SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 --------------

                                    FORM 10-K

                       FOR ANNUAL AND TRANSITIONAL REPORTS
                       PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

[X]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934

         For the Fiscal Year Ended December 31, 1999

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

                           Commission File No. 0-26072

                                   THCG, INC.
             (Exact Name of Registrant as Specified in Its Charter)


                  Utah                                        87-0415597
      (State or Other Jurisdiction                         (I.R.S. Employer
    of Incorporation or Organization)                     Identification No.)

 650 Madison Avenue, 21st Floor, New York, NY                      10022
    (Address of Principal Executive Office)                      (Zip Code)

       Registrant's telephone number, including area code: (212) 223-0440
                             ----------------------

               Securities registered pursuant to Section 12(b) of
                                    the Act:
                                      NONE

               Securities registered pursuant to Section 12(g) of
                                    the Act:
                     Common Stock, par value $0.01 per share
                                (Title of Class)
                             ----------------------

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.

                                   Yes [X]  No __

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

                             ----------------------

The  aggregate  market  value  of  the  registrant's   Common  Stock,   held  by
non-affiliates of the registrant,  based on the closing sale price of the Common
Stock  on  March  24,  2000 as  reported  on the  Nasdaq  National  Market,  was
$44,950,053.  As of  March  24,  2000,  there  were  12,579,635  shares  of  the
registrant's Common Stock outstanding.

                      Documents Incorporated by Reference:

Portions of the registrant's  definitive  proxy  statement,  which will be filed
within 120 days of December 31, 1999,  are  incorporated  by reference into Part
III.

<PAGE>

                                     PART I


ITEM 1.  BUSINESS

OVERVIEW

         We are an Internet  incubator  company that provides  venture  funding,
venture  development  and  venture  banking  services to  companies  in which we
acquire direct or indirect  equity  interests,  also referred to throughout this
Annual  Report as our "partner  companies."  We are  penetrating  new markets by
developing our international  operations and by expanding our global coverage of
the Internet industry. Our partner companies include Internet-based  businesses,
established "brick and mortar" companies implementing an Internet-based strategy
and  advanced  technology  and  service  companies.  By  providing  our  partner
companies  with  capital  and  a  combination  of  enterprise-enhancing  venture
development  and venture banking  services,  we believe that we help our partner
companies focus on their core  strengths,  so that they may bring their products
and services to market more rapidly.

         Our goal is to build dominant  Internet-based  businesses with a global
presence that are highly  differentiated and have viable business models, and to
acquire equity interests in those businesses.  To date, we have, and we continue
to acquire equity interests in our partner companies through a venture fund that
is managed by one of our  wholly-owned  subsidiaries  and in which we own a 9.9%
interest. On certain occasions, we have also acquired direct equity interests in
our partner companies. In the future, our venture funding strategy is to acquire
direct equity interests of at least 25% in our partner companies. Although we do
not intend to engage in short-term  sales of our equity interests in our partner
companies,  we hope to realize gains  through the  selective  sale of our equity
interests over a period of time.

         We seek to build our partner companies and to maximize the value of our
equity  interest in them by providing  venture  development  and venture banking
services to our partner companies and by promoting  innovation and collaboration
among them. Our venture  development  services include  strategic and management
consulting services, as well as business  infrastructure  services.  Our venture
banking  services  include general  advisory  services,  as well as advising our
partner companies on capital raising transactions,  mergers and acquisitions and
recapitalizations  and refinancings.  By providing these venture development and
venture  banking  services,  together with our venture  funding  activities,  we
believe we are able to provide  critical  services to our partner  companies  at
every stage of their development.

         We believe  that our ability to  finance,  build and advise our partner
companies differentiates us from our competitors, who typically provide services
designed to address more specific needs of  Internet-based  businesses.  We also
believe that our global focus will  differentiate  us from our  competitors  who
tend to have more regional focuses.

         We are a Utah corporation  formerly known as Walnut Financial Services,
Inc. Our executive  offices are located at 650 Madison Avenue,  21st Floor,  New
York,  New York 10022.  Our phone number is (212)  223-0440.  References in this
Annual  Report to "THCG" or "us" or "our"  mean THCG and its  subsidiaries  on a
consolidated basis, unless the context otherwise requires.

RECENT HISTORY

         On November 1, 1999:

         o        We  acquired   Tower  Hill   Securities,   Inc.,  a  New  York
                  corporation.  Tower Hill Securities is the successor to Hambro
                  America  Securities,  Inc., the former U.S. investment banking
                  subsidiary of Hambros,  plc, a British  merchant banking firm.
                  In March 1998, the investment  banking  operations of Hambros,
                  plc were sold to Societe Generale,  a French bank. On April 1,
                  1998,  Joseph D. Mark and Adi Raviv, the principal  executives
                  of Hambro America Securities,  Inc., acquired the company from
                  Societe Generale.

         o        We changed our name from Walnut  Financial  Services,  Inc. to
                  THCG, Inc.

                                       1
<PAGE>

         o        Our executive  officers resigned and were replaced with Joseph
                  D. Mark,  Adi Raviv and Shai Novik,  the three  principals  of
                  Tower  Hill  Securities.  Messrs.  Mark and Raviv  became  our
                  co-chief  executive  officers  and Mr.  Novik became our chief
                  operating officer.

         o        All of the members of our board of  directors  resigned,  with
                  the exception of Gene E.  Burleson,  Burton W. Kanter and Joel
                  S.  Kanter,  and were  replaced  with a new board of directors
                  consisting of individuals designated by Tower Hill Securities.

         o        We  raised   approximately   $7  million  in  several  private
                  placements with Greenwich Street Capital Partners II, L.P. and
                  other investors.

         o        We  withdrew  our  election  to  be  regulated  as a  business
                  development  company under the Investment Company Act of 1940,
                  as amended.  Prior to November 1, 1999,  we were a  closed-end
                  management   investment  company  which  was  regulated  as  a
                  business development company under the Investment Company Act,
                  and had three  primary  business  focuses:  (1)  investing  in
                  start-up and early stage development companies,  (2) operating
                  an investment  vehicle that specialized in bridge financing to
                  small and medium-sized  companies,  and (3) providing accounts
                  receivable-based   commercial  financing,  or  factoring,  and
                  related services.

         As part of our new business strategy, on December 29, 1999, we acquired
Mercury Coast Inc., a Delaware  corporation  that provides  business  incubation
services,  including  strategic  planning,  operations and marketing  consulting
services,  to  Internet-based  businesses.  Larry W. Smith,  the  co-founder and
president of Mercury Coast and co-founder and former chief executive  officer of
U.S.  Interactive,  became our  president on December 29, 1999.  On February 29,
2000, we entered into a letter of intent to acquire the  investment  banking and
equity research  businesses of the Giza Group, a private financial  advisory and
equity  research  firm in Israel that  specializes  in the  Internet and related
technologies.

INDUSTRY OVERVIEW

The Role of The Internet

         The  Internet has emerged as a medium for  communications,  content and
commerce between businesses,  consumers and government entities. Several factors
are  contributing  to the increase in use of the Internet,  including  increased
speed and capacity through greater bandwidth,  improved ease of access,  greater
functionality,   expanded  information  needs  and  entertainment  desires,  and
increased and enhanced business relationships and commerce opportunities.

         The increase in use of the Internet is evidenced by the dramatic growth
in the number of Internet users worldwide.  International  Data Corporation,  an
independent research firm, estimates that the number of Internet users worldwide
will  increase  from 196  million in 1999 to 502 million in 2003,  a  compounded
annual growth rate of 27%. Similarly,  International Data Corporation  estimates
that the growth of  Internet  content,  as  measured  by the number of web pages
worldwide,  will grow from 1.7  billion  web pages in 1999 to 13.4  billion  web
pages in 2003, a compounded  annual  growth rate of 67%. In addition,  Forrester
estimates that business-to-business  e-commerce will increase from approximately
$109  billion  in 1999 to $1.8  trillion  in 2003.  The  increase  in use of the
Internet has led to the  proliferation  of start-up  companies  and  established
"brick and mortar" companies  seeking to capitalize on new market  opportunities
presented by the Internet.

                                       2
<PAGE>

The Venture Capital and Start-up Market

         The success of Internet-based entrepreneurial initiatives has led to an
increase  in  the  demand  for  early-stage   venture   capital.   According  to
PricewaterhouseCoopers,  venture  capital  investments  reached a record high of
approximately  $35.6 billion in 1999, compared to approximately $14.2 billion in
1998. The vast majority of venture  capital being  invested is directed  towards
high  technology  companies.  A  total  of  3,360  technology-based   companies,
including  Internet-related  businesses,  raised  approximately $32.4 billion in
1999,  comprising more than 90% of all venture capital  investments  made during
1999.  Furthermore,  formative stage companies,  those in the start-up and early
stages  of   development,   garnered  the  most   funding  in  1999,   capturing
approximately  $15  billion,  or 42%, of the  aggregate  amount spent on venture
capital investments.  These formative stage companies represented  approximately
50% of all  businesses  that  raised  venture  capital  funding  during the same
period.

Challenges for Start-Up Companies

         We believe that both start-up Internet-based businesses and established
"brick and  mortar"  companies  implementing  an  Internet-based  strategy  face
special  challenges  that may jeopardize the viability of their  entrepreneurial
ventures and affect their ability to attract venture  capital.  These challenges
include:

         o        Developing  a successful  business  model.  To be  successful,
                  start-up  Internet-based  businesses  and "brick  and  mortar"
                  companies implementing an Internet-based strategy must develop
                  business  models that  enable  them to identify  opportunities
                  within both domestic and  globally-targeted  markets,  develop
                  and effectively  market solutions to satisfy specific industry
                  needs,  build  brand  recognition  and an online  presence  to
                  attempt to establish  market  leadership  and secure  valuable
                  strategic relationships.

         o        Building    corporate     infrastructure.     Many    start-up
                  Internet-based  businesses  and "brick and  mortar"  companies
                  implementing an  Internet-based  strategy require  operational
                  and strategic  guidance  regarding market  position,  business
                  model   implementation  and  market  trends;   technology  and
                  operations planning; sales, marketing, product positioning and
                  branding;    market   launch   programs   and   implementation
                  consulting;  e-commerce  consulting;  and interim  management.
                  These  companies also require  significant  amounts of capital
                  and other general financial advisory services.

         o        Attracting experienced professionals.  Start-up Internet-based
                  businesses and "brick and mortar"  companies  implementing  an
                  Internet-based  strategy also have difficulty  identifying and
                  hiring  management and  senior-level  technical  personnel and
                  addressing personnel  deficiencies.  Similarly,  many start-up
                  companies are uncertain about how to acquire and retain a team
                  of   professional   service   providers   such  as  attorneys,
                  accountants, and other key advisors, to execute their business
                  strategy.

         Venture capital firms,  the traditional  source of capital for start-up
Internet-based  businesses,  have  primarily  focused on  providing  capital and
typically have not offered the strategic, consulting and business infrastructure
services or general  financial  advisory  services  needed by start-up  Internet
companies  and  established   "brick  and  mortar"  companies   implementing  an
Internet-based strategy.

Internet Services Firms

         Many companies, regardless of their stage of development, have realized
that an  effective  Internet  strategy  and  solution  may be  paramount  to the
competitiveness and sustainability of their businesses.  An increasing number of
organizations,  from established  "brick and mortar"  companies  implementing an
Internet-based  strategy to start-up  Internet-based  businesses,  are  engaging
Internet services firms.  International Data Corporation  projects that spending
on Internet-related services will rise from approximately $13 billion in 1999 to
more than $78 billion in 2003, a compounded annual growth rate of 57%.

                                       3

<PAGE>

OUR SOLUTION

         Our solution to the challenges  confronting  Internet-based  businesses
and established  "brick and mortar"  companies  implementing  an  Internet-based
strategy is to utilize our  competitive  strengths to implement  our strategy as
set forth below.

Competitive Strengths

         We  believe  we offer  the  following  capabilities  to  Internet-based
businesses and established "brick and mortar" companies:

         Integrated  service  offerings.  We  believe  that the  combination  of
venture funding,  venture development and venture banking services that we offer
distinguishes us from other Internet incubator  companies because they enable us
to provide  critical  services to our partner  companies at every stage of their
development.  In contrast,  many of our competitors  offer  individual  services
designed  to  address a  particular  need of  Internet-based  business,  such as
funding,  management  consulting  or  investment  banking.  For  example,  while
investment  banks provide  venture  banking  services and venture  capital firms
provide venture funding services, neither generally provides venture development
services.  Further, public companies, such as Internet Capital Group, Inc., Rare
Medium Group Inc.,  Softbank Corp. and CMGI,  Inc.,  provide some combination of
venture funding and venture development  services,  but do not currently provide
venture banking services.

         Experienced  management.  We believe our multi-disciplinary  management
team and  employee  base  enables us to provide our partner  companies  with the
combination of venture funding, venture development and venture banking services
that we offer.  Our management  team combines  individuals  who have  investment
banking,  merchant banking, finance and private equity management expertise with
individuals  who have  Internet  professional  services,  business  development,
management  consulting,  marketing and  technology  expertise.  In addition,  we
recruit  and  hire  highly  skilled  and  experienced   professionals  who  have
industry-specific  expertise  and  who  are  proficient  in  a  broad  range  of
technological and business skills.

         Global focus. We are an Internet  incubator company that is penetrating
new markets by  developing  our  international  operations  and by expanding our
global coverage of the Internet  industry.  To date, we have a representative in
Israel and we have  entered  into a letter of intent to acquire  the  investment
banking and equity research  businesses of the Giza Group, a financial  advisory
and equity  research  firm in Israel,  which  specializes  in the  Internet  and
related  technologies.  We believe  Israel is an important  center of technology
development  and  innovation.  Our Israeli  representative  has been  developing
direct relationships with our Israel-based partner companies.  At the same time,
these  partner  companies  are able to  benefit  from the full  range of venture
funding,  venture  development  and venture  banking  services that we offer. We
intend to  replicate  this  model on a global  basis by  developing  our  global
coverage of the Internet industry and developing our  international  operations.
We  believe  that  developing  a global  focus  will  differentiate  us from our
competitors who tend to have more regional focuses.

Strategy

         Our goal is to build dominant  Internet-based  businesses with a global
presence that are highly  differentiated  and have viable business models and to
acquire equity interests in those businesses.  Our strategy to achieve this goal
is to:

         Expand our venture funding and venture development activities. To date,
we have conducted our venture funding activities through a venture fund in which
we  indirectly  own a 9.9%  interest.  In the  future,  we intend to expand  our
venture funding and venture development activities by:

         o        acquiring  direct  equity  interests  of at  least  25% in our
                  partner companies;

         o        actively  participating  on the board  and in the  management,
                  financing  and  operation  of our partner  companies,  thereby
                  enabling  our  partner  companies  to focus  their  efforts on
                  product  development  and  marketing,  rather than on the many
                  other aspects of building a business; and

                                       4
<PAGE>

         o        promoting  innovation  and  collaboration  among  our  partner
                  companies,  by providing them with marketing and cross-selling
                  opportunities and by encouraging them to share information and
                  business expertise with one another.

         We will need to raise substantial  additional capital to implement this
aspect of our strategy.

         Develop global coverage and international  operations. A key element of
our  strategy  is to continue  to develop  our global  coverage of the  Internet
industry and develop our international  operations.  We recently signed a letter
of intent to acquire the investment  banking and equity  research  businesses of
the Giza Group, a private financial  advisory and equity research firm in Israel
that specializes in the Internet and related  technologies.  Our plan is for the
Giza Group to implement  our present  strategy in Israel and in the Middle East.
We are also actively seeking to commence or acquire  operations in Europe,  Asia
and South America in the future.  We believe that establishing an early presence
in select international  markets that we believe are positioned to experience an
increased  demand for venture funding,  venture  development and venture banking
services for Internet  companies could give us a competitive  advantage in these
markets.  Moreover, by developing and expanding our international operations, we
expect to be positioned to launch our partner companies on a global basis.

         Growth  through  acquisitions.  We plan to pursue  acquisitions  of, or
collaborative  relationships  with,  businesses  that  complement  our  business
strategy.  For example, our acquisition of Mercury Coast, a provider of business
incubation   services  to  Internet-based   businesses,   enhanced  our  venture
development  capabilities.  In the  future,  we  intend  to  evaluate  potential
acquisitions  of other  Internet-focused  businesses that enhance our ability to
provide our partner  companies with venture  funding,  venture  development  and
venture banking services.

         Expand   infrastructure.   We  intend  to  develop  the  infrastructure
necessary to implement our business  strategy of acquiring  equity  interests in
additional  partner  companies and  penetrating  new markets by  developing  our
international  operations  and by expanding our global  coverage of the Internet
industry. We are committed to:

         o        improving our operational and financial systems;

         o        expanding our information technology systems;

         o        leasing  more space,  including a larger  facility in New York
                  City, to  accommodate  our  operations and some of our partner
                  companies; and

         o        expanding, training, retaining and managing our employee base.

          Attract  and  retain a highly  specialized  workforce.  We  intend  to
continue  to recruit  highly  skilled  and  experienced  professionals  who have
industry-specific  expertise  and  who  are  proficient  in  a  broad  range  of
technological  and  business  skills.  We intend to  continue to ensure that our
employees have the requisite expertise to provide our partner companies with the
combination of venture funding, venture development and venture banking services
that we offer.  We plan to attract,  retain and motivate our employees by paying
competitive  compensation  packages,  granting  stock options and  encouraging a
corporate culture that is results-driven and rewards  creativity,  communication
and cooperation.

         Focus on  partnering  with  potential  market  leaders.  We  intend  to
continue to focus on acquiring direct equity interests in and on partnering with
Internet-based  businesses  that we believe have the  potential to become market
leaders.   We  will  continue  to  select  our  partner   companies   through  a
comprehensive  screening process. In evaluating potential partner companies,  we
will  continue to analyze the size and growth of the target  markets  that their
products and services  address and assess  their  ability to achieve  commercial
success and gain significant market share.

                                       5

<PAGE>

         Establish market presence. We believe that strengthening the THCG brand
is an important aspect of attracting  partner  companies.  We intend to increase
public awareness of our company and establish a market presence by:

         o        organizing  and   sponsoring   conferences  to  establish  our
                  position within the industry and with Internet companies; and

         o        enhancing our web site.

OUR PARTNERING PROCESS

         We identify potential partner companies in a variety of ways, including
referrals from existing partner companies, members of our board of directors and
board of advisors and unsolicited  proposals and business plans submitted to our
web site.  We have  developed  criteria  that we  believe  allow us to  identify
attractive partner companies.  Our evaluation  procedures are designed to ensure
that we  maximize  the number of  opportunities  we review and that we  complete
transactions in a rapid and efficient manner.

Partner Company Criteria

         We believe  that there are  several  key  elements  to  evaluating  the
potential success of global  Internet-based  businesses,  established "brick and
mortar"  companies   implementing  an   Internet-based   strategy  and  advanced
technology  and  service  companies.  We target  our  venture  funding,  venture
development  and venture  banking  services  to  companies  with  several of the
following characteristics:

         o        Strong  founding  entrepreneurial  team. We look for companies
                  whose founding entrepreneurs have proven operating success and
                  experience   in   previous    ventures,    sector   knowledge,
                  entrepreneurship  and vision, and the foundation from which to
                  build a potentially successful business entity.

         o        Innovation and technological expertise. We seek companies with
                  perceived  innovative  and  compelling  ideas  that we believe
                  allow them to address  market needs or  establish  potentially
                  new market  opportunities.  We also look for companies  with a
                  demonstrable   technological   advantage  that  could  prevent
                  competitors from easily entering their market. In addition, we
                  look for  companies  with  accomplished  technical  teams that
                  appear to have the skills to bring  their  concepts  to market
                  quickly, enabling them to capitalize on market opportunities.

         o        Viable business models and superior products and services.  We
                  favor  companies  with viable  business  models  that  involve
                  products and services that could produce high gross margins.

         o        Large target market and  favorable  competitive  dynamics.  We
                  seek companies that target large and rapidly  growing  markets
                  both domestically and globally.  The size of the target market
                  and a company's  share of that market  enable us to assess the
                  potential  future  value  of  that  company.   We  also  favor
                  companies with perceived strong competitive positions, as well
                  as   industries   where   there  are  no   apparent   dominant
                  Internet-based  businesses.  As  part  of our  assessment,  we
                  evaluate current competitors and potential market entrants.

         o        Early stage development.  We seek companies which are in their
                  early stages of  development  and in which we can be the first
                  professional  investor.  In  addition,  we look for  companies
                  which  can take  advantage  of and  benefit  from our  venture
                  funding, venture development and venture banking services.

         o        Exit  strategy.  We favor  companies  which we believe will be
                  able to reach the stage of  development  necessary to complete
                  an initial public offering or to be acquired.

                                       6

<PAGE>

Evaluation Process

         Our evaluation process is designed to identify  attractive partners and
assess their value.  This  process,  which is conducted  through  venture  teams
comprised  of our venture  funding,  venture  development  and  venture  banking
professionals, consists of the following steps:

         o        Initial  evaluation.  In this initial stage of our  evaluation
                  process, our venture teams assess a potential opportunity from
                  a  conceptual  level.  Our  venture  teams  review a potential
                  partner  company's  business  plan and meet with its  founding
                  entrepreneurs  to  gather   information  about  the  potential
                  partner  company's  business,  market  opportunity,  state  of
                  development,  marketing plan, competitive situation, technical
                  team  and  capital  and  infrastructure  needs.  This  initial
                  evaluation  enables our venture teams to determine  whether an
                  opportunity  fits  within  our  overall   business   strategy.
                  Suitable opportunities are then subjected to the due diligence
                  phase of our evaluation process.

         o        Due  diligence.  The  second  step of our  evaluation  process
                  involves a  comprehensive  due  diligence  investigation  of a
                  potential  partner  company.  Our  venture  teams  assess  the
                  overall   business   opportunity  by  performing  an  in-depth
                  financial  review  and  valuation  of  the  potential  partner
                  company,  reviewing its technical  capabilities and conducting
                  more specialized  reviews of areas critical to its success. In
                  addition,  we  engage  legal  counsel  to  conduct  legal  due
                  diligence of the potential partner company.

         o        Management  approval.  Upon  completion of due diligence,  our
                  venture  teams  make a  recommendation  to senior  management.
                  Senior  management  then  determines  whether we will pursue a
                  relationship with a potential partner company.

         Upon  completion of our  evaluation  process,  we typically  acquire an
equity  interest  in a  partner  company  in  exchange  for a  substantial  cash
investment.  At the same time, our venture  development teams,  working together
with the management of our partner companies, assess the operational,  strategic
and financial needs of our partner  companies and determine the level of venture
development services that we can provide to satisfy those needs. We also provide
venture  banking  services to our partner  companies as needed to implement  the
proposals  of our venture  development  teams as they relate to capital  raising
transactions,  mergers and acquisitions and  recapitalizations and refinancings.
In exchange for our venture development and venture banking services, we receive
compensation in the form of cash, securities or a combination of both.

VENTURE FUNDING SERVICES

         To date,  we have and  continue  to  acquire  equity  interests  in our
partner  companies  through  a  venture  fund  that  is  managed  by  one of our
wholly-owned  subsidiaries  and in  which  we own a 9.9%  interest.  On  certain
occasions, we have acquired direct equity interests in our partner companies. In
the future,  our venture funding  strategy is to acquire direct equity interests
of at least 25% in our partner  companies.  Our venture  funding  activities are
primarily focused on global  Internet-based  businesses,  established "brick and
mortar"  companies   implementing  an   Internet-based   strategy  and  advanced
technology and service companies.

         We believe that we have an advantage over other  Internet  investors in
identifying and selecting partner companies with the most growth and development
potential due to:

         o        our  understanding of Internet  business models gained through
                  our venture development and venture banking experience; and

         o        our team of venture funding,  venture  development and venture
                  banking  professionals  who  are  able  to  help  us  identify
                  high-quality  companies and perform  coordinated due diligence
                  on these potential investments.

         In  addition,  we  believe  that we are  better  able to  increase  the
likelihood of the success of our partner companies by providing them with:

                                       7

<PAGE>

         o        access to our team of venture funding, venture development and
                  venture banking professionals;

         o        our venture development services,  which we believe may enable
                  us to help build our partner companies into market leaders;

         o        our venture banking  services,  which we believe may enable us
                  to   facilitate   successful   financing   and   mergers   and
                  acquisitions transactions for our partner companies; and

         o        the opportunity to collaborate with one another.

Our Venture Fund

         THCG Venture Partners I LLC, a Delaware limited liability  company,  is
the vehicle  through  which we have,  until now,  provided  our venture  funding
services.  We own 9.9% of THCG  Venture  Partners I through THCG LLC, a Delaware
limited  liability   company  and  a  wholly-owned   subsidiary  of  Tower  Hill
Securities.  In addition,  THCG Ventures LLC, a wholly owned subsidiary of Tower
Hill Securities,  is the non-member manager of THCG Venture Partners I, with the
sole authority to manage and operate THCG Venture Partners I.

          THCG  Venture  Partners  I was  formed  in  December  1999 and has $20
million of  committed  equity.  THCG  Venture  Partners  I has three  members as
follows:

         o        Greenwich Street Capital Partners II, L.P., a Delaware limited
                  partnership, and certain of its affiliates directly own 75% of
                  THCG Venture Partners I, representing a capital  commitment of
                  $15 million.  Greenwich  Street Capital  Partners II and these
                  affiliates  are major  stockholders  of THCG, and one of their
                  designees is a member of our board of directors.

         o        THCG  Partners  LLC, a  Delaware  limited  liability  company,
                  directly owns 15.1% of THCG Venture Partners I, representing a
                  capital  commitment  of $3.02  million.  THCG Partners LLC was
                  formed in  December  1999 and has $5.51  million of  committed
                  equity. THCG Partners LLC has 29 members as follows:

                  |_|    Three of our directors and executive  officers,  Joseph
                         D. Mark, Evan M. Marks and Larry W. Smith, collectively
                         own  10.44%  of  THCG  Partners  LLC,  representing  an
                         aggregate capital commitment of $553,425.

                  |_|    Several persons  associated with Joseph D. Mark and Adi
                         Raviv,  directors  and co-chief  executive  officers of
                         THCG,  collectively  own 19.96% of THCG  Partners  LLC,
                         representing  an aggregate  capital  commitment of $1.1
                         million.

                  |_|    THCG Ventures LLC, a Delaware limited liability company
                         and a wholly-owned subsidiary of Tower Hill Securities,
                         owns 0.45% of THCG Partners LLC, representing a capital
                         commitment of $25,000.  We have a 0.45% equity interest
                         in THCG Partners LLC through our indirect  ownership of
                         THCG Ventures LLC.

                  |_|    All  other  members  collectively  own  69.15%  of THCG
                         Partners  LLC,   representing   an  aggregate   capital
                         contribution of $3.8 million.

         o        THCG LLC owns 9.9% of THCG Venture Partners I,  representing a
                  capital commitment of $1.98 million.

Structure of Interests in Partner Companies


                                       8

<PAGE>

         To date, in exchange for cash investments,  THCG Venture Partners I has
acquired equity interests in our partner companies consisting of common stock or
convertible  preferred  stock.  Whenever  possible,  THCG Venture Partners I has
obtained the right to  designate at least one director of our partner  companies
and has  obtained  rights of  participation  in, or  control  over,  a number of
material decisions affecting our partner companies.  THCG Venture Partners I has
also negotiated for additional rights,  including registration rights, rights of
first refusal,  co-sale rights,  anti-dilution  protection and preemptive rights
relating to our partner companies'  issuances of additional equity. THCG Venture
Partners  I has also  required  our  partner  companies  to  appoint  designated
directors to the executive, audit and compensation committees of their boards of
directors.  On certain  occasions,  we have  acquired an equity  interest in our
partner  companies at the same time THCG Venture  Partners I acquired its equity
interest.

         The  convertible  preferred  stock  that THCG  Venture  Partners  I has
acquired in our partner  companies  generally votes as if it were converted into
common  stock.  Conversion  is at the holder's  option or is  automatic  upon an
initial  public  offering of the common stock of our partner  company that meets
criteria  generally  relating to the total  offering size and offering price per
share.

         In the future, we intend to acquire direct equity interests of at least
25% in our partner  companies.  We plan to adopt the same  acquisition  strategy
that THCG  Venture  Partners I has  applied  in the past.  We have  changed  our
strategy  because we believe we can maximize the potential  value of our partner
companies  if we acquire  greater  interests  in a smaller  selection of partner
companies  in which we have  the  resources  to  actively  participate  in their
development.  In  addition,  we  plan to take a more  active  role in  managing,
operating  and  financing  our partner  companies.  If we are  successful in our
strategy of actively  managing  the  operations  of our  partner  companies,  we
believe we will be able to avoid regulation under the Investment Company Act.

VENTURE DEVELOPMENT SERVICES

         The nature of the venture  development  services that we provide to our
partner companies is dictated by their stage of development.  We expect that our
partner  companies will be in one of the following  four stages of  development,
which we classify as tiers:

         o        Tier Zero.  Tier Zero companies are those  companies that have
                  business ideas but no financial resources or expertise to help
                  develop those ideas into a meaningful  business  plan. At Tier
                  Zero, we form  companies  that fit into our business  strategy
                  and add value to our partner company network.  We then develop
                  and refine the new company's  business model;  lend management
                  resources  to  facilitate  the  initial  marketing,   business
                  development  and strategic  development  of the company;  hire
                  employees;  provide  office space;  and assume all  financial,
                  accounting and legal functions.

         o        Tier I. Tier I companies are in an early stage of development.
                  These  companies  have a business  plan but have limited or no
                  infrastructure  or institutional  financing to implement their
                  business plan.

         o        Tier II.  Tier II  companies  are more  developed  than Tier I
                  companies.  These  companies are  operational,  but still need
                  business  strategy  refinement,   assistance  with  technology
                  issues,  operations  support,  financing and possibly  interim
                  management.

         o        Tier III.  Tier III  companies  are  seasoned  companies.  The
                  companies  are more  developed  than  Tier II  companies,  but
                  require   marketing   and  branding,   business   development,
                  financial advisory services and substantial financing.

         We provide a wide range of venture development  services to our partner
companies which include:

         o        strategic  guidance  regarding  market  positioning,  business
                  model development and market trends;

         o        technology and operations planning;

         o        sales, marketing, product positioning and branding;

         o        market launch programs and implementation consulting;

         o        e-commerce consulting; and

         o        interim management.

                                       9

<PAGE>

Venture Development Fees

         For our  venture  development  services,  we  negotiate  fees  with our
partner companies based on the scope of venture development services that we are
engaged  to  provide.  Our fees are  generally  paid in  cash,  securities  or a
combination of both. In addition,  we are typically  reimbursed for the expenses
we incur in providing our venture development services.

VENTURE BANKING SERVICES

         We provide our partner  companies with venture banking services through
Tower Hill Securities,  a registered  broker-dealer and a member of the National
Association of Securities  Dealers.  Our venture banking services encompass four
principal areas:

         o        General  financial  advisory  services.  We assist our partner
                  companies in planning and developing their capital structures.
                  In addition,  we provide our partner companies with valuations
                  and fairness opinions.

         o        Capital  raising.  We help  our  partner  companies  implement
                  private  placements of equity and debt securities.  Typically,
                  we seek to effect  private  placements  of equity  ranging  in
                  amounts  from  approximately  $5 million to $50  million.  Our
                  capital raising  activities include preparing private offering
                  documents,   identifying  potential  strategic  and  financial
                  investors,  assessing commitment offers, negotiating the terms
                  of commitments  and managing all phases of  documentation  and
                  transaction execution.

         o        Mergers and  acquisitions.  We assist our partner companies in
                  evaluating,    structuring   and   negotiating   acquisitions,
                  dispositions  and other  transactions  on terms and conditions
                  consistent with our partner  company's  overall  strategic and
                  financial  objectives.  Our services  include  identifying and
                  negotiating with potential purchasers and acquisition targets,
                  assisting  in  due  diligence  reviews,   preparing  financial
                  analyses and valuations of a purchaser or target,  determining
                  the  appropriate  capital  structure for the  transaction  and
                  managing all phases of the transaction.

         o        Recapitalizations  and  refinancings.  We assist  our  partner
                  companies  by  analyzing  their  capital  needs and  effecting
                  recapitalizations  and  refinancings to meet those needs.  Our
                  services  include  evaluating  a  partner  company's  existing
                  capital structure and needs, assessing the potential impact of
                  corporate finance  alternatives,  preparing  communications to
                  stockholders,   debtholders,  potential  investors  and  other
                  interested  parties,  and assisting with the implementation of
                  the chosen alternatives.

Venture Banking Commissions

         For our  venture  banking  services,  we  generally  receive a retainer
payment,  usually  ranging from  $25,000 to  $100,000,  with the majority of our
project-related  fees  payable  only  upon  the  successful   conclusion  of  an
engagement.  Generally,  our  fees  are  paid  in  a  combination  of  cash  and
securities.  Because we are engaged in a capital intensive business, we must pay
certain fixed costs before we receive  payment for our  services,  which payment
may or may not be in cash.

         The success fees we receive upon  completion  of an  engagement  depend
upon the type of engagement.  Descriptions of the success fees that we generally
expect to receive are set forth below:

         Capital  raising.  Upon  the  closing  of  an  equity  capital  raising
transaction,  we will generally  receive cash success fees in an amount equal to
5% to 7.5% of the amount of capital raised.  In addition,  we generally  receive
additional  success  fees in the form of  warrants to  purchase  the  securities
issued by our partner company in the transaction. Such warrants are generally in
a dollar amount equal to 10% of the amount of securities sold in the transaction
and are  exercisable  for five  years  at a price  equal  to the  price  for the
securities  paid by the  investors in the  transaction.  In instances  where the
capital raising transaction  includes the issuance of warrants and/or options to
purchase  additional  securities,  we will  generally  receive  additional  cash
success  fees equal to 3% of any amount of capital  raised upon the  exercise of
the warrants and/or options at the time that capital is actually received by our
partner company.

                                       10

<PAGE>

         Mergers  and  acquisitions;   recapitalizations  and  refinancings.  In
connection  with an engagement in which we provide  strategic and other advisory
services  to a partner  company  involved  in a sale,  purchase  or  exchange of
assets, a merger or consolidation,  a leveraged buyout, the formation of a joint
venture,  a minority  investment or partnership,  a leveraged  recapitalization,
spin-off or any similar  transaction,  we generally receive a prescribed success
fee at the time that the transaction is concluded.  While the amount of this fee
is dependent to some extent upon the anticipated nature, complexity and duration
of the  specific  engagement,  these  fees  generally  range  from  $250,000  to
$1,500,000  and are paid in cash.  In order to avert a potential  divergence  of
interests  between  ourselves and our partner  companies,  we generally  seek to
avoid setting fees that are dependent upon the consideration paid or received in
the transaction.  However, we will occasionally  receive  significant  incentive
compensation  if we are able to  maximize  the  consideration  a selling  entity
receives.

OUR PARTNER COMPANIES

         As of March 30, 2000, we had acquired equity interests in the following
partner companies. We also provide either venture development or venture banking
services, or both, to the following partner companies:
<TABLE>
<CAPTION>
                                                                                                      Our
                                                                                Total Position     Ownership     Portfolio
                                                                                 of THCG and      Percentage      Company
              Company         Industry      Description of Business             Affiliates (1)        (2)          Since
              -------         --------      -----------------------             --------------        ---          -----
Advanced Technology and Services

<S>           <C>              <C>            <C>                                   <C>              <C>            <C>
              Globecom        Software      Provides broadband-enabled              18.0%            3.2%           2000
              Interactive     and Services  presentation of products and
              Commerce,                     services.
              Inc.

              IT Utility,     Application   Internet-based "Total Solution          34.9%            14.4%          1999
              Inc.            Service       Provider" that manages the
                              Provider      entire information technology
                                            platform and network for its
                                            clients, including hardware and
                                            legacy software.

Brick & Mortar, Implementing an Internet-based Strategy

              Designer        Designer      High-end online consortium of           12.5%            12.5%          1999
              Jewelry Online  Jewelry       manufacturers and retailers of
                                            designer jewelry.

              Gifts With      Religious     Christian oriented e-commerce           12.0%            12.0%          2000
              Love            Products      gift site.

Internet-based Businesses

              Al-Bawaba.com,  Middle        Developer of an on-line portal          17.9%            5.6%           2000
              Inc.            Eastern       to serve the Middle East.
                              portal

              Convergence     Youth         Leverages the Internet to change        21.2%            8.0%           2000
              MediaGroup,     Marketing     the way brands are marketed to
              Inc.                          youth.

              Global Credit   Business      Provides commercial credit              39.1%            26.9%          2000
              Services, Inc.  Intelligence  information and credit-risk
                                            assessment services on retail
                                            companies in various segments to
                                            its corporate clientele.

              Test            Test          Internet-based test preparation         13.4%            2.4%           1999
              University,     Preparation   service designed to help
              Inc.                          students prepare for
                                            standardized examinations.
</TABLE>

(1) Includes total position held by THCG,  Inc., its  wholly-owned  subsidiaries
    and  THCG  Venture  Partners  I LLC,  assuming  the  conversion  of  warrant
    positions, on a fully-diluted basis.

                                       11

<PAGE>

(2) Includes   total   position  held  by  THCG,   Inc.  and  its   wholly-owned
    subsidiaries,   assuming  the   conversion  of  warrant   positions,   on  a
    fully-diluted  basis.  Includes  THCG,  Inc.'s  pro-rata  ownership  of  the
    position held by THCG Venture Partners I LLC.

CASE STUDIES OF SELECTED PARTNER COMPANIES

         The  following  is  a  description  of  the  venture  funding,  venture
development and venture banking services which we have provided or are providing
to some of our partner companies:

Globecom  Interactive  Commerce,  Inc. (formerly known as Modernita  Interactive
Commerce, Inc.)

         Globecom   Interactive   Commerce,   Inc.  provides   broadband-enabled
presentation  of  products  and  services.  On February  9, 2000,  THCG  Venture
Partners I invested $3 million in Globecom Interactive Commerce,  for which THCG
Venture Partners I received shares of Series A Convertible  Redeemable Preferred
Stock.  In  addition,  Globecom  Interactive  Commerce  retained  us to  provide
business planning and human resource services,  and to help it raise $10 million
in additional capital.  For our venture banking services,  Globecom  Interactive
Commerce  paid us a cash fee and  issued  Tower  Hill  Securities  a warrant  to
purchase  shares  of  Globecom  Interactive   Commerce's  Series  A  Convertible
Redeemable Preferred Stock.

IT Utility, Inc.

         IT Utility,  Inc. is an Internet-based  "Total Solution  Provider" that
manages the entire information  technology platform and network for its clients,
including  hardware  and legacy  software.  On November  30,  1999,  we invested
$215,000 in IT Utility,  for which we acquired  shares of IT Utility's  Series A
Convertible  Preferred  Stock.  On December  30, 1999,  THCG Venture  Partners I
invested $2.1 million in IT Utility,  for which THCG Venture Partners I acquired
shares of IT Utility's  Series B Convertible  Preferred  Stock. In addition,  IT
Utility retained us to provide it with complete  marketing  services  (including
framing  and  positioning  the  business,   coordinating  its  public  relations
strategy,  conducting  focus groups,  developing sites and consulting on overall
strategy) and business  assistance  (including  budget planning,  human resource
planning and operational  buildout  assistance).  IT Utility also retained us to
assist  it in  identifying  its  future  capital  needs and  creating  a funding
strategy to meet them. In connection with our venture development  services,  we
received shares of common stock of IT Utility.  In connection with these venture
banking services, IT Utility paid us a cash fee and issued Tower Hill Securities
a warrant to purchase  shares of IT  Utility's  Series B  Convertible  Preferred
Stock.

Designer Jewelry Online

         Designer   Jewelry   Online  is  a  high-end   online   consortium   of
manufacturers  and  retailers of designer  jewelry.  On March 9, 2000,  Designer
Jewelry Online  retained us to provide it with venture  development  and venture
banking  services  to assist it in  creating  an  e-commerce  solution  for fine
jewelry retailers and manufacturing  companies online. Our services will include
creating a detailed business plan,  financial models,  capitalization  programs,
and  management  recruiting  and  assistance.  For our venture  development  and
venture banking  services,  we received an equity  position in Designer  Jewelry
Online.

Al-Bawaba.com, Inc.

         Al-Bawaba.com,  Inc. is a developer  of an on-line  portal to serve the
Middle East. On March 20, 2000,  THCG Venture  Partners I invested $3 million in
Al-Bawaba,  for  which  THCG  Venture  Partners  I  received  shares of Series A
Convertible  Redeemable  Preferred Stock. In addition,  Al-Bawaba retained us to
assist it in raising $10 to $15 million in additional capital. For these venture
banking services,  Al-Bawaba paid us a cash fee and issued Tower Hill Securities
shares of its common stock.

                                       12

<PAGE>

Convergence MediaGroup, Inc.

         Convergence  MediaGroup leverages the Internet to change the way brands
are marketed to youth. On March 1, 2000,  THCG Venture  Partners I invested $2.5
million in Convergence  MediaGroup,  for which THCG Venture  Partners I received
shares of Convergence  MediaGroup's  Series A Preferred  Stock. We also received
shares  of  Convergence  MediaGroup's  common  stock  for  agreeing  to  provide
Convergence   MediaGroup  with  future  financing.   In  addition,   Convergence
MediaGroup  retained  us to  provide  venture  development  services,  for which
Convergence MediaGroup issued us shares of Series A Preferred Stock, and venture
banking services, for which Convergence MediaGroup paid us a cash fee and issued
us a warrant to purchase shares of Convergence  MediaGroup's  Series A Preferred
Stock.

Global Credit Services, Inc.

         Global  Credit  Services,   Inc.  provides  to  its  corporate  clients
commercial  credit  information  and credit-risk  assessment  services on retail
companies in various  segments.  On February 7, 2000,  THCG  Venture  Partners I
invested $2 million in Global Credit  Services,  for which it acquired shares of
common stock. At the same time, we acquired shares of Global Credit common stock
from Global Credit's stockholders in exchange for shares of our common stock. In
addition,  Global Credit  Services  retained us to assist it in raising $3 to $5
million in additional capital. For these venture banking services, Global Credit
Services paid us a cash fee and issued us a warrant to purchase shares of Global
Credit Services' common stock.

Test University, Inc.

         Test University, Inc. provides Internet-based test preparation services
designed to help students prepare for standardized examinations. On December 31,
1999, THCG Venture Partners I invested $3 million in Test University,  for which
THCG  Venture  Partners  I  acquired  shares  of  Test  University's   Series  A
Convertible Preferred Stock and common stock. In addition, we have been retained
to  raise  $10 to $15  million  in  additional  capital  and  to  provide  other
investment banking services. In connection with our venture banking services, we
were paid a cash fee and we  received a warrant to  purchase  Test  University's
Series A Convertible Preferred Stock.

         In addition  to our partner  companies,  as of March 30,  2000,  we had
equity  interests in the  companies set forth below.  We do not provide  venture
banking or venture  development  services to these  companies.  Unless otherwise
noted,  these  interests were acquired by either Tower Hill Securities or Walnut
prior to November 1, 1999 and the implementation of our new business strategy.
<TABLE>
<CAPTION>

                                                                                                      Our
                                                                                Total Position     Ownership     Portfolio
                                                                                 of THCG and      Percentage      Company
              Company         Industry      Description of Business             Affiliates (1)        (2)          Since
              -------         --------      -----------------------             --------------        ---          -----

Advanced Technology and Services

<S>            <C>           <C>            <C>                                     <C>               <C>           <C>
              Daleen          Software      Provides next-generation billing          *                *            1997
              Technologies,   and Services  and customer care software that
              Inc.                          can provide an enterprise
                                            solution for integrated
                                            communications providers.

              Interleaf,      Software      Provides software and services            *                *            1999
              Inc.            and Services  for the creation and
                                            distribution of e-content. In
                                            January 2000, Interleaf announced it
                                            was being purchased by Broadvision.

              LogNet Systems  Software      Serves the market for                    6.6%            6.6%           1999
                              and Services  Internet-to-Host connectivity,
                                            terminal connectivity and
                                            host/client printing solutions.

              Novazen, Inc.   Software      An emerging technology firm               *                *            1999
                              and Services  focused on providing advanced
                                            Internet customer care and
                                            electronic bill presentment and
                                            payment solutions for industries
                                            including communications, utility
                                            and financial services.
</TABLE>

                                       13

<PAGE>

<TABLE>
<CAPTION>

                                                                                                      Our
                                                                                Total Position     Ownership     Portfolio
                                                                                 of THCG and      Percentage      Company
              Company         Industry      Description of Business             Affiliates (1)        (2)          Since
              -------         --------      -----------------------             --------------        ---          -----

Advanced Technology and Services (cont'd)

<S>            <C>           <C>            <C>                                     <C>               <C>           <C>
              Real Time       Software      Provides e-commerce and                   *                *            1999
              Image Ltd       and Services  collaboration tools for
                                            commercial print companies
                                            enabling printers to deliver
                                            high quality products faster and
                                            cheaper.

              Softwatch       Software      Provides Internet customer               1.3%            1.3%           1999
                              and Services  relationship management
                                            solutions to pharmaceutical
                                            companies and healthcare vendors.

              WebMethods,     Software      Provides infrastructure software         2.5%              *            1997
              Inc. (4)        and Services  and services that allow
                                            companies to achieve
                                            business-to-business integration.

Brick & Mortar, Implementing an Internet-based Strategy

              Etravnet.com    Travel        Sells travel services to                 1.0%            1.0%           1999
                              Services      consumers via its franchised
                                            stores, through its web site and
                                            through its web franchises.

              Fashion500.com  Consumer      Provides two approaches to sell           *                *            1999
                              e-commerce    fashion products over the
                                            Internet. It is developing a
                                            platform to support sales by
                                            designers through their own web
                                            sites, as well as through an
                                            aggregated web site maintained by
                                            Fashion500.

              VINnet          Government    Provides electronic vehicle              5.5%            5.5%           1995
                              services      registration and titling
                                            services on behalf of
                                            participating states'
                                            departments of motor vehicles.
Internet-based Businesses

             Bikini.com       Consumer      Developing a media brand                  *                *            1999
                              Entertainment identity associated with beach
                                            wear and fun.

             iBeauty          Prestige      An Internet-based retailer of            1.3%            1.3%           1999
                              Beauty        prestige designer fragrances.
                              Products

             Market Player    Financial     Online provider of stock                 2.7%            1.2%           2000
             (3)              Education     competitions and financial tools
                                            such as stock screening, stock
                                            charting, and news for
                                            individual investors.

             Passport New     Consumer      Internet-based service that will         2.5%            0.2%           2000
             Media (3)        Entertainment allow children to experience the
                                            Internet and other digital
                                            content in a safe atmosphere
                                            immune from any bandwidth
                                            constraints.

             TechOnLine       Technical     Web site that provides                   3.8%            3.8%           1999
                              Education     technology professionals with
                                            knowledge to select and
                                            integrate technologies into new
                                            products.
</TABLE>
* Less than 1%.

(1) Includes total position held by THCG,  Inc., its  wholly-owned  subsidiaries
    and  THCG  Venture  Partners  I LLC,  assuming  the  conversion  of  warrant
    positions, on a fully-diluted basis.

(2) Includes   total   position  held  by  THCG,   Inc.  and  its   wholly-owned
    subsidiaries,   assuming  the   conversion  of  warrant   positions,   on  a
    fully-diluted  basis.  Includes  THCG,  Inc.'s  pro-rata  ownership  of  the
    position held by THCG Venture Partners I LLC.

(3) We acquired our equity interest in this company after November 1, 1999.

                                       14

<PAGE>

(4) Total  position  held   exclusively  by  Walnut  Growth   Partners   Limited
    Partnership,  of  which a  wholly-owned  subsidiary  of THCG is the  general
    partner.

         As of March 30, 2000, we also had equity  positions in approximately 30
additional  companies  that were  acquired  prior to  November 1, 1999 by Walnut
Financial  Services,  Inc. We expect to liquidate our equity  positions in those
companies as market opportunities permit.

ACCOUNTS RECEIVABLE FACTORING BUSINESS

         We engage in the accounts  receivable  factoring  business  through our
wholly owned subsidiaries,  Pacific Financial Services Corporation, a Washington
corporation based in Bellevue,  Washington,  and Inland Financial Corporation, a
Washington corporation based in Spokane, Washington. We are currently engaged in
a  strategic  review  of our  accounts  receivable  factoring  business  and its
compatibility with our new business strategy.

         Inland Financial and Pacific  Financial  generally provide financing to
their  clients by  purchasing  accounts  receivable  owed to the  clients by the
client's customers, usually on a non-recourse basis, for a fee that is generally
equal to 0.5% to 2% of the factored sales volume.  Inland  Financial and Pacific
Financial  also  provide  their  clients  with  access  to  credit   management,
collection and information services,  including certain computerized  accounting
services, as well as credit assurance.

         Inland Financial and Pacific Financial guarantee the collection of each
client's  pre-approved  receivables or receivables from each client's  customers
with   pre-approved   credit   lines.   Payment   for   receivables   which  are
credit-approved  by Inland Financial or Pacific  Financial is made to the client
after  collection  from the client's  customer or, if the receivable is not paid
based solely on the customer's  financial  inability to pay,  payment is made to
the client after an agreed upon period of time, usually 90 to 120 days after the
due date of the receivable.  Frequently,  Inland Financial and Pacific Financial
also advance funds to its clients prior to collection of receivables  and charge
interest on such advances (in addition to any factoring  fees) at an annual rate
generally equal to 1% to 4% over the prime rate in effect from time to time.

          Inland  Financial  and  Pacific   Financial  also  provide   equipment
inventory financing to some of their factoring clients and guarantee amounts due
under  letters of credit issued to their  clients  which are  collateralized  by
accounts receivable and other assets.

COMPETITION

Competition for Overall Venture Funding, Venture Development and Venture Banking
Market

         We  compete  against  numerous  public  companies  such as CMGI,  Inc.,
Internet  Capital Group,  Inc.,  Rare Medium Group,  Inc. and Softbank Corp., as
well as private companies such as Idealab! and Divine Interventures,  Inc., that
provide some combination of the venture funding, venture development and venture
banking  services  that  we  provide.  Many of  these  competitors  have  longer
operating  histories,  larger installed client bases,  greater name recognition,
more experience and significantly  greater financial,  technical,  marketing and
other  resources  than we do. We expect that  competition  from both private and
public  companies in our markets will  intensify.  At any time,  our current and
potential  competitors could increase their resource commitments to our markets.
Among other adverse  consequences,  this competition may diminish our ability to
identify, attract and develop relationships with partner companies. As a result,
our business,  operating results and financial condition could be materially and
adversely affected.

Competition  for Individual  Venture  Funding,  Venture  Development and Venture
Banking Markets

         The individual  markets for venture  funding,  venture  development and
venture banking  services are intensively  competitive and  characterized  by an
increasing number of entrants because the barriers to entry in these markets are
relatively low.


                                       15

<PAGE>

         In providing  venture funding  services,  we compete  directly  against
traditional  venture  capital  and private  equity  firms and public and private
companies  with venture  funds.  Many of these  competitors  have  significantly
greater  experience  and financial  resources than we have. In addition to these
competitors,  numerous public  companies such as CMGI,  Inc.,  Internet  Capital
Group,  Inc.,  Rare Medium Group,  Inc. and Softbank  Corp.,  as well as private
companies such as Idealab!  and Divine  Interventures,  Inc., devote significant
resources  to  providing  capital  together  with other  resources  to  Internet
companies.  Additionally,  corporate strategic investors,  including Fortune 500
and  other  significant  companies,   are  developing  Internet  strategies  and
capabilities.  Many of these  competitors have  significantly  greater financial
resources and brand name  recognition  than we do, and the barriers to entry for
companies  seeking to provide capital and other resources to  entrepreneurs  and
their emerging technology companies are minimal. We expect that competition from
both private and public  companies with business  models similar to our own will
intensify.  Among other adverse consequences,  this competition may diminish the
pool of potential  investment  opportunities and raise the cost of making future
investments.  As a  result,  our  financial  condition,  operating  results  and
business could be materially and adversely affected.

         In providing venture development  services, we compete directly against
strategy consulting firms and management  consulting firms. In providing venture
banking services, we compete directly with other investment banking and merchant
banking  firms  which  vary in size from  small,  privately-owned  firms to very
large,  publicly-held  corporations.  We also face increasing  competition  from
other  sources,  such as commercial  banks,  insurance  companies and consulting
firms offering  financial  services.  The principle  competitive  factors in the
investment   banking  and  financial   services  industry  include   transaction
experience, breadth of services offered, innovation,  reputation and price. Many
of our current and potential  competitors in the venture development and venture
banking markets have longer operating histories, larger installed clients bases,
greater  name  recognition,  more  experience  and  have  significantly  greater
financial, technical, marketing and other resources than we do. As a result, our
competitors may be more attractive  partners to  Internet-based  businesses.  In
addition,  our  competitors  may be able to respond  more  quickly to changes in
client needs,  service more clients  simultaneously and undertake more extensive
marketing  campaigns.  We  cannot  assure  you  that we will be able to  compete
successfully  against  our  current or future  competitors  or that  competitive
pressures  will not have a material  adverse  effect on our business,  operating
results and financial condition.

Competition Facing our Partner Companies

         Competition for  Internet-related  products and services is intense. As
the market for e-commerce  grows,  we expect that  competition  will  intensify.
Barriers to entry are minimal,  and  competitors can offer products and services
at a  relatively  low cost.  Further,  our partner  companies'  competitors  may
develop  Internet  products or services  that are  superior  to, or have greater
market acceptance than, the solutions offered by our partner companies.  Many of
our partner  companies'  competitors have greater brand  recognition and greater
financial,  marketing and other resources than our partner  companies.  This may
place  our  partner   companies  at  a  disadvantage   in  responding  to  their
competitors' pricing strategies,  technological advances, advertising campaigns,
strategic  partnerships  and other  initiatives.  If our partner  companies  are
unable to  compete  successfully,  they will fail and it could  have a  material
adverse effect on our business and financial condition.

Competition Facing Inland Financial and Pacific Financial

         Inland Financial and Pacific  Financial  compete with a small number of
very large  factoring  companies  operating  nationally and a multitude of small
companies  generally  operating on a local or regional basis. In addition to the
greater   traditional   sources  of  financing  available  to  larger  factoring
companies,  larger  factoring  companies  also  are able to  participate  in the
securitization   of  factored   advances   collaterized  by  factored   accounts
receivable.

GOVERNMENT REGULATION

Investment Company Act of 1940

         We are not  currently  required to be registered  under the  Investment
Company Act. Generally, a company must register under the Investment Company Act
and comply with significant  restrictions on operations and transactions if: (1)
its investment securities exceed 40% of its total assets, or (2) it holds itself
out as being "primarily engaged" in the business of investing, owning or holding
securities.  At this  time,  less than 40% of our

                                       16

<PAGE>

total  assets are  investment  securities.  If, in the  future,  our  investment
securities  exceed  40% of our  total  assets,  we  believe  that we will not be
required to register under the Investment Company Act because we believe that we
are  "primarily  engaged"  in a  non-investment  company  business  through  our
wholly-owned subsidiaries and that we do not otherwise meet the requirements for
registering under the Investment  Company Act. However,  if more than 40% of our
total assets are investment  securities and we are no longer "primarily engaged"
in a non-investment company business through our wholly-owned  subsidiaries,  we
believe that we will be "primarily engaged" in a non-investment company business
through our majority-owned  subsidiaries and controlled subsidiaries and we will
then  promptly  file with the  Securities  and Exchange  Commission an exemptive
application  under  Section  3(b)(2) of the  Investment  Company Act to have the
Securities and Exchange  Commission so declare.  If we do not receive  exemptive
relief,  then we may be required to register under the  Investment  Company Act.
Registration  under the Investment  Company Act would be  inconsistent  with our
present  business  strategy and would have a material and adverse  effect on our
business,  financial  condition and  operating  results.  Moreover,  we might be
subject to civil and criminal penalties for failure to register,  certain of our
contracts might be voidable and a court-appointed receiver could take control of
our company and liquidate our business.

         To avoid regulation under the Investment  Company Act, we would have to
attempt  to  reduce  our  investment  securities  to less  than 40% of our total
assets.  This  reduction  can be  attempted in a number of ways,  including  the
disposition  of investment  securities  and the  acquisition  of  non-investment
security assets. If we were required to sell investment securities,  we may sell
them sooner than we otherwise would. These sales may be at depressed prices, and
we may not realize  anticipated  benefits  from,  or may incur  losses on, these
investments.  Some  investments  may not be sold  due to  contractual  or  legal
restrictions or the inability to locate a suitable buyer. Moreover, we may incur
tax  liabilities  when  we  sell  assets.  We may  also be  unable  to  purchase
additional  investment  securities  that  may  be  important  to  our  operating
strategy. If we decide to acquire non-investment  security assets, we may not be
able to identify and acquire suitable assets and businesses.

         If we are deemed to be, and  required  to  register  as, an  investment
company,  we  will  be  forced  to  comply  with  the  numerous  and  burdensome
substantive requirements of the Investment Company Act, including:

         o        limitations on our ability to borrow;

         o        limitations on our capital structure;

         o        restrictions  on  acquisition  of equity  interests in partner
                  companies;

         o        prohibitions on transactions with affiliates;

         o        restrictions on specific investments; and

         o        compliance  with  reporting,  record  keeping,  voting,  proxy
                  disclosure and other rules and regulations.

         If we were  forced to comply  with the  rules  and  regulations  of the
Investment Company Act, our operations would significantly  change, and we would
be prevented from successfully executing our business strategy. As a result, our
business,  financial  condition  and operating  results would be materially  and
adversely affected.

NASD Regulation

         Our wholly-owned  subsidiary,  Tower Hill  Securities,  is a registered
broker-dealer and a member of the National Association of Securities Dealers, or
NASD. As a registered  broker-dealer and NASD member,  Tower Hill Securities and
its principals,  registered  representatives  and other associated  persons must
comply with applicable  federal and state securities laws, rules and regulations
and with the rules of the NASD.

         Broker-dealers  are subject to  regulations  which cover all aspects of
the  securities  business  including:  sales  methods  and  supervisions;  trade
practices;  capital  structure;  use and  safekeeping  of  customer's  funds and
securities; recordkeeping; and the conduct of directors, officers and employees.

                                       17

<PAGE>

         As a registered broker-dealer and NASD member, Tower Hill Securities is
subject to the Net Capital Rule, or Rule 15(c)3-1, under the Securities Exchange
Act of 1934 which requires the maintenance of minimum regulatory net capital and
a specified ratio of aggregate  indebtedness to net capital,  both as defined in
that rule,  which shall not exceed 15 to 1. The Net Capital  Rule is designed to
measure the general  financial  integrity and liquidity of a  broker-dealer  and
requires  that at least a minimal  portion of its  assets be kept in  relatively
liquid form.  Failure to maintain the required net capital may subject a firm to
suspension or expulsion by the NASD, the SEC and other regulatory bodies and may
ultimately require its liquidation.

         Additional  legislation,  changes in rules  promulgated  by the SEC and
self-regulatory  organizations,  or changes in the interpretation or enforcement
of  existing  laws and rules,  may  directly  affect the mode of  operation  and
profitability of  broker-dealers.  The SEC,  self-regulatory  organizations  and
state securities  commissions may conduct  administrative  proceedings which can
result  in  censure,  fine,  the  issuance  of cease  and  desist  orders or the
suspension or expulsion of a broker-dealer, its officers or employees.

Other Regulations and Legal Uncertainties

         Currently,  there are few laws or regulations directed  specifically at
e-commerce.  However,  because of the Internet's  popularity and increasing use,
new laws and  regulations  may be adopted.  These laws and regulations may cover
issues such as the collection and use of data from web site visitors and related
privacy issues,  pricing,  content,  copyrights,  promotions,  distribution  and
quality of goods and services,  registration of domain names and use, and export
and distribution of encryption technology.  The enactment of any additional laws
or regulations may impede the growth of the Internet and e-commerce, which could
decrease  revenues  of our  partner  companies  and place  additional  financial
burdens on them.

         Laws and  regulations  directly  applicable  to  e-commerce or Internet
communications  are becoming  more  prevalent.  For example,  Congress  recently
enacted laws  regarding  online  copyright  infringement  and the  protection of
information  collected online from children.  Although these laws may not have a
direct  adverse  affect  on our  business  or  the  businesses  of  our  partner
companies,  they add to the legal and regulatory burdens faced by Internet-based
businesses. Other areas of potential legislative activity are:

         o        Taxes. Congress has enacted a three-year moratorium, ending on
                  October 21, 2001, on the  application of  "discriminatory"  or
                  "special"  taxes  by  the  states  on  Internet  access  or on
                  products and services  delivered  over the Internet.  Congress
                  further  declared  that  there  will be no  federal  taxes  on
                  e-commerce  until  the end of the  moratorium.  However,  this
                  moratorium  does not prevent states from taxing  activities or
                  goods and services  that the states would  otherwise  have the
                  power to tax.  Furthermore,  the moratorium  does not apply to
                  certain  state taxes that were in place before the  moratorium
                  was enacted.

         o        Online privacy. Both Congress and the Federal Trade Commission
                  are  considering  regulating  the  extent  to which  companies
                  should be able to use and  disclose  information  they  obtain
                  online  from  consumers.   If  any  regulations  are  enacted,
                  Internet-based   businesses   may   find   certain   marketing
                  activities  restricted.  Also, the European Union has directed
                  its member nations to enact privacy  protection  laws that are
                  generally  more  stringent  than  those  found  in the  United
                  States,  and has  threatened to prohibit the export of certain
                  personal data to United States  companies if similar  measures
                  are not adopted.  Such a prohibition could limit the growth of
                  foreign markets for United States  Internet-based  businesses.
                  The  Department  of Commerce is  negotiating  with the Federal
                  Trade Commission to provide exemptions from the European Union
                  regulations,   but  the  outcome  of  these   negotiations  is
                  uncertain.

         o        Regulation of communications  facilities.  To some extent, the
                  rapid growth of the Internet in the United States has been due
                  to  the  relative  lack  of  government  intervention  in  the
                  marketplace for Internet access.  Lack of intervention may not
                  continue    in    the    future.    For    example,    several
                  telecommunications    carriers    are    seeking    to    have
                  telecommunications  over the Internet regulated by the Federal
                  Communications   Commission   in  the  same  manner  as  other
                  telecommunications  services.  Additionally,  local  telephone
                  carriers have petitioned the Federal Communications Commission
                  to regulate  Internet service providers in a manner similar to
                  long distance  telephone

                                       18
<PAGE>

                  carriers  and to impose  access fees on such  providers.  Some
                  Internet  service  providers  are  seeking  to have  broadband
                  Internet access over cable systems  regulated in much the same
                  manner as telephone services,  which could slow the deployment
                  of broadband Internet  services.  Because of these proceedings
                  or others,  new laws or  regulations  could be  enacted  which
                  could burden the companies that provide the  infrastructure on
                  which  the  Internet  is  based,  thereby  slowing  the  rapid
                  expansion of the medium and its availability to new users.

         o        Other  regulations.  The growth of the Internet and e-commerce
                  may  lead  to  the  enactment  of  more   stringent   consumer
                  protection  laws.  The Federal  Trade  Commission  may use its
                  existing jurisdiction to police e-commerce activities,  and it
                  is  possible  that the  Federal  Trade  Commission  will  seek
                  authority from Congress to regulate certain online activities.
                  The Federal  Trade  Commission  has already  enacted a statute
                  governing the collection of information online from children.

EMPLOYEES

         On March 20, 1999, we had 28 employees. None of the foregoing employees
is represented  by a collective  bargaining  agreement,  and we believe that our
relationship  with our own employees and the  relationship  of our  subsidiaries
with their respective employees are good.

Forward-Looking Statements

         This Annual  Report on Form 10-K  contains a number of  forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Specifically, all statements
other than statements of historical facts included in this Annual Report on Form
10-K, or  incorporated  herein by reference,  regarding our financial  position,
business  strategy and plans and objectives of management for future  operations
are forward-looking  statements.  These forward-looking  statements are based on
the  beliefs  of  management,  as well as  assumptions  made by and  information
currently available to management. When used in this Annual Report on Form 10-K,
including  the  information  incorporated  by reference,  the words  anticipate,
believe,  estimate,  expect, may, will,  continue,  intend and plan and words or
phrases of similar import,  as they relate to our financial  position,  business
strategy  and plans,  or  objectives  of  management,  are  intended to identify
forward-looking statements. These cautionary statements reflect our current view
regarding future events and are subject to risks,  uncertainties and assumptions
related to various  factors which include but may not be limited to those listed
below under the heading  "Factors  Affecting our Future  Performance"  and other
cautionary  statements in this Annual Report on Form 10-K and in the information
incorporated herein by reference.

         Although we believe that our  expectations  are  reasonable,  we cannot
assure you that our expectations  will prove to be correct.  Based upon changing
conditions,  should any one or more of these risks or uncertainties materialize,
or should any underlying  assumptions  prove incorrect,  actual results may vary
materially  from  those  described  in  this  Annual  Report  on  Form  10-K  as
anticipated,  believed, estimated, expected, intended or planned. All subsequent
written and oral forward-looking statements attributable to us or persons acting
on our behalf are  expressly  qualified  in their  entirety by these  cautionary
statements.

FACTORS AFFECTING OUR FUTURE PERFORMANCE

         You should  carefully  consider the factors  described below. The risks
and  uncertainties  described  below are not the only  ones we face.  Additional
risks and uncertainties not presently known to us may also affect our business.

         If we do not  successfully  address any of the risks  described  below,
there could be a material  adverse effect on our business,  financial  condition
and operating  results and the market price of our common stock may decline.  We
cannot assure you that we will successfully address these risks.


                                       19

<PAGE>

Our business, as currently conducted, has a limited operating history, and it is
difficult to predict whether our business will be successful.

         On November 1, 1999,  we withdrew  our  election to be  regulated  as a
business development company under the Investment Company Act. At the same time,
we shifted our business focus from that of investing in securities to that of an
operating  company  actively  engaged  in  providing  venture  funding,  venture
development and venture banking services to both  Internet-based  businesses and
partner companies while actively participating in the management,  financing and
operation of those companies. As a result, our business, as currently conducted,
has a limited  operating  history.  Our prospects must be considered in light of
the risks and uncertainties frequently encountered by companies expanding into a
new  and  rapidly  evolving  area  such  as the  Internet.  Many  of the  risks,
uncertainties,   delays  and  difficulties  associated  with  providing  venture
funding,  venture  development  and venture  banking  services to and  operating
Internet-based   businesses  are  beyond  our  control.  We  cannot  assure  our
stockholders that we will be successful in meeting the challenges and addressing
the risks that we face in this new and rapidly changing market.

Our business is capital  intensive  and we may not be able to secure  additional
capital when we need it in the future to support our growth.

         Our  business  is  capital   intensive.   In  the  future,   we  expect
periodically to raise the funds to acquire equity interests in and establish new
partner companies,  to support our operations and expand our venture development
and venture  banking  services and to support the  operations  and growth of our
partner companies.  Our future capital requirements will depend in large part on
the number of partner  companies in which we acquire equity  interests and which
we  establish,  the  amounts of capital  we provide to these  companies  and the
timing of these payments. Our plans and the related capital requirements will be
dependent  on various  factors,  such as  developments  in our  markets  and the
availability  of  acquisition  and  entrepreneurial  opportunities.  If  we  are
successful  in  selling   additional  equity   securities,   our  then  existing
stockholders may suffer  significant  dilution.  However,  we may not be able to
obtain financing on acceptable terms, or at all, when we need it. If we require,
but are  unable to obtain,  additional  financing  in the  future on  acceptable
terms, or at all, we will not be able to continue our business strategy, respond
to changing business or economic conditions, withstand adverse operating results
or compete  effectively,  and our  business,  financial  condition and operating
results may be materially and adversely affected as a result.

Our investments in our partner companies are risky.

         A portion of our assets include equity interests which we have directly
and  indirectly  acquired in our partner  companies.  As of March 30, 2000,  our
venture fund had acquired  interests in eight companies,  with its equity stakes
in these  companies  ranging  from 1.7% to  22.7%.  As of March  30,  2000,  the
aggregate cost of our venture fund's  investments  totaled  approximately  $16.6
million. In the future, we expect to acquire direct equity interests of at least
25% in our partner  companies.  Decreases in the value of our partner  companies
will have an adverse effect on our business,  financial  condition and operating
results.  Even  though we intend to be  actively  involved in the affairs of our
partner companies, because we own or will own less than a majority of the shares
of our  partner  companies,  we may not be  able  to  control  the  policies  or
directions that these companies take.

         All of our partner  companies  are in the early stages of  development,
and we cannot  assure  you that  these  companies  will be able to  successfully
achieve  their  business  goals in a timely manner or at all. Our strategy is to
realize a return on our equity interests in these companies by liquidating these
investments  through sales of equity or otherwise.  We cannot assure you that we
will realize any return on any of these investments. Moreover, the trading price
of our common stock may be adversely affected if we do not realize any return on
these  investments,  or if that  return is lower  than the market  expects.  The
failure  of one or more of the  companies  in  which we have  invested,  and the
timing of any dispositions of our investments in these  companies,  could have a
material  adverse  effect on our  business,  financial  condition  and operating
results and on the market price of our common stock.

                                       20

<PAGE>

We will not be able to  successfully  execute  our  business  strategy if we are
deemed to be an investment company under the Investment Company Act of 1940.

         We are not  currently  required to be registered  under the  Investment
Company Act. Generally, a company must register under the Investment Company Act
and comply with significant  restrictions on operations and transactions if: (1)
its investment securities exceed 40% of its total assets, or (2) it holds itself
out as being "primarily engaged" in the business of investing, owning or holding
securities.  At this  time,  less than 40% of our total  assets  are  investment
securities. If, in the future, our investment securities exceed 40% of our total
assets, we believe that we will not be required to register under the Investment
Company  Act  because  we  believe  that  we  are   "primarily   engaged"  in  a
non-investment  company business through our wholly-owned  subsidiaries and that
we do not otherwise meet the requirements  for registering  under the Investment
Company  Act.  However,  if more than 40% of our  total  assets  are  investment
securities and we are no longer "primarily engaged" in a non-investment  company
business  through  our  wholly-owned  subsidiaries,  we believe  that we will be
"primarily   engaged"  in  a   non-investment   company   business  through  our
majority-owned  subsidiaries  and  controlled  subsidiaries  and  we  will  then
promptly  file  with  the  Securities  and  Exchange   Commission  an  exemptive
application  under  Section  3(b)(2) of the  Investment  Company Act to have the
Securities and Exchange  Commission so declare.  If we do not receive  exemptive
relief,  then we may be required to register under the  Investment  Company Act.
Registration  under the Investment  Company Act would be  inconsistent  with our
present  business  strategy and would have a material and adverse  effect on our
business,  financial  condition and  operating  results.  Moreover,  we might be
subject to civil and criminal penalties for failure to register,  certain of our
contracts might be voidable and a court-appointed receiver could take control of
our company and liquidate our business.

         To avoid regulation under the Investment  Company Act, we would have to
attempt  to  reduce  our  investment  securities  to less  than 40% of our total
assets.  This  reduction  can be  attempted in a number of ways,  including  the
disposition  of investment  securities  and the  acquisition  of  non-investment
security assets. If we were required to sell investment securities,  we may sell
them sooner than we otherwise would. These sales may be at depressed prices, and
we may not realize  anticipated  benefits  from,  or may incur  losses on, these
investments.  Some  investments  may not be sold  due to  contractual  or  legal
restrictions or the inability to locate a suitable buyer. Moreover, we may incur
tax  liabilities  when  we  sell  assets.  We may  also be  unable  to  purchase
additional  investment  securities  that  may  be  important  to  our  operating
strategy. If we decide to acquire non-investment  security assets, we may not be
able to identify and acquire suitable assets and businesses.

         If we are deemed to be, and  required  to  register  as, an  investment
company,  we  will  be  forced  to  comply  with  the  numerous  and  burdensome
substantive requirements of the Investment Company Act, including:

         o        limitations on our ability to borrow;

         o        limitations on our capital structure;

         o        restrictions  on  acquisition  of equity  interests in partner
                  companies;

         o        prohibitions on transactions with affiliates;

         o        restrictions on specific investments; and

         o        compliance  with  reporting,  record  keeping,  voting,  proxy
                  disclosure and other rules and regulations.

         If we were  forced to comply  with the  rules  and  regulations  of the
Investment Company Act, our operations would significantly  change, and we would
be prevented from successfully executing our business strategy. As a result, our
business,  financial  condition  and operating  results would be materially  and
adversely affected.

The price of our common stock has been volatile.

         The  market  price of our  common  stock  has  been,  and is  likely to
continue to be, volatile,  experiencing wide fluctuations.  In recent years, the
stock market has experienced  significant  price and volume  fluctuations  which
have  particularly  affected  the  market  prices of equity  securities  of many
companies  providing  Internet-related  products

                                       21
<PAGE>

and   services.   Some  of  these   fluctuations   appear  to  be  unrelated  or
disproportionate to the operating performance of these companies.  Future market
movements may  materially  and  adversely  affect the market price of our common
stock.

Fluctuations in our financial  performance  could  adversely  affect the trading
price of our common stock.

         Our  operating  results  may  fluctuate  as a result  of a  variety  of
factors, many of which are beyond our control, including:

         o        the  number  of our  partner  companies  with  which  we  have
                  established  relationships  and  the  size  and  scope  of the
                  venture  funding,  venture  development  and  venture  banking
                  services which we are engaged to provide;

         o        reductions,  cancellations or completions of major engagements
                  to provide venture development, venture banking and/or venture
                  funding services;

         o        the loss of significant partner companies or a change of scope
                  in  the  venture  funding,  venture  development  and  venture
                  banking services that we are providing to them;

         o        the efficiency with which we utilize our  professionals,  plan
                  and manage our existing and new partner  companies  and manage
                  our future growth;

         o        variability  in market  demand for  venture  funding,  venture
                  development and venture banking services;

         o        our ability to retain and attract qualified professionals;

         o        our   ability  to  provide  our   venture   funding,   venture
                  development  and venture  banking  services within the budgets
                  established by our partner companies;

         o        costs related to expansion of our business;

         o        sales of equity interests in our partner companies;

         o        significant acquisitions;

         o        increased competition; and

         o        general economic conditions.

         As  a  result   of  these   possible   fluctuations,   period-to-period
comparisons  of our operating  results may not be reliable  indicators of future
performance.  A significant percentage of our expenses,  including those related
to employee compensation and facilities, are fixed. If the number of our partner
companies and the scope of the venture funding,  venture development and venture
banking  services  that we provide to them  decreases  in any  period,  then our
revenues  and  operating  results  may  also  decrease.  In some  quarters,  our
operating  results may fall below the  expectations  of securities  analysts and
investors due to many factors, including those described above. As a result, the
trading price of our common stock would likely decline, and the decline could be
significant.

We are dependent on our ability to recruit,  train and retain highly skilled and
experienced professionals who are in short supply.

         Our ability to provide  our partner  companies  with  venture  funding,
venture  development and venture funding  services  depends in large part on our
ability to  identify,  hire,  train and retain  highly  skilled and  experienced
professionals who have industry  specific  expertise and who are proficient in a
broad range of technological  and business skills.  There is a shortage of these
highly  skilled  and  experienced  personnel  and we  must  compete  with  other
companies for this limited pool of people. We may be unable to attract, train or
retain  qualified  personnel.  Failure to do so could  have a  material  adverse
effect on our business, financial condition and operating results.

                                       22
<PAGE>

We compete  against  other larger  companies  that may be better able to provide
Internet-based businesses with the services that we offer.

         We  compete  against  numerous  public  companies  such as CMGI,  Inc.,
Internet  Capital Group,  Inc.,  Rare Medium Group,  Inc. and Softbank Corp., as
well as private companies such as Idealab! and Divine Interventures,  Inc., that
provide some combination of the venture funding, venture development and venture
banking  services  which we  provide.  Many of  these  competitors  have  longer
operating  histories,  larger installed client bases,  greater name recognition,
more experience and significantly  greater financial,  technical,  marketing and
other  resources  than we do. We expect that  competition  from both private and
public  companies in our markets will  intensify.  At any time,  our current and
potential  competitors could increase their resource commitments to our markets.
Among other adverse  consequences,  this competition may diminish our ability to
identify, attract and develop relationships with partner companies. As a result,
our business,  financial condition and operating results could be materially and
adversely affected.

Competition for venture funding services is intense.

         In providing  venture funding  services,  we compete  directly  against
traditional  venture  capital  and private  equity  firms and public and private
companies with venture funds, and many of these  competitors have  significantly
greater  experience  and financial  resources than we have. In addition to these
competitors,  numerous public  companies such as CMGI,  Inc.,  Internet  Capital
Group,  Inc.,  Rare  Medium  Group,  Inc.  Softbank  Corp.,  as well as  private
companies such as Idealab!  and Divine  Interventures,  Inc., devote significant
resources  to  providing  capital  together  with other  resources  to  Internet
companies.  Additionally,  corporate strategic investors,  including Fortune 500
and  other  significant  companies,   are  developing  Internet  strategies  and
capabilities.  Many of these  competitors have  significantly  greater financial
resources and brand name  recognition  than we do, and the barriers to entry for
companies  seeking to provide capital and other resources to  entrepreneurs  and
their emerging technology companies are minimal. We expect that competition from
both private and public  companies with business  models similar to our own will
intensify.  Among other adverse consequences,  this competition may diminish the
pool of potential  investment  opportunities and raise the cost of making future
investments.  As a result,  our  business,  financial  condition  and  operating
results could be materially and adversely affected .

Competition for venture development and venture banking services is intense.

         The  individual  markets for venture  development  and venture  banking
services are intensively  competitive and  characterized by an increasing number
of entrants  because the barriers to entry in these markets are relatively  low.
In providing venture development  services, we compete directly against strategy
consulting firms and management consulting firms.

         In providing venture banking  services,  we compete directly with other
investment  banking and  merchant  banking  firms which vary in size from small,
privately-owned firms to very large,  publicly-held  corporations.  We also face
increasing  competition from other sources, such as commercial banks,  insurance
companies and consulting firms offering financial services.

         Many  of  our  current  and  potential   competitors   in  the  venture
development and venture banking markets have longer operating histories,  larger
installed  clients bases,  greater name recognition and more experience and have
significantly greater financial,  technical,  marketing and other resources than
we  do.  As a  result,  our  competitors  may be  more  attractive  partners  to
Internet-based  businesses.  In addition, our competitors may be able to respond
more quickly to changes in client needs, service more clients simultaneously and
undertake more extensive marketing campaigns.  We cannot assure you that we will
be able to compete  successfully  against our current or future  competitors  or
that  competitive  pressures  will not have a  material  adverse  effect  on our
business, financial condition and operating results.

                                       23
<PAGE>

We may fail to successfully  establish  partner  companies or properly  identify
partner companies in which to acquire equity interests and effectively  complete
these transactions.

         Our success depends on our ability to identify opportunities to acquire
equity interests in or establish  partner  companies that will become successful
in the future and to  successfully  negotiate the terms of any  acquisitions  we
make.  Our  management  has sole and  absolute  discretion  in  identifying  and
selecting partner companies in which to acquire equity interests or to establish
and in structuring,  negotiating,  undertaking and divesting of equity interests
in our partner  companies.  Our  stockholders  will not be able to evaluate  the
merits of the  acquisition  of an  interest  in, or the  establishment  of,  any
particular  partner  company  before we make the  acquisition  or establish  the
company.  In addition,  in making  decisions to acquire  equity  interests in or
establish  partner  companies,  we will rely, in part, on financial  projections
developed by our management and the management of potential  partner  companies.
These  projections  will be based on assumptions and subjective  judgments.  The
actual  results of our partner  companies  may differ  significantly  from these
projections.  If we have  established  or acquired  equity  interests in partner
companies  that fail to meet their  projections  or  otherwise  fail to generate
income,  our  business,  financial  condition  and  operating  results  could be
materially and adversely affected.

         Even if we identify a company that complements our strategy,  we may be
unable to acquire an interest in that company for many reasons, including:

         o        our  inability to agree on the terms of an  acquisition  or to
                  acquire an interest of at least 25% in the company;

         o        a lack of capital to acquire an interest in the company; and

         o        incompatibility between us and management of the company.

         The failure to acquire equity interests in potential  partner companies
that we have identified could adversely affect our business, financial condition
and operating results.

We have potential conflicts of interest with our venture fund.

         Some of our senior executive  officers and directors have been actively
involved in the venture funding decisions of THCG Venture Partners I, one of our
executive  officers is the  President  and Chief  Executive  Officer of the sole
manager of THCG Venture  Partners I, and several of our  officers and  directors
are indirect investors in THCG Venture Partners I. Many of our officers are also
actively involved in providing ongoing venture funding,  venture development and
venture banking  services to partner  companies in which THCG Venture Partners I
has invested.  These  individuals may have  conflicting  fiduciary duties to our
stockholders  and to  the  investors  in  THCG  Venture  Partners  I,  including
themselves  in some cases.  In  addition,  they may have  conflicts  between our
interests and their own indirect  personal  financial  interests in THCG Venture
Partners  I and our  partner  companies  in which  THCG  Venture  Partners I has
invested.

         We have not adopted a  conflicts  of  interest  policy to govern  these
situations.

Our  acquisition  strategy may result in  increased  expenses,  difficulties  in
integrating acquired companies and diversion of management's attention.

         A key  component of our growth  strategy is to pursue  acquisitions  of
businesses that complement our business strategy.  We expect the competition for
acquisition  candidates  to continue to increase.  We cannot  assure you that we
will be able to identify and compete  successfully  for  attractive  acquisition
candidates or complete  acquisitions at reasonable  purchase prices, in a timely
manner or at all.

         Some of the other risks that we may encounter in our acquisition growth
strategy include:

         o        expenses and difficulties in identifying potential targets and
                  the costs associated with uncompleted acquisitions;

         o        expenses,  delays and  difficulties  of  integrating  acquired
                  companies into our existing organization;

                                       24
<PAGE>

         o        diversion of management's attention;

         o        expenses of amortizing acquired companies' intangible assets;

         o        issuance of equity  securities  to pay for  acquisitions  that
                  will dilute existing stockholders;

         o        possible adverse impact on our financial  condition due to the
                  timing of an acquisition; and

         o        expense of any undisclosed or potential  legal  liabilities of
                  acquired companies.

         If realized, any of these risks could have a material adverse effect on
our business, financial condition and operating results.

We may face difficulties managing our growth.

         Our recent  growth has  required a great amount of our  managerial  and
operational  resources.  In the future, we intend to develop the  infrastructure
necessary to implement our business  strategy of acquiring  equity  interests in
additional  partner  companies and  penetrating  new markets by  developing  our
international  operations  and by expanding our global  coverage of the Internet
industry. To manage this growth, our management must continue to:

         o        improve our operational and financial systems;

         o        expand our information technology systems;

         o        lease more  space,  including  a larger  facility  in New York
                  City, to  accommodate  our  operations and some of our partner
                  companies; and

         o        expand, train, retain and manage our employee base.

         If our systems,  procedures  and controls are inadequate to support our
operations,  our expansion would be impaired. Our inability to manage our growth
effectively  could have a material  adverse  effect on our  business,  financial
condition and operating results.

We may have difficulty in managing our  international  operations and expansion,
which could adversely affect our operating results and business.

         A key element of our strategy is to penetrate new markets by developing
our  international  operations  and by  expanding  our  global  coverage  of the
Internet  industry.  Once  developed,  our  management  may have  difficulty  in
managing our international  operations because of distance,  as well as language
and  cultural  differences.  We also may be  unable to market  and  operate  our
services successfully in foreign markets.

         Other risks related to international operations include:

         o        fluctuations in currency exchange rates;

         o        difficulties   arising  from  staffing  and  managing  foreign
                  operations;

         o        state-imposed restrictions on the repatriation of funds;

         o        legal and regulatory requirements of different countries, such
                  as differing tax, intellectual property or labor laws; and

         o        potential political and economic instability.

         If any of these risks  materialize,  we may not be able to successfully
promote our services or perform client engagements in international  markets. As
a result, our growth and ability to compete  effectively may be hindered and our
business,  financial  condition  and operating  results could be materially  and
adversely affected.

                                       25
<PAGE>

Our success, and the success of our partner companies,  depends on the continued
expansion of e-commerce.

         Our success,  and the success of our partner companies,  depends on the
continued expansion of business-to-business and business-to-consumer e-commerce.
The e-commerce market is still in its early stages of development. If widespread
commercial use of the Internet by individuals  and businesses  does not continue
to expand,  or if the  Internet  does not  continue  to develop as an  effective
medium for the  provision  of products and  services,  our  business,  financial
condition and operating  results,  and those of our partner  companies,  will be
materially and adversely affected.

         Factors  that may  adversely  affect the  expansion of the Internet and
e-commerce include:

         o        actual or perceived lack of security of information;

         o        congestion of Internet traffic or other usage delays;

         o        inconsistent quality of service;

         o        increases in Internet access costs;

         o        increases in government regulation of the Internet;

         o        uncertainty regarding intellectual property ownership;

         o        reluctance to adopt new business methods;

         o        costs   associated   with   the   obsolescence   of   existing
                  infrastructure; and

         o        economic viability of e-commerce models.

Governmental  regulation of the Internet could adversely impact our business and
operations and the business and operations of our partner companies.

         Currently,  few laws or  regulations  are  directly  applicable  to the
Internet. Due to the increasing popularity and use of the Internet, it is likely
that a number of new laws and  regulations  may be adopted at the local,  state,
national  or  international  levels  with  respect  to the  Internet,  including
Internet  laws  regarding  privacy,  taxation,  pricing,  content,   copyrights,
distribution and quality of products and services. The enactment of any new laws
or regulations,  including international laws and regulations, could inhibit the
growth in use of the Internet and decrease the  acceptance  of the Internet as a
communications  and commercial  medium,  which could in turn decrease the demand
for our  services  and  those of our  partner  companies,  or  otherwise  have a
material  adverse  effect on our  business,  financial  condition  and operating
results, and those of our partner companies.

The loss of executive management or other key personnel may adversely affect our
business and operations and our ability to compete effectively.

         Our business  and  operations  depend  largely on the skills of our key
management and technical personnel. Many of our executive officers have recently
joined us, and many of our key personnel  have worked  together for a relatively
short period.  If one or more members of our  executive  management or other key
personnel were unable or unwilling to continue in their present positions, these
persons would be very difficult to replace. In addition, if any of these persons
joined a competitor  or formed a competing  company,  some of our clients  might
choose to use the services of that  competitor  or new company  instead of ours.
Furthermore,  our clients or other companies seeking  management talent may hire
some members of our  executive  management  or other key  personnel.  This could
result in the loss of our client relationships or new business opportunities and
materially and adversely affect our ability to implement our business strategy.

                                       26

<PAGE>

Our partner  companies  could make business  decisions  that are not in our best
interests  or that we do not agree  with,  which  could  impair the value of our
partner company interests.

         Because neither we nor the venture fund in which we own a 9.9% interest
owns a majority voting interest in any of our partner companies,  we do not have
complete  control  over any of  them.  While we plan to  acquire  direct  equity
interests  of at least  25% in our  partner  companies  in the  future,  we will
continue to acquire less than majority  voting  interests in most of our partner
companies.  Further,  we may not  maintain our current  ownership  levels in our
partner  companies  if we sell  portions of our equity  interests or our partner
companies issue additional equity to other parties.

         Our ownership of equity interests in partner companies over which we do
not exercise  complete  control  involves  additional risks that could cause our
equity interests, and therefore our business,  financial condition and operating
results to be materially and adversely affected, including:

         o        management of a partner  company  having  economic or business
                  interests or objectives that are different than ours; and

         o        partner  companies  not taking our advice with  respect to the
                  financial or operating difficulties that they encounter.

         Our inability to control our partner companies completely could prevent
us from  assisting  them,  financially  or  otherwise,  or could prevent us from
liquidating  our  equity  interests  in them  at a time  or at a  price  that is
favorable to us. Additionally,  to the extent we do not completely control them,
our partner  companies may not act in ways that are consistent with our business
strategy and may compete with us or other partner companies. These factors could
hamper our ability to maximize returns on our equity interests,  and cause us to
recognize losses on our equity interests in partner companies.

Failure to develop  and  strengthen  the THCG brand could  adversely  affect our
business.

         We believe  that  maintaining  and  strengthening  the THCG brand is an
important aspect of attracting and maintaining  clients. The importance of brand
recognition  will increase as  competition  in the market for Internet  services
increases.   Building  a  brand  requires  a  successful  marketing  effort  and
successful  delivery  of  products  and  services  to  clients.  A single  event
involving client dissatisfaction could tarnish our perception as a whole despite
our efforts to maintain and  strengthen the THCG brand name.  Consequently,  the
strategy adopted and expenses incurred by us may not result in a stronger brand.

Ownership of our company is concentrated.

         Joseph D. Mark and Adi  Raviv,  our  co-chief  executive  officers  and
directors, each beneficially owned approximately 17.5% of our outstanding common
stock as of March  24,  2000.  As a  result,  Messrs.  Mark  and  Raviv  possess
significant  influence  over our  company on  business  matters,  including  the
election of directors, the appointment of new management and the approval of any
other  action  requiring  the  approval of our  stockholders.  Greenwich  Street
Capital  Partners II, L.P. and its affiliates owned  approximately  35.7% of our
outstanding common stock as of March 24, 2000. In addition, pursuant to a voting
agreement  between us and Greenwich  Street Capital  Partners,  Greenwich Street
Capital  Partners  has the  right to  appoint  one  individual  to our  Board of
Directors so long as Greenwich  Street Capital  Partners is the holder of common
stock or  warrants  to  purchase  common  stock  which equal at least 5%, in the
aggregate,   of  our  outstanding  shares  of  common  stock.  Keith  W.  Abell,
Co-President of Greenwich Street Capital Partners, became a director on November
1, 1999.

         The concentration of our share ownership may:

         o        delay or prevent a change in control of THCG;

         o        impede a merger,  consolidation,  takeover  or other  business
                  combination involving THCG; or

         o        discourage a potential  acquiror from making a tender offer or
                  otherwise attempting to obtain control of THCG.

                                       27
<PAGE>

The  broker-dealer  activities  of  our  wholly-owned  subsidiary,   Tower  Hill
Securities, are subject to extensive regulation.

         Our wholly-owned  subsidiary,  Tower Hill  Securities,  is a registered
broker-dealer and a member of the National  Association of Security Dealers,  or
NASD. As a result, Tower Hill Securities' principals, registered representatives
and other associated  persons must comply with applicable state securities laws,
rules  and  regulations,  and with the  rules of the  NASD.  Broker-dealers  are
subject to  extensive  regulations  which  cover all  aspects of the  securities
business,  including sales methods, trade practices,  capital structure,  record
keeping and conduct of directors,  officers and  employees.  In addition,  Tower
Hill  Securities is required to maintain a minimum  regulatory net capital and a
specified ratio of aggregate  indebtedness to net capital. The failure to comply
with,  or  adverse  changes  in,  the laws or  regulations  to which  Tower Hill
Securities'  business  is  subject,  or adverse  changes  in the  interpretation
thereof,  could  have a  material  adverse  effect  on the  business,  financial
condition and operating results of Tower Hill Securities and us, as its parent.

The issuance of preferred stock or additional  common stock may adversely affect
our stockholders.

         Our  board has the  authority  to issue up to  5,000,000  shares of our
preferred stock and to determine the terms,  including  voting rights,  of those
shares  without any further vote or action by our  stockholders.  The voting and
other  rights of the holders of our common  stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that may
be issued in the future.  Similarly,  our board may issue  additional  shares of
common  stock  without any further vote or action by  stockholders,  which would
have the effect of diluting common stockholders.  An issuance could occur in the
context of a public or private  offering of shares of common  stock or preferred
stock or in a situation in which the common stock or preferred  stock is used to
acquire the assets or stock of another company.  The issuance of common stock or
preferred  stock could have the effect of delaying,  deferring  or  preventing a
change in control.

Anti-takeover  provisions  could make a third-party  acquisition  of our company
difficult.

         We are a Utah  corporation.  The Utah General  Corporation Law contains
provisions  that  could  make it more  difficult  for a third  party to  acquire
control of us. In addition,  we have a classified board of directors,  with each
board member serving a staggered  three-year term. The existence of a classified
board could make it more difficult for a third-party to acquire control of us.

Shares eligible for future sale could cause our stock price to decline.

         The  market  price of our  common  stock  could  decline as a result of
future sales of substantial  amounts of our common stock, or the perception that
such sales could occur.  Furthermore,  certain of our existing stockholders have
the right to require us to register  their shares,  which may  facilitate  their
sale of shares in the public market.  We have agreed to file with the Securities
and Exchange Commission by March 31, 2000 a registration  statement covering the
resale by certain of our stockholders of up to  approximately  900,000 shares of
our common stock.


                                       28
<PAGE>


FACTORS AFFECTING THE FUTURE PERFORMANCE OF OUR PARTNER COMPANIES


Our  partner  companies'  growth  depends on their  ability to retain  their key
personnel.

         Although  we offer  management  guidance  and  support  to our  partner
companies,  the growth of our partner  companies will depend on their ability to
attract and retain their own senior management  personnel.  As they expand,  our
partner  companies  will also need to  continue  to hire  additional  technical,
marketing,  financial and other key  personnel,  unless they rely on us or third
parties to provide these  services.  A shortage in the  availability of required
personnel  could limit the ability of our partner  companies to grow, sell their
products and services and launch new products and services.

Many of our partner companies may grow rapidly and may be unable to manage their
growth.

         We expect many of our partner  companies to grow rapidly.  Rapid growth
often places  considerable  operational,  managerial  and financial  strain on a
business. To successfully manage their rapid growth, our partner companies must:

         o        rapidly   improve,   upgrade   and   expand   their   business
                  infrastructures;

         o        deliver products and services on a timely basis;

         o        maintain levels of service expected by clients and customers;

         o        maintain adequate levels of liquidity; and

         o        expand and upgrade their  technology,  transaction  processing
                  systems and network hardware or software or find third parties
                  to provide these services.

         Our  business,  financial  condition  and  operating  results  will  be
materially  and  adversely  affected  if our  partner  companies  are  unable to
successfully  manage their growth.  In addition,  many of our partner  companies
have only  recently  begun to develop  their  financial  reporting  systems  and
controls.  As a result, these companies may not be able to provide us with their
financial results on a timely basis, making it difficult for us to monitor these
companies and assess our financial position.

If we are  unable  or  unwilling  to  provide  our  partner  companies  with the
significant  additional  financing they will need, our equity  interests in them
may be diluted or they may fail.

         Most of our  current  partner  companies  are,  and we expect  that our
future partner companies will be, in the early stages of their development.  Our
partner  companies  will require  significant  amounts of additional  capital to
compete  successfully,  meet their business  objectives and produce revenues and
profits.  We may not be able to accurately  predict these capital needs,  and we
may decide not to provide the  additional  capital  that our  partner  companies
require or we may not be given the  opportunity  to provide  it. If our  partner
companies receive capital from other sources, our ownership interest in them may
be diluted.  If our partner companies are unable to obtain  additional  capital,
they may fail and their  failure  could  have a material  adverse  effect on our
business, financial condition and operating results.

Our partner  companies  face intense  competition  in their  product and service
markets, and if they cannot compete effectively, they will fail.

         Competition for  Internet-related  products and services is intense. As
the market for e-commerce  grows,  we expect that  competition  will  intensify.
Barriers to entry are minimal,  and  competitors can offer products and services
at a relatively low cost.  Furthermore,  our partner companies'  competitors may
develop  Internet  products or services  that are  superior  to, or have greater
market acceptance than, the solutions offered by our partner companies.  Many of
our partner  companies'  competitors have greater brand  recognition and greater
financial,  marketing and other resources than our partner  companies.  This may
place  our  partner   companies  at  a  disadvantage   in  responding  to  their
competitors' pricing strategies,  technological advances, advertising campaigns,
strategic  partnerships  and

                                       29
<PAGE>

other initiatives.  If our partner companies are unable to compete successfully,
they will fail and  their  failure  may have a  material  adverse  effect on our
business, financial condition and operating results.

Our  partner  companies  may fail if they do not adapt to the  rapidly  changing
e-commerce marketplace.

         If our  partner  companies  fail  to  adapt  to the  rapid  changes  in
technology and customer and supplier demands,  they may not generate revenues or
become or remain profitable. The e-commerce market is characterized by:

         o        rapidly changing technology;

         o        evolving industry standards;

         o        frequent new product and service introductions;

         o        shifting distribution channels; and

         o        changing customer demands.

         Our future  success  will depend on our partner  companies'  ability to
adapt to this rapidly evolving marketplace.  They may not be able to adapt their
products  and  services  adequately  or  economically,  develop new products and
services or establish  and maintain  effective  distribution  channels for their
products and services. Our partner companies' businesses will also depend on the
efficient  and  uninterrupted  operation of their  computer  and  communications
hardware  systems to enable them to  continuously  provide  their  products  and
services  over the Internet.  If our partner  companies are unable to meet these
challenges,  they may be unable to sell their products and services and generate
revenues.  Therefore,  their businesses may become or remain unprofitable which,
in  turn,  will  have a  material  adverse  effect  on our  business,  financial
condition and operating results.

Our partner  companies  may not be able to attract a loyal base of  customers to
their web sites or develop relationships with distribution partners,  which will
negatively affect their ability to generate revenues.

         Our  success is related to the  ability  of our  partner  companies  to
deliver  compelling  Internet  content,  products or services to their  targeted
customers. Internet users can freely navigate and instantly switch among a large
number of web sites. Many of these web sites offer original content, products or
services,  which may make it difficult for our partner  companies to distinguish
the content on their web sites sufficiently to attract a loyal base of users. If
any partner company fails to differentiate  itself from other Internet  industry
participants,  the value of its brand name could decline,  and its prospects for
future growth would diminish.  In addition,  our partner  companies will need to
develop  relationships  with  entities,  such  as  Internet  service  providers,
Internet  portals  and  e-commerce  web  sites,  typically  called  distribution
partners,  that can guide or deliver  customers to visit our partner  companies'
web  sites.  There is  intense  competition  for  these  distribution  partners.
Accordingly, maintaining a strong base of distribution partners may be difficult
and costly for our partner companies.

Our partner companies may be at a competitive disadvantage if they are unable to
protect their proprietary  rights or if they infringe on the proprietary  rights
of others, and any related litigation could be time consuming and costly.

         Because  all  our  partner  companies  operate  or will  operate  their
businesses  through  web sites and rely on  hardware  and  software  to  conduct
e-commerce,  proprietary  rights,  particularly  in the form of  trade  secrets,
copyrights and patents, will be critical to the success and competitive position
of most of our partner companies.

         The  actions  that  our  partner   companies   take  to  protect  their
proprietary  rights may be  inadequate.  In addition,  effective  copyright  and
trademark  protection may be unenforceable  or limited in certain  countries and
our  partner  companies  may be unable to  control  the  dissemination  of their
content and products and use of their  services due to the global  nature of the
Internet.  A substantial  majority of our partner  companies license content and
technology  which they include in their product or service  offerings from third
parties,  and they could become subject to infringement  actions as a result. In
addition, third parties may claim that our partner companies have violated their
intellectual  property  rights.  For example,  companies  have recently  brought
claims  regarding  alleged

                                       30

<PAGE>

infringement  of patent  rights  relating to methods of doing  business over the
Internet.  To the extent that any of our partner companies  violates a patent or
other  intellectual  property  right of a third party,  it may be prevented from
operating  its business as planned,  and it may be required to pay  damages,  to
obtain a license,  if  available,  to use the patent or other  right or to use a
non-infringing  method, if possible, to accomplish its objectives.  Any of these
claims,  with or without  merit,  could subject our partner  companies to costly
litigation and the diversion of their technical and management personnel. If our
partner   companies  incur  costly   litigation  and  their  personnel  are  not
effectively  deployed,  the expenses and losses  incurred by them will increase,
and their profits, if any, will decrease.

Concerns regarding security of transactions or the transmissions of confidential
information  over the Internet or security  problems  experienced by our partner
companies may prevent them from  expanding  their  businesses or subject them to
legal exposure.

         If a partner company does not offer sufficient security features in its
online  product and service  offerings,  its  products and services may not gain
market  acceptance,  and it could be exposed  to legal  liability.  Despite  the
measures that may be taken by our partner companies,  the infrastructure of each
of them will be  potentially  vulnerable  to physical or  electronic  break-ins,
viruses or similar  problems.  If a person  circumvents the security measures of
our partner companies, that person could misappropriate  proprietary information
or cause  interruptions  in the  operations  of the  partner  company.  Security
breaches  that result in access to  confidential  information  could  damage the
reputation  of any one of our partner  companies and expose it to a risk of loss
or liability.  All of our partner companies will be required to make significant
expenditures, either for internal development efforts or payments to us or other
third parties providing  security-related services, to protect against or remedy
security  breaches.  Additionally,  as e-commerce  becomes more widespread,  our
partner  companies'  customers may become more concerned about security.  If our
partner companies are unable to adequately  address these concerns,  they may be
unable to sell their products and services.

ITEM 2.  PROPERTIES

         Our  principal  executive  offices are located in  approximately  4,800
square feet of space at 650 Madison Avenue, 21st Floor, New York, New York under
an occupancy agreement,  dated as of January 1, 1999, with Hambro America, Inc.,
expiring on August 30, 2000. Rental payments under the occupancy agreement equal
$21,649.57 per month.  Hambro  America,  Inc. is owned by Joseph D. Mark and Adi
Raviv,  our  co-chief  executive  officers.  We also lease  office  space at 105
Madison Avenue,  14th Floor,  New York, New York under an oral sublease.  Rental
payments are  approximately  $9,355 per month.  We are  currently  negotiating a
multi-year  lease for a space in excess of 20,000  square feet in New York,  New
York to replace these facilities.  The annual rent for this space is expected to
be approximately $800,000.

ITEM 3.  LEGAL PROCEEDINGS

         On April  21,  1999,  Yoav  Bitter  commenced  an  action  against  our
wholly-owned  subsidiary,  Tower  Hill  Securities,  pursuant  to the  New  York
Business  Corporation Law Section 1104-a, for, inter alia, judicial  dissolution
of Tower Hill  Securities  and  appointment  of a  receiver.  On June 17,  1999,
Justice  Goodman denied the relief sought by Mr. Bitter,  and granted Tower Hill
Securities'  cross motion to dismiss the matter.  On August 3, 1999,  Mr. Bitter
filed a Notice of Appeal of the  judgment of Justice  Goodman  with the New York
State Supreme Court Appellate  Division,  First Department.  By an order entered
March 14, 2000,  the New York State  Supreme  Court  Appellate  Division,  First
Department,  dismissed Mr. Bitter's appeal.  Mr. Bitter has until April 21, 2000
to file a Notice of Appeal to the New York State  Court of  Appeals.  Additional
payments may be due to Mr. Bitter for his 25% interest in Tower Hill  Securities
pursuant to an agreement  dated as of April 13, 1998 among Messrs.  Mark,  Raviv
and  Bitter.  These  payments  are to be in an  amount  equal to 25% of "all net
profits  relative  to  work-in-progress  as  of"  April  30,  1998.  Tower  Hill
Securities,  Joseph D. Mark and Adi Raviv have entered  into an  indemnification
agreement  pursuant to which  Messrs.  Mark and Raviv have  agreed to  indemnify
Tower Hill  Securities for any amounts Tower Hill Securities is obligated to pay
to Mr. Bitter in excess of Tower Hill  Securities'  net profits  relative to the
engagements of Tower Hill  Securities that were pending,  but not completed,  on
April 30, 1998. Tower Hill Securities has agreed to indemnify  Messrs.  Mark and
Raviv with respect to any amounts either of them becomes obligated to pay to Mr.
Bitter in excess of the amount described in the two prior  sentences,  and Tower
Hill  Securities  has  agreed to  assume  and pay for the  defense  of any claim
brought by Mr. Bitter.

                                       31

<PAGE>

         On June 18,  1999,  Tower  Hill  Securities  initiated  an  arbitration
against Yoav Bitter before the National  Association of Securities  Dealers,  or
NASD, requesting the return of company property and the reimbursement of certain
travel  expenses.  On  September  9,  1999,  Mr.  Bitter  filed  an  answer  and
counterclaims against Tower Hill Securities. Mr. Bitter denied liability for the
claims brought by Tower Hill Securities and asserted claims for tuition expenses
and additional compensation.  On September 17, 1999, Tower Hill Securities filed
a response denying all liability on the counterclaims. The NASD has acknowledged
jurisdiction  over the  arbitration and has advised the parties that it plans to
schedule a pre-hearing conference with the parties and the arbitrators.

         By First  Amended  Complaint  dated  November  22,  1999  and  filed on
November  23,  1999 (the  "Complaint"),  we were sued in the  Superior  Court of
Washington  for  Spokane  County in an action  entitled  Miller  Capital  Group,
L.L.C., et al. v. Inland Financial Corporation, et al. (No. 99206566-7). We were
named as successor to Walnut Financial  Services,  Inc., the corporate parent of
defendant Inland Financial  Corporation.  The complaint  generally  alleges that
Inland Financial and others  fraudulently  induced the plaintiffs to participate
in various  transactions  related to Inland  Financial's  factoring business and
that funds  obtained by Inland  Financial  and/or Walnut  Financial  Services in
connection with those transactions were improperly diverted or converted.  It is
alleged that Walnut Financial  Services  controlled  Inland Financial in general
and with  respect to the specific  challenged  transactions.  Plaintiffs  allege
causes of action for breach of promissory notes,  state law securities fraud and
registration  violations,  common  law  misrepresentation  and  conversion.  The
complaint  seeks  unspecified  injunctive  relief,  unspecified  damages  and an
accounting. The complaint has only recently been filed and the lawsuit is in its
initial stages. We believe that the plaintiffs'  claims are without merit and we
intend to defend the lawsuit vigorously.

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

         At a special  meeting  held on  November  1,  1999,  we  submitted  the
following matters for approval at a special meeting of shareholders:

         o        A proposal  to approve  the  issuance  of shares of our common
                  stock in connection with the merger of Tower Hill  Acquisition
                  Corp., a New York corporation and our wholly-owned subsidiary,
                  with and into Tower Hill  Securities,  pursuant  to an Amended
                  and Restated Agreement and Plan of Merger,  dated as of August
                  5, 1999, among us, Tower Hill Acquisition Corp. and Tower Hill
                  Securities (the "Share Issuance");

         o        A proposal  to approve a change in the nature of our  business
                  and the withdrawal by us, Walnut Capital Corp.,  Walnut Funds,
                  Inc.  and  Universal   Bridge  Fund,  Inc.,  each  a  Delaware
                  corporation  and  our   wholly-owned   subsidiary,   of  their
                  elections to be regulated  as business  development  companies
                  under   the   Investment   Company   Act  of  1940  (the  "BDC
                  Withdrawal");

         o        A proposal to approve our issuance of: (1) at least  1,500,000
                  and up to  3,432,500  shares of our common  stock at $2.00 per
                  share and (2) warrants to purchase up to  2,000,000  shares of
                  our  common  stock  in one or  more  private  placements  (the
                  "Capital Investment");

         o        A proposal to approve the  conversion  of certain of our debts
                  and accrued  liabilities into common stock valued at $2.00 per
                  share and the conversion of certain accrued  compensation into
                  common   stock   valued  at  $2.00  per   share   (the   "Debt
                  Conversion");

         o        A proposal  to approve the  acquisition  by  Universal  Bridge
                  Funds,  Inc.,  a  Delaware  corporation  and our  wholly-owned
                  subsidiary, of the outstanding limited and general partnership
                  interests in Universal  Partners,  L.P.,  an Illinois  limited
                  partnership and our affiliate (the "UPLP Acquisition");

         o        A proposal  to  approve  and adopt the 1999  Walnut  Financial
                  Services, Inc. Stock Incentive Plan (the "Stock Plan");

                                       32
<PAGE>

         o        A proposal to approve and adopt our Articles of Amendment  and
                  Restatement, effective as of the consummation of the merger of
                  Tower  Hill  Acquisition   Corp.  with  and  into  Tower  Hill
                  Securities (the "Charter Amendment").

         The results of the voting at the special meeting were as follows:
<TABLE>
<CAPTION>

Proposal                           Votes For           Votes Against           Abstain           Broker Non-Votes
--------                           ---------           -------------           -------           ----------------
<S>                                <C>                     <C>                  <C>                     <C>
Share Issuance                     2,492,073               20,888               8,305                   0
BDC Withdrawal                     2,465,351               44,029               11,886                  0
Capital Investment                 2,488,892               23,022               9,352                   0
Debt Conversion                    2,466,573               45,174               9,519                   0
UPLP Acquisition                   2,490,799               20,910               9,557                   0
Stock Plan                         2,460,771               51,168               9,327                   0
Charter Amendment                  2,490,195               21,669               9,402                   0
</TABLE>

                                       33

<PAGE>


                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
         ---------------------------------------------------------------------

         Since  November 3, 1999, our common stock has been quoted on the Nasdaq
National  Market under the symbol "THCG." From August 22, 1995 until November 2,
1999, the common stock was quoted on the Nasdaq National Market under the symbol
"WNUT."  From  February  27, 1995 until  August 21,  1995,  the common stock was
quoted  in the  National  Quotation  Bureau's  interdealer  system  through  the
over-the-counter  "Bulletin  Board"  under the symbol  "WNUT."  The high and low
sales price for the Common Stock as reported by the Nasdaq  National  Market for
the years ended  December 31, 1998 and 1999 are  summarized  below,  adjusted to
give effect to a one-for-six  reverse stock split effected  January 22, 1999, as
if it had occurred prior to that date.

1998                                                          High       Low
First Quarter..............................................  $8 13/16   $6 3/4
Second Quarter.............................................   7 7/8      6
Third Quarter..............................................   6 3/16     1 7/8
Fourth Quarter.............................................   4 11/16    1 11/16

1999                                                          High       Low
First Quarter..............................................   4 3/4      1 7/8
Second Quarter.............................................   3          1 7/8
Third Quarter..............................................   2 5/8      2 1/16
Fourth Quarter.............................................   34         2 1/4

         On March 24, 2000,  the last reported sale price of our common stock on
the  Nasdaq  National  Market  was  $17.375.  As of March 24,  2000,  there were
approximately 549 registered holders of record of our common stock.

         We currently anticipate that we will retain all future earnings for use
in our business and we do not anticipate paying any cash dividends on our common
stock in the foreseeable future.

Recent Sales of Unregistered Securities

         On November 1, 1999, we acquired all of the  outstanding  capital stock
of Tower Hill  Securities.  In connection  therewith,  we issued an aggregate of
4,095,098  shares  of  our  common  stock  to the  stockholders  of  Tower  Hill
Securities. In addition, we issued 100,000 shares of our common stock in payment
of certain  finder's fees in connection  with the  transaction.  The  securities
issued in these  transactions  were not  registered  under the Securities Act of
1933, as amended,  pursuant to the exemption provided under Section 4(2) thereof
for transactions not involving a public offering.

         Simultaneously with our acquisition of Tower Hill Securities, we issued
2,500,000  shares of our common  stock and  warrants to purchase an aggregate of
2,000,000  shares of our common stock to Greenwich  Street Capital  Partners II,
L.P. and several of its affiliates in a private placement  transaction.  We also
issued  100,000  shares of our  common  stock in  payment  of  finder's  fees in
connection with the private placement to Greenwich Street Capital  Partners.  In
addition to this private placement, we completed two other private placements of
932,500 shares of our common stock, in the aggregate: one to an outside investor
group  and one to an  investor  group  consisting  of  employees  of Tower  Hill
Securities.  The securities  issued in these three private  placements  were not
registered  under the Securities Act,  pursuant to the exemption  provided under
Section 4(2) thereof for transactions not involving a public offering.

                                       34

<PAGE>

         On December 29, 1999, we acquired all of the outstanding  capital stock
of  Mercury  Coast for which we issued an  aggregate  of  700,005  shares of our
common stock to the stockholders of Mercury Coast. In addition, we issued 12,000
shares of our common stock in payment of finder's  fees in  connection  with the
transaction.  The securities  issued in these  transactions  were not registered
under the Securities Act, pursuant to the exemption  provided under Section 4(2)
thereunder for transactions not involving a public offering.

         On February 7, 2000,  we acquired  3,600,417  shares of common stock of
Global Credit Services, Inc. from certain stockholders of Global Credit Services
for which we issued an  aggregate  of 218,483  shares of our common stock to the
selling  stockholders of Global Credit Services.  The securities  issued in this
transaction  were  not  registered  under  the  Securities  Act  pursuant  to an
exemption  provided under Section 4(2) thereunder for transactions not involving
a public offering.  Pursuant to the stock purchase  agreement between us and the
selling  stockholders of Global Credit Services,  we have agreed to register the
resale  of the  shares  of  common  stock  which we  issued  to them by filing a
registration statement under the Securities Act with the Securities and Exchange
Commission  no later than March 31, 2000.  Prior to the  effective  date of that
registration  statement,  the number of shares of our common  stock which we are
obligated to issue to the selling stockholders of Global Credit Services will be
recalculated,  and may  increase  or decrease by an amount not to exceed 20%. If
the registration statement is declared effective after August 4, 2000 but before
February 7, 2001,  then the number of shares which we are  obligated to issue to
the selling  stockholders  of Global Credit Services may increase or decrease by
an amount not to exceed 40%. If the registration statement is declared effective
after  February 7, 2001,  then the number of shares of our common stock which we
are obligated to issue to the selling stockholders of Global Credit Services may
increase or decrease by an amount not to exceed 50%.

ITEM 6.  SELECTED FINANCIAL DATA

         Our selected financial data for the four-year period ended December 31,
1999 is presented  below.  The information for these periods is derived from our
audited financial statements as of and for the four periods then ended. The data
should be read in conjunction with the consolidated  financial  statements,  the
related notes and the other  financial  information  included  elsewhere in this
Annual Report.
<TABLE>
<CAPTION>

                                           Year ended      Year ended       9 months ended         Year ended
                                            March 31,       March 31,        December 31,          December 31,
                                             1997 (2)        1998 (2)          1998 (2)              1999 (3)
                                             -------         --------       --------------        ------------
<S>                                          <C>             <C>                <C>                <C>
Total revenues                               $197,000        $229,000           $2,126,000         $7,703,000
Income (loss) from operations               (387,000)     (1,325,000)                    0          1,343,000
Income (loss) per share                        (0.10)          (0.36)                 0.00             (0.27)

Total assets                                  322,000         397,000            1,548,000         48,358,000
Total liabilities and redeemable
    Preferred Stock                           $94,000         $52,000             $290,000         $3,593,000
</TABLE>

(1)   For the year ended March 31, 1996, the broker-dealer  predecessor  company
      was inactive.

(2)   Includes  the  results  of  operations  and  balance  sheet  data  of  our
      wholly-owned subsidiary, Tower Hill Securities, Inc. or its predecessors.

(3)   On November 1, 1999, we were acquired by Walnut Financial  Services,  Inc.
      in a transaction that was accounted for as a reverse acquisition.



                                       35

<PAGE>

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

         The discussion in this report contains forward-looking  statements that
involve risks and uncertainties. Our actual results could differ materially from
those  discussed  herein.  Factors  that  could  cause  or  contribute  to  such
differences  include,  but are not limited to, those discussed above in "Factors
Affecting Our Future Performance" as well as those discussed in this section and
elsewhere in this report.

Overview

         We are an Internet  incubator  company that provides  venture  funding,
venture  development  and  venture  banking  services to  companies  in which we
acquire direct or indirect equity  interests.  We are penetrating new markets by
developing our international  operations and by expanding our global coverage of
the Internet industry. Our partner companies include Internet-based  businesses,
established "brick and mortar" companies implementing an Internet-based strategy
and  advanced  technology  and  service  companies.  By  providing  our  partner
companies  with  capital  and  a  combination  of  enterprise-enhancing  venture
development  and venture banking  services,  we believe that we help our partner
companies focus on their core  strengths,  so that they may bring their products
and services to market more rapidly.

         On November 1, 1999,  Walnut Financial  Services,  Inc.  acquired Tower
Hill Securities,  Inc. However,  for financial  statement  purposes,  Tower Hill
Securities acquired Walnut Financial Services and is the surviving entity.

         Tower Hill  Securities is the successor to Hambro  America  Securities,
Inc., the former U.S.  investment banking subsidiary of Hambros,  plc, a British
merchant  banking  firm. In March 1998,  the  investment  banking  operations of
Hambros,  plc were sold to Societe  Generale,  a French bank.  On April 1, 1998,
Joseph  D. Mark and Adi  Raviv,  the  principal  executives  of  Hambro  America
Securities, Inc., acquired the company from Societe Generale.

         As part of our new business strategy, on December 29, 1999, we acquired
Mercury Coast Inc., a Delaware  corporation engaged in the business of providing
business  incubation  services,  including  strategic  planning,  operations and
marketing consulting services, to Internet-based businesses.

         The financial  statements  contained in this annual report  reflect the
operations of Hambro  America  Securities  for the year ended March 31, 1998 and
the  operations of Tower Hill  Securities for the nine months ended December 31,
1998.

         The financial  statements  for the year ended December 31, 1999 reflect
the  operations  of Tower  Hill  Securities  for the full year then  ended,  the
operations of Walnut Financial  Services for the period between November 1, 1999
and December 31, 1999,  and the  operations of Mercury Coast Inc. for the period
between December 29, 1999 and December 31, 1999.

Twelve  Months  Ended  December  31, 1999 as  compared to the Nine Months  Ended
December 31, 1998

Revenues

         Revenue for the year ended  December 31, 1999 increased to $7.7 million
from $2.1 million for the nine months ended  December 31, 1998.  The increase in
revenue was primarily

                                       36

<PAGE>

due to a significant  increase in revenue  derived from the sales of our venture
banking  services and to the fact that the 1999 period reflects four quarters of
revenue while the 1998 period reflects three quarters of revenue.

         Venture  service fees for the year ended December 31, 1999 increased to
$2.9 million from $2.1 million for the nine months ended  December 31, 1998. The
increase  in these fees was  primarily  due to an  increase  in fees earned from
providing our venture banking services.

         Appreciation  in  securities  and interest  income  consists of the net
increases  (decreases)  in the  value of the  securities  that we  received  for
services  or that we  acquired,  as well as  interest  income.  Appreciation  in
securities was $4.6 million for the year ended December 31, 1999 compared to $20
thousand for the nine months ended  December 31, 1998.  The increase in 1999 was
due  primarily  to the $1.4  million  increase  in the value of our  warrants to
purchase stock of Interleaf, which we had received for providing venture banking
services,  and to the $1.5  million  increase  in the value of our wholly  owned
subsidiary  that is the general  partner of Walnut Growth  Limited  Partnership.
This wholly owned  subsidiary is generally  entitled to 1% of the  partnership's
assets plus 20% of the net value of the  partnership's  assets after the limited
partner's  capital  contribution  of $6 million is returned to it. Walnut Growth
Limited Partnership owns approximately 766,500 shares of webMethods, Inc., which
completed its initial public offering in February 2000, in addition to positions
in other companies.

         Factoring  revenues for the year ended December 31, 1999 were $135,000.
We were not in the factoring business prior to 1999.

Expenses

         Selling,  general  and  administrative  expenses  for  the  year  ended
December  31, 1999  increased  to $4.8  million  from $2.1  million for the nine
months  ended  December  31,  1998.   The  increase  in  selling,   general  and
administrative  expenses was primarily due to the increase in  compensation  and
related  benefits to $2.6 million for the year ended December 31, 1999 from $1.3
million for the nine months  ended  December  31,  1998.  Compensation  expenses
included  bonuses to  professionals  related to the  improved  results  from our
venture  banking  services,  as well as our hiring of  additional  employees  to
provide  venture  development  services  to our partner  companies.  Stock-based
compensation  for the year ended December 31, 1999 was $595 thousand.  There was
no  stock-based  compensation  for the nine months ended  December 31, 1998.  In
addition,  the 1998 period  reflects only three quarters of expenses,  while the
1999 period  reflects a full year of  expenses.  Professional  fees for the year
ended  December 31, 1999  increased to $794  thousand from $122 thousand for the
nine months  ended  December 31, 1998.  The  increase in  professional  fees was
primarily  related to fees paid to one party for its role in connection with the
consummation of a private  placement of our common stock on November 1, 1999 and
for  professional  fees related to our  provision of venture  funding  services,
which services we did not provide prior to 1999.

         Occupancy and equipment rental expenses for the year ended December 31,
1999  increased to $470  thousand  from $212  thousand for the nine months ended
December 31, 1998. The increase in occupancy and equipment  rental  expenses was
caused by an increase in our rental space. In addition,  the 1998 total reflects
only three quarters of rental expense, while the 1999 total reflects a full year
of rental  expense.  It is  anticipated  that our occupancy  costs will increase
significanly  in the third  quarter of this year as we move into new space.  See
"ITEM 2. PROPERTIES."

         Finders  fees for the year ended  December  31, 1999  decreased  to $75
thousand  from $172  thousand for the nine months ended  December 31, 1998.  The
decrease in finders fees was due to more of our business being generated through
our own relationships.

         Amortization expenses for the year ended December 31, 1999 increased to
$368  thousand  from zero for the nine  months  ended  December  31,  1998.  The
increase in amortization expenses is primarily related to the amortization of

                                       37

<PAGE>

goodwill from our merger with Walnut Financial  Services on November 1, 1999 and
the acquisition of Mercury Coast on December 29, 1999.

         Other  factoring  costs for the year ended  December 31, 1999 were $173
thousand. We were not in the factoring business prior to 1999.

         Our  provision  for income  taxes for the year ended  December 31, 1999
increased to $1.1  million from $35 thousand for the nine months ended  December
31,  1998.  This  increase was  primarily  due to the increase in net income for
1999.

Nine Months Ended December 31, 1998 as compared to the Twelve Months Ended March
31, 1998

Revenues

         Revenue for the nine months ended  December 31, 1998  increased to $2.1
million from $228  thousand  for the year ended March 31, 1998.  The increase in
revenue was primarily  due to an increase in revenues  derived from the sales of
our venture banking services.

Expenses

         Selling,  general and administrative expenses for the nine months ended
December 31, 1998 increased to $2.1 million from $1.6 million for the year ended
March 31, 1998. The increase in selling, general and administrative expenses was
primarily  due to increases  in  compensation,  primarily  due to the payment of
bonuses to professionals and related benefits for the nine months ended December
31, 1998.

         Occupancy  and  equipment  rental  expenses  for the nine months  ended
December 31, 1998  increased to $211  thousand  from $111  thousand for the year
ended March 31, 1998.  The increase in occupancy and equipment  rental  expenses
was caused by an increase in equipment rentals to support our professional staff
and the need to increase expenses as an independent  company,  no longer part of
Hambros or Societe Generale.

         Finders fees for the nine months ended  December 31, 1998  increased to
$172  thousand  from zero for the year ended March 31, 1998.  This was due to an
increased reliance on outside parties for business referrals.

         Professional fees for the nine months ended December 31, 1998 increased
to $122  thousand  from zero for the year ended March 31, 1998.  The increase in
professional fees was due to our need to retain additional outside professionals
as an independent company.

         Our provision  for income taxes for the nine months ended  December 31,
1998  increased to $35 thousand from zero for the year ended March 31, 1998. The
increase in income tax was primarily  due to an increase in income  generated by
our business in the last nine months of 1998.

                                       38

<PAGE>

Liquidity and Capital Resources

         Our  business  is  capital   intensive.   In  the  future,   we  expect
periodically  to raise funds to acquire  equity  interests in and  establish new
partner companies,  to support our operations and expand our venture development
and venture  banking  services and to support the  operations  and growth of our
partner companies.  Our future capital requirements will depend in large part on
the number of partner  companies in which we acquire equity  interests and which
we  establish,  the  amounts of capital  we provide to these  companies  and the
timing of these payments. Our plans and the related capital requirements will be
dependent  on various  factors,  such as  developments  in our  markets  and the
availability  of  acquisition  and  entrepreneurial  opportunities.  If  we  are
successful  in  selling   additional  equity   securities,   our  then  existing
stockholders may suffer  significant  dilution.  However,  we may not be able to
obtain financing on acceptable terms, or at all, when we need it. If we require,
but are  unable to obtain,  additional  financing  in the  future on  acceptable
terms, or at all, we will not be able to continue our business strategy, respond
to changing business or economic conditions, withstand adverse operating results
or compete  effectively,  and our  business,  financial  condition and operating
results may be materially and adversely affected as a result.

         We funded operations primarily through private placements of our common
stock on November 1, 1999 in  connection  with our merger with Walnut  Financial
Services.  We raised $6.9 million from the sale of common stock in those private
placements. Our principal sources of liquidity as of December 31, 1999 consisted
of $2.7  million  in  marketable  securities  and $1.6  million in cash and cash
equivalents.

         During  1999,  cash  used in  operating  activities  was  $1.9  million
compared to $249  thousand  for the nine months ended  December  31,  1998.  The
increase  in cash  used in  operations  in 1999  reflects  the need for  working
capital required to fund expanding operations.

         Net cash  used in  investing  activities  for  1999  was $480  thousand
compared to $325  thousand  for the nine months ended  December  31,  1998.  The
change was due mainly to our  purchase of the  minority  interest  in  Universal
Partners, L.P., which we acquired in the merger with Walnut Financial Services.

         Cash  provided by  financing  activities  was $3.4 million for the year
ended December 31, 1999.  This  consisted  primarily of proceeds of $6.9 million
received  through the private  placements of common stock on November 1, 1999 in
connection with our merger with Walnut Financial Services. We intend to continue
to raise capital to finance our strategy of building dominant partner companies.

         In  February  2000,  we  received  $5.7  million in  proceeds  from the
exercise of the Class A Warrants issued by Walnut Financial Services in 1997.


                                       39
<PAGE>

ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The  primary  market risk  facing us is the  fluctuation  in the market
value of the  securities we acquire in our partner  companies and the securities
we receive in payment of fees for the venture  development  and venture  banking
services we provide to our partner  companies.  Our  partner  companies  include
Internet-based businesses, established "brick and mortar" companies implementing
an Internet-based  strategy and advanced  technology and service companies.  The
market prices for our partner  companies have been very  volatile,  experiencing
wide fluctuations. Our profitability may be materially and adversely affected by
period to period  declines in the market  values of our partner  companies.  See
"Factors  Affecting  Our Future  Performance  - Our  investments  in our partner
companies are risky."  Historically,  we have not  generally  engaged in hedging
transactions to minimize this risk.

         We are not  subject  to market  risk  associated  with  risk  sensitive
institutions because we do not invest in institutions that are not United States
institutions and we do not enter into hedging transactions.

         Historically,  we have had very low  exposure  to  changes  in  foreign
currency  exchange  rates,  and as  such,  have not  used  derivative  financial
instruments  to manage  foreign  currency  fluctuation  risk.  As we develop our
international  operations  and  expand  our  global  coverage  of  the  Internet
industry,   our  risk  of  foreign   currency   exchange  rate  fluctuation  may
dramatically  increase.  Therefore,  in the future,  we may  consider  utilizing
derivative instruments to mitigate these risks.


ITEM 8.  INDEX TO THE FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The  following  Consolidated  Financial  Statements  of  THCG  and  its
subsidiaries,  together with the report of the independent auditors thereon, are
presented on pages F-1 through F-22 hereof as set forth below:


THCG, INC. AND SUBSIDIARIES                                          PAGE
Report of Richard A. Eisner & Company, LLP,
  Independent Public Accountants................................     F-1
Consolidated Balance Sheets - December 31, 1998 and 1999........     F-2
Consolidated Statements of Operations - for the years ended
  December 31, 1997, 1998 and 1999..............................     F-3
Consolidated Statements of Stockholders' Equity - for the
  years ended December 31, 1997, 1998 and 1999..................     F-4 to F-6
Consolidated Statements of Cash Flows - for the years ended
  December 31, 1997, 1998 and 1999..............................     F-7
Notes to Consolidated Financial Statements .....................     F-8 to F-21
Report of Cohen & Schaeffer, P.C.
  Independent Public Accountants................................     F-22


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

         None.


                                       40

<PAGE>


                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

         The  information  required  by this Item 10 is  incorporated  herein by
reference  to our  definitive  proxy  statement  for the 2000 Annual  Meeting of
Stockholders (the "Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

         The  information  required  by this Item 11 is  incorporated  herein by
reference to our Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  information  required  by this Item 12 is  incorporated  herein by
reference to our Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  required  by this Item 13 is  incorporated  herein by
reference to our Proxy Statement.


                                       41
<PAGE>

                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K

(a)      (1)      All  Consolidated   Financial   Statements  of  THCG  and  its
                  subsidiaries  for the year ended  December  31, 1999 are filed
                  herewith.  See  Item  8 of  this  Report  for a list  of  such
                  financial statements.

         (2)      All  financial  statement  schedules  have been omitted as the
                  required  information is  inapplicable or has been included in
                  the Consolidated Financial Statement and notes thereto.

         (3)      Exhibits - See response to paragraph (c) below.

(b)      Reports on Form 8-K.

         We filed a Current Report on Form 8-K, dated November 1, 1999, with the
SEC on November 10, 1999 to report Walnut's acquisition of Tower Hill Securities
and the resulting  change in control of Walnut.  We reported  these events under
Item 1  ("Changes  in  Control  of  Registrant")  and  Item 2  ("Acquisition  or
Disposition  of  Assets")  of such  Current  Report  on Form  8-K.  We  filed an
amendment to our Current Report on 8-K, dated November 1, 1999,  with the SEC on
January 14, 2000 to report the  historical  financial  statements  of Tower Hill
Securities and our pro forma financial statements.

(c)      Exhibits.

         2.1         Agreement  and Plan of  Reorganization,  dated  November 8,
                     1994, by and between NFS Services,  Inc.  (Utah) and Walnut
                     Capital Corp. (1)

         2.2         Agreement and Plan of Merger, dated November 1, 1999, among
                     Walnut  Financial  Services,  Inc.,  Tower Hill Acquisition
                     Corp. and Tower Hill Securities, Inc. (2)

         2.3         Agreement  and Plan of Merger,  dated  December  29,  1999,
                     among THCG, Inc., Coast Acquisition Corp. and Mercury Coast
                     Inc. (3)

         2.4         Stock Purchase  Agreement,  dated February 7, 2000, between
                     THCG,  Inc.  and  certain  stockholders  of  Global  Credit
                     Services, Inc.

         3.1         Articles of Amendment and  Restatement of Walnut  Financial
                     Services, Inc.

         3.2         Amended and Restated Bylaws of THCG, Inc.

         4.1         Amended and Restated Voting  Agreement,  dated as of August
                     5, 1999, among Tower Hill Securities, Inc., the undersigned
                     stockholders, and Walnut Financial Services, Inc. (6)

         4.2         Securities  Purchase  Agreement,  dated as of  October  29,
                     1999,  among  Greenwich  Street Capital  Partners II, L.P.,
                     GSCP Offshore Fund, L.P.,  Greenwich Fund, L.P.,  Greenwich
                     Street  Employees Fund,  L.P., TRV Executive Fund, L.P. and
                     Walnut Financial Services, Inc.

         4.3         Registration  Rights  Agreement,  dated  November  1, 1999,
                     among THCG,  Inc.,  Greenwich  Street Capital  Partners II,
                     L.P.,  GSCP Offshore  Fund,  L.P.,  Greenwich  Fund,  L.P.,
                     Greenwich  Street Employees Fund, L.P., TRV Executive Fund,
                     L.P.

         4.4         Registration  Rights  Agreement,  dated  November  1, 1999,
                     among THCG,  Inc. and the parties  listed as  purchasers on
                     the signature page thereof.

         4.5         Registration  Rights  Agreement,  dated  November  1, 1999,
                     among THCG,  Inc. and the parties  listed as  purchasers on
                     the signature page thereof.

                                       42

<PAGE>

         4.6         Registration  Rights  Agreement,  dated  December 29, 1999,
                     among THCG,  Inc.,  Larry W. Smith, Ed Tedeschi and Michael
                     Gegenheimer.

         10.1        The Walnut Capital Corporation 1987 Stock Option Plan. (4)

         10.2        The NFS Services,  Inc.  (Utah) 1994 Incentive Stock Option
                     Plan, as amended. (5)

         10.3        Consulting  Agreement,  dated  November  1,  1999,  between
                     Inland Financial Corporation and Chicago Advisory Group.

         10.4        Consulting  Agreement,  dated  November  1,  1999,  between
                     Walnut Financial Services, Inc. and Windy City, Inc.

         10.5        Employment  Agreement,  dated  November  1,  1999,  between
                     Walnut Financial Services, Inc. and Joseph D. Mark.

         10.6        Employment  Agreement,  dated  November  1,  1999,  between
                     Walnut Financial Services, Inc. and Adi Raviv.

         10.7        Employment  Agreement,  dated  November  1,  1999,  between
                     Walnut Financial Services, Inc. and Shai Novik.

         10.8        Amended and  Restated  Restricted  Stock  Grant  Agreement,
                     dated November 2, 1999, between THCG, Inc. and Shai Novik.

         10.9        First   Amendment  to  Amended  and  Restated  Stock  Grant
                     Agreement, dated December 15, 1999, by and between THCG and
                     Shai Novik.

         10.10       Employment  Agreement,  dated  December 29,  1999,  between
                     Walnut Financial Services, Inc. and Larry Smith.

         10.11       Employment Agreement,  dated February 1, 2000, between THCG
                     Ventures, LLC and Evan Marks.

         10.12       Walnut Financial Services, Inc. 1999 Stock Incentive Plan.

         21.1        Subsidiaries of THCG, Inc.

         23.1        Consent of Richard A. Eisner & Company, LLP.

         23.2        Consent of Cohen & Schaeffer, P.C.

         27.1        Financial Data Schedule.

------------------

(1)      Incorporated  herein by  reference  to Exhibit 2.1 of our  Registration
         Statement on Form 10 filed with the SEC on May 11, 1995.

(2)      Incorporated  herein by reference to Exhibit A of our Definitive  Proxy
         Statement on Schedule 14A filed with the SEC on September 30, 1999.

(3)      Incorporated  herein by reference to Exhibit 2.1 of our Current  Report
         on Form 8-K,  dated December 29, 1999 and filed with the SEC on January
         6, 2000.

(4)      Incorporated  herein by reference  to Exhibit 10.6 of our  Registration
         Statement on Form 10 filed with the SEC on May 11, 1995.

                                       43

<PAGE>

(5)      Incorporated  herein by reference to Exhibit B of our Definitive  Proxy
         Statement on Schedule 14A filed with the SEC on October 30, 1997.

(6)      Incorporated  herein by  reference  to  Exhibit  D to  Exhibit A of our
         Definitive  Proxy  Statement  on  Schedule  14A  filed  with the SEC on
         September 30, 1999.


                                       44
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended,  the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                              THCG, INC.


                                              By: /s/ Joseph D. Mark
                                                 -----------------------------
                                              Name:  Joseph D. Mark
                                              Title: Co-Chief Executive Officer

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


Signature                      Title(s)                              Date

/s/ Joseph D. Mark                Co-Chief Executive             March 30, 2000
------------------                Officer and Director
Joseph D. Mark                    (Co-Principal Executive
                                  Officer)

/s/ Adi Raviv                     Co-Chief Executive Officer     March 30, 2000
------------------                and Director
Adi Raviv                         (Co-Principal Executive
                                  Officer)

/s/ Shai Novik                    Chief Operating Officer        March 30, 2000
-------------------               (Principal Financial and
Shai Novik                        Accounting Officer)

/s/ Larry W. Smith                Director                       March 30, 2000
------------------
Larry W. Smith

--------------------              Director                       March 30, 2000
Keith Abell

--------------------              Director                       March 30, 2000
Gene E. Burleson

/s/ Burton W. Kanter              Director                       March 30, 2000
--------------------
Burton W. Kanter

/s/ Joel S. Kanter                Director                       March 30, 2000
------------------
Joel S. Kanter

/s/ Henry Klein                   Director                       March 30, 2000
-------------------
Henry Klein

--------------------              Director                       March 30, 2000
Evan M. Marks

/s/ Stanley B. Stern              Director                       March 30, 2000
--------------------
Stanley B. Stern


                                       45

<PAGE>


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
THCG, Inc.
New York, New York


We have audited the accompanying  consolidated  statement of financial condition
of THCG,  Inc.  and  subsidiaries  as of  December  31,  1999,  and the  related
consolidated statements of operations,  changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audit.

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

In our opinion, the financial statements enumerated above present fairly, in all
material  respects,  the  consolidated  financial  position  of THCG,  Inc.  and
subsidiaries  as of December 31,  1999,  and the  consolidated  results of their
operations  and  their  consolidated  cash  flows  for the  year  then  ended in
conformity with generally accepted accounting principles.



                                   /s/ Richard A. Eisner & Company, LLP



New York, New York
March 16, 2000

                                      F-1
<PAGE>



THCG, INC.

Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>

                                                                                                        December 31,
                                                                                                   1999              1998
                                                                                              ------------------------------
ASSETS
<S>                                                                                           <C>               <C>
   Marketable and nonmarketable securities                                                    $  7,863,000
   Partnerships and Limited Liability Company interests                                          2,053,000
   Cash and cash equivalents                                                                     1,602,000        $ 610,000
   Fees and other receivables, net of allowance                                                  1,294,000          525,000
   Prepaid expenses and other assets                                                               485,000           49,000
   Loan receivable, related party                                                                   35,000           78,000
   Loan receivable, officer                                                                        277,000          216,000
   Furniture, fixtures and equipment - at cost, less accumulated depreciation                      200,000           70,000
   Excess of cost over fair value at net assets acquired, net of
      accumulated amortization                                                                 34,549,000
                                                                                              -----------       -----------
                                                                                              $48,358,000       $ 1,548,000
                                                                                              ===========       ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
   Accounts payable, accrued expenses and other current liabilities                           $ 1,933,000       $   256,000
   Line of credit                                                                                 565,000
   Notes payable                                                                                  600,000
   Deferred income taxes payable                                                                  495,000            35,000
                                                                                              -----------       -----------
      Total liabilities                                                                         3,593,000           291,000
                                                                                              -----------       -----------
Stockholders' equity:
   Cumulative preferred stock - variable rate, $1.00 par value, 5,000,000 shares
      authorized; 1,000,000 issued and outstanding in 1998                                                        1,000,000
   Common stock, $.01 par value, 50,000,000 shares authorized; 11,790,134 and
      3,722,815 issued and outstanding in 1999 and 1998, respectively                             118,000            37,000
   Additional paid-in capital                                                                  81,601,000        11,290,000
   Subscriptions receivable                                                                                         (67,000)
   Accumulated deficit                                                                         (9,660,000)      (11,003,000)
   Unearned compensation                                                                      (27,294,000)
                                                                                              ------------       ----------
                                                                                               44,765,000         1,257,000
                                                                                              ------------       ----------
                                                                                             $ 48,358,000       $ 1,548,000
                                                                                             ============       ===========
</TABLE>

See notes to financial statements

                                      F-2
<PAGE>



Consolidated Statements of Operations
<TABLE>
<CAPTION>

                                                                                              Nine Months
                                                                            Year Ended           Ended         Year Ended
                                                                           December 31,       December 31,     March 31,
                                                                               1999               1998            1998
                                                                         -------------------------------------------------
Revenues:
<S>                                                                      <C>                 <C>               <C>
   Venture service fees                                                  $ 2,963,000          $2,105,000        $ 210,000
   Appreciation in securities and interest income                          4,605,000              20,000           18,000
   Factoring income                                                          135,000
                                                                         -----------          ----------       ----------
                                                                           7,703,000           2,125,000          228,000
                                                                         -----------          ----------        ---------
Expenses:
   Selling, general and administrative, including $595,000 of
      equity - based compensation in 1999                                  4,765,000           2,090,000        1,553,000
   Amortization of acquired intangibles                                      368,000
   Other factoring costs                                                     173,000
                                                                         -----------         -----------      -----------

                                                                           5,306,000           2,090,000        1,553,000
                                                                         ----------         -----------       ----------

Income (loss) before provision for income taxes                            2,397,000              35,000       (1,325,000)
Provision for income taxes                                                 1,054,000              35,000
                                                                         ----------         -----------      ------------

Net income (loss)                                                        $ 1,343,000         $         0      $(1,325,000)
                                                                        ===========         ===========      ============

Basic income (loss) per share                                                   $.27                $.00            $(.36)
                                                                               ====               ====              =====
Diluted income (loss) per share                                                 $.27                $.00            $(.36)
                                                                               ====               ====              =====
Weighted average common shares outstanding - basic
   income per share                                                        4,916,000           3,723,000        3,723,000
Effect of potential common shares from exercise of
   options and warrants                                                       94,000
                                                                         ----------         -----------      -----------
Weighted average common shares outstanding -
   diluted income per share                                                5,010,000           3,723,000        3,723,000
                                                                         ==========         ===========      ===========
</TABLE>


                                      F-3
<PAGE>

Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>

                                                                         Cumulative Preferred
                                                                          Stock-Variable Rate                 Common Stock
                                                                     --------------------------------------------------------------
                                                                      Number of                         Number of
                                                                       Shares            Amount           Shares         Amount
                                                                   -------------    ---------------   --------------  -------------
<S>                                                                 <C>              <C>                  <C>         <C>
Balance, March 31, 1997                                                2,391,294    $     2,391,000       3,722,815   $    37,000
Merger of Hambro America Securities, Inc.
Reclass of preferred stock to additional paid-in capital              (2,391,294)        (2,391,000)
Conversion of debt to equity
Issuance of preferred stock                                            1,000,000          1,000,000
Net loss
                                                                   -------------    ---------------   -------------   -----------
Balance, March 31, 1998                                                1,000,000          1,000,000       3,722,815        37,000
Capital contribution by Hambro America Securities, Inc.
Capital contributions by stockholders
                                                                   -------------    ---------------   -------------   -----------
Balance, December 31, 1998                                             1,000,000          1,000,000       3,722,815        37,000
Recapitalization in connection with the Merger                        (1,000,000)        (1,000,000)
Issuance of restricted common stock to employees                                                            372,281         4,000
Shares of common stock and assumption of options and
   warrants representing purchase price in connection
   with the reverse acquisition, including finders fee
   of 100,000 shares of common stock                                                                      3,450,533        35,000
Proceeds from issuance of common stock and warrants
   in a private placement, including fees of 100,000
   shares of common stock                                                                                 2,600,000        26,000
Proceeds from issuance of common stock in private
   placement                                                                                                932,500         9,000
Issuance of common stock in connection with acquisition,
   including finders fee of 12,000 of common stock                                                          712,005         7,000
Cancellation of subscriptions receivable
Compensatory options issued to consultants
Compensation expense for stock options issued
   to employees
Amortization of unearned compensation
Net income
                                                                   -------------    ---------------   -------------   -----------
Balance, December 31, 1999                                                     0    $             0      11,790,134   $   118,000
                                                                   =============    ===============   =============   ===========
</TABLE>

<TABLE>
<CAPTION>



                                      F-4
<PAGE>


Consolidated Statements of Changes in Stockholders' Equity (cont'd)


                                                                     Additional
                                                                      Paid-in            Unearned         Subscriptions
                                                                      Capital          Compensation        Receivable
                                                                  ---------------      -------------      ----------------
<S>                                                               <C>                   <C>                 <C>
Balance, March 31, 1997                                           $       867,000
Merger of Hambro America Securities, Inc.                               6,707,000
Reclass of preferred stock to additional paid-in capital                2,391,000
Conversion of debt to equity                                              346,000
Issuance of preferred stock
Net loss
                                                                  ---------------
Balance, March 31, 1998                                                10,311,000
Capital contribution by Hambro America Securities, Inc.                   905,000
Capital contributions by stockholders                                      74,000                           $ (67,000)
                                                                  ---------------                           ---------
Balance, December 31, 1998                                             11,290,000                             (67,000)
Recapitalization in connection with the Merger                          1,000,000
Issuance of restricted common stock to employees                        1,350,000   $      (1,354,000)
Shares of common stock and assumption of options and
   warrants representing purchase price in connection
   with the reverse acquisition, including finders fee
   of 100,000 shares of common stock                                   13,332,000
Proceeds from issuance of common stock and warrants
   in a private placement, including fees of 100,000
   shares of common stock                                               5,174,000
Proceeds from issuance of common stock in private
   placement                                                            1,856,000
Issuance of common stock in connection with acquisition,
   including finders fee of 12,000 of common stock                     21,131,000
Cancellation of subscriptions receivable                                  (67,000)                             67,000
Compensatory options issued to consultants                                 86,000
Compensation expense for stock options issued
   to employees                                                        26,449,000         (26,449,000)
Amortization of unearned compensation                                                         509,000
Net income
                                                                  ---------------   -----------------   -------------
Balance, December 31, 1999                                        $    81,601,000   $     (27,294,000)    $         0
                                                                  ===============   =================     ===========
</TABLE>
<TABLE>
<CAPTION>



                                      F-5
<PAGE>


Consolidated Statements of Changes in Stockholders' Equity (cont'd)

                                                                           Accumulated
                                                                             Deficit            Total
                                                                        ----------------   ---------------

<S>                                                                     <C>                <C>
Balance, March 31, 1997                                                 $     (3,068,000)  $       227,000
Merger of Hambro America Securities, Inc.                                     (6,610,000)           97,000
Reclass of preferred stock to additional paid-in capital                                                 0
Conversion of debt to equity                                                                       346,000
Issuance of preferred stock                                                                      1,000,000
Net loss                                                                      (1,325,000)       (1,325,000)
                                                                        ----------------   ---------------
Balance, March 31, 1998                                                      (11,003,000)          345,000
Capital contribution by Hambro America Securities, Inc.                                            905,000
Capital contributions by stockholders                                                                7,000
                                                                        ----------------   ---------------
Balance, December 31, 1998                                                   (11,003,000)        1,257,000
Recapitalization in connection with the Merger                                                           0
Issuance of restricted common stock to employees                                                         0
Shares of common stock and assumption of options and
   warrants representing purchase price in connection
   with the reverse acquisition, including finders fee
   of 100,000 shares of common stock                                                            13,367,000
Proceeds from issuance of common stock and warrants
   in a private placement, including fees of 100,000
   shares of common stock                                                                        5,200,000
Proceeds from issuance of common stock in private
   placement                                                                                     1,865,000
Issuance of common stock in connection with acquisition,
   including finders fee of 12,000 of common stock                                              21,138,000
Cancellation of subscriptions receivable                                                                 0
Compensatory options issued to consultants                                                          86,000
Compensation expense for stock options issued
   to employees                                                                                          0
Amortization of unearned compensation                                                              509,000
Net income                                                                     1,343,000         1,343,000
                                                                        ----------------   ---------------
Balance, December 31, 1999                                              $     (9,660,000)  $    44,765,000
                                                                        ================   ===============
</TABLE>


                                      F-6
<PAGE>



Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                                                   Nine Months
                                                                                    Year Ended        Ended        Year Ended
                                                                                   December 31,   December 31,      March 31,
                                                                                       1999           1998            1998
                                                                                  -------------   -------------   --------------

Cash flows from operating activities:
<S>                                                                                <C>                            <C>
   Net income (loss)                                                               $ 1,343,000                    $ (1,325,000)
   Adjustments to reconcile net income (loss) to net cash provided by (used in)
      operating activities:
        Depreciation and amortization                                                   70,000      $ 15,000            13,000
        Provision credit loss                                                           (9,000)       63,000
        Realized loss on securities owned                                                                               10,000
        Unearned compensation                                                          509,000
        Stock based compensation                                                        86,000
        Amortization of intangible                                                     368,000
        Bad debt expense                                                               221,000
        Changes in:
           Due from broker                                                                                              49,000
           Fees and other receivables                                                  (35,000)     (553,000)           10,000
           Loan receivable officer                                                     (61,000)
           Partnerships and limited liability company interests                     (2,853,000)
           Marketable and nonmarketable securities                                  (2,026,000)
           Prepaid expenses                                                           (435,000)      (13,000)           (9,000)
           Other assets                                                                                                 53,000
           Accounts payable and accrued expenses                                       381,000       171,000          (203,000)
           Due to related party                                                         43,000        10,000
           Deferred revenue                                                                           23,000
           Deferred income taxes                                                       460,000        35,000
                                                                                   -----------    ----------     -------------
              Net cash used in operating activities                                 (1,938,000)     (249,000)       (1,402,000)
                                                                                   ------------   ----------     -------------
Cash flows from investing activities:
   Purchase of furniture and equipment                                                  (3,000)      (18,000)           (6,000)
   Mercury Coast acquisition, net of acquired company's cash of $3,000                (278,000)
   WFS acquisition, net of acquired company's cash of $799,000                         334,000
   Purchase of minority interest                                                      (533,000)
   Increase in organizational costs                                                                  (13,000)
   Net increase in loan to related party                                                             (78,000)
   Net increase in loan to stockholders                                                             (216,000)
                                                                                   -----------    ----------     -------------
              Net cash used in investing activities                                   (480,000)     (325,000)           (6,000)
                                                                                   -----------    ----------     -------------
Cash flows from financing activities:
   Proceeds from the issuance of preferred stock                                                                     1,000,000
   Principal payments on line of credit                                               (132,000)
   Proceeds from sale of stock, net of related costs                                 6,865,000
   Principal payments on notes payable                                              (1,823,000)
   Principal payment on SBA loan                                                    (1,500,000)
   Loans from parent                                                                                                   469,000
   Capital contribution by Hambro America, Inc.                                                      905,000
   Capital contribution by stockholders                                                                7,000
                                                                                   -----------    ----------     -------------
              Net cash provided by financing activities                              3,410,000       912,000         1,469,000
                                                                                   -----------    ----------     -------------
Net increase in cash and cash equivalents                                              992,000       338,000            61,000
Cash and cash equivalents - beginning of year                                          610,000       272,000           211,000
                                                                                   -----------    ----------     -------------
Cash and cash equivalents - end of year                                            $ 1,602,000     $ 610,000         $ 272,000
                                                                                   ===========     =========     =============
Supplemental disclosure of cash flow information:
   Cash paid:
      Interest                                                                     $    43,000                       $ 137,000
      Taxes                                                                        $    17,000
Supplemental disclosure of noncash investing and financing activities:
   Issuance of stock in connection with Mercury Coast acquisition                  $21,138,000
   Issuance of equity instruments in connection with WFS acquisition               $13,367,000
   Deferred compensation to consultants and employees by issuance of options       $27,803,000
   Cancellation of subscription receivable in connection with the Merger           $   (67,000)
   Retirement of preferred stock in connection with the recapitalization           $ 1,000,000
   Issuance of stock as a finders fee in private placement                         $   200,000
   Conversion of debt to parent to equity                                                                           $ 346,000
</TABLE>

See notes to financial statements


                                      F-7
<PAGE>



THCG, INC.

Notes to Financial Statements

December 31, 1999


NOTE A - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

The Company is an Internet  incubator  company that  provides  venture  funding,
venture development and venture banking services. We are penatrating new markets
by developing our international  operations and by expanding our global coverage
of the  Internet  industry.  The Company  provides  services  to  Internet-based
businesses,   established   "brick"  and  mortar"   companies   implementing  an
Internet-based  strategy  and  advanced  technology  and service  companies.  By
providing  companies  with  capital and a  combination  of  enterprise-enhancing
venture  development and venture banking services,  the Company believes that it
helps  companies  focus on their core  strengths,  so that they may bring  their
products  and  services to market more  rapidly.  The  Company  also  operates a
factoring business.

On November 1, 1999, the Company  consummated the  transactions  contemplated by
the Amended and Restated Agreement and Plan of Merger (the  "Agreement"),  dated
August  5,  1999,  by and  among  the  Company,  Tower  Hill  Acquisition  Corp.
("Newco"),  a wholly owned subsidiary of the Company, and Tower Hill Securities,
Inc. ("Tower Hill"). Pursuant to the Agreement, Newco merged with and into Tower
Hill, with Tower Hill surviving as a wholly owned subsidiary of the Company (the
"Merger").  As a result of the Merger,  the Company changed its name from Walnut
Financial  Services,  Inc.  ("WFS") to THCG, Inc. Tower Hill,  formerly known as
Hambro  America  Securities,  Inc.,  is a  registered  broker-dealer  under  the
Securities  Exchange  Act of 1934 and a member of the  National  Association  of
Securities  Dealers,  Inc.  Tower Hill is engaged in the  private  placement  of
corporate debt and equity securities with accredited investors as defined by SEC
Rule 501 of Regulation  D. Tower Hill does not hold  customer  funds or safekeep
customers securities pursuant to SEC Rule 15c3-3(k)(2)(1).

In May 1997,  Hambro America  Securities,  Inc. was merged into Hambro  Resource
Development,  Inc. ("HRDI") and  simultaneously  HRDI changed its name to Hambro
America Securities, Inc.

In April  1998,  a group of  investors  purchased  99% of all of the  issued and
outstanding equity securities of Hambro America Securities, Inc. for $74,250. In
May 1998, the same group purchased the remaining 1% for $750. In connection with
this  acquisition,  the former parent  contributed  capital of $904,775 in April
1998.

In connection with the Merger, the Company (i) issued 3,722,815 shares of common
stock for all of the  outstanding  common stock of Tower Hill; (ii) entered into
employment agreements with the two former shareholders of Tower Hill, who became
the Co-CEO's of the Company,  and a former officer of Tower Hill, who became the
Chief  Operating  Officer of the  Company  and who  received  372,281  shares of
restricted  common  stock (see Note L1 with respect to  employment  agreements);
(iii)  issued  2,500,000  shares of common  stock and  warrants  to  purchase an
aggregate  of  2,000,000  shares  of  common  stock for  aggregate  proceeds  of
$5,000,000 to Greenwich Street Capital Partners II, L.P. ("GSCP") and certain of
its affiliates in a private placement transaction and (iv) issued 932,500 shares
of common stock in two additional private placements, one to an outside investor
group and one to an investor group consisting of former Tower Hill employees. In
connection with the Merger,  the  outstanding  preferred stock of Tower Hill was
cancelled.

For  financial  accounting  purposes,  the  acquisition  was  accounted for as a
reverse acquisition of the Company by Tower Hill as, after the transaction,  the
former  shareholders  of Tower  Hill  owned  approximately  53% of the  combined
Company (prior to the issuance of the shares in the private placements described
above),  the management of Tower Hill became the management of the Company and a
majority of the new Board of Directors of the combined  company was nominated by
Tower Hill. The purchase price for the Company  consisted of 3,350,533 shares of
common stock,  representing the outstanding  shares of common stock of WFS as of
the date of acquisition and the assumption of all of the outstanding options and
warrants of WFS. The Company  issued 100,000 shares of common stock as a finders
fee in connection with the Merger. The aggregate purchase price was $13,367,000,
based on the closing price of $3.625 per share on the  acquisition  date and the
fair value of the  assumed  warrants  and  options.  In  addition,  the  Company
incurred closing costs of approximately $785,000. The Company recorded excess of
cost over fair value of net assets  acquired of $13,975,000  in connection  with
the  Merger.  The  historical  financial  statements  presented  herein  are the
historical financial statements of Tower Hill adjusted for the capitalization of
WFS.  Tower  Hill's  accumulated  deficit  is carried  over in the  accompanying
financial statements.

                                      F-8

<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1)      Principles of consolidation:

       The  financial  statements  of the Company  include  the  accounts of its
       wholly  owned   subsidiaries,   Mercury  Coast  Inc.,  Pacific  Financial
       Services,  Inc.  ("Pacific  Financial"),   Inland  Financial  Corporation
       ("Inland  Financial")  and Tower Hill  Securities  and its  wholly  owned
       subsidiaries,  THCG LLC and THCG  Ventures  LLC.  THCG  Ventures LLC is a
       management  company  for two  related  venture  capital  companies,  THCG
       Venture  Partners I LLC and THCG  Partners  LLC.  THCG Ventures LLC has a
       0.45% member's  interest in THCG Partners LLC. THCG Partners LLC and THCG
       LLC have a 15.1% and a 9.9% membership  interest in THCG Venture Partners
       I  LLC   respectively.   All   significant   intercompany   accounts  and
       transactions are eliminated in consolidation.

(2)      Cash and cash equivalents:

       The Company  considers all highly liquid  investments  with maturities of
       three months or less to be cash equivalents.

(3)      Marketable and nonmarketable securities:

       Marketable  securities  are stated at their fair market value on December
       31, 1999. Marketable restricted securities are valued at fifty percent of
       the  published  last trade,  in accordance  with the Company's  valuation
       policy.  Such discount reflects the Company's estimate of fair value. Not
       readily  marketable  securities  are  valued  based on the last  round of
       financing or lower depending on circumstances.  Warrants are valued based
       on the  intrinsic  value (the value of the  underlying  security less the
       exercise price).

       The fair value of the Company's cash and cash  equivalents and securities
       approximates the carrying amounts presented in the statement of financial
       condition.

(4)      Furniture, fixtures and equipment:

       Furniture,  fixtures and  equipment  are stated at cost less  accumulated
       depreciation  or   amortization.   Depreciation  is  computed  using  the
       straight-line  method of accounting  over the  estimated  useful lives of
       three to seven years.

(5)      Intangibles:

       The excess of  purchase  price over fair value of net assets  acquired is
       amortized on a  straight-line  basis over the estimated  future period of
       the  benefit  of  five  years.  The  Company  periodically  assesses  the
       recoverability  of the cost of its goodwill based upon  estimated  future
       profitability of the related entities.

       Long-lived assets and certain identifiable intangibles,  including excess
       of purchase  price over fair value of net assets  acquired,  are reviewed
       for impairment whenever events or changes in circumstances  indicate that
       the carrying amount of an asset may not be recoverable. Recoverability is
       measured by the amount by which the carrying  value of the assets exceeds
       the fair value of the assets.

                                      F-9

<PAGE>


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

(6)      Revenue recognition:

       The Company  recognizes  venture  service fees when  earned.  The Company
       recognizes  factoring  fees when  earned.  Interest  income from loans is
       recognized  using the  interest  method.  Accrual of interest on loans is
       suspended  when a loan is  contractually  delinquent  more  than 90 days.
       Accrual is resumed when the loan becomes  contractually  current and past
       due interest  income is recognized at that time. In addition,  a detailed
       review of loans will cause earlier suspension if collection is doubtful.

(7)      Credit losses:

       Provision for credit  losses are charged to income in amounts  sufficient
       to maintain  the  allowance at a level  considered  adequate to cover the
       losses on  existing  portfolios  of  factored  accounts  and  loans.  The
       Company's  charge off policy is based on an account by account review for
       all factored receivables and loans.

(8)      Investments in affiliates:

       The Company  accounts for its  investments  in affiliates in which it has
       virtually no influence  over the operating and financing  policies of the
       investee,  under the cost method of accounting.  The Company accounts for
       those  investments  where the Company owns greater than 20% of the voting
       interests and possesses  significant  influence  under the equity method.
       The  Company,  through its wholly owned  subsidiary  THCG LLC owns a 9.9%
       membership  interest in THCG Venture  Partners I LLC  ("Venture  Partners
       I"), a venture  capital  fund which is  managed by THCG  Ventures  LLC, a
       wholly owned  subsidiary of the Company. A shareholder of the Company and
       certain of its affiliates,  own 75% of the membership interest in Venture
       Partners I. The remaining 15.1% membership interest in Venture Partners I
       is owned by THCG Partners LLC, whose managing member,  THCG Ventures LLC,
       owns a .45%  membership  interest  in  THCG  Partners  LLC.  The  Company
       accounts  for its  membership  interest  in  Venture  Partners I and THCG
       Partners LLC using the equity method of  accounting.  Venture  Partners I
       reports its  investments  at fair value.  Accordingly,  THCG LLC and THCG
       Ventures  LLC  record  their   proportional   share  of  the   underlying
       investments in Venture Partners I on the equity method.

(9)      Income taxes:

       The Company files a consolidated federal income tax return, together with
       its wholly-owned  subsidiaries.  Income taxes are accounted for under the
       asset and  liability  method.  Deferred  tax assets and  liabilities  are
       recognized for the future tax  consequences  attributable  to differences
       between the financial  statement  carrying amounts of existing assets and
       liabilities and their respective tax bases and for operating loss and tax
       loss  carryforwards.  Deferred  tax assets and  liabilities  are measured
       using enacted tax rates  expected to apply to taxable income in the years
       in which  those  temporary  differences  are  expected  to be  settled or
       recovered.  The effect on deferred tax assets and liabilities of a change
       in tax rates is  recognized  in income in the period  that  includes  the
       enactment date.

(10)     Stock options:

       The Company  accounts for its stock options in accordance  with Statement
       of Financial  Accounting Standards ("SFAS") No. 123 which allows entities
       to  continue  to apply the  provisions  of  Accounting  Principles  Board
       ("APB")  Opinion  No.  25  and  provide  pro  forma  earnings  per  share
       disclosures  for employee  stock option grants as if the fair value based
       method,  as defined in SFAS No. 123,  had been  applied.  The Company has
       elected to apply the  provisions  of APB No. 25 and provide the pro forma
       disclosure required by SFAS No. 123 (see Note I).


                                      F-10

<PAGE>


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

(11)     Use of estimates:

       Management of the Company has made a number of estimates and  assumptions
       relating to the  reporting of assets,  liabilities,  revenue and expenses
       and the  disclosure of contingent  assets and  liabilities to prepare the
       financial  statements in conformity  with generally  accepted  accounting
       principles.   In  particular,   factors  used  in  valuing  nonmarketable
       securities  are  subject to the  inherent  complexities  of pricing  such
       investments. Actual results could differ from these estimates.

(12)     Fair value of financial instruments:

       The  fair  value of cash and  cash  equivalents,  marketable  securities,
       factored  accounts  receivable,  notes  receivable,  notes  and  accounts
       payable approximate book value.

(13)     Concentration of credit risk:

       Financial   instruments  which  potentially  subject  the  Company  to  a
       concentration  of credit risk  consist of cash and cash  equivalents  and
       factored accounts and notes receivable. Cash and cash equivalents consist
       of  deposits   placed  with   various  high  credit   quality   financial
       institutions.

       Concentration  of credit risk with respect to  receivables is limited due
       to required collateral and participations. The Company routinely assesses
       the financial strength of its customers and requires  collateral or other
       security to support  customers'  factored accounts  receivables and notes
       receivable.  Credit losses are provided for in the consolidated financial
       statements in the form of an allowance for bad debts.

(14)     Net income (loss) per share:

       Basic  earnings per share ("EPS") is computed by dividing  income or loss
       by the  weighted  average  number of common  shares  outstanding  for the
       period.  Diluted EPS reflects the potential dilution from the exercise of
       options and warrants to purchase  common  stock.  EPS for the nine months
       ended  December  31,  1998 and the year ended  March 31, 1998 do not give
       effect to the  outstanding  shares of  preferred  stock as the  preferred
       stock was canceled  pursuant to the Merger and no dividends  were accrued
       or paid.

(15)     Impairment of long-lived assets:

       Impairment losses are recognized for long-lived assets, including certain
       intangibles,  used  in  operations  when  indicators  of  impairment  are
       present.  Management  estimates that the  undiscounted  future cash flows
       generated by those assets are sufficient to recover the assets'  carrying
       amount.  An impairment loss would be measured by comparing the fair value
       of the assets to its carrying amount.

(16)     Recently issued accounting standards:

       In June 1998, the Financial  Accounting  Standards  Board issued SFAS No.
       133 "Accounting for Derivative  Instruments and Hedging Activities." SFAS
       133  establishes   accounting   standards  for  derivative   instruments,
       including derivative  instruments embedded in other contracts and hedging
       activities.  In June 1999, SFAS No. 137 was issued delaying the effective
       date of SFAS No. 133 to January 1, 2001. The Company's management has not
       yet determined the impact of adopting SFAS No. 133 as amended.


                                      F-11

<PAGE>


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

(17)     Reclassification:

       Certain  amounts  have been  reclassified  to conform  to 1999  financial
statement presentation.


NOTE C - ACQUISITIONS

As  described  in Note A, the  Company  acquired  WFS on  November  1, 1999 in a
transaction  accounted for as a reverse acquisition under the purchase method of
accounting.  The aggregate purchase price, including acquisition costs, exceeded
the fair value of WFS' assets by $13,975,000.  This amount has been allocated to
excess of cost over fair value of net  assets  acquired  and is being  amortized
using the straight-line method over five years. The results of operations of WFS
have been included in the accompanying statements of operations from the date of
acquisition.

In  addition  to the  acquisition  of WFS, on  December  29,  1999,  the Company
acquired 100% of the outstanding  stock of Mercury Coast Inc.  ("Mercury Coast")
for 700,005  shares of its common stock and issued 12,000 shares of common stock
as a finders fee. In connection with this transaction,  the Company entered into
employment agreements with the three principal owners of Mercury Coast (see Note
L1 with  respect  to  employment  agreements).  The  aggregate  purchase  price,
including  acquisition costs, exceeded the fair value of the net assets acquired
by $20,854,000. This amount has been allocated to excess of cost over fair value
of net assets  acquired and is being amortized  using the  straight-line  method
over  five  years.   The  acquisition  was  accounted  for  as  a  purchase  and
accordingly,  the results of operations  have been included in the  accompanying
statements of operations from the date of acquisition.

Assets acquired and liabilities assumed and the consideration paid is summarized
as follows:

                                                       Mercury
                                                        Coast             WFS
                                                        -----             ---

          Cash                                     $       3,000  $     799,000
          Nonmarketable securities                       340,000      4,697,000
          Receivables - net                              120,000      1,551,000
          Other assets                                    66,000        276,000
          Excess of cost over fair value              20,854,000     13,975,000
                                                   -------------  -------------
                                                      21,383,000     21,298,000
          Assumption of liabilities                      245,000      7,146,000
                                                   -------------  -------------
          Net assets acquired                      $  21,138,000  $  14,152,000
                                                   =============  =============
          Closing costs                            $     356,000  $     785,000
          Fair value of common stock, and
             warrants and options assumed             20,782,000     13,367,000
                                                   -------------  -------------
                                                   $  21,138,000  $  14,152,000
                                                   =============  =============


                                      F-12

<PAGE>


NOTE C - ACQUISITIONS  (CONTINUED)

Pro forma financial information (unaudited):

The following  unaudited pro forma financial  information is presented as if the
Company had  completed the Merger as of January 1, 1998 and the  acquisition  of
Mercury Coast as of January 1, 1999. The date of incorporation for Mercury Coast
was March 11, 1999. The pro forma  information for WFS is as adjusted to present
WFS as an operating company instead of as an investment  company.  The pro forma
information  is not  necessarily  indicative  of what the results of  operations
would  have been had the  acquisitions  taken  place at those  dates,  or of the
future results of operations.

                                                    1999              1998
                                               ---------------------------------
                                                          (Unaudited)

          Revenues                             $     6,341,000  $    5,046,000
          Net loss                             $    (7,489,000) $   (1,867,000)
          EPS:
             Basic and diluted                     $(.16)            $(.26)
                                                   =====             =====


NOTE D - SEGMENT INFORMATION

In 1999, as a result of the Company's  acquisition  of WFS, the Company  adopted
SFAS  No.  131,  "Disclosures  about  Segments  of  an  Enterprise  and  Related
Information"  ("SFAS  131").  SFAS 131  establishes  standards  for the way that
public business  enterprises  report  information  about  operating  segments in
annual financial statements.  The Company operates in two segments, the Internet
services  business and the factoring  business.  The Internet  services business
consists of three business  development and business  creation  services-Venture
Development,  Venture Banking and Venture Funding, all of which together provide
Internet companies with a comprehensive array of enterprise  enhancing services.
The factoring business provides financing to its clients primarily by purchasing
customers accounts receivable, generally on a recourse basis. Presented below is
summarized financial information of the Company's operations for each segment.

                                                            1999
                                                        -------------
          Revenues:
             Internet services                          $   7,568,000
             Factoring                                        135,000

          Income (loss) from operations:
             Internet services                              1,333,000
             Factoring                                        (43,000)

          Total assets:
             Internet services                             46,472,000
             Factoring                                      1,886,000


                                      F-13

<PAGE>


NOTE E - MARKETABLE AND NONMARKETABLE SECURITIES

As of December 31, 1999 marketable and nonmarketable securities consisted of the
following:

       Publicly traded securities                             $     2,686,000
       Publicly traded securities - restricted                        126,000
       Privately held securities                                    5,051,000
                                                              ---------------
                                                              $     7,863,000
                                                              ===============

NOTE F - PARTNERSHIP AND LIMITED LIABILITY COMPANY INTERESTS

In  connection  with the  Merger,  the  Company  acquired a 1%  general  partner
interest in an investment partnership. The general partner is also entitled to a
20%  carried  interest in the profits of the  partnership.  The general  partner
interest is valued at  $1,533,000 as of December 31, 1999 based on its equity in
the  underlying  fair  value of the  partnership's  investments.  The  Company's
investments in Venture Partners I and THCG Partners,  LLC aggregated $520,000 at
December 31, 1999.


NOTE G - NOTES PAYABLE

In connection  with the Merger,  the Company  assumed all of the  liabilities of
WFS,  including notes payable to the former  shareholders of Pacific  Financial.
The  notes  aggregate  $600,000,  bear  interest  at 8% per annum and are due in
accordance  with the  terms  set  forth  in the  Pacific  Financial  acquisition
agreement.  The Company has initiated an action against the former  shareholders
of Pacific to recoup a portion of the purchase price paid for Pacific  Financial
and correspondingly reduce the amount of the notes payable. The action is in the
preliminary  stages and the  Company is unable to  determine  at this time if it
will be successful in reducing the amount of the notes payable.  Therefore,  the
notes  payable are carried at their full  amount in the  accompanying  financial
statements.


NOTE H - STOCKHOLDERS' EQUITY

Common stock and warrant transactions:

In connection  with the Merger,  the Company issued  3,722,815  shares of common
stock for all of the outstanding  shares of WFS. The Company also issued 387,684
options and 633,373  warrants  to former  option and warrant  holders of WFS and
issued  100,000  shares of common stock as a finders fee in connection  with the
Merger.  The total  consideration  paid,  including  closing  costs,  aggregated
$14,152,000.

In connection  with the Merger in November 1999,  the Company  issued  2,500,000
shares of common stock and warrants to purchase an aggregate of 2,000,000 shares
of common  stock to  Greenwhich  Street  Capital  Partners  II, LP ("GSCP")  and
several of its affiliates for gross proceeds of $5,000,000.  1,000,000  warrants
are  exercisable  at $5.44 per share and 1,000,000  warrants are  exercisable at
$7.25 per share, and all of the warrants expire in November of 2002. The Company
issued  100,000  shares of common stock as a finders fee in connection  with the
private placement of shares to GSCP. The shares were valued at $200,000 based on
the $2.00 price per share in the private placement.


                                      F-14

<PAGE>

NOTE H - STOCKHOLDERS' EQUITY  (CONTINUED)

Common stock and warrant transactions:  (continued)

In connection  with the Merger in November 1999, the Company also issued 932,500
shares of common  stock in the  aggregate in two private  placements;  one to an
outside  investor group and one to an investor group  consisting of employees of
Tower Hill for aggregate proceeds of $1,865,000.

In connection  with the  acquisition  of Mercury Coast on December 29, 1999, the
Company  issued  700,005  shares  of  common  stock in  exchange  for all of the
outstanding  stock of Mercury Coast.  The Company issued 12,000 shares of common
stock as a finders  fee in  connection  with this  transaction.  The shares were
valued at $29.69 based on an average price over the 4 days  commencing  two days
prior to the closing of the transaction.


NOTE I - STOCK OPTIONS

(1)  In connection with the Merger,  the Company assumed the NFS Services,  Inc.
     (Utah) 1994 Incentive Stock Option Plan, which was amended and restated and
     approved by the Company's  stockholders  in December 1997 (as amended,  the
     "1994  Plan").  The 1994 Plan is  administered  by a stock  incentive  plan
     administrative committee appointed by the Company's Board of Directors (the
     "1994 Plan Committee"). The 1994 Plan Committee has the authority to select
     the persons to whom awards may be granted,  to determine  the terms of each
     award,  to interpret the  provisions of the 1994 Plan and to make all other
     determinations   that  it  may  deem   necessary  or   advisable   for  the
     administration  of the 1994 Plan.  The 1994 Plan  provides for the grant of
     incentive stock options,  nonqualified  options,  and restricted  stock and
     stock appreciation  rights ("SARs"),  as determined in each individual case
     by the 1994 Plan  Committee.  The Company's Board of Directors has reserved
     1,000,000  shares of common  stock for  issuance  under the 1994  Plan.  At
     December 31, 1999, the Company has options  outstanding under the 1994 Plan
     as follows:

                                                              Weighted Average
                                                  Shares       Exercise Price
                                                  ------       --------------

       Options granted as of November 1, 1999      14,334         $11.04
                                                  =======

       Options exercisable at end of year          14,334         $11.04
                                                  =======

      The weighted average life of options outstanding is 3.6 years.

(2)  In  connection  with the  Merger,  the Company  assumed the Walnut  Capital
     Corporation 1987 Stock Option Plan (as amended,  the "1987 Plan"). The 1987
     Plan  is  administered  by a stock  option  plan  administrative  committee
     appointed by the Board of Directors (the "1987 Plan  Committee").  The 1987
     Plan  Committee  has the authority to select the persons to whom awards may
     be  granted,  to  determine  the  terms of each  award,  to  interpret  the
     provisions  of the 1987 Plan and to make all other  determinations  that it
     may deem  necessary or advisable for the  administration  of the 1987 Plan.
     The  1987  Plan  provides  for the  grant of  incentive  stock  options  or
     nonqualified  options,  as determined in each  individual  case by the 1987
     Plan  Committee.  There are 806,930  shares of common  stock  reserved  for
     issuance under the 1987 Plan.  Awards of  nonstatutory  options to purchase
     23,350  shares of  common  stock  all of which  expire  in 2004,  have been
     granted  pursuant  to the 1987  Plan.  The  exercise  price of the  options
     outstanding  pursuant to the 1987 Plan is $10.80 per share of common stock.
     The average  exercise price of options  outstanding  under the 1987 Plan is
     $10.80. No further awards will be granted under the 1987 Plan.



                                      F-15
<PAGE>


NOTE I - STOCK OPTIONS  (CONTINUED)

(3)  On  November  1,  1999,  the  Company  adopted  the 1999  Walnut  Financial
     Services,  Inc. Stock  Incentive  Plan (the "1999 Plan").  The 1999 Plan is
     administered  by an  administrative  committee  appointed by the  Company's
     Board of Directors (the "1999 Plan Committee"). The 1999 Plan Committee has
     the  authority  to select the  persons to whom  awards may be  granted,  to
     determine the terms of each award,  to interpret the provisions of the 1999
     Plan and to make all other  determinations  that it may deem  necessary  or
     advisable for the  administration  of the 1999 Plan. The 1999 Plan provides
     for the  grant  of  incentive  stock  options,  nonqualified  options,  and
     restricted stock and stock appreciation  rights ("SARs"),  as determined in
     each  individual  case by the 1999 Plan  Committee.  The Company's Board of
     Directors has reserved  2,250,000 shares of common stock for issuance under
     the 1999 Plan. In connection with an employment  agreement  entered into in
     1999, the Company issued 372,281 shares of restricted  stock under the 1999
     Plan. The Company recorded  unearned  compensation of $1,354,000 which will
     be charged to operations over the three year vesting period. As of December
     31, 1999, the Company has granted options under the 1999 Plan as follows:

                                               Weighted
                                               Average
                               Number of      Contractual         Number of
                 Exercise      Options         Remaining           Options
                   Price     Outstanding      Life (in Years)    Exercisable
                   -----     -----------      ---------------    -----------

                  $3.625         400,000          4.83                 93,000
                  $3.625         987,500          4.83                972,000
                  $3.625         100,000          4.83                  8,000
                  $10.00(1)      310,000          4.83                 19,000
                            ------------                       --------------
                               1,797,500                            1,092,000
                            ============                       ==============

         (1) Granted  with an exercise  price which was less than quoted  market
             price on the date of grant.

         Certain  options  granted  under  the 1999 Plan  were  granted  with an
         exercise  price that was less than quoted  market on the date of grant.
         The Company  also  granted  options to  employees  to purchase  146,500
         shares of Common Stock at $10.00 per share,  which was less than quoted
         market on the date of grant.  The  options  vest over three  years.  In
         addition, in connection with the Mercury Coast Acquisition, the Company
         issued an aggregate  of 930,000  options to 3  individuals  pursuant to
         their employment  agreements.  The options vest over a four year period
         and are  exercisable  at $6.00 per  share,  which was less than  quoted
         market on the date of grant. In connection with the issuance of options
         with an exercise  price at less than quoted market price on the date of
         grant,  the Company  recorded an aggregate of  $26,449,000  of unearned
         compensation  which  will be  charged to  operations  over the  vesting
         periods.



                                      F-16
<PAGE>


NOTE I - STOCK OPTIONS  (CONTINUED)

(3)      (continued)

       The Company elected to account for its employee stock based  compensation
       under  APB 25.  Had  compensation  cost  for  stock  option  grants  been
       determined  based  on the  fair  value  at the  grant  dates  for  awards
       consistent  with the method  provided by SFAS No. 123, the Company  would
       have reported the pro forma amounts indicated below.

                                                                    Year Ended
                                                                   December 31,
                                                                       1999
                                                                       ----
       Net income (loss) attributable to common stockholders:
          As reported                                              $ 1,343,000
          Pro forma                                                   (400,000)

       Netincome (loss)  attributable to common
          stockholders  per share:  Basic and diluted:
             As reported                                              $.27
             Pro forma                                               $(.08)

       During 1999, the Company  granted  options to purchase  100,000 shares of
       common stock at $3.625 per share as compensation for consulting services.
       The options vest monthly over one year and expire in 2004.  The estimated
       fair value of the  options  vested in 1999,  which  amount to $86,000 was
       charged to operations during 1999.


NOTE J - INCOME TAXES

The  significant  components  of the  Company's  deferred  income tax assets and
liabilities as of December 31, 1999 and 1998 are as follows:

                                                        1999            1998
                                                        ----            ----
       Deferred income tax assets:
          Net operating losses                      $     702,000   $ 148,000
          Unrealized losses                               355,000
          Preacquisition unrealized losses              1,079,000
          Preacquisition net operating losses           2,270,000
                                                    -------------
                                                        4,406,000     148,000
       Deferred income tax liability:
          Option compensation                            (321,000)
          Unrealized gain                              (1,231,000)
          Valuation allowance                          (3,349,000)   (148,000)
                                                    -------------   ---------
       Net deferred income tax liability            $    (495,000)  $       0
                                                    =============   =========


                                      F-17

<PAGE>

NOTE J - INCOME TAXES  (CONTINUED)

The  valuation   allowance   represents   the  unutilized  tax  benefit  of  the
preacquisition net operating losses and unrealized losses of WFS.

The significant  components of the provision  (benefit) for income taxes for the
year ended  December 31, 1999,  the nine months ended  December 31, 1998 and the
year ended March 31, 1998 are as follows:

<TABLE>
<CAPTION>

                                                                                              Nine
                                                                                              Months
                                                                       Year Ended             Ended           Year Ended
                                                                      December 31,         December 31,        March 31,
                                                                          1999                 1998              1998
                                                                  ----------------         ------------     -------------
Current:
<S>                                                                <C>                       <C>              <C>
   Federal                                                         $                          $12,000       $
   State                                                                                       23,000
                                                                   ---------------           --------
      Total current taxes                                                        0             35,000                   0
                                                                   ---------------           --------       -------------
Deferred:
   Federal, including utilization of net operating losses
      credited to excess of cost over fair value of net
      assets acquired                                                      966,000
   State                                                                   225,000
   Change in valuation allowance                                          (137,000)
                                                                   ---------------
      Total deferred taxes                                               1,054,000                  0                   0
                                                                   ---------------            -------       -------------
Provision (benefit) for income taxes                               $     1,054,000            $35,000       $           0
                                                                   ===============            =======       =============
</TABLE>

The  difference  between the statutory  federal income tax rate on the Company's
income before income taxes and the Company's  effective  income tax rate for the
years ended December 31, 1999 and 1998 are summarized as follows:

                                                          Nine
                                                         Months
                                           Year Ended     Ended      Year Ended
                                          December 31,  December 31,   March 31,
                                              1999         1998          1998
                                              ----         ----          ----

Statutory federal income tax rate              34.0%      34.0%         34.0%
State income tax, net of federal benefit        7.0       66.0
Nondeductible amortization of intangibles      10.2
Reduction in valuation allowance               (5.7)
Miscellaneous                                   (.4)
Net operating losses (unutilized)              (1.1)                   (34.0)
                                               -----      -----        -----
Effective income tax rate                      44.0%      100.0%           0%
                                               ====       =====        =====


                                      F-18

<PAGE>


NOTE J - INCOME TAXES  (CONTINUED)

As of December 1999, the Company has net operating loss  carryforwards  ("NOL"),
attributable  to losses  incurred  by WFS prior to the  Merger  for  income  tax
purposes expiring as follows:

       Year Ending
       December 31,                                                  WFS
       ------------                                                  ---
          2008                                              $     1,668,000
          2009                                                      878,000
          2010                                                    1,380,000
          2011                                                      156,000
          2014                                                    1,040,000
          2019                                                    1,253,000
                                                               ---------------
                                                            $     6,375,000

As a result of the change in ownership  occuring in connection  with the Merger,
the  utilization  of the  NOL's of WFS are  limited  to  approximately  $700,000
annually.

The tax benefit realized upon utilization of such carryforwards will be credited
to excess of cost over fair value of net assets acquired.

In addition, the Company has NOL's of $300,000 which expire through 2014.


NOTE K - RELATED PARTY TRANSACTIONS

The Company  leases office space from Hambro America  Securities,  Inc. which is
owned by the Co-CEO's and the COO of the Company. The lease requires payments of
$21,650 and expires on August 30, 2000.  Under this lease,  rent expense for the
year ended  December  31, 1999 and the nine months  ended  December 31, 1998 was
$337,000 and $180,000,  respectively,  including payments in 1999 for additional
space leased on a month to month basis.

In October 1998,  the Company  loaned  $95,000 to a related  party.  The loan is
non-interest bearing and is being repaid over 22 months at $4,318 per month.

During the nine months ended December 31, 1998,  the Company loaned  $216,000 to
its officers.  The loans were noninterest  bearing and had no specific repayment
date. In addition, during 1999, the Company loaned an additional $100,000 to its
officers.  Prior to the consummation of the Merger, the Company forgave loans to
one of its officers in the amount of $132,237, which was charged to compensation
expense.


NOTE L - COMMITMENTS AND CONTINGENCIES

(1)      Employment agreements:

       The  Company  entered  into  employment  agreements  with each of its two
       Co-CEO's.  The agreements  which expire in 2004 and provide for aggregate
       annual base  salaries of $400,000 and annual  bonuses to be determined by
       the  Compensation  Committee.  In  connection  with the  agreements,  the
       Company issued  options to purchase  900,000 shares of common stock under
       the 1999 Plan.


                                      F-19

<PAGE>

NOTE L - COMMITMENTS AND CONTINGENCIES  (CONTINUED)

(1)      Employment agreements:  (continued)

       The Company entered into an employment agreement with its Chief Operating
       Officer  which expires in 2004 and provides for a base salary of $150,000
       and an annual bonus to be determined by the  Compensation  Committee.  In
       connection  with  the  Merger,  the  Company  issued  372,281  shares  of
       restricted  stock which vest in differing  amounts over a period of three
       years. In connection with the issuance of restricted  stock,  the Company
       recorded  unearned  compensation of $1,354,000  which is being charged to
       income as the shares vest.

       In connection with the acquisition of Mercury Coast,  the Company entered
       into employment  agreements with each of the three former shareholders of
       Mercury Coast. Each of the agreements  provides for an annual base salary
       of $150,000, a minimum bonus of $50,000 in 2000, and future bonuses to be
       determined by the Compensation Committee, and expire three years from the
       date of the acquisition. The agreements are automatically renewable on an
       annual basis unless the Company or the employee gives written notice.  In
       connection with the employment agreements,  the Company issued options to
       purchase 310,000 shares of common stock to each of the three individuals.
       The options have an exercise  price of $6.00 per share,  are  exercisable
       for five years and vest over four years.  In connection with the issuance
       of these  options,  the Company  recorded  unearned  compensation  in the
       aggregate amount of $23,715,000,  which is being charged to earnings over
       the vesting period of the options.

(2)      Litigation:

       By First Amended  Complaint dated November 22, 1999 and filed on November
       23, 1999 (the "Complaint"), the Company was sued in the Superior Court of
       Washington for Spokane County in an action entitled Miller Capital Group,
       L.L.C., et al. v. Inland Financial Corporation,  et al. (No. 99206566-7).
       The Company was named as successor to Walnut  Financial  Services,  Inc.,
       the  corporate  parent of defendant  Inland  Financial  Corporation.  The
       complaint generally alleges that Inland Financial and others fraudulently
       induced the plaintiffs to participate in various  transactions related to
       Inland  Financial's  factoring business and that funds obtained by Inland
       Financial  and/or  Walnut  Financial  Services in  connection  with those
       transactions  were improperly  diverted or converted.  It is alleged that
       Walnut Financial Services controlled Inland Financial in general and with
       respect to the specific challenged transactions. Plaintiffs allege causes
       of action for breach of promissory notes,  state law securities fraud and
       registration violations, common law misrepresentation and conversion. The
       complaint seeks unspecified injunctive relief, unspecified damages and an
       accounting. The complaint has only recently been filed and the lawsuit is
       in its  initial  stages.  The  Company  intends  to  defend  the  lawsuit
       vigorously.

       On April 21, 1999, Yoav Bitter  commenced an action  against,  Tower Hill
       pursuant to the New York Business  Corporation Law Section  1104-a,  for,
       inter  alia,  judicial  dissolution  of Tower Hill and  appointment  of a
       receiver.  On June 17, 1999,  Justice Goodman denied the relief sought by
       Mr. Bitter, and granted Tower Hill cross motion to dismiss the matter. On
       August 3, 1999,  Mr.  Bitter  filed a Notice of Appeal of the judgment of
       Justice Goodman with the New York State Supreme Court Appellate Division,
       First Department.  By an order entered March 14, 2000, the New York State
       Supreme  Court  Appellate  Division,  First  Department,   dismissed  Mr.
       Bitter's appeal.  Mr. Bitter has until April 21, 2000 to file a Notice of
       Appeal to the New York State Court of Appeals. Additional payments may be
       due to Mr. Bitter for his 25% interest in Tower Hill Securities  pursuant
       to an agreement dated as of April 13, 1998 among Messrs.  Mark, Raviv and
       Bitter.  These  payments  are to be in an amount equal to 25% of "all net
       profits  relative to  work-in-progress  as of" April 30, 1999. Tower Hill
       Securities,   Joseph  D.  Mark  and  Adi  Raviv  have   entered  into  an
       indemnification  agreement pursuant to which Messrs.  Mark and Raviv have
       agreed to indemnify Tower Hill for any amounts Tower Hill is obligated to
       pay to Mr.  Bitter  in  excess  of Tower  Hill  Securities'  net  profits
       relative  to the  engagements  of Tower Hill that were  pending,  but not
       completed,  on April  30,  1999.  Tower  Hill  Securities  has  agreed to
       indemnify  Messrs.  Mark and Raviv with respect to any amounts  either of
       them  becomes  obligated  to pay to Mr.  Bitter in  excess of the  amount
       described  in the two prior  sentences,  and Tower  Hill  Securities  has
       agreed to assume  and pay for the  defense  of any claim  brought  by Mr.
       Bitter. The potential  settlement amount, if any, cannot be determined at
       this time.

       On June 18, 1999, Tower Hill securities  initiated an arbitration against
       Yoav Bitter before the National  Association of Securities  Dealers,  or
       NASD,  requesting the return of company property and the reimbursement of
       certain travel expenses. On September 9, 1999, Mr. Bitter filed an answer
       and  counterclaims  against  Tower Hill  Securities.  Mr.  Bitter  denied
       liability for the claims  brought by Tower Hill  Securities  and asserted
       claims for tuition expenses and additional compansation. On September 17,
       1999, Tower Hill Securities filed a response denying all liability on the
       counterclaims.   The  NASD  has   acknowledged   jurisdiction   over  the
       arbitration  and has  advised  the  parties  that it plans to  schedule a
       pre-hearing conference with the parties and the arbitrations.


                                      F-20
<PAGE>


NOTE M - SUBSEQUENT EVENTS:


In  February  2000, Class A warrants  issued in a 1997  private  placement  were
exercised.  Common stock issued  totaled  633,373 and proceeds from the exercise
approximated $5.7 million dollars.

On February 29, 2000, the Company entered into a letter of intent to acquire the
investment banking and equity research business of a private firm in Israel that
specializes in the Internet and related technologies.

In February 2000, the Board of Directors of the Company adopted the 2000 THCG,
Inc. Stock Incentive Plan (the "2000 Incentive  Plan"),  the 2000 Employee Stock
Purchase  Plan (the "2000  Purchase  Plan") and the 2000  Non-employee  Director
Stock  Option  Plan (the  "2000  Director  Plan),  all  subject  to  stockholder
approval.

The maximum amount of shares  available under the 2000 Incentive Plan is 200,000
shares, plus and annual increase as determined in the plan.

The maximum amount of shares  available  under the 2000 Purchase Plan is 200,000
shares, plus an annual increase as defined in the plan.

The maximum amount of shares  available  under the 2000 Director Plan is 500,000
shares.

                                      F-21

<PAGE>


                          Independent Auditors' Report




The Board of Directors
Tower Hill Securities, Inc.
New York, New York


We have audited the  accompanying  statement  of  financial  condition of Hambro
America Securities,  Inc. as of December 31, 1998, and the related statements of
operations,  changes in stockholder's equity, and cash flows for the nine months
ended  December  31, 1998 and the year ended  March 31,  1998.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Hambro America Securities, Inc.
as of December 31, 1998,  and the results of its  operations  and its cash flows
for the nine months ended December 31, 1998 and the year ended March 31, 1998 in
conformity with generally accepted accounting principles.


                                                   /s/ Cohen & Schaeffer, P.C.
                                                   ----------------------------
                                                       Cohen & Schaeffer, P.C.

New York, New York
January 26, 1999


                                      F-22