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 March 31, 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. R Yes £ 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 £            Accelerated filer £           Non-accelerated filer R

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

     As of May 5, 2006 there were 22,261,710 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 Statement of Financial Condition			1
Consolidated Statement of Operations			2
Consolidated Statement of Changes in Shareholders’ and Members’ Equity (Deficit)			3
Consolidated Statement 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			9
Note 6 - Other Investments			9
Note 7 - Related Party Transactions			9
Note 8 - Notes Payable			10
Note 9 - Earnings Per Share			12
Note 10 - Share-Based Compensation			14
Note 11 - Income Taxes			16
Note 12 - Commitments, Guarantees and Contingencies			18
Note 13 – Financial Instruments with Off-Balance Sheet Risk, Credit Risk or Market Risk			23
Note 14 - Regulated Subsidiaries			24
Note 15 - Subordinated Borrowings			24
Note 16 - Subsequent Events			24
Note 17 - Pro Forma, As Adjusted			25
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
3. Quantitative and Qualitative Disclosures About Market Risk			47
4. Controls and Procedures			47
PART II. OTHER INFORMATION
1. Legal Proceedings			48
1A. Risk Factors			48
2. Unregistered Sales of Equity Securities and Use of Proceeds			49
3. Defaults Upon Senior Securities			49
4. Submission of Matters to a Vote of Security Holders			49
5. Other Information			49
6. Exhibits			50
SIGNATURES			S-1
EXHIBIT INDEX			E-1
EXHIBIT 10.12
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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.

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” 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. 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 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 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 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 in the long-term market opportunity for our services; and
•		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 and funds anticipated to be provided by operating activities in 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.

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 )

		March 31,				December 31,
		2006				2005
ASSETS
Cash and equivalents		$	116,809			$	90,193
Restricted cash and cash required to be segregated under Federal or other regulations			8,675				10,517
Securities owned — at market value			112,191				98,527
Receivable from clearing broker			—				9,555
Corporate finance and syndicate receivables (net of allowance for doubtful accounts of $74 at March 31, 2006 and $0 at December 31, 2005)			17,214				10,479
Investments in partnerships and other securities			38,868				38,920
Other investments			36,602				4,632
Property and equipment, net			28,505				29,600
Receivables from related parties (net of allowance for doubtful loans of $3,316 at March 31, 2006 and $3,316 at December 31, 2005)			3,484				4,911
Deferred tax assets, net of valuation allowance			12,899				—
Other assets			14,139				15,489
Total assets		$	389,386			$	312,823
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERENCE STOCK, SHAREHOLDERS’ AND MEMBERS’ EQUITY (DEFICIT)
Liabilities:
Securities sold, but not yet purchased — at market value		$	89,651			$	84,986
Payable to clearing broker			2,207				—
Payables to customers			2,098				3,343
Accrued compensation			26,352				42,889
Accrued expenses and other liabilities			58,906				48,671
Capital lease obligations			385				445
Notes payable			38,369				19,094
Total liabilities			217,968				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, 22,261,710 and 0 shares issued and outstanding at March 31, 2006 and December 31, 2005, respectively			223				—
Additional paid-in capital			270,321				—
Retained earnings (accumulated deficit)			(98,820	)			(136,530	)
Accumulated other comprehensive income (loss)			(306	)			(309	)
Total shareholders’ and members’ equity (deficit)			171,418				(110,397	)
Total liabilities, redeemable convertible preference stock, shareholders’ and members’ equity (deficit)		$	389,386			$	312,823

See accompanying notes to unaudited condensed consolidated financial statements.

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

		Three Months Ended
		March 31,
		2006				2005
Revenues:
Brokerage		$	34,387			$	35,873
Investment banking			36,494				16,285
Asset management			6,953				7,920
Interest income			2,212				1,071
Total revenues			80,046				61,149
Interest expense			(2,069	)			(1,186	)
Net revenues			77,977				59,963
Expenses excluding interest:
Compensation and benefits			41,937				40,829
Floor brokerage and trade execution			6,696				7,186
Communications and data processing			4,349				4,637
Depreciation and amortization			2,354				2,336
Marketing and promotion			2,933				3,477
Occupancy and equipment			4,660				3,345
Other expense			4,570				3,890
Total expenses			67,499				65,700
Income (loss) before taxes			10,478				(5,737	)
Provision for taxes (tax benefit)			(10,831	)			464
Net income (loss)			21,309				(6,201	)
Preferred dividends and accretion:
Class D redeemable convertible shares			(710	)			(1,750	)
Class D-1 redeemable convertible shares			(380	)			(938	)
Accretion of Class C redeemable preference stock			(518	)			(1,344	)
Net income (loss) attributable to common shareholders and to class A, B and C shareholders		$	19,701			$	(10,233	)
Earnings per share:
Basic earnings per share		$	0.97				—
Diluted earnings per share		$	0.96				—
Weighted average shares used in computation of per share data:
Basic weighted average shares outstanding			20,238,423				—
Diluted weighted average shares outstanding			20,536,828				—
Pro forma, as adjusted:*
Pro forma net revenues		$	77,838
Pro forma income (loss) before taxes			10,339
Pro forma provision for taxes (tax benefit)			(9,364	)
Pro forma net income (loss)			19,703
Pro forma preferred dividends and accretion			—
Pro forma net income (loss) attributable to common shareholders			19,703
Pro forma earnings per share:
Pro forma basic earnings per share		$	0.97
Pro forma diluted earnings per share		$	0.96
Pro forma weighted average shares used in the computation of per share data:
Pro forma basic weighted average shares outstanding			20,238,423
Pro forma diluted weighted average shares outstanding			20,536,828

See accompanying notes to unaudited condensed consolidated financial statements.

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

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ AND MEMBERS’ EQUITY
(In thousands)
(Unaudited)

																		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			—				—				—				—				—				3				3				3
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				—				71,469				—				—				71,518				—
Direct costs of initial public offering			—				—				—				(5,324	)			—				—				(5,324	)			—
Share-based compensation expense			—				—				—				1,053				—				—				1,053				—
Net income from February 8, 2006 to March 31, 2006			—				—				—				—				17,758				—				17,758				17,758
Balance, March 31, 2006			22,262			$	223			$	—			$	270,321			$	(98,820	)		$	(306	)		$	171,418			$	21,312

See accompanying notes to unaudited condensed consolidated financial statements.

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

						Three Months Ended March 31,
						2006				2005
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)						$	21,309			$	(6,201	)
Non-cash items included in net income (loss):
Depreciation and amortization of fixed assets							2,354				2,336
Share-based compensation expense							1,053				—
Deferred tax provision (benefit)							(12,899	)			—
Provision for doubtful accounts							74				81
Provision for lease loss							1,474				(379	)
Deferred rent expense							(92	)			171
Unrealized and realized (gains) losses on partnership and other investments							(3,744	)			261
Other							182				(5	)
Net effect of changes in operating assets and liabilities:
Cash segregated under federal or other regulations							1,842				547
Securities owned and securities sold, but not yet purchased—net							(8,999	)			33,368
Corporate finance and syndicate receivables							(4,030	)			236
Distributions from investment partnerships							3,394				770
Other assets							994				(202	)
Receivable from/payable to clearing broker—net							11,762				5,365
Accrued expenses and other liabilities							14,501				5,866
Payable to customers							(1,245	)			893
Accrued compensation							(16,537	)			(11,822	)
Net cash provided by operating activities							11,393				31,285
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment, and leasehold improvements							(872	)			(514	)
Acquisition of intangible asset							—				(243	)
Restricted cash deposits							—				(2,000	)
Partnership investments purchased							(498	)			(1,294	)
Other investments purchased							(31,719	)			—
Proceeds from sale of investments							677				—
Net cash used in investing activities							(32,412	)			(4,051	)
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of capital lease obligation							(60	)			(240	)
Repayments of notes payable							(10,631	)			(999	)
Proceeds from issuance of common stock, net of expenses							66,089				—
Contributions from members							283				727
Distributions to members							(6,465	)			(5,375	)
Withdrawals of capital							(1,581	)			(202	)
Net cash provided by (used in) financing activities							47,635				(6,089	)
INCREASE IN CASH AND CASH EQUIVALENTS							26,616				21,145
CASH AND CASH EQUIVALENTS—Beginning of period							90,193				57,993
CASH AND CASH EQUIVALENTS—End of period						$	116,809			$	79,138
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest						$	1,903			$	1,469
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			$	—

See accompanying notes to unaudited condensed consolidated financial statements.

THOMAS WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES
(formerly Thomas Weisel Partners Group LLC and Subsidiaries)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 independent 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 the following subsidiaries:

	•		Thomas Weisel Partners LLC (“TWP”), through which the Firm primarily conducts its brokerage and investment banking business. 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; and
	•		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 the following subsidiaries (the “Asset Management Subsidiaries”):

	•		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 merchant banking, venture capital and fund of funds;
	•		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 $66.2 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 estimated fair value of the debt of $29.7 million.

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 months ended March 31, 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.

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 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 three months ended March 31, 2005 and the period January 1, 2006 to February 7, 2006 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.

Initial Public Offering and Reorganization Transactions

          As described above, on February 7, 2006, Thomas Weisel Partners Group, Inc. consummated its initial public offering. In connection with the initial public offering, on February 7, 2006 a series of reorganization transactions were carried out 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 some cases, 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 issued resulted in $33.0 million of additional debt for the Firm, recorded 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. The net proceeds to the Firm after deducting unaffiliated underwriters’ discount and expenses of the offering were $66.2 million. As of March 31, 2006 there were 22,261,710 shares of common stock of Thomas Weisel Partners Group, Inc. outstanding.

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):

		March 31, 2006								December 31, 2005
						Sold, But								Sold, But
						Not Yet								Not Yet
		Owned				Purchased				Owned				Purchased
Equity securities		$	14,033			$	63,257			$	15,232			$	74,685
Convertible bonds			98,158				18,459				83,295				4,321
U.S. Treasury Securities			—				7,935				—				5,980
Total		$	112,191			$	89,651			$	98,527			$	84,986

          At March 31, 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 $0.2 million and $0.0 million at March 31, 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):

		March 31, 2006				December 31, 2005
Private equity investments		$	38,260			$	38,292
Other investments in partnerships and securities			608				628
Total investments in partnerships and other securities		$	38,868			$	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):

		March 31, 2006				December 31, 2005
Auction rate securities		$	24,137			$	—
Equity securities			4,739				4,632
Municipal debt securities			7,726				—
Total other investments		$	36,602			$	4,632

     Other investments does not include private equity investments (see Note 5- Investment in partnerships and other securities) and 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).

     On February 7, 2006, Thomas Weisel Partners Group, Inc. completed its initial public offering and received net proceeds, after deducting unaffiliated underwriters’ discount and expenses, of $66.2 million. Of these proceeds, $31.9 million has been invested in auction rate securities and municipal debt securities that have been included in other investments.

NOTE 7 — RELATED PARTY TRANSACTIONS

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

		March 31, 2006				December 31, 2005
Co-Investment Fund loans to employees and former employees		$	4,974			$	6,480
Partner loans			1,718				1,709
Other employee receivables			108				38
Allowance for doubtful loans			(3,316	)			(3,316	)
Total receivables from related parties		$	3,484			$	4,911

Related Party Loans

          Co-Investment Funds — In 2000 and 2001 the Firm established an investment program for employees (including partners) 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 months ended March 31, 2006 the Co-Investment Funds distributed $1.5 million, which was credited towards repayment of loans to employees. There were no distributions for the three months ended March 31, 2005.

          Partner Loans — The Firm has from time to time made unsecured loans to partners. 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 months ended March 31, 2006 were $62,114.

          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 generally reimburses Ross Investments Inc. for the travel expenses in an amount comparable to the expenses the Firm would have incurred for business travel on commercial airlines for similar trips. For the three months ended March 31, 2006 and 2005 the Firm paid $22,065, and $44,985, 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 redeemable 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 3 – Shareholders’ and Members’ Equity (Deficit) 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 five years. 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 estimates include approximately $5.8 million of the Contingent Payment Senior Note being paid during the first twelve months of the 60 month term. The discount for the Contingent Payment Senior Note is being amortized over its full expected term of 5 years.

Covenants

          The Senior Notes, Contingent Payment Senior Note and Secured Note shown below include financial covenants including restrictions on additional indebtedness to not exceed $10.0 million 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 March 31, 2006 and December 31, 2005.

          Notes payable consists of the following (in thousands):

		March 31, 2006								December 31, 2005 (principal amount
		Principal Amount				Carrying Amount				and carrying amount)
Senior Note (a)		$	13,000			$	11,909			$	—
Senior Note (a)			10,000				9,160				—
Contingent Payment Senior Note (b)			8,197				7,033				—
Secured Note, floating at LIBOR + 2.85%(c)			10,266				10,266				11,200
Note at LIBOR + 2.00% (d)			—				—				2,894
Note at Prime + 0.50% (d)			—				—				5,000
Total notes payable		$	41,463			$	38,369			$	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 or 2005.

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

						December 31,
		March 31, 2006				2005
Weighted-average interest rate			7.39	%			6.28	%
Scheduled principal payments for borrowings at March 31, 2006 are as follows (in thousands):
						March 31, 2006
April 1, 2006 through December 31, 2006						$	6,800
2007							3,733
2008							3,733
2009							—
2010							1,697
Thereafter							25,500
Total						$	41,463

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 three months ended March 31, 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. See Note 3 — Shareholders’ and Members’ Equity (Deficit) for discussion of the initial public offering and reorganization transactions. The transactions resulted in 22,261,710 shares of common stock outstanding as of March 31, 2006.

          Diluted shares outstanding for the three months ended March 31, 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 1,864,171 are assumed to have been delivered at the time of issuance on February 7, 2006. 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 March 31, 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 were assumed to be used to purchase the shares of common stock at the average market price during the period February 7, 2006 to March 31, 2006. The incremental shares of 164,011 were equal to the difference between the number of shares assumed issued on February 7, 2006 and the number of shares assumed purchased and were included in the denominator of the diluted earnings per share computation for the period that they were outstanding during the three months ended March 31, 2006.

          For purposes of computing dilutive shares outstanding, exercise of the warrant was assumed at the beginning of the period and shares of common stock of 486,486 were assumed to be issued. The incremental shares of 134,394 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 the three months ended March 31, 2006 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 months ended March 31, 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
		March 31,
		2006				2005
BASIC:
Numerator:
Net income (loss)		$	21,309			$	(6,201	)
Less: Preferred dividends and accretion			1,608				4,032
Net income (loss) attributable to common shareholders		$	19,701			$	(10,233	)
Denominator:
Basic weighted average shares outstanding			20,238				—
Per Share:
Earnings per share		$	0.97			$	—
DILUTED:
Numerator:
Net income (loss)		$	21,309			$	(6,201	)
Less: Preferred dividends and accretion			1,608				4,032
Net income (loss) attributable to common shareholders		$	19,701			$	(10,233	)
Denominator:
Basic weighted average shares outstanding			20,238				—
Effect of dilutive securities:
Weighted average restricted stock units			164				—
Weighted average warrant			134				—
Diluted weighted average shares outstanding			20,536				—
Per Share:
Earnings per share		$	0.96				—

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.

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.

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.

		Three Months Ended
		March 31,
		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				—
Exercised			—				—				—				—
Cancelled			—				—				—			$	—
Outstanding, March 31, 2006			32,831			$	22.70				10				—
Exercisable, March 31, 2006			—			$	—				—			$	—

     As of March 31, 2006 the total unrecognized compensation expense related to non-vested options is approximately $0.3 million. Expense recognized in the first quarter of 2006 was 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 an aggregate of 1,869,171 shares of the Firm’s common stock are deliverable (the “IPO Awards”). The allocation of the IPO Awards 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.

     The Firm recorded $1.1 million in non-cash compensation expense for the three months ended March 31, 2006 entirely with respect to the grant of the IPO Awards. For the three months ended March 31, 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			1,864,171				15.00
Vested			—				—
Cancelled			—				—
Non-vested, March 31, 2006			1,864,171			$	15.00

     On May 1, 2006, the last contingency with respect to an IPO Award was satisfied and, as a result, a final grant of 5,000 restricted stock units was completed.

     As of March 31, 2006 there was $21.4 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 2.8 years.

     A reconciliation of the statutory federal income tax rate to the Firm’s effective tax rate for the three months ended March 31, 2006 is as follows:

Tax at U.S. statutory rate			35.0	%
State tax expense			7.0
Adjustment for permanent items			1.0
Rate before one-time events			43.0	%
Earnings from nontaxable limited liability company through February 7, 2006			(14.2	)
Recognition of deferred tax asset upon change from a limited liability company to a taxable C Corporation			(132.2	)
Effective tax rate			(103.4	)%

     As of March 31, 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			442
Depreciation and amortization			2,799
Nondeductible reserves and allowances			6,404
Net unrealized capital losses			8,568
Other			30
Total deferred tax assets			23,294
Deferred tax liabilities:
Prepaid expenses			(1,827	)
Total deferred tax liabilities			(1,827	)
Valuation allowance			(8,568	)
Net deferred tax asset		$	12,899

     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 March 31, 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
April 1, 2006 through December 31, 2006		$	15,505			$	2,368			$	13,137
2007			20,509				2,950				17,559
2008			20,640				2,750				17,890
2009			20,339				2,027				18,312
2010			16,035				1,623				14,412
Thereafter			42,896				—				42,896
Total		$	135,924			$	11,718			$	124,206

     Office rent and computer equipment lease expenses charged to operations for the three months ended March 31, 2006 and 2005 were $4.8 million, and $5.0 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 approximately $3.3 million. There has been no liability recorded on the Firm’s consolidated statement 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 March 31, 2006, the Firm’s Asset Management Subsidiaries had commitments to invest an additional $6.1 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
		March 31,
Fund Commitments (in thousands):		2006
Tailwind Capital Partners		$	347
Thomas Weisel Venture Partners			101
Global Growth Partners I			2,484
Global Growth Partners II			2,250
Thomas Weisel Healthcare Venture Partners			905
Total Fund Capital Commitments		$	6,087

     In addition to the above commitments by the Firm’s Asset Management Subsidiaries, in March 2006, the Firm itself committed approximately $15.0 million to an investment in a 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 over a three to four year period. The Firm currently anticipates transferring this investment to a private equity fund the Firm sponsors. This commitment is not reflected in the table above.

Guarantees

Broker-Dealer Guarantees

     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.

     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 statement of financial condition for these arrangements.

Employee Retention Program

     Consistent with practice in prior years, guaranteed compensation agreements were entered into during the three months ended March 31, 2006. These obligations are being accrued ratably over the service period of the contracts. Total unaccrued obligations at March 31, 2006 for services to be provided subsequent to March 31, 2006 were $13.4 million, of which $9.3 million, $3.8 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 until such time as the end of the statute of limitations relating to any such liability. 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 has granted that petition, and appellate briefing is underway. 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.

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 (securities sold, not yet purchased) for the Firm, which is collateralized by cash and securities owned by TWP and held by the clearing broker. TWP’s securities owned may be pledged by the clearing broker. The amount receivable from the clearing broker represents amounts receivable in connection with the trading of proprietary positions and the clearance of customer securities transactions. As of March 31, 2006 and 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 statement 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 statement 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.

     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 statement of operations. The fair value of this derivative is $2.4 million and $2.1 million at March 31, 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 statement 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 March 31, 2006 for TWP (in thousands):

		March 31, 2006
		Required								Excess
		Net Capital				Net Capital				Net Capital
Thomas Weisel Partners LLC		$	1,000			$	46,796			$	45,796

     In addition, TWPIL, a registered U.K. broker-dealer, is subject to the capital requirements of the Securities and Futures Authority Limited. As of March 31, 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 with National Financial Services LLC, the clearing broker to which the Firm will be transferring its clearing activities in the second quarter of 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 three months ended March 31, 2006.

NOTE 16 — SUBSEQUENT EVENTS

     On April 24, 2006, the Firm filed a new registration statement with the SEC to register the sale of up to 2,000,000 shares of common stock by the Firm and up to an additional 2,500,000 shares of common stock by selling stockholders. The registration statement will also cover the sale of up to an additional 675,000 shares by the Firm and selling stockholders in connection with an over-allotment option expected to be granted to the underwriters of the offering.

NOTE 17 — 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 at 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 3 — Shareholders’ and Members’ Equity (Deficit)). The pro forma, as adjusted amounts presented on the face of the Firm’s consolidated statement 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 statement 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 three months ended March 31, 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 statement 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 three months ended March 31, 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 effective tax rate, a combination of federal, state and local income tax rates, of 43% 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. 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. 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 from three principal sources: brokerage, investment banking 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 culture and approach to client engagements allow us to operate in a highly coordinated and integrated manner. We believe that our commitment of significant time and resources to our target sectors, combined with our integrated business model, provides significant value to growth companies and growth investors in these sectors. This specialization, however, exposes us to volatility and trends in our target sectors, independent of general securities market conditions and economic trends. Moreover, in order to provide this value to clients we have elected to make a long-term commitment to maintaining a substantial, full-service platform notwithstanding significant volatility in our target sectors.

          Since our firm was founded in 1998, the U.S. economy in general, and our target sectors in particular, have experienced expansion, followed by periods of contraction, uncertainty and cautious optimism. Throughout these challenging and uncertain periods, we have continued to maintain our dedication and focus while capitalizing on opportunities as they arise. We remain confident in the long-term market opportunity for our services primarily due to favorable long-term investment and economic trends in our target sectors and favorable trends in the U.S. and global venture capital industry.

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. To counteract the effect of this trend on our brokerage revenues we work to increase our volume of shares traded for customers by building on the competitive strengths of our brokerage business. Those competitive strengths include the following:

	•		We believe the senior professionals in our brokerage and research divisions differentiate themselves through their focus on delivering high-level client service.
	•		We place a premium on dialogue and interaction with clients, in an effort to have our clients view us as a trusted advisor and not merely as a financial intermediary. Conversely, many of our larger brokerage competitors have sought to automate much of their brokerage businesses by deploying trading technologies that minimize or eliminate broker-client dialogue and reduce the number of stocks covered by their research departments in an effort to lower their costs.

          In the first quarter of 2006 the combined average daily volume on the New York Stock Exchange and Nasdaq was approximately 3.70 billion shares, a 6.3% increase from the first quarter of 2005, and our combined average daily customer trading volume (listed and OTC) was 18.3 million shares, a 5.6% decrease from the first quarter of 2005.

          We are, to some extent, compensated by our clients through brokerage commissions for the value of our research. These “soft dollar” practices have been the subject of discussion among regulators, the investment banking community and our brokerage clients. Fidelity Management & Research Company, one of our largest institutional brokerage clients in terms of commission revenue, has recently announced that it has entered into arrangements with some brokerage firms 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 these firms through trading commissions as under soft dollar practices. In March 2006, we entered into such an arrangement with Fidelity. If the terms of this agreement had been in place during 2005, we estimate that our brokerage revenues from Fidelity would have been lower than those we recorded in that year. We are unable at this time to predict the effect this arrangement will have on the revenues of our brokerage business because we cannot predict whether and to what extent this arrangement will affect our future trading volume with Fidelity or the losses we may incur when we commit capital to facilitate trades; however, our brokerage revenues from Fidelity in the first quarter of 2006 have decreased compared to recent prior quarters. 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 the revenues of our brokerage business.

          In the first quarter of 2006, the concentration in brokerage revenues among our ten largest brokerage clients was 31%, as compared to 32% for the full year 2005. As of March 31, 2006, we had 36 publishing research analysts covering 527 companies, or an average of approximately 15 companies per publishing analyst. In the first quarter of 2006, our average daily brokerage revenues were $0.55 million.

     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. In the first quarter of 2006, the technology, healthcare and consumer sectors generated significant capital markets activity.

	•		For the first quarter of 2006, securities offerings by companies in our target sectors accounted for approximately $18.5 billion of gross proceeds raised in U.S. IPOs, secondary offerings and follow-on offerings, or 51% of the $36.3 billion of aggregate gross proceeds raised in all U.S. IPOs, secondary offerings and follow-on offerings. By comparison, during 2005 the quarterly average of gross proceeds raised in U.S. IPOs, secondary offerings and follow-on offerings by companies in our target sectors was $13.0 billion, or 37.8% of the $34.4 billion of aggregate quarterly average gross proceeds raised in all U.S. IPOs, secondary offerings and follow-on offerings during 2005.
	•		According to Dealogic, for the first quarter of 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 $820 million. By comparison, according to Dealogic, during 2005 the quarterly average of total fees generated from equity capital markets transactions, including IPOs, secondary offerings and convertible debt securities offerings, by companies in our target sectors were $630 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 first quarter of 2006, the technology, healthcare and consumer sectors that we target generated significant mergers and acquisitions activity, although the number of transactions and transaction values were somewhat lower than in 2005.

•

For the first quarter of 2006, according to Securities Data Corp., there were approximately 267 announced acquisitions and mergers of U.S. companies in our target sectors, or 54% of the approximately 493 announced transactions in all market sectors. By comparison, 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.

•

According to Securities Data Corp., for the first quarter of 2006 the total value of announced acquisitions and mergers of U.S. companies 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 announced acquisitions and mergers of U.S. companies (excluding the $89.4 billion BellSouth/AT&T merger). By comparison, during 2005 the quarterly average of the total value of announced acquisitions and mergers of U.S. companies in our target sectors was approximately $141 billion, or 52% of the approximately $269 billion total value of all announced acquisitions and mergers of U.S. companies.

          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 past 10 years, 35% 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
(1996-2005)

		1996				1997				1998				1999				2000				2001				2002				2003				2004				2005
		($ in billions)
Total amount invested		$	9.9			$	13.0			$	17.7			$	48.5			$	91.9			$	34.7			$	21.0			$	18.4			$	20.4			$	20.7
Sector Distribution
Technology			56	%			58	%			60	%			58	%			63	%			65	%			60	%			56	%			56	%			53	%
Healthcare			27	%			25	%			20	%			10	%			10	%			19	%			27	%			32	%			33	%			31	%
Consumer			15	%			15	%			19	%			31	%			26	%			15	%			11	%			11	%			9	%			13	%
Other			2	%			2	%			1	%			1	%			1	%			1	%			2	%			1	%			2	%			3	%

Source: Dow Jones VentureOne

          Over the past three 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 $1.1 million and $0.6 million for the three months ended March 31, 2006 and 2005, respectively. Accordingly, these amounts were not recognized in revenue. As of March 31, 2006, the total amount of waived management fees available to be recognized as revenue in the future is $16.3 million. 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.

          In the first quarter of 2006 we committed approximately $15 million to an investment in a Mauritius private equity fund focused on infrastructure investing in India. This commitment may be called in full at any time, although we currently anticipate the funding of this commitment will occur over a three to four year period. We currently anticipate transferring this investment and the related commitment to a private equity fund we sponsor.

     Interest

          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

          Compensation and benefits expenses to secure the services of our partners and employees have been the largest component of our expenses. Compensation and benefits expense includes salaries, overtime, bonuses, commissions, benefits, employment taxes and other employee costs. We have a discretionary bonus plan based on a combination of firm and individual performance, a portion of the payments under which are retention bonuses. Particularly for our senior professionals, these bonuses make up a large portion of total compensation. We accrue for the estimated amount of payments under this bonus plan over the applicable service period, which, in the case of retention bonus payments, begins at the date of grant and ends at the date of payment. We generally pay bonuses at selected times and intend to make these payments in February and July. A portion of these bonuses will be paid in the form of equity awards granted under our Equity Incentive Plan. The timing of cash bonus payments may have a greater impact on our cash position and liquidity as they are paid than would otherwise be reflected in our consolidated statement of operations.

          Upon completion of our initial public offering, we granted to a broad group of our employees and advisors and each of our independent directors restricted stock units with respect to which an aggregate of 1,869,171 shares of our common stock are deliverable. The allocation of these grants 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 us, but will vest earlier in the event of a change of control. After full 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. We accounted for the grant of these restricted stock units in accordance with SFAS No. 123(R), Share-Based Payment, and we currently estimate that the non-cash compensation expense associated with the grant of these restricted stock units will approximate $22.5 million to be accrued ratably over the three year service period. For the period of February 7, 2006, the date these restricted stock units were granted, through March 31, 2006, we accrued $1.1 million of non-cash compensation expense in respect of these restricted stock units and we currently expect to accrue $1.9 million of non-cash compensation expense for the second quarter of 2006 and each other subsequent complete fiscal quarter thereafter for the remainder of the three year service period.

We intend to maintain our 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 our net revenues (excluding investment gains and losses attributable to investments in partnerships and other securities) beginning in 2006, although we retain the ability to change this rate in the future. For 2005, our total compensation and benefits expense was 63% of our net revenues (excluding investment gains and losses attributable to investments in partnerships and other securities).

     Non-Compensation Expenses

          The balance of our operating expenses include floor brokerage and execution, communications and data processing, depreciation and amortization, marketing and promotion, occupancy and equipment and other expenses.

          In addition to reporting our net income and earnings per share for the first quarter of 2006, we also report in the table below our net income and earnings per share for the first quarter of 2006 on a non-GAAP operating basis by:

	•		excluding the effect of the $13.8 million one-time net deferred tax benefit;
	•		excluding the after-tax non-cash expense associated with our initial grant of restricted stock units of $0.6 million; and
	•		including additional income tax expense of $1.5 million, because we estimate that we would have incurred additional income tax expense for the period January 1, 2006 to February 7, 2006 equal to our net income for the period January 1, 2006 through February 7, 2006 of $3.6 million multiplied by our effective rate before the one-time events described above of 43%, or $1.5 million.

     In the future we do not expect that a similar conversion-related deferred tax benefit will arise, because we do not expect to change our corporate form again, and we expect to be subject to state and federal income tax at a combined effective federal and state income tax of approximately 43%, subject to adjustments to reflect future tax events. Also, although we expect to grant restricted stock units and other share-based compensation in the future, we do not expect to make any such substantial grants outside of our regular compensation process, as we did when we granted the 1,869,171 restricted stock units in connection with our initial public offering.

     Our management has utilized a non-GAAP calculation of net income and earnings per share that are adjusted to exclude the effect of the net deferred tax benefit, include additional income tax expense and exclude the expense associated with our initial grant of restricted stock units, to aid in understanding and analyzing our financial results in the first quarter of 2006. Our management believes that these non-GAAP measures will allow for a better evaluation of the operating performance of our business and facilitate meaningful comparison of our results in the current period to those in prior periods and future periods that did not and likely will not include the adjusted items. Our reference to these measures should not, however, be considered as a substitute for results that are presented in a manner consistent with GAAP. These non-GAAP measures are provided to enhance investors’ overall understanding of our current financial performance and our prospects for the future. Specifically, our management believes that the non-GAAP measures provide useful information to both management and investors by excluding certain items that may not be indicative of our core operating results and business outlook.

     For the same reasons, and subject to the same limitations, described above with respect to our use of a non-GAAP measure of net income, we report in the table below each of our basic and diluted weighted average shares used in the computation of earnings per share and our basic and diluted earnings per share for the first quarter of 2006 on a non-GAAP operating basis by:

	•		using $6.6 million as the numerator of the non-GAAP earnings per share calculation, which amount is derived by beginning with net income available to common stockholders of $19.7 million and adjusting to (i) exclude the effect of the $13.8 million net deferred tax benefit, (ii) include additional income tax expense of $1.5 million, (iii) exclude the after-tax non-cash expense associated with our initial grant of restricted stock units of $0.6 million and (iv) exclude the $1.6 million of preferred dividends and accretion from January 1, 2006 through February 7, 2006; and
	•		increasing the weighted average shares used as the denominator of the non-GAAP earnings per share calculation by 2,023,287, which is the amount by which weighted average shares would have increased had the 4,914,440 shares we issued in our initial public offering been outstanding for the entire first quarter of 2006.

     Our management believes that increasing the non-GAAP number of weighted average shares used as the denominator in calculating a non-GAAP measure of earnings per share by an amount by which weighted average shares would have increased had our initial public offering occurred at the beginning of the first quarter of 2006 is appropriate in order to be consistent with calculating a non-GAAP measure of net income which excludes the effect of one-time events which arose in connection with our initial public offering.

		For Three Months Ended
		March 31, 2006
Non-GAAP adjusted weighted average shares used in computation of non-GAAP earnings per share:
Basic			22,261,710
Diluted			22,560,115
Non-GAAP earnings per share excluding the effect of recording net deferred tax benefit, including additional income tax expense, excluding expense associated with initial grant of restricted stock units and excluding preferred dividends and accretion from January 1, 2006 through February 7, 2006:
Basic		$	0.30
Diluted		$	0.29

          We measure our net income as a percentage of net revenues, a financial measure commonly referred to as net income margin and that we utilize in analyzing our profitability. For example, in the first quarter of 2006 our net revenues were $78.0 million, our net income was $21.3 million, and, as a result, our net income margin was 27%. For the same reasons, and subject to the same limitations, described above with respect to our use of a non-GAAP measure of net income, we can also measure our net income margin on a non-GAAP basis by dividing (i) non-GAAP net income excluding the effect of recording net deferred tax benefit, including additional income tax expense and excluding expense associated with the initial grant of restricted stock units of $6.6 million by (ii) net revenues of $78.0 million to obtain a non-GAAP net income margin of 8.5%.

          We believe that our operating model provides for significant leverage over our operating margin because we believe that the generation of higher revenues is not necessarily dependant on incurring correspondingly higher non-compensation expenses in order to generate those revenues. Because our brokerage revenues have remained relatively constant in recent years, we believe that the ability to achieve higher net income margins will depend largely on increasing our investment banking revenues and asset management revenues while keeping our non-compensation costs stable and keeping our compensation and benefits expense within our target range. At the same time, if our brokerage revenues decrease or our compensation and benefits expense exceed our target range, we would not be able to achieve higher net income margins.

Revenues

          The following table sets forth our revenues for the three months ended March 31, 2006 and 2005, both in thousand dollar amounts and as a percentage of net revenues for these periods:

		For Three Months Ended
		March 31,
		2006				2005
		(In thousands, except percentages)
Revenues:
Brokerage		$	34,387			$	35,873
Investment banking			36,494				16,285
Asset management			6,953				7,920
Interest income			2,212				1,071
Total revenues			80,046				61,149
Interest expense			(2,069	)			(1,186	)
Net revenues		$	77,977			$	59,963
Percentage of net revenues:
Brokerage			44	%			60	%
Investment banking			47				27
Asset management			9				13
Interest income			3				2
Total revenues			103				102
Interest expense			(3	)			(2	)
Total			100	%			100	%

Brokerage Revenue

           First Quarter of 2006 versus First Quarter of 2005. Brokerage revenues declined 4% to $34.4 million in the first quarter of 2006 from $35.9 million in the first quarter of 2005. The decline was primarily attributable to a $3.7 million, or 11%, reduction in revenues from trading in equity securities in the first quarter of 2006 as compared to the first quarter of 2005. This reduction in revenues from trading in equity securities was primarily the result of a 5% reduction in our volume of shares traded for our customers coupled with a decline in our average commissions per share in the first quarter of 2006 as compared to the first quarter of 2005, partially offset by reduced trading losses in the first quarter of 2006 related to our market making activities.

     Revenues related to trading in convertible debt securities increased to $2.0 million in the first quarter of 2006 compared to a loss of $0.1 million in the first quarter of 2005. Losses in the first quarter of 2005 were the result of difficult market conditions in the convertible debt market in the first quarter of 2005. For example, the Convertible Arbitrage Credit Suisse/Tremont Hedge Fund Index, which was down almost 3% during the first quarter of 2005, was up 6% during the first quarter of 2006.

     In addition, brokerage revenues include fees paid for investment advisory services provided through our private client services group to both institutional and high-net-worth individuals, generally based on the value of assets under management. The amount of asset-based fee revenue that was included within brokerage revenues was $4.2 million and $3.4 million for the first quarter of 2006 and the first quarter of 2005, respectively, representing a 23% increase in the first quarter of 2006 from the first quarter of 2005. The increase was primarily attributable to an increase in assets under management in our asset management consulting service.

Investment Banking Revenue

     The following table sets forth our total investment banking revenues for the three months ended March 31, 2006 and 2005, and the amount of investment banking revenues attributable to (1) capital raising (underwriting and private placements) and (2) merger and acquisition fees and other advisory service revenues.

		Three Months Ended
		March 31,
		2006				2005
		(In millions)
Investment Banking Revenues:
Capital raising (underwriting and private placements) revenues		$	31.9			$	10.0
Merger and acquisition fees and other advisory service revenues			4.6				6.3
Total		$	36.5			$	16.3

     First Quarter of 2006 versus First Quarter of 2005. Investment banking revenues increased by 124%, to $36.5 million in the first quarter of 2006 from $16.3 million in the first quarter of 2005. The increase in our investment banking revenues was primarily the result of our average revenue per transaction increasing to $1.8 million in the first quarter of 2006 from $0.8 million in the first quarter of 2005. This increase in the average revenue per transaction was primarily attributable to an increase in the average size of the initial public offerings, follow-on equity offerings and convertible debt transactions we participated in. The increase in investment banking revenues was also partially a result of our total investment banking transactions closed in the first quarter of 2006 increasing to 20 compared to 17 in the first quarter of 2005. Our investment banking revenues benefitted from a strong market, as in the market as a whole, within our target sectors, the number of capital raising and strategic advisory transactions increased 33% and 14%, respectively, in the first quarter of 2006 as compared to the first quarter of 2005.

     Capital raising revenues grew to account for 87% of our investment banking revenues in the first quarter of 2006 compared to 61% in the first quarter of 2005, due in part to a strong capital raising market in our target sectors, as discussed above. Our capital raising revenues increased 219% to $31.9 million in the first quarter of 2006 compared to $10.0 million in the first quarter of 2005. The increase resulted primarily from higher average revenues per transaction, which increased 138% to $1.9 million in the first quarter of 2006 from $0.8 million in the first quarter of 2005, and from higher transaction volumes, with 17 capital raising transactions in the first quarter of 2006 as compared to 13 in the first quarter of 2005. We book-managed our own initial public offering during the first quarter of 2006 and included that transaction in our transaction count, but did not recognize any revenue relating to that transaction in our condensed consolidated financial statements or our measure of revenue per transaction.

     As a percentage of our total investment banking revenue, strategic advisory revenues declined to 13% in the first quarter of 2006 compared to 39% in the first quarter of 2005. Strategic advisory revenues declined 27% to $4.6 million in the first quarter of 2006 from $6.3 million in the first quarter of 2005. We completed three strategic advisory transactions in the first quarter of 2006 as compared to four in the first quarter of 2005. The decrease in our strategic advisory revenues also reflected lower average transaction sizes in the transactions in the first quarter of 2006, which resulted in lower average revenues per transaction.

Asset Management Revenue

     First Quarter of 2006 versus First Quarter of 2005. Asset management revenues decreased $0.9 million, or 11%, to $7.0 million in the first quarter of 2006 from $7.9 million in the first quarter of 2005. The decrease was primarily the result of lower management fees due to the fact that we no longer manage Thomas Weisel Capital Partners L.P. (“TWCP”), partially offset an increase in investment gains in partnerships and other securities.

     Management fees were $3.4 million during the first quarter of 2006 compared to $8.2 million in the first quarter of 2005. After excluding $5.2 million of fees generated in the first quarter of 2005 from TWCP, management fees increased 14% from the first quarter of 2005. TWCP is a late-stage private equity fund, whose management was transferred to a third party in the fourth quarter of 2005. We no longer receive management fees from TWCP, however, we have retained our capital account in TWCP and will receive gain and loss allocations in respect of our capital account balance.

     Investment gains in partnerships and other securities were $3.6 million in the first quarter of 2006, an increase of $3.9 million from the first quarter of 2005.

Operating Expenses and Employees

     The following table sets forth information relating to our operating expenses and number of employees for the three months ended March 31, 2006 and 2005:

		For Three Months Ended
		March 31,
		(In thousands, except number of employees)
		2006				2005
Expenses Excluding Interest:
Compensation and benefits		$	41,937			$	40,829
Floor brokerage and trade execution			6,696				7,186
Communications and data processing			4,349				4,637
Depreciation and amortization			2,354				2,336
Marketing and promotion			2,933				3,477
Occupancy and equipment			4,660				3,345
Other expense			4,570				3,890
Total expenses		$	67,499			$	65,700
Compensation and Benefits Expense:
Employees		$	30,828			$	28,979
Partners			11,109			11,850
Total compensation and benefits expense		$	41,937			$	40,829
Average number of employees and partners			542				554