SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended            June 30, 2001
                               -----------------------------

                                       OR

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

For the transition period from ___________________ to ___________________

                           Commission File No. 0-26072

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


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

  512 Seventh Avenue, 17th Floor, New York, NY                   10018
(Address of Principal Executive Office)                        (Zip Code)


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

      Indicate by check |X| 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
                                                     -------     -------

      As of August 14, 2001, there were 14,208,269 shares of the registrant's
Common Stock outstanding.

<PAGE>



                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

PART I. FINANCIAL INFORMATION

<S>      <C>                                                                             <C>
Item 1.  Financial Statements                                                            Page

         Consolidated  Balance  Sheets - as of June 30,  2001  (unaudited)  and
         December 31, 2000 ..............................................................   4

         Consolidated  Statements  of Operations - for the six months and three
         months ended June 30, 2001 (unaudited) and June 30, 2000 (unaudited) ...........   5

         Consolidated  Statement of Changes in  Stockholders'  Equity - for the
         six months ended June 30, 2001 (unaudited) .....................................   6

         Consolidated  Statements of Cash Flows - for the six months ended June
         30, 2001 (unaudited) and June 30, 2000 (unaudited) .............................   7

         Notes to Consolidated Financial Statements (unaudited) .........................   8

Item 2.  Management's  Discussion and Analysis of Financial Condition and Results
         of Operations ..................................................................  12

Item 3.  Quantitative and Qualitative Disclosures About Market Risk .....................  15

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings ..............................................................  17
</TABLE>


                                      - 2 -

<PAGE>

                                     PART I

                              FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

      The following Consolidated Financial Statements of THCG, Inc. and its
subsidiaries are presented on pages 4 through 8 hereof as set forth below:


Consolidated Balance Sheets - as of June 30, 2001 (unaudited)
and December 31, 2000 ......................................................  4

Consolidated Statements of Operations - for the six months and
three months ended June 30, 2001 (unaudited) and June 30, 2000
(unaudited) ................................................................  5

Consolidated Statement of Changes in Stockholders' Equity -
for the six months ended June 30, 2001 (unaudited) .........................  6

Consolidated Statements of Cash Flows - for the six months
ended June 30, 2001 (unaudited) and June 30, 2000 (unaudited) ..............  7

Notes to Consolidated Financial Statements (unaudited) .....................  8


                                      -3-

<PAGE>

THCG, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000
(in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                  June 30,    December 31,
                                                                                     2001        2000
ASSETS                                                                           (unaudited)   (audited)
----------------------------------------                                           --------    --------
<S>                                                                                <C>         <C>
CASH AND CASH EQUIVALENTS                                                          $    650    $  6,017

PREPAID EXPENSES AND OTHER ASSETS                                                       188         193

RESTRICTED CASH                                                                       1,050       1,050

LOANS RECEIVABLE  (NOTE 3)                                                              400          --

FURNITURE, FIXTURES AND EQUIPMENT, NET OF ACCUMULATED
   DEPRECIATION OF $229 AND $156                                                      2,053       2,152

ASSETS OF DISCONTINUED OPERATIONS (Note 2)                                            4,767      19,865
                                                                                   --------    --------
            Total assets                                                           $  9,108    $ 29,277
                                                                                   ========    ========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

LIABILITIES:
   Accounts payable, accrued expenses and other current liabilities                $  1,374    $  2,999
   Notes payable (Note 4)                                                                --         600
                                                                                   --------    --------
            Total liabilities                                                         1,374       3,599
                                                                                   --------    --------

COMMITMENTS AND CONTINGENCIES (Notes 2 and 3)

STOCKHOLDERS' EQUITY (Note 5):
   Cumulative preferred stock - variable rate, $1,000 par
     value, 5,000 shares authorized, issued and outstanding                           5,000       5,000
   Common stock, $.01 par value, 50,000,000 shares authorized; 13,404,169 issued
     and 12,958,369 outstanding as of June 30, 2001, and 13,404,169 issued and
     13,143,769 outstanding as of December 31, 2000                                     134         134
   Additional paid-in capital                                                        81,157      86,786
   Deferred compensation                                                               (240)    (17,951)
   Accumulated deficit                                                              (77,843)    (47,870)
   Treasury stock, at cost
   445,900 shares as of June 30, 2001 and
   235,400 shares as of December 31, 2000                                              (474)       (421)
                                                                                   --------    --------
            Total stockholders' equity                                                7,734      25,678
                                                                                   --------    --------
            Total liabilities and stockholders' equity                             $  9,108    $ 29,277
                                                                                   ========    ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      -4-

<PAGE>

THCG, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                      Six Months Ended               Three Months Ended
                                                                      ----------------               ------------------
                                                                 June 30,         June 30,         June 30,      June 30,
                                                                   2001            2000             2001          2000
                                                               (unaudited)      (unaudited)      (unaudited)    (unaudited)
                                                                 ----------     ----------       ----------     ----------
                                                                 (Note 1)                        (Note 1)
<S>                                                                   <C>            <C>              <C>            <C>
Expenses
Selling, general and administrative                                   5,785          6,685            2,319          3,678
                                                                 ----------     ----------       ----------     ----------
     Total Expenses                                                   5,785          6,685            2,319          3,678

Loss from continuing operations                                      (5,785)        (6,685)          (2,319)        (3,678)
Provision for income taxes                                                3             --               2              --
                                                                 ----------     ----------       ----------     ----------
Net loss from continuing operations                                  (5,788)        (6,685)          (2,321)        (3,678)
Net income (loss) from discontinued operations                      (23,935)          4,379          (4,521)        (1,590)
                                                                 ----------     ----------       ----------     ----------
Net loss                                                            (29,723)        (2,306)          (6,842)        (5,268)
Dividend related to convertible preferred stock                         250             --              125             --
                                                                 ----------     ----------       ----------     ----------
Net loss available for common stock                                ($29,973)       ($2,306)         ($6,967)       ($5,268)
                                                                 ==========     ==========       ==========     ==========

Basic Earnings Per Share
Basic loss per share from continuing operations                      ($0.45)        ($0.54)          ($0.18)        ($0.29)
Basic income (loss) per share from discontinued operations            (1.84)           0.35           (0.35)         (0.13)
                                                                 ----------     ----------       ----------     ----------
Basic loss per share                                                 ($2.29)        ($0.19)          ($0.53)        ($0.42)
                                                                 ==========     ==========       ==========     ==========
Basic weighted average common shares outstanding                 12,993,892     12,368,839       12,958,369     12,635,592
                                                                 ==========     ==========       ==========     ==========

Diluted Earnings Per Share
Diluted loss per share from continuing operations                   ($0.45)        ($0.43)          ($0.18)        ($0.29)
Diluted income (loss) per share from discontinued operations         (1.84)           0.28           (0.35)         (0.13)
                                                                 ----------     ----------       ----------     ----------
Diluted loss per share                                              ($2.29)        ($0.15)          ($0.53)        ($0.42)
                                                                 ==========     ==========       ==========     ==========

Diluted weighted average common shares outstanding               12,993,892     15,387,539       12,958,369     12,635,592
                                                                 ==========     ==========       ==========     ==========
</TABLE>



The accompanying notes are an integral part of these consolidated financial
statements.


                                      -5-

<PAGE>

THCG, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2001

(in thousands, except share data)

<TABLE>
<CAPTION>

                                                     Preferred Stock            Common Stock            Treasury Stock
                                                   Number of                Number of               Number of
                                                    Shares     Amount         Shares     Amount      Shares     Amount
                                                  ---------------------------------------------------------------------
<S>                                                <C>        <C>           <C>        <C>          <C>       <C>
Balance, December 31, 2000                            5,000    $ 5,000       13,404,169 $   134      260,400   $  (421)
Reverse restricted stock cancellation                                                                (25,000)       90
Repurchase of common stock                               --         --             --        --      210,500      (143)
Deferred compensation for stock options issued
to employees                                             --         --             --        --           --        --
Cancellation of deferred compensation for stock
options issued to employees                              --         --             --        --           --        --
Amortization of deferred compensation                    --         --             --        --           --        --
Net loss                                                 --         --             --        --           --        --
Dividend on preferred stock                              --         --             --        --           --        --
                                                  ---------------------------------------------------------------------
Balance, June 30, 2001                                5,000    $ 5,000       13,404,169 $   134      445,900   $  (474)
                                                  =====================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                   Additional
                                                     Paid-in         Deferred       Accumulated
                                                     Capital       Compensation       Deficit            Total
                                                --------------------------------------------------------------------
<S>                                             <C>             <C>               <C>                 <C>
Balance, December 31, 2000                       $    86,786     $       (17,951)  $     (47,870)      $     25,678
Reverse restricted stock cancellation                                        (90)            ---                ---
Repurchase of common stock                               ---                 ---             ---               (143)
Deferred compensation for stock options issued
to employees                                             133                (133)            ---                ---
Cancellation of deferred compensation for stock
options issued to employees                           (5,762)              5,762             ---                ---
Amortization of deferred compensation                    ---              12,172             ---             12,172
Net loss                                                 ---                 ---         (29,723)           (29,723)
Dividend on preferred stock                              ---                 ---            (250)              (250)
                                                --------------------------------------------------------------------
Balance, June 30, 2001                           $    81,157     $          (240)  $     (77,843)      $      7,734
                                                ====================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      -6-

<PAGE>

THCG, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000

(in thousands)

<TABLE>
<CAPTION>
                                                                                         For the Three Months ended
                                                                                           June 30,        June 30,
                                                                                            2001            2000
                                                                                         --------         --------
<S>                                                                                      <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                             $(29,723)        $ (2,306)
    Adjustments to reconcile net loss to net cash used in continuing operating
       activities:
          Loss from discontinued operations                                                24,247           (3,813)
          Loss from disposition of fixed assets                                               263               --
          Depreciation and amortization                                                       257               47
          Bad debt expense                                                                    750              100
          Deferred income tax provision                                                        --             (495)
          Changes in:
              Prepaid expenses and other assets                                                 5              (67)
              Accounts payable and accrued expenses                                        (1,555)           2,076
                                                                                         --------         --------
                 Net cash used in continuing operating activities                          (5,756)          (4,458)
                                                                                         --------         --------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Investing activities of discontinued operations                                            --            1,628
    Purchase of furniture, fixtures and equipment                                            (421)            (143)
                                                                                         --------         --------
                 Net cash provided by (used in) investing activities of continuing           (421)           1,485
                    operations
                                                                                         --------         --------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from exercise of warrants for common stock                                        --            5,700
    Loan receivable                                                                          (400)              --
    Proceeds from the exercise of options for common stock                                     --               18
    Purchase of treasury stock                                                               (143)              --
                                                                                         --------         --------
                 Net cash provided by (used in) financing activities of continuing
                    operations                                                               (543)           5,718
                                                                                         --------         --------
                 Net cash used in discontinued operations                                     (70)            (111)
                                                                                         --------         --------
                 Net increase (decrease) in cash and cash equivalents                      (6,790)           2,634
Cash and cash equivalents, January 1                                                        6,017            1,592
Cash included in assets of discontinued operations                                          1,423               --
                                                                                         --------         --------
Cash and cash equivalents, June 30                                                       $    650         $  4,226
                                                                                         ========         ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

    Cash paid for:
    Interest                                                                             $     --         $     27
    Income taxes                                                                         $     13         $     --
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITES:
    Common stock issued for investment in Global Credit Services, Inc.                   $     --         $  5,025
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      -7-

<PAGE>


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2001

NOTE 1 - BASIS OF PRESENTATION

      The accompanying consolidated financial statements as of June 30, 2001 are
unaudited;  however,  in the opinion of the management of THCG, Inc., a Delaware
corporation  ("THCG"),  such statements  include all adjustments  (consisting of
normal  recurring  accruals)  necessary  to  present  a  fair  statement  of the
information  presented  therein.  The  balance  sheet at  December  31, 2000 was
derived  from  the  audited   financial   statements   at  such  date.   Certain
reclassifications  have  been made to the prior  year's  consolidated  financial
statements to conform to the current year's presentation.

      Pursuant  to  accounting  requirements  of  the  Securities  and  Exchange
Commission  (the  "SEC")  applicable  to  Quarterly  Reports on Form  10-Q,  the
accompanying financial statements and these Notes do not include all disclosures
required by  generally  accepted  accounting  principles  for audited  financial
statements.  Accordingly,  these  statements  should be read in conjunction with
THCG's audited financial  statements  included in its Annual Report on Form 10-K
for the fiscal year ended December 31, 2000.

      Results of operations for interim periods are not  necessarily  indicative
of those to be achieved for fiscal years.

      The consolidated  financial statements of THCG include the accounts of its
wholly owned subsidiary Tower Hill Securities, Inc. ("Tower Hill"). Tower Hill's
assets and its wholly  owned  subsidiaries', THCG,  LLC and THCG  Ventures  LLC,
assets are included in Assets of  Discontinued  Operations.  The assets of Tower
Hill and its wholly owned subsidiaries were transferred to a liquidating trust
(see  Note 2).  All  significant  intercompany  accounts  and  transactions  are
eliminated in consolidation.  The operations of Pacific Financial Services Corp.
("Pacific")  and  Inland   Financial   Corporation   ("Inland"),   wholly  owned
subsidiaries of THCG, were discontinued in 2000. In addition,  the operations of
Zinook Ltd.  ("Zinook") and Mercury Coast Inc. ("Mercury  Coast"),  wholly owned
subsidiaries of THCG, were discontinued in the first quarter of 2001.


NOTE 2 -  LIQUIDATION OF THCG, LLC

      On July 6, 2001, THCG announced that its Board of Directors adopted a plan
to completely  liquidate its subsidiary,  THCG, LLC, through a liquidating trust
(the  "Trust")  for the  benefit of THCG's  stockholders.  On July 16, 2001 (the
"Record Date"), the Trust was established and holders of record of THCG's common
stock as of that date received one non-transferable  unit of beneficial interest
in the Trust (a "Trust Unit") for each share of THCG's common stock held on that
date.  The Trust  owns all of  THCG's  assets as of June 30,  2001  (except  for
approximately  $2.1 million in cash,  restricted  cash and a note receivable and
approximately  $2.1  million of  furniture,  fixtures and  equipment)  including
THCG's marketable and non-marketable  securities.  The sole purpose of the Trust
is to hold, conserve and protect its assets until they can be liquidated. Joseph
D. Mark and Adi Raviv, executive officers and directors of THCG, are the initial
trustees of the Trust.

      THCG and its subsidiaries contributed to THCG, LLC all of their direct and
indirect  rights and  interests in any  security  acquired  for  investment,  or
acquired  in  connection  with their  provision  of  venture  banking or venture
development  services,   including  any  related  promissory  notes,  contracts,
agreements or instruments. In addition, THCG contributed to THCG, LLC its rights
and interests in the stock of its inactive  subsidiaries and the promissory note
executed by a former  executive  officer of THCG,  which promissory note equaled
the aggregate principal sum of approximately  $350,000. THCG then contributed to
the Trust all of its cash and cash  equivalents  on hand on the  Record  Date in
excess of approximately $2.1 million and its membership  interests in THCG, LLC,
certain contract rights,  its accounts and certain notes receivable.  Net assets
contributed  to the  liquidating  trust are  included in assets of  discontinued
operations and are comprised of the following:

                                       8
<PAGE>



ASSETS OF DISCONTINUED OPERATIONS

Cash and Cash Equivalents                                          1,421

Nonmarketable Securities, Partnership

  Limited Liability Company and Other Interests                    1,820

Fees and Other Receivables                                           252

Loan Receivable                                                      391

Goodwill and Other Intangible Assets                                 830

Others                                                                53
                                                                  ------
                                                                  $4,767
                                                                  ======

      As a result of the  establishment  of the  Trust,  THCG no  longer  owns a
substantial amount of the assets reflected on its consolidated  balance sheet as
of March 31, 2001.

      The Trust will terminate on the earlier of the date of distribution of all
of its assets or July 16, 2004, except that the trustees of the Trust may extend
the  termination  of the Trust to a later date,  not exceeding July 16, 2006, if
the Trustees  determine an extension is  reasonably  necessary  either to pay or
make provision for then known liabilities or to conserve and protect the Trust's
assets for the benefit of the beneficiaries of the Trust.

      The results of the business operations which were transferred to the Trust
on  July  16,  2001  have  been  reflected  as  discontinued  operations  in the
accompanying  consolidated  financial  statements  as  of  June  30,  2001.  The
operating results of discontinued operations are as follows:

<TABLE>
<CAPTION>
                                                              Six months ended June 30,         Three months ended June 30,
                                                              ------------------------         ---------------------------

                                                               2001            2000             2001             2000
                                                               ----            ----             ----             ----
<S>                                                         <C>              <C>             <C>              <C>
Revenues                                                    $  2,384         $ 16,506        $    225         $  2,211

Income (loss) before provision for income taxes              (23,927)           4,885          (4,517)          (2,085)

Income (loss) from discontinued operations                  $(23,935)        $  4,379        $ (4,521)        $ (1,590)
</TABLE>


NOTE 3 -  ACQUISITION OF DONALD & CO. SECURITIES, INC.

      THCG signed a definitive agreement ("Definitive Agreement") effective June
29,  2001 to  acquire  Donald & Co.  Securities,  Inc.  ("Donald  &  Co.").  The
acquisition is anticipated to close in August 2001,  after the  distribution  of
the Trust in which Donald & Co.'s shareholders did not participate (see Note 2).
The  transaction is structured as an acquisition of Donald & Co. by THCG.  After
the transaction, current stockholders of THCG will own approximately 32% and the
current  shareholders of Donald & Co. will own approximately 67% of the combined
company,  respectively. A fee of one percent of THCG's common stock will be paid
to a finder in  connection  with the closing of the  transaction.  A majority of
THCG's  Board of  Directors  will  change to  reflect  the  change  in  control.
Simultaneously with the execution of the Definitive Agreement,  THCG loaned Star
Cross,  Inc. ("Star Cross"),  the sole shareholder of Donald & Co., $400,000 and
granted  Donald & Co. a  license  to use part of  THCG's  premises  for which an
agreed upon monthly license fee is due and payable  commencing July 1, 2001. The
loan bears  interest  at 12% per annum and is  repayable  on June 30, 2002 or if
Star Cross defaults under the license  described  above.  On July 30, 2001, THCG
loaned an additional $100,000 to Star Cross on the same terms.


                                      -9-
<PAGE>

      Donald & Co. is a  registered  broker  dealer and  member of the  National
Association  of  Securities  Dealers,  Inc. It is a full service firm offering a
variety of services including retail and institutional  brokerage,  underwritten
public offerings and other investment banking  activities.  Donald & Co. is also
engaged in  proprietary  trading.  Donald & Co. and its  predecessors  have been
engaged in the securities business since 1916. The firm's executive office is in
New York City and its  principal  office is in New  Jersey.  Branch  offices are
located in New York,  Florida,  Arizona  and Iowa.  Donald & Co.  presently  has
approximately   140   employees,    including    approximately   90   registered
representatives. For the years ended September 1998, 1999 and 2000, Donald & Co.
generated   revenues  of  $18.9  million,   $23.0  million  and  $24.2  million,
respectively.  For the eight months ended May 31, 2001,  Donald & Co.  generated
revenues of approximately $9.3 million.  At May 31, 2001, Donald & Co. had a net
worth of approximately $1.1 million.

NOTE 4 -  LITIGATION

      As discussed in the  Company's  Annual  Report on Form 10-K for the fiscal
year ended  December  31, 2000 the Company  has been  involved in several  legal
proceedings.  The  Company  believes  it has  valid  defenses  to each of  these
litigations and intends to continue its vigorous defense.

      Miller  Capital  Litigation.  On November 23, 1999, we, along with Inland,
were sued in the Superior  Court for the State 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, as
the corporate parent of Inland. Henry Wozow, the former President of Inland, and
his  spouse  Patricia  Wozow,  were  also  named as  defendants.  The  complaint
generally  alleges that Inland and others  (including Henry Wozow)  fraudulently
induced  the  plaintiffs  to  purchase  participations  in various  transactions
relating to Inland's factoring business and that funds obtained by Inland and/or
Walnut in  connection  with  those  transactions  were  improperly  diverted  or
converted.  It is alleged  that  Walnut  controlled  Inland in general  and with
respect to the specific  challenged  transactions.  Plaintiffs  allege causes of
action  for  breach  of  promissory  notes,   state  securities  law  fraud  and
registration  violations,  common  law  misrepresentation  and  conversion.  The
complaint  seeks  unspecified  injunctive  relief,  unspecified  damages  and an
accounting.

      On May 10, 2000, the Wozows cross-claimed against us and Inland,  alleging
that we  controlled  Inland,  misrepresentation,  breach of contract,  breach of
fiduciary  duty,   intentional   interference   with  business   expectancy  and
contractual  relations,   indemnification,   quantum  meruit  and  a  fraudulent
conveyance  and seeks  unspecified  damages.  On April  11,  2001,  the  Wozow's
cross-claims   were  dismissed   without  prejudice  on  the  grounds  that  the
cross-claims were  substantially  identical to claims that the Wozows previously
filed in the Maurice v. Inland  Financial  matter in King County,  which will be
discussed in further detail below.

      As a result of the Inland  bankruptcy  proceeding  described  below,  this
action  has  been  stayed  with  respect  to  Inland,  although  not  the  other
defendants, including us and the Wozows.

      On January  9, 2001,  we filed a motion  for  summary  judgment  as to the
plaintiffs'  claims  against us. On May 30, 2001,  the court  granted us summary
judgment  and  dismissed  all  of  the  plaintiff's  claims  against  THCG  with
prejudice. Plaintiffs filed a motion for reconsideration that was denied on July
6, 2001.

      Maurice  Litigations.  On February  11, 1999 and filed  February 12, 1999,
Thomas  Maurice and the Estate of Paul Zeman sued Inland in the  Superior  Court
for the State of Washington for King County in an action entitled Thomas Maurice
et al. v. Inland  Financial  Services  Corporation  et al. (No.  99203717).  The
complaint  alleged that plaintiffs were assignees of Pacific's  rights in a loan
participation  agreement  entered  into by Pacific  and Inland in which  Pacific
acquired a  participation  in a  factoring  loan made by Inland.  The  complaint
further alleged  generally that Inland breached the  participation  agreement by
paying monies  received from the borrower to persons not entitled  thereto under
the terms of the participation  agreement. The complaint sought money damages in
the  approximate  amount of $300,000 and other  relief.  In December  1999,  the
plaintiffs  amended the complaint to add Henry and Patricia  Wozow as additional
defendants. As a result of the Inland bankruptcy


                                      -10-

<PAGE>

proceeding  described  below,  this  action was stayed as to Inland (but not the
other defendants, including us, Pacific and the Wozows).

      On May 5, 2000,  defendants  Henry and Patricia  Wozow filed a third party
complaint  against us (as successor to Walnut,  the corporate  parent of Inland)
and   Pacific   alleging   that   Walnut   controlled    Pacific   and   Inland,
misrepresentation,  breach of contract,  breach of fiduciary  duty,  intentional
interference    with   business    expectancy   and    contractual    relations,
indemnification,   quantum  meruit  and  a  fraudulent   conveyance  and  sought
unspecified  damages.  On May 9, 2001, the court ordered the  bifurcation of the
Wozows third party claims from the claims of the plaintiffs  against the Wozows.
On June 8, 2001 we removed the bifurcated  case into the United States  District
Court for Western  Washington  at  Seattle.  The Wozows seek to have the removed
action  consolidated  with the lawsuit we filed  against  the Wozows,  discussed
below.

      Inland  Bankruptcy  Proceeding.  On May 9,  2000 Mr.  Wozow  and two other
purported  creditors filed an involuntary  bankruptcy petition against Inland in
the  Bankruptcy  Court for the  Eastern  District of  Washington.  (In re Inland
Financial Corp. (No. 0003014W17).) After a hearing, the Bankruptcy Court entered
an order for relief on January 26, 2001. A bankruptcy trustee has been appointed
and is responsible for the liquidation of Inland,  including pursuing any claims
Inland may have against others.

      Wozow Litigation. On March 9, 2001, we filed a complaint against Henry and
Patricia Wozow,  James Topliff and Universal  Funding  Corporation in the United
States  District Court for the Western  District of Washington.  (THCG,  Inc. v.
Henry and Patricia Wozow et al. (No.C01-0353)).

      Our suit alleges that the Wozows made material  misrepresentations  in the
purchase agreement under which Walnut acquired Inland, and that,  beginning late
in 1999,  while he was  President of Inland,  Henry Wozow,  assisted by Patricia
Wozow and James Topliff,  unlawfully  and in breach of his fiduciary  duties and
employment  agreement,  transferred  Inland's assets,  business and employees to
Universal Funding Corporation, a factoring company owned and controlled by Henry
Wozow and tortuously  interferred with our business  expectancy.  The suit seeks
indemnification  from the Wozows for any damages to us arising out of the Miller
litigation  and  the  Maurice  litigation,  money  damages,  restitution  of the
consideration  received by the Wozows and Topliff in connection  with their sale
of Inland to Walnut, a constructive  trust upon the shares of Universal  Funding
Corporation,  and attorneys' fees and costs. This case has been set for trial on
June 24, 2002. Discovery is ongoing.

      On July 2, 2001,  we settled  our action  against  Thomas  Maurice and the
Estate  of Paul  Zeman in the  United  States  District  Court  for the  Western
District of Washington.  (THCG,  Inc. v. Thomas Maurice and Estate of Paul Zeman
(No.  C0021PP).  THCG received  valuable  consideration  in connection  with the
settlement,  including the  cancellation  and forgiveness of certain  promissory
notes in the total principal amount of $600,000,  which were guaranteed by THCG.
On July 27, 2001,  we dismissed  the  complaint  with  prejudice as part of this
settlement.

NOTE 5 -  SUBSEQUENT EVENT - RESTRUCTURING OF PREFERRED STOCK

      On July 6, 2001,  Castle Creek Technology  Partners LLC ("Castle  Creek"),
the  holder of all of the  issued  and  outstanding  shares  of THCG's  series A
convertible  participating  preferred stock (the "Preferred Stock") approved the
plan to  establish  the  Trust  and the  acquisition  of  Donald & Co.  by THCG.
Pursuant to the terms and  provisions of a  restructuring  agreement  with THCG,
Castle Creek  exchanged  2,000 of the 5,000  shares of  Preferred  Stock held by
Castle Creek, together with all accrued and unpaid premiums relating thereto and
warrants to purchase up to 396,899  shares of THCG's  common stock for 1,250,000
shares of THCG's common stock, a promissory note

                                      -11-
<PAGE>

in the principal amount of $1,500,000  payable to the order of Castle Creek (the
"Note"),  $500,000 in cash and amended and  restated  warrants to purchase up to
396,899 shares of THCG's common stock for $5.039 per share (subject to customary
anti-dilution  adjustments for stock splits,  dividends and  combinations).  The
Note will be assigned  to and assumed by the Trust  pursuant to the terms of the
agreement to establish the Trust and THCG will be released from its  obligations
under the Note upon the  acquisition  of Donald & Co. which is expected to close
in August  2001 (see Notes 2 and 3).  The Note must be  prepaid  out of the net,
after-tax cash proceeds from the sale of the assets held by the Trust as long as
the Trust has cash  reserves  of at least  $500,000,  or such  lesser  amount as
provided in the Note. Furthermore, at the closing of the acquisition of Donald &
Co.  or  another  merger,  acquisition  or sale of THCG that is  consummated  by
September 30, 2001, Castle Creek has committed to contribute the remaining 3,000
shares of Preferred Stock to THCG.

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

            As used in this Item 2, the "Company," "we," "our" and "us" refer to
            THCG.

Forward-Looking Statements

      This  Quarterly  Report on Form 10-Q 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  Report,   or
incorporated  herein by reference,  regarding our financial  position,  business
strategy and the 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 Report,  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 those  cautionary  statements in our Annual Report
on Form 10-K for our fiscal year ended  December 31,  2000,  filed with the SEC,
which information is incorporated into this Report 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  Report  as  anticipated,  believed,
estimated,  expected,  intended  or  planned.  All  subsequent  written and oral
forward-looking  statements  attributable  to us (or to  persons  acting  on our
behalf)  are  expressly   qualified  in  their  entirety  by  these   cautionary
statements.

Overview

      Based in New York City,  we were a merchant  banking  firm that during the
year 2000 provided a combination of venture  funding,  venture  development  and
venture  banking  services to our partner  companies,  comprised of Internet and
technology  related  companies  in which we acquired  direct or indirect  equity
interests  as well as to third  parties to which we provided  services for fees.
Due to market  conditions,  in 2001, we ceased  providing  our venture  funding,
venture development and venture banking services,  ceased funding the operations
of Zinook  Ltd.  and closed our office in Israel.  In  addition,  we reduced the
number of personnel in the United States to a minimum level. This  restructuring
required us to write down the value of certain assets,  including  Mercury Coast
and Zinook.  We are no longer  providing  investment  banking or other financial
advisory  services  through  Tower  Hill and have  withdrawn  our  broker-dealer
license as of June 28, 2001. See "Liquidity and Capital Resources."

      On July 6, 2001, THCG announced that its Board of Directors adopted a plan
to completely  liquidate its subsidiary,  THCG, LLC, through a liquidating trust
for the  benefit  of  THCG's  stockholders.  On July 16,  2001,  the  Trust  was
established and the Trust Units were  distributed to holders of record of THCG's
common stock as of that date. The Trust owns all of THCG's assets as of June 30,
2001 (except for approximately $2.1 million in cash,  restricted cash and a note
receivable and approximately $2.1 million of furniture, fixtures and equipment),
including THCG's marketable and non-marketable  securities.  The sole purpose of
the  Trust is to  hold,  conserve  and  protect  its  assets  until  they can be
liquidated.  Joseph D. Mark and Adi Raviv,  executive  officers and directors of
THCG, are


                                      -12-

<PAGE>

initial  trustees of the Trust.  The Board of  Directors  believed the Trust was
necessary to address business and market-related  issues,  including the concern
that THCG would have been  required to register as an  investment  company under
the Investment Company Act of 1940.

      The holders of THCG's  common  stock that  received  Trust Units  retained
their shares of THCG's common stock and remain  stockholders  of THCG. The Trust
Units are not represented by certificates and are not  transferable  except upon
death or by  operation  of law.  There will be no market for the Trust Units and
the Trust is not subject to reporting requirements under the Securities Exchange
Act of 1934.

      THCG and its subsidiaries contributed to THCG, LLC all of their direct and
indirect  rights and  interests in any  security  acquired  for  investment,  or
acquired  in  connection  with their  provision  of  venture  banking or venture
development  services,   including  any  related  promissory  notes,  contracts,
agreements or instruments. In addition, THCG contributed to THCG, LLC its rights
and interests in the stock of its inactive  subsidiaries and the promissory note
executed by a former  executive  officer of THCG,  which promissory note equaled
the aggregate principal sum of approximately  $350,000. THCG then contributed to
the Trust all of its cash and cash  equivalents  on hand on the  Record  Date in
excess of approximately $2.1 million and its membership  interests in THCG, LLC,
certain contract rights, its accounts and certain notes receivable.

      As a result of the  establishment  of the  Trust,  THCG no  longer  owns a
substantial amount of the assets reflected on its consolidated  balance sheet as
of March 31, 2001.

      The Trust will terminate on the earlier of the date of distribution of all
of its assets or July 16, 2004, except that the trustees of the Trust may extend
termination  of the Trust to a later date,  but not later than July 16, 2006, if
they  determine  an  extension  is  reasonably  necessary  either to pay or make
provision  for then known  liabilities  or to  conserve  and protect the Trust's
assets for the benefit of the beneficiaries of the Trust.

      THCG signed a definitive agreement ("Definitive Agreement") effective June
29,  2001 to  acquire  Donald & Co.  Securities,  Inc.,  ("Donald  & Co.").  The
acquisition is anticipated to close in August 2001,  after the  distribution  of
the  Trust  in  which  Donald  & Co.'s  shareholders  did not  participate.  The
transaction is structured as an  acquisition of Donald & Co. by THCG.  After the
transaction,  current  stockholders of THCG will own  approximately  32% and the
current  shareholders of Donald & Co. will own approximately 68% of the combined
company,  respectively. A fee of one percent of THCG's common stock will be paid
to a finder in  connection  with the closing of the  transaction.  A majority of
THCG's  Board of  Directors  will  change to  reflect  the  change  in  control.
Simultaneously with the execution of the Definitive Agreement,  THCG loaned Star
Cross,  Inc. ("Star Cross"),  the sole shareholder of Donald & Co., $400,000 and
granted  Donald & Co. a  license  to use part of  THCG's  premises  for which an
agreed upon monthly license fee is due and payable  commencing July 1, 2001. The
loan bears  interest  at 12% per annum and is  repayable  on June 30, 2002 or if
Star Cross defaults under the license  described  above.  On July 30, 2001, THCG
loaned an additional $100,000 to Star Cross on the same terms.

      Donald & Co. is a  registered  broker  dealer and member of the National
Association of Securities  Dealers,  Inc. It is a full service firm offering a
variety   of   services   including   retail  and   institutional   brokerage,
underwritten   public  offerings  and  other  investment  banking  activities.
Donald & Co. is also  engaged  in  proprietary  trading.  Donald & Co. and its
predecessors  have been engaged in the  securities  business  since 1916.  The
firm's  executive  office is in New York City and its  principal  office is in
New  Jersey.  Branch  offices are  located in New York,  Florida,  Arizona and
Iowa.  Donald & Co.  presently  has  approximately  140  employees,  including
approximately  90 registered  representatives.  For the years ended  September
1998, 1999 and 2000, Donald & Co. generated  revenues of $18.9 million,  $23.0
million and $24.2  million,  respectively.  For the eight months ended May 31,
2001, Donald & Co. generated  revenues of approximately  $9.3 million.  At May
31, 2001, Donald & Co. had a net worth of approximately $1.1 million.


                                      -13-
<PAGE>



Six Months Ended June 30, 2001 compared to the Six Months Ended June 30, 2000

(In thousands, except per share data)

<TABLE>
<CAPTION>
                                                            2001             2000
                                                       -----------        ---------
<S>                                                   <C>                 <C>
Net loss from continuing operations                   $   (5,788)         $  (6,685)
Net income (loss) from discontinued operations        $  (23,935)         $   4,379
Net income (loss) available for common stock          $  (29,973)         $  (2,306)

Basic income (loss) per common share:

From continuing operations                            $    (0.45)         $   (0.54)
From discontinued operations                               (1.84)               .35
Net income (loss) per share                           $    (2.29)         $   (0.19)

Diluted income (loss) per common share:

From continuing operations                            $    (0.45)         $   (0.43)
From discontinued operations                               (1.84)              0.28
Net income (loss) per share                           $    (2.29)         $   (0.15)
</TABLE>

Revenues

      THCG had no revenues from  continuing  operations for the six months ended
June 30, 2001 and 2000.

Expenses

      Selling, general and administrative expenses for the six months ended June
30, 2001  decreased  to $5.8  million from $6.7 million for the six months ended
June 30, 2000. In 2001, the major components consisted of $2.2 million of salary
and related  expenses,  $1.7 million of  professional  fees, $0.8 million of bad
debt expense and $0.6 million of occupancy  expense.  In 2000,  the  significant
expenses consisted of $1.8 million of salary and related expenses,  $2.2 million
of professional fees, $0.8 million of venture development expenses, $0.8 million
of  expenses  associated  with  Zinook and $0.3  million  of travel and  related
expenses.

Discontinued Operations

      THCG had revenues  from  discontinued  operations  in the six months ended
June 30,  2001 in the amount of $2.4  million and  expenses of $26.2  million as
compared with revenues of $16.5 million and expenses of $11.6 million in the six
months ended June 30, 2000.

Three  Months  Ended June 30, 2001  compared to the Three  Months Ended June 30,
2000

(In thousands, except per share data)
                                               2001        2000
                                          -----------   ---------

Net (loss) from continuing operations     $  (2,321)    $(3,678)
Net (loss) from discontinued operations   $  (4,521)    $(1,590)
Net (loss) available for common stock     $  (6,967)    $(5,268)

Basic (loss) per common share:

From continuing operations                $   (0.18)    $ (0.29)
From discontinued operations                  (0.35)      (0.13)
Net (loss) per share                      $   (0.53)    $ (0.42)

Diluted (loss) per common share:

From continuing operations                $    (0.18)   $ (0.29)
From discontinued operations                   (0.35)     (0.13)
Net (loss) per share                      $    (0.53)   $ (0.42)


                                      -14-
<PAGE>



Revenues

      THCG had no revenues from continuing operations for the three months ended
June 30, 2001 and 2000.

Expenses

      Selling,  general and  administrative  expenses for the three months ended
June 30, 2001  decreased  to $2.3 million from $3.7 million for the three months
ended June 30, 2000. In 2001, the major components  consisted of $0.5 million of
salary and related expenses,  $0.8 million of professional fees and $0.3 million
of occupancy expense and $0.3 million of write-offs of Zinook's assets. In 2000,
the significant expenses were $0.9 million of salary and related expenses,  $0.4
million of professional  fees, $0.6 million of consulting  costs associated with
venture development income and $0.8 million of expenses associated with Zinook.

Discontinued Operations

      THCG had revenues from discontinued  operations for the three months ended
June 30,  2001 in the amount of $0.2  million and  expenses  of $4.7  million as
compared with revenues of $2.2 million and expenses of $4.3 million in the three
months ended June 30, 2000.

Liquidity and Capital Resources

      At June 30, 2001 we had cash and cash equivalents and a loan receivable of
approximately $1.1 million. In addition, we had restricted cash of approximately
$1.1 million.

      During  the six  months  ended  June  30,  2001  cash  used  in  operating
activities  was $5.8  million  compared to $4.5  million in the six months ended
June 30, 2000.

      Cash used in  investing  activities  was $0.4  million,  which was used to
purchase furniture, fixtures and leasehold, compared to $1.5 million provided by
investing activities in the six months ended June 30, 2000.

      Cash used in financing  activities  was $0.5 million,  which included $0.4
million loaned to Star Cross and $0.1 million for the purchase of treasury stock
compared  to $5.7  million  received  from the  exercise  of warrants in the six
months ended June 30, 2000.

      On July 13, 2001 THCG's common stock was delisted from the NASDAQ National
Market because it no longer met the continued  listing  requirements  of Nasdaq.
THCG's common stock has since been trading on the OTC Bulletin Board.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The primary market risk we faced prior to the  establishment  of the Trust
was the fluctuation in the market value of the securities we held in our venture
partner and venture portfolio  companies.  The market prices for those companies
that are publicly held have been very volatile,  experiencing wide fluctuations.
Our  profitability  was  materially and adversely  affected by  period-to-period
declines  in the market  values of our venture  partner  and  venture  portfolio
companies.  Historically,  we have not generally engaged in hedging transactions
to minimize this risk.

      We are not subject to market risk  associated with interest risk sensitive
instruments  because  we do not invest in such  instruments  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. For the six months ended June 30, 2001
and at  present,  we do not  believe  that our  exposure  to  changes in foreign
currency exchange rates has increased.

                                      -15
<PAGE>



      On July 13, 2001 THCG's common stock was delisted from the NASDAQ National
Market because it no longer met the continued  listing  requirements  of Nasdaq.
THCG's common stock has since been trading on the OTC Bulletin Board.

New Accounting Pronouncements

      In December 1999,  the SEC issued Staff  Accounting  Bulletin  ("SAB") No.
101,  "Revenue  Recognition in Financial  Statements." SAB No. 101 expresses the
views of the SEC staff in applying generally accepted  accounting  principles to
certain revenue recognition issues. In June 2000, the SEC issued SAB No. 101B to
defer the effective date of the  implementation  of SAB No. 101 until the fourth
quarter of fiscal year 2000.  Management is currently  evaluating  the impact of
adopting  this SAB,  but does not  believe  that  this SAB will have a  material
impact on its financial position or its results of operations.

      In July 2001, the Financial  Accounting  Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations ("FAS 141") and
No. 142,  Goodwill and Other Intangible Assets ("FAS 142"). FAS 141 requires all
business  combinations  initiated  after June 30, 2001 to be accounted for using
the purchase method.

      Under FAS 142, goodwill and intangible assets with indefinite lives are no
longer  amortized  but are reviewed  annually (or more  frequently if impairment
indicators  arise) for  impairment.  Separable  intangible  assets  that are not
deemed to have indefinite  lives will continue to be amortized over their useful
lives (but with no maximum life). The  amortization  provisions of FAS 142 apply
to goodwill and intangible  assets acquired after June 30, 2001. With respect to
goodwill and  intangible  assets  acquired prior to July 1, 2001, the Company is
required to adopt FAS 142  effective  January 1, 2002.  The Company is currently
evaluating  the  effect  that  adoption  of the  provisions  of FAS 142 that are
effective  January 1, 2002 will have on its results of operations  and financial
position.


                                      -16
<PAGE>



                                     PART II

                                OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

      The  information  contained in Item 3 of THCG's Annual Report on Form 10-K
for the fiscal year ended  December  31, 2000 is hereby  incorporated  herein by
reference.

      For a  description  of pending  material  legal  proceedings  in which the
Company  is  involved,  see  Note  4 of  the  Notes  to  Consolidated  Financial
Statements.

                                      -17-

<PAGE>



                                   SIGNATURES

      Pursuant to the  requirements of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, hereunto duly authorized.



                                 THCG, Inc.


                                 By:   /s/ Adi Raviv
                                       ---------------
                                 Name:     Adi Raviv
                                 Title:    Chief Financial Officer (Principal
                                           Financial and Accounting Officer)
                                 Date:     August 14, 2001


<PAGE>



OTHER INFORMATION

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

      (b)   Reports on Form 8-K

            None.