, to some extent, driven by the overall level of capital raising activity in the marketplace and, in particular, in our target sectors. For the three months ended June 30, 2006, the technology, healthcare and consumer sectors generated significant capital markets activity.

	•		For the three months ended June 30, 2006, based on information from Dealogic, securities offerings by companies in our target sectors accounted for approximately $21.5 billion of gross proceeds raised in U.S. equity capital markets transactions, including IPOs, secondary offerings and convertible debt securities offerings, or 43.1% of the $50.0 billion of aggregate gross proceeds raised in U.S. equity capital markets transactions. By comparison, (i) during 2005 the quarterly average of these gross proceeds in our target sectors was $17.0 billion, or 38.4% of the $44.2 billion of aggregate quarterly average gross proceeds raised in the market as a whole and (ii) during the three months ended March 31, 2006 these gross proceeds in our target sectors were $27.7 billion, or 55.8% of the $49.7 billion of aggregate gross proceeds raised in the market as a whole.
	•		Based on information from Dealogic, for the three months ended June 30, 2006, total fees generated from equity capital markets transactions, including IPOs, secondary offerings and convertible debt securities offerings, by companies in our target sectors were $710 million. By comparison, based on information from Dealogic, (i) during 2005 the quarterly average of these total fees by companies in our target sectors were $630 million and (ii) during the three months ended March 31, 2006, these total fees generated by companies in our target sectors were $930 million.

          Our investment banking revenues are also, to some extent, driven by the overall level of mergers and acquisitions activity in the marketplace and, in particular, in our target sectors. In the three months ended June 30, 2006, the technology, healthcare and consumer sectors that we target generated significant mergers and acquisitions activity.

	•		For the three months ended June 30, 2006, based on information from Securities Data Corp., there were approximately 338 announced acquisitions and mergers of U.S. companies in our target sectors, or 55% of the approximately 617 announced transactions in all market sectors. By comparison, (i) during 2005 the quarterly average of the number of announced acquisitions and mergers of U.S. companies in our target sectors was 278, or 53% of the approximately 524 announced transactions in all market sectors and (ii) during the three months ended March 31, 2006, the number of acquisitions and mergers of U.S. companies in our target sectors was 267, or 54% of the approximately 493 announced transactions in all market sectors.
	•		Based on information from Securities Data Corp., for the three months ended June 30, 2006 the total value of announced acquisitions and mergers of U.S. companies in our target sectors was approximately $180 billion, or 49% of the approximately $368 billion total value of all such announced transactions. By comparison, (i) during 2005 the quarterly average of the total value of such announced transactions in our target sectors was approximately $141 billion, or 52% of the approximately $269 billion total value of all such announced transactions and (ii) during the three months ended March 31, 2006 the total value of such announced transactions in our target sectors (excluding the $89.4 billion BellSouth/AT&T merger) was approximately $106 billion, or 35% of the approximately $300 billion total value of all such announced transactions (excluding the $89.4 billion BellSouth/AT&T merger).

          We also believe that historical venture capital investment is an important indicator of future investment banking activity in our target sectors because venture capital investors typically seek to realize returns on their investments through subsequent public offerings or sales of portfolio companies within a target investment period, typically a period of years. Over the period from 1996 through March 31, 2006, approximately 34% of companies that completed IPOs were funded by venture capital firms and more than 90% of all U.S. venture capital investments were made in technology, healthcare and consumer companies.

U.S. Venture Capital Investment
(1996-1st Quarter 2006)

																																										1st
																																										Quarter
		1996				1997				1998				1999				2000				2001				2002				2003				2004				2005				2006
		($ in billions)
Total amount invested			$9.9			$	13.0			$	17.7			$	48.5			$	91.9			$	34.8			$	21.1			$	18.5			$	20.6			$	21.1				$5.6
Sector Distribution
Technology			54	%			57	%			58	%			57	%			65	%			66	%			63	%			58	%			57	%			57	%			60	%
Healthcare			27	%			25	%			20	%			10	%			10	%			19	%			27	%			32	%			33	%			31	%			26	%
Consumer			17	%			16	%			21	%			32	%			24	%			14	%			8	%			9	%			8	%			10	%			11	%
Other			2	%			2	%			1	%			1	%			1	%			1	%			2	%			1	%			2	%			2	%			3	%

Source: Dow Jones VentureOne

          Over the past three full calendar years, we estimate that, at any given time, there have been approximately 5,000 companies in the portfolios of venture capital firms.

     Asset Management

          Our asset management revenues include (i) private equity management revenue consisting of fees that we earn from investment partnerships we manage, allocation of the appreciation and depreciation in the fair value of our investments in the underlying partnerships and incentive fee allocations from the partnerships we manage when investment returns exceed certain thresholds, (ii) distribution management revenue that we earn from the management of equity distributions received by our clients from their investments and (iii) other asset management-related realized and unrealized gains and losses on investments not associated with investment partnerships, primarily equity securities.

          Private equity management fees that we earn are generally based on committed capital or net assets of the partnerships. In certain investment partnerships we have elected to waive receipt of management fees in lieu of making direct cash capital contributions. These waived management fees are treated as deemed contributions by us to the partnerships, satisfy the capital commitments to which we would otherwise be subject as general partner and are recognized in revenue when the investment partnership generates gains and allocates the gains to the general partner in respect of previously waived management fees. Because waived management fees are contingent upon the recognition of gains by the investment partnership, the recognition in revenue is deferred until the contingency is satisfied in accordance with generally accepted accounting principles. The total amount of management fees that were waived in lieu of making cash capital contributions was $0.6 million and $0.6 million for the three months ended June 30, 2006 and 2005, respectively. The total amount of management fees that were waived in lieu of making cash capital contributions was $1.7 million and $1.2 million for the six months ended June 30, 2006 and 2005, respectively. Accordingly, these amounts were not recognized in revenue. As of June 30, 2006, we estimate the total maximum amount of waived management fees available to be recognized as revenue in the future is approximately $13.8 million, assuming the underlying investment partnerships with respect to which we have waived management fees each have a positive return on contributed capital in the future. Should this remaining amount be realized, we expect it would be recorded incrementally over a number of years. If the partnerships do not recognize investment gains we will not recognize any of these waived management fees in revenues.

          We have entered into a preliminary agreement with certain of our current employees responsible for the management of Thomas Weisel Healthcare Venture Partners L.P., a venture fund investing in healthcare portfolio companies, under which these employees would depart and establish a third-party investment management company to provide sub-advisory management services to the fund. The completion of the transaction is subject to satisfaction of certain conditions. Under the agreement we would continue to be the general partner responsible for the fund and entitled to receive management fees, our carried interest and our capital account in the fund and would pay a sub-advisory fee to the new sub-advisor.

          During the three months ended March 31, 2006 we committed approximately $15 million to an investment in an unaffiliated Mauritius private equity fund focused on infrastructure investing in India. This commitment may be called in full at any time. As of June 30, 2006 approximately $0.7 million of this commitment has been funded by us and we currently anticipate the funding of the remainder of this commitment will occur within the next three to four years. We currently anticipate transferring this investment and the related commitment to a private equity fund to be sponsored by us, subject to the successful launch of such fund.

     Interest and Dividends

          Interest and dividend income primarily consists of interest and dividends on trading and investment securities and net interest on balances maintained in proprietary accounts at our clearing firm. These assets included money market instruments, short-term investment products, U.S. Government securities and margin debit balances with the clearing broker.

Expenses

     Compensation and Benefits