SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-K/A









(Mark
One)




x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934




For the
Fiscal Year ended December 31, 2009




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 Number 001-15831







MERRIMAN
CURHAN FORD GROUP, INC.


(Exact
Name of Registrant as Specified in its Charter)




Delaware
                11-2936371(State
      or Other Jurisdiction of
                  Incorporation
      or Organization)
                (IRS
      Employer
                  Identification
      No.)




600
California Street, 9th Floor


San
Francisco, CA 94108


(Address
of principal executive offices)(Zip Code)




(415)
248-5600


(Registrant’s
telephone number, including area code)





Securities
registered pursuant to Section 12(g) of the Act:


None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes  ̈
    Nox




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes ̈
    No   x




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. Yesx
    No ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ̈   Nox





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. ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a “smaller reporting company.” See
definition of “accelerated filer, large accelerated filer and smaller reporting
company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer  ̈
              Accelerated filer  ̈Non-accelerated filer (Do not check if a smaller reporting company)  ̈
              Smaller Reporting Company x




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




The
aggregate market value of the 12,554,779 shares of common stock of the
Registrant issued and outstanding as of June 30, 2009, the last business day of
the registrant’s most recently completed second fiscal quarter, excluding
1,272,827 shares of common stock held by affiliates of the Registrant was
$5,076,878. This amount is based on the closing price of the common stock on
NASDAQ of $0.45 per share on June 30, 2009.




The
number of shares of Registrant’s common stock outstanding as of March 15, 2010
was 12,824,294












TABLE OF CONTENTS





PART IItem 1.
                Business
                1Item 1A.
                Risk
      Factors
                10Item 1B.
                Unresolved
      Staff Comments
                22Item 2.
                Properties
                22Item 3.
                Legal
      Proceedings
                23Item 4.
                ReservedPART IIItem 5.
                Market
      for Registrant’s Common Stock and Related Stockholder
    Matters
                28Item 6.
                Selected
      Consolidated Financial Data
                30Item 7.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                31Item 7A.
                Quantitative
      and Qualitative Disclosures about Market Risk
                50Item 8.
                Financial
      Statements and Supplementary Data
                51Item 9.
                Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                102Item 9A.
                Controls
      and Procedures
                102Item 9B.
                Other
      Information
                103PART IIIItem
      10.
                Directors
      and Executive Officers of the Registrant
                105Item 11.
                Executive Compensation
                109Item 12.
                Security Ownership
      of Certain Beneficial Owners and Management
                112Item 13.
                Certain
      Relationships and Related Transactions
                115Item 14.
                Principal Accounting Fees and Services
                117PART IVItem 15.
                Exhibits
      and Financial Statement Schedules
                118




i




This
Annual Report on Form 10-K and the information incorporated by reference in this
Form 10-K include forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Some of the forward-looking statements can be
identified by the use of forward-looking words such as “believes,” “expects,”
“may,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or
“anticipates,” or the negative of those words or other comparable terminology.
Forward-looking statements involve risks and uncertainties. You should be aware
that a number of important factors could cause our actual results to differ
materially from those in the forward-looking statements. We will not necessarily
update the information presented or incorporated by reference in this Annual
Report on Form 10-K if any of these forward-looking statements turn out to be
inaccurate. Risks affecting our business are described throughout this Form 10-K
and especially in the section “Risk Factors.” This entire Annual Report on Form
10-K, including the consolidated financial statements and the notes and any
other documents incorporated by reference into this Form 10-K, should be read
for a complete understanding of our business and the risks associated with that
business.





Explanatory
Note




This
Amendment No. 1 on Form 10-K/A (this “Amendment”) amends the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, originally
filed on March 18, 2010 (the “Original Filing”). The Company is filing this
Amendment to include the information required by Items 10, 11, 12, 13 and 14 to
Part III because the Company’s proxy statement will not be filed within 120 days
of the end of the Company’s fiscal year ended December 31, 2009. In addition, in
connection with the filing of this Amendment and pursuant to the rules of the
Securities and Exchange Commission, the Company is including with this Amendment
certain currently dated certifications.




Except as
described above, no other changes have been made to the Original Filing. This
Amendment continues to speak as of the date of the Original Filing or as of
December 31, 2009 as required by the context, and the registrant has not updated
the disclosures contained in the Original Filing to reflect any events which
occurred at a date subsequent to the filing of the Original Filing. The filing
of this Form 10-K/A is not a representation that any statements contained in
items of Form 10-K other than Part III Items 10 through 14 are true or complete
as of any date subsequent to the date of the Original Filing.





PART
I




Item
1. Business




Overview




We are a
financial services holding company that provides equity research, capital
markets services, corporate and venture services, and investment banking through
our primary operating subsidiary, Merriman Curhan Ford & Co.
(“MCF”).  In 2009, we sold the operating assets of Panel Intelligence,
LLC, which had been our subsidiary dedicated to primary research, and
discontinued operations of MCF Asset Management, our subsidiary which managed
investment products.




MCF is an
investment bank and securities broker-dealer focused on fast-growing companies
and institutional investors. Our mission is to become a leader in the
researching, advising, financing, trading and investing in fast-growing
companies under $1 billion in market capitalization. We provide equity research,
brokerage and trading services primarily to institutions, as well as investment
banking and advisory services to corporate clients. We are attempting to gain
market share by originating differentiated research for our institutional
investor clients and providing specialized and integrated services for our
fast-growing corporate clients.





Institutional
Cash Distributors (“ICD”) is a division of MCF which brokers money market funds
serving the short-term investing needs of corporate finance departments at
companies throughout the United States and Europe.  In January 2009,
we sold the primary assets related to the ICD operations to a group of investors
which included some of our employees.  To assist in the transition of
operations to the new owners, we are providing substantial services to ICD,
including collecting its revenues.  When ICD receives its
broker-dealer license, we will no longer provide such services and record ICD
revenues.




Panel
Intelligence, LLC was acquired in April 2007.  It offered custom and
published primary research to industry clients and investment professionals
through online panel discussions, quantitative surveys and an extensive research
library. Panel Intelligence, LLC provided greater access, compliance, insights
and productivity to clients in the health care, CleanTech and financial
industries. In January 2009, the majority of the assets of Panel Intelligence,
LLC were sold to an investor group that included certain members of its
management team. For financial reporting purposes, we have listed the operations
of the business as part of discontinued operations.


1





MCF Asset
Management, LLC managed absolute return investment products for institutional
and high-net worth clients. We were the sub-advisor for the MCF Focus fund. In
an effort to refocus the holding company back to its core investment banking/
broker-dealers services, management liquidated the funds under management and
returned investments to the investors in the fourth quarter of 2008. We no
longer have, for all practical purposes, a subsidiary dedicated to asset
management.   At December 31, 2009, we held an immaterial amount
of illiquid assets and were in the process of distributing these to
investors.




We are
headquartered in San Francisco, with additional offices in New York, NY. As of
December 31, 2009, we had 94 employees, including employees of our Institutional
Cash Distributor division (ICD), whose assets we sold in January 2009. Merriman
Curhan Ford & Co. is registered with the Securities and Exchange Commission
(“SEC”) as a broker-dealer and is a member of Financial Industry Regulatory
Authority (“FINRA”) and the Securities Investors Protection Corporation
(“SIPC”).




Liquidity




We
incurred substantial losses and negative cash flows from operations in 2009 and
2008. We had net losses of $5,462,000 and $30,274,000 in 2009 and 2008,
respectively, and negative operating cash flows of $12,648,000 and $24,945,000
for the same respective years. As of December 31, 2009, we had retained deficit
of $124,815,000. While we believe our current funds will be sufficient to enable
us to meet our planned expenditures through at least January 1, 2011, if
anticipated operating results are not achieved, management has the intent and
believes it has the ability to delay or reduce expenditures if not to raise
additional capital. Failure to generate sufficient cash flows from operations,
raise additional capital or reduce certain discretionary spending could have a
material adverse effect on our ability to achieve our intended business
objectives.




Principal
Services




Our
investment bank / broker-dealer segment provides three service offerings:
investment banking, brokerage and equity research. We provide traditional
research-based financial services to companies with market capitalizations up to
$1 billion, which we believe is an underserved sector in the financial services
industry.




Investment
Banking




Our
investment bankers provide a full range of corporate finance and strategic
advisory services. Our corporate finance practice is comprised of industry
coverage investment bankers that are focused on raising capital for fast-growing
companies in selected industry sectors. Our strategic advisory practice tailors
solutions to meet the specific needs of our clients at various points in their
growth cycle. As of December 31, 2009, we had 8 professionals in our investment
banking group.




Corporate Finance. Our
corporate finance practice advises on and structures capital raising solutions
for our corporate clients through public and private offerings of primarily
equity and convertible debt securities. Our focus is to provide fast-growing
companies with the capital necessary to drive them to the next level of growth.
We offer a wide range of financial services designed to meet the needs of
fast-growing companies, including initial public offerings, secondary offerings,
private investments in public equity, or PIPEs, and private placements. Our
equity capital markets team executes underwritten securities offerings, assists
clients with investor relations advice and introduces companies seeking to raise
capital to investors who we believe will be supportive, long-term investors.
Additionally, we draw upon our contacts throughout the financial and corporate
world, expanding the options available for our corporate clients.




Strategic Advisory. Our
strategic advisory services include transaction-specific advice regarding
mergers and acquisitions, divestitures, spin-offs and privatizations, as well as
general strategic advice. Our commitment to long-term relationships and our
ability to meet the needs of a diverse range of clients has made us a reliable
source of advisory services for fast-growing public and private companies. Our
strategic advisory services are also supported by our capital markets
professionals, who provide assistance in acquisition financing in connection
with mergers and acquisitions transactions.




Institutional
Brokerage Services




We
provide institutional sales, sales trading and trading services to about 324
institutional accounts in the United States. We execute securities transactions
for money managers, mutual funds, hedge funds, insurance companies, and pension
and profit-sharing plans. Institutional investors normally purchase and sell
securities in large quantities, which require the distribution and trading
expertise we provide.


2




We
provide integrated research and trading solutions centered on helping our
institutional clients to invest profitably, to grow their portfolios and
ultimately their businesses. We understand the importance of building long-term
relationships with our clients who look to us for the professional resources and
relevant expertise to provide answers for their specific situations. We believe
it is important for us to be involved with public companies early in their
corporate life cycles. We strive to provide unique investment opportunities in
fast-growing, relatively undiscovered companies and to help our clients execute
trades rapidly, efficiently and accurately.





Institutional Sales. Our
sales professionals focus on communicating investment ideas to our clients and
executing trades in securities of companies in our target growth sectors. By
actively trading in these securities, we endeavor to couple the capital market
information flow with the fundamental information flow provided by our analysts.
We believe that this combined information flow is the underpinning of getting
our clients favorable execution of investment strategies. Sales professionals
work closely with our research analysts to provide up-to-date information to our
institutional clients. We interface actively with our clients and plan to be
involved with our clients over the long term.




Sales Trading. Our sales
traders are experienced in the industry and possess in-depth knowledge of both
the markets for fast-growing company securities and the institutional traders
who buy and sell them.




Trading. Our trading
professionals facilitate liquidity discovery in equity securities. We make
markets in securities traded on NASDAQ, stock exchanges and ECNs, and service
the trading desks of institutions in the United States. Our trading
professionals have direct access to the major stock exchanges, including the New
York Stock Exchange and the American Stock Exchange. As of December 31, 2009, we
were a market maker in 163 securities.




The
customer base of our institutional brokerage business includes mutual funds,
hedge funds, and private investment firms. We believe this group of potential
clients to number over 4,000. We grow our business by adding new customers and
increasing the penetration of existing institutional customers that use our
equity research and trading services in their investment process.




Proprietary Trading. We will
from time to time take significant positions in fast-growing companies that we
feel are undervalued in the marketplace. We believe that our window into these
opportunities, due to the types of companies we research, offers us a
significant competitive advantage.




Corporate & Executive
Services. We offer brokerage services to corporations for purposes such
as stock repurchase programs. We also serve the needs of company executives with
restricted stock transactions, cashless exercise of options, and liquidity
strategies.




Venture Services. The Venture
Services team provides sales distribution for capital raises for private
companies via the introduction to venture capital and private equity investors.
Our venture services include distribution and liquidity programs, portfolio
company advisory services, research dissemination and best-execution
trading.




OTCQX Advisory. Merriman
Curhan Ford & Co. began offering services to sponsor companies on the
International and Domestic OTCQX markets in 2007. In 2008, we solidified our
position as the leading investment bank sponsor in this market. We enable
non-U.S. and domestic companies to obtain greater exposure to U.S. institutional
investors without the expense and regulatory burdens of listing on traditional
U.S. exchanges. The International and Domestic OTCQX market tiers do not require
full SEC registration and are not subject to the Sarbanes Oxley Act of 2002.
Listing on the market requires the sponsorship of a qualified investment bank
called a Principal American Liaison (PAL) for non-U.S. companies or a Designated
Advisor for Disclosure (DAD) for domestic companies. Merriman Curhan Ford &
Co. was the first investment bank to achieve DAD and PAL designations and
currently is the sponsor of 10 out of 91 issuers listed on OTCQX.




Institutional Cash Distributors
(ICD). ICD is a broker of money market funds serving the short-term
investing needs of corporate finance departments at companies throughout the
United States and Europe. Companies using ICD’s services receive access to over
40 fund families through ICD’s one-stop process that includes one application,
one wire and one statement that consolidates reporting regardless of the number
of funds utilized. In January 2009, we sold the primary assets related to the
ICD operations to a group of investors which included some of our employees.
However, until the new company is able to form its own broker-dealer, which is
anticipated to be in 2010, the business will continue operating under Merriman
Curhan Ford & Co. and its financial results included in our consolidated
financial statements.


3




Equity
Research




A key
part of our strategy is to originate specialized and in-depth research. Our
analysts cover a universe of approximately 114 companies in our focus industry
sectors. We leverage the ideas generated by our research teams, using them to
attract and retain institutional brokerage clients.




Supported
by the firm’s institutional sales and trading capabilities, our analysts deliver
timely recommendations to clients on innovative investment opportunities. In an
effort to make money for our investor clients, our analysts are driven to find
undiscovered opportunities in fast-growing companies that we believe are
undervalued. Given the contrarian and undiscovered nature of many of our
research ideas, we, as a firm, specialize in serving sophisticated, aggressive
institutional investors.





As of
February 12, 2010, approximately 67% of the companies covered by our research
professionals had market capitalizations of $1 billion or less.





Our
equity research focuses on bottom-up, fundamental analysis of fast-growing
companies in selected growth sectors. Our analysts’ expertise in these
categories of companies, along with their intensive industry knowledge and
contacts, provides us with the ability to deliver timely, accurate and
value-added information.




Our
objective is to build long lasting relationships with our institutional clients
by providing investment recommendations that directly equate to enhanced
performance of their portfolios. Further, given our approach and focus on
quality service, we believe our equity research analysts are in a unique
position to maintain close, ongoing communication with our clients.




The
industry sectors covered by our eight equity research analysts
include:





·
            Clean
    Energy





-
            Natural
      Resources and related sectors





·
            Consumer, Media &
      Internet





-
            Branded
      Consumer





-
            China
      Consumer





-
            Media/Entertainment





-
            Internet
      Media and Infrastructure





·
            Health
    Care





-
            Biotechnology
      - Life Sciences





·
            Technology





-
            Clean
      Energy Semiconductors





-
            Communications
      - Wireless Technology





-
            Defense
      Electronics/Advanced Communications





-
            Emerging
      Data Center/Enterprise Technologies





-
            Cloud
      Computing Service Providers




Research
Coverage by Industry


As of
2/2/10


4










After
initiating coverage on a company, our analysts seek to effectively communicate
new developments to our institutional clients through our sales and trading
professionals. We produce full-length research reports, notes and earnings
estimates on the companies we cover. We also produce comprehensive industry
sector reports. In addition, our analysts distribute written updates on these
issuers both internally and to our clients through the use of daily morning
meeting notes, real-time electronic mail and other forms of immediate
communication. Our clients can also receive analyst comments through electronic
media, and our sales force receives intra-day updates at meetings and through
regular announcements of developments. All of the above is also available
through a password protected searchable database of our daily and historical
research archives found on our website at www.merrimanco.com.




Our
Equity Research Group annually hosts several conferences targeting fast-growing
companies and institutional investors, including our annual Investor Summit and
various industry sector conferences. We use these events to primarily showcase
our equity research to the institutional investment community.


5





Competition




Merriman
Curhan Ford is engaged in the highly competitive financial services and
investment industries. We compete with other securities firms - from large
U.S.-based firms, securities subsidiaries of major commercial bank holding
companies and U.S. subsidiaries of large foreign institutions, to major regional
firms, smaller niche players, and those offering competitive services via the
Internet. Long term developments in the brokerage industry, including
decimalization and the growth of electronic communications networks, or ECNs,
have reduced commission rates and profitability in the brokerage industry. Many
large investment banks have responded to lower margins within their equity
brokerage divisions by reducing research coverage, particularly for smaller
companies, consolidating sales and trading services, and reducing headcount of
more experienced sales and trading professionals.




This
trend by competitors to reduce services creates an opportunity for us as many
highly qualified individuals have lost their jobs, expanding the pool of
experienced employees to hire. The economic environment in 2009 has marked a
bottom of the negative secular trends experienced by financial institutions in
2008 and the beginning of 2009. During the period, many of our buy-side clients
have merged, gone out of business or have sharply reduced their commission flow.
The reduction in the number of these clients also has lowered the number of
potential buyers for our investment banking product.




Many
remaining competitors have greater personnel and financial resources than we do.
Larger competitors may have a greater number and variety of distribution outlets
for their products. Some competitors have much more extensive investment banking
activities than we do and therefore, may possess a relative advantage with
regard to access to deal flow and capital.




For a
further discussion of the competitive factors affecting our business, see “We
face strong competition from larger firms,” under “Item 1A - Risk
Factors.”




Corporate
Support




Accounting,
Administration and Operations




Our
accounting, administration and operations personnel are responsible for
financial controls, internal and external financial reporting, human resources
and personnel services, office operations, information technology and
telecommunications systems, the processing of securities transactions, and
corporate communications. With the exception of payroll processing, which is
performed by an outside service bureau, and customer account processing, which
is performed by our clearing broker, most data processing functions are
performed internally. We believe that future growth will require implementation
of new and enhanced communications and information systems, and training of our
personnel to operate such systems. Despite the challenges that we experienced,
we have implemented such enhancements in 2009 and expect to continue in
2010.




Compliance,
Legal, Risk Management and Internal Audit




Our
compliance, legal and risk management personnel (together with other appropriate
personnel) are responsible for our compliance with legal and regulatory
requirements of our investment banking business and our exposure to market,
credit, operations, liquidity, compliance, legal and reputation risk. In
addition, our compliance personnel test and audit for compliance with our
internal policies and procedures. Our general counsel also provides legal
service throughout our company, including advice on managing legal risk. The
supervisory personnel in these areas have direct access to senior management and
to the Audit Committee of our Board of Directors to ensure their independence in
performing these functions. In addition to our internal compliance, legal, and
risk management personnel, we retain outside consultants and attorneys for their
particular functional expertise.




Risk
Management




In
conducting our business, we are exposed to a range of risks
including:




Market risk is the risk to
our earnings or capital resulting from adverse changes in the values of assets
resulting from movement in equity prices or market interest rates.




Credit risk is the risk of
loss due to an individual customer’s or institutional counterparty’s
unwillingness or inability to fulfill its obligations.


6





Operations risk is the risk
of loss resulting from systems failure, inadequate controls, human error, fraud
or unforeseen catastrophes.





Liquidity risk is the
potential that we would be unable to meet our obligations as they come due
because of an inability to liquidate assets or obtain funding. Liquidity risk
also includes the risk of having to sell assets at a loss to generate liquid
funds, which is a function of the relative liquidity (market depth) of the
asset(s) and general market conditions.





Compliance risk is the risk
of loss, including fines, penalties and suspension or revocation of licenses by
self-regulatory organizations, or from failing to comply with federal, state or
local laws pertaining to financial services activities.





Legal risk is the risk that
arises from potential contract disputes, lawsuits, adverse judgments, or adverse
governmental or regulatory proceedings that can disrupt or otherwise negatively
affect our operations or condition.





Reputation risk is the
potential that negative publicity regarding our practices, whether factually
correct or not, will cause a decline in our customer base, costly litigation, or
revenue reductions.





We have a
risk management program that sets forth various risk management policies,
provides for a risk management committee and assigns risk management
responsibilities. The program is designed to focus on the
following:




·
            Identifying,
      assessing and reporting on corporate risk exposures and
      trends;





·
            Establishing
      and revising policies, procedures and risk limits, as
      necessary;





·
            Monitoring
      and reporting on adherence with risk policies and
  limits;





·
            Developing
      and applying new measurement methods to the risk process as appropriate;
      and





·
            Approving
      new product developments or business
  initiatives.





We cannot
provide assurance that our risk management program or our internal controls will
prevent or mitigate losses attributable to the risks to which we are
exposed.





For a
further discussion of the risks affecting our business, see “Item 1A Risk
Factors.”





Regulation





As a
result of federal and state registration and self-regulatory organization, or
SRO, memberships, we are subject to overlapping layers of regulation that cover
all aspects of our securities business. Such regulations cover matters including
capital requirements; uses and safe-keeping of clients’ funds; conduct of
directors; officers and employees; record-keeping and reporting requirements;
supervisory and organizational procedures intended to ensure compliance with
securities laws and to prevent improper trading on material nonpublic
information; employee-related matters, including qualification and licensing of
supervisory and sales personnel; limitations on extensions of credit in
securities transactions; requirements for the registration, underwriting, sale
and distribution of securities; and rules of the SROs designed to promote high
standards of commercial honor and just and equitable principles of trade. A
particular focus of the applicable regulations concerns the relationship between
broker-dealers and their customers. As a result, many aspects of the
broker-dealer customer relationship are subject to regulation including, in some
instances, “suitability” determinations as to certain customer transactions,
limitations on the amounts that may be charged to customers, timing of
proprietary trading in relation to customers’ trades, and disclosures to
customers.


7





As a
broker-dealer registered with the Securities and Exchange Commission (“SEC”),
and as a member firm of Financial Industry Regulatory Authority (“FINRA”), we
are subject to the net capital requirements of the SEC (Rule 15c3-1 of the
Securities Exchange Act of 1934) as regulated and enforced by FINRA. These
capital requirements specify minimum levels of capital, computed in accordance
with regulatory requirements that each firm is required to maintain and also
limit the amount of leverage that each firm is able to obtain in its respective
business.




“Net
capital” is essentially defined as net worth (assets minus liabilities, as
determined under accounting principles generally accepted in the United States
(“U.S. GAAP”), plus qualifying subordinated borrowings, less the value of all of
a broker-dealer’s assets that are not readily convertible into cash (such as
furniture, prepaid expenses, and unsecured receivables), and further reduced by
certain percentages (commonly called “haircuts”) of the market value of a
broker-dealer’s positions in securities and other financial instruments. The
amount of net capital in excess of the regulatory minimum is referred to as
“excess net capital.”




The SEC’s
capital rules also (i) require that broker-dealers notify it, in writing, two
business days prior to making withdrawals or other distributions of equity
capital or lending money to certain related persons if those withdrawals would
exceed, in any 30-day period, 30% of the broker-dealer’s excess net capital, and
that they provide such notice within two business days after any such withdrawal
or loan that would exceed, in any 30-day period, 20% of the broker-dealer’s
excess net capital; (ii) prohibit a broker-dealer from withdrawing or otherwise
distributing equity capital or making related party loans if, after such
distribution or loan, the broker-dealer would have net capital of less than
$300,000 or if the aggregate indebtedness of the broker-dealer’s consolidated
entities would exceed 1,000% of the broker-dealer’s net capital in certain other
circumstances; and (iii) provide that the SEC may, by order, prohibit
withdrawals of capital from a broker-dealer for a period of up to 20 business
days, if the withdrawals would exceed, in any 30-day period, 30% of the
broker-dealer’s excess net capital and if the SEC believes such withdrawals
would be detrimental to the financial integrity of the firm or would unduly
jeopardize the broker-dealer’s ability to pay its customer claims or other
liabilities.




Compliance
with regulatory net capital requirements could limit those operations that
require the intensive use of capital, such as underwriting and trading
activities, and also could restrict our ability to withdraw capital from our
broker-dealer, which in turn could limit our ability to pay interest, repay
debt, and redeem or repurchase shares of our outstanding capital
stock.




We
believe that at all times we have been in compliance with the applicable minimum
net capital rules of the SEC and FINRA.




The
failure of a U.S. broker-dealer to maintain its minimum required net capital
would require it to cease executing customer transactions until it came back
into compliance, and could cause it to lose its FINRA membership, its
registration with the SEC or require its liquidation. Further, the decline in a
broker-dealer’s net capital below certain “early warning levels,” even though
above minimum net capital requirements, could cause material adverse
consequences to the broker-dealer.




We are
also subject to “Risk Assessment Rules” imposed by the SEC, which require, among
other things, that certain broker-dealers maintain and preserve certain
information, describe risk management policies and procedures, and report on the
financial condition of certain affiliates whose financial and securities
activities are reasonably likely to have a material impact on the financial and
operational condition of the broker-dealers. Certain “Material Associated
Persons” (as defined in the Risk Assessment Rules) of the broker-dealers and the
activities conducted by such Material Associated Persons may also be subject to
regulation by the SEC. In addition, the possibility exists that, on the basis of
the information it obtains under the Risk Assessment Rules, the SEC could seek
authority over our unregulated subsidiary either directly or through its
existing authority over our regulated subsidiary.




In the
event of non-compliance by us or our subsidiary with an applicable regulation,
governmental regulators and one or more of the SROs may institute administrative
or judicial proceedings that may result in censure, fine, civil penalties
(including treble damages in the case of insider trading violations), the
issuance of cease-and-desist orders, the deregistration or suspension of the
non-compliant broker-dealer, the suspension or disqualification of officers or
employees, or other adverse consequences. The imposition of any such penalties
or orders on us or our personnel could have a material adverse effect on our
operating results and financial condition.


8





Additional
legislation and regulations, including those relating to the activities of our
broker-dealer, changes in rules promulgated by the SEC, FINRA, or other United
States, state, or foreign governmental regulatory authorities and SROs or
changes in the interpretation or enforcement of existing laws and rules, may
adversely affect our manner of operation and our profitability. Our businesses
may be materially affected not only by regulations applicable to us as a
financial market intermediary, but also by regulations of general
application.




Geographic
Area




Merriman
Curhan Ford Group, Inc. is domiciled in the United States and most of our
revenue is attributed to United States and Canadian customers. In 2007, through
our broker-dealer subsidiary, we began advising both international and domestic
companies on listing on OTCQX, a prime tier of Pink Sheets. We have several
international clients, most of which are Australian companies listed on the
Australian Securities Exchange.




All of
our long-lived assets are located in the United States.




Available
Information




Our
website address is www.merrimanco.com. You may obtain free electronic copies of
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and all amendments to those reports on the “Investor Relations”
portion of our website, under the heading “SEC Filings.” These reports are
available on our website as soon as reasonably practicable after we
electronically file them with the SEC. We are providing the address to our
Internet site solely for the information of investors. We do not intend the
address to be an active link or to otherwise incorporate the contents of the
website into this report.


9





Item
1a. Risk Factors





We face a
variety of risks in our business, many of which are substantial and inherent in
our business and operations. The following are risk factors that could affect
our business which we consider material to our industry and to holders of our
common stock. Other sections of this Annual Report on Form 10-K, including
reports which are incorporated by reference, may include additional factors
which could adversely impact our business and financial performance. Moreover,
we operate in a very competitive and rapidly changing environment. New risk
factors emerge from time to time and it is not possible for our management to
predict all risk factors, nor can we assess the impact of all factors on our
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
statements.





Risks
Related to Our Business





We
may not be able to maintain a positive cash flow and profitability.





Our
ability to maintain a positive cash flow and profitability depends on our
ability to generate and maintain greater revenue while incurring reasonable
expenses. This, in turn, depends, among other things, on the development of our
investment banking and securities brokerage business, and we may be unable to
maintain profitability if we fail to do any of the following:




·
            establish,
      maintain, and increase our client
base;





·
            manage
      the quality of our services;





·
            compete
      effectively with existing and potential
  competitors;





·
            further
      develop our business activities;





·
            attract
      and retain qualified personnel;





·
            limit
      operating costs;





·
            settle
      pending litigation, and





·
            maintain
      adequate working capital





We cannot
be certain that we will be able to sustain or increase a positive cash flow and
profitability on a quarterly or annual basis in the future. Our inability to
maintain profitability or positive cash flow could result in disappointing
financial results, impede implementation of our growth strategy, or cause the
market price of our common stock to decrease. Accordingly, we cannot assure you
that we will be able to generate the cash flow and profits necessary to sustain
our business.




We have
had a number of structural changes to our operations as we divested certain
non-core business lines to focus our service and product offerings.
Additionally, there have been a number of significant challenges faced by the
securities and financial industries in the past 18 months. As a result of our
structural changes and the uncertainty of the current economic environment, the
factors upon which we are able to base our estimates as to the gross revenue and
the number of participating clients that will be required for us to maintain a
positive cash flow are unpredictable. For these and other reasons, we cannot
assure you that we will not require higher gross revenue and an increased number
of clients, securities brokerage, and investment banking transactions, and/or
more time in order for us to complete the development of our business that we
believe we need to be able to cover our operating expenses. It is more likely
than not that our estimates will prove to be inaccurate because actual events
more often than not differ from anticipated events. Furthermore, in the event
that financing is needed in addition to the amount that is required for this
development, we cannot assure you that such financing will be available on
acceptable terms, if at all.


10





There
are substantial legal proceedings against us involving claims for significant
damages.




The
actions of a former customer, William Del Biaggio III (“Del Biaggio”), and a
former employee, David Scott Cacchione (“Cacchione”), have given rise to many
legal actions against us as described in the Legal Proceedings section below. We
selected the lawsuits we believed were of the most threatening in nature and, as
of September 8, 2009, settled them in conjunction with our strategic transaction
of that date. There are other lawsuits related to these actions of our former
employee which we have elected not to settle. If we are found to be liable for
the claims asserted in any or all of these legal actions, our cash position may
suffer. Even if we ultimately prevail in all of these lawsuits, we may incur
significant legal fees and diversion of management’s time and attention from our
core businesses, and our business and financial condition may be adversely
affected. We believe we have meritorious defenses against these claims, but
there is no assurance of any favorable outcome.




Our
exposure to legal liability is significant, and damages that we may be required
to pay and the reputation harm that could result from legal action against us
could materially adversely affect our businesses.




Unrelated
to the actions of Del Biaggio and Cacchione, we face significant legal risks in
our businesses and, in recent years, the volume of claims and amount of damages
sought in litigation and regulatory proceedings against financial institutions
have been increasing. These risks include potential liability under securities
or other laws for materially false or misleading statements made in connection
with securities offerings and other transactions, potential liability for
“fairness opinions” and other advice we provide to participants in strategic
transactions and disputes over the terms and conditions of complex trading
arrangements. We are also subject to claims arising from disputes with employees
for alleged discrimination or harassment, among other things. These risks often
may be difficult to assess or quantify and their existence and magnitude often
remain unknown for substantial periods of time.




Our role
as advisor to our clients on important underwriting or mergers and acquisitions
transactions involves complex analysis and the exercise of professional
judgment, including rendering “fairness opinions” in connection with mergers and
other transactions. Therefore, our activities may subject us to the risk of
significant legal liabilities to our clients and third parties, including
shareholders of our clients who could bring securities class actions against us.
Our investment banking engagements typically include broad indemnities from our
clients and provisions to limit our exposure to legal claims relating to our
services, but these provisions may not protect us or may not be enforceable in
all cases.




For
example, an indemnity from a client that subsequently is placed into bankruptcy
is likely to be of little value to us in limiting our exposure to claims
relating to that client. As a result, we may incur significant legal and other
expenses in defending against litigation and may be required to pay substantial
damages for settlements and adverse judgments. Substantial legal liability or
significant regulatory action against us could have a material adverse effect on
our results of operations or cause significant reputation harm to us, which
could seriously harm our business and prospects.




In the
past, following periods of volatility in the market price of a company’s
securities, securities class action litigation often has been instituted against
that company. Such litigation is expensive and diverts management’s attention
and resources. We cannot assure you that we will not be subject to such
litigation. If we are subject to such litigation, even if we ultimately prevail,
our business and financial condition may be adversely affected.




We
may not be able to continue operating our business




The
Company incurred significant losses in 2009 and 2008. Even if we are successful
in executing our plans, we will not be capable of sustaining losses such as
those incurred in 2008. The Company’s ability to meet its financial obligations
is highly dependent on market and economic conditions. We also recorded net
losses in certain quarters within other past fiscal years. If operating
conditions worsen in 2010 or if the Company receives adverse judgments in its
pending litigations, we may not have the resources to meet our financial
obligations. If the Company is not able to continue in business, the entire
investment of our common stockholders may be at risk, and there can be no
assurance that any proceeds stockholders would receive in liquidation would be
equal to their investment in the Company, or even that stockholders would
receive any proceeds in consideration of their common stock.


11





Limitations
on our access to capital and our ability to comply with net capital requirements
could impair ability to conduct our business




Liquidity,
or ready access to funds, is essential to financial services firms. Failures of
financial institutions have often been attributable in large part to
insufficient liquidity. Liquidity is of importance to our trading business and
perceived liquidity issues may affect our clients and counterparties’
willingness to engage in brokerage transactions with us. Our liquidity could be
impaired due to circumstances that we may be unable to control, such as a
general market disruption or an operational problem that affects our trading
clients, third parties or us. Further, our ability to sell assets may be
impaired if other market participants are seeking to sell similar assets at the
same time.




MCF, our
broker-dealer subsidiary, is subject to the net capital requirements of the SEC
and various self-regulatory organizations of which it is a member. These
requirements typically specify the minimum level of net capital a broker-dealer
must maintain and also mandate that a significant part of its assets be kept in
relatively liquid form. Any failure to comply with these net capital
requirements could impair our ability to conduct our core business as a
brokerage firm. Furthermore, MCF is subject to laws that authorize regulatory
bodies to block or reduce the flow of funds from it to Merriman Curhan Ford
Group, Inc. As a holding company, Merriman Curhan Ford Group, Inc. depends on
distributions and other payments from its subsidiaries to fund all payments on
its obligations. As a result, regulatory actions could impede access to funds
that Merriman Curhan Ford Group, Inc. needs to make payments on obligations,
including debt obligations.




Our
financial results may fluctuate substantially from period to period, which may
impair our stock price.




We have
experienced, and expect to experience in the future, significant periodic
variations in our revenue and results of operations. These variations may be
attributed in part to the fact that our investment banking revenue is typically
earned upon the successful completion of a transaction, the timing of which is
uncertain and beyond our control. In most cases we receive little or no payment
for investment banking engagements that do not result in the successful
completion of a transaction. As a result, our business is highly dependent on
market conditions as well as the decisions and actions of our clients and
interested third parties. For example, a client’s acquisition transaction may be
delayed or terminated because of a failure to agree upon final terms with the
counterparty, failure to obtain necessary regulatory consents or board or
shareholder approvals, failure to secure necessary financing, adverse market
conditions, or unexpected financial or other problems in the client’s or
counterparty’s business. If the parties fail to complete a transaction on which
we are advising or an offering in which we are participating, we will earn
little or no revenue from the transaction. This risk may be intensified by our
focus on growth companies in the CleanTech, Consumer/Internet/Media, Health
Care, and Tech/Telecom sectors, as the market for securities of these companies
has experienced significant variations in the number and size of equity
offerings. Recently, there have been very few initial public offerings. More
companies initiating the process of an initial public offering are
simultaneously exploring merger and acquisition opportunities. If we are not
engaged as a strategic advisor in any such dual-tracked process, our investment
banking revenue would be adversely affected in the event that an initial public
offering is not consummated.




As a
result, we are unlikely to achieve steady and predictable earnings on a
quarterly basis, which could in turn adversely affect our stock
price.




Our
ability to retain our professionals and recruit additional professionals is
critical to the success of our business, and our failure to do so may materially
adversely affect our reputation, business, and results of
operations.




Our
ability to obtain and successfully execute our business depends upon the
personal reputation, judgment, business generation capabilities and project
execution skills of our senior professionals, particularly D. Jonathan Merriman,
our Co-Founder and Chief Executive Officer of the parent company, and the other
members of our Executive Committee. Our senior professionals’ personal
reputations and relationships with our clients are a critical element in
obtaining and executing client engagements. We face intense competition for
qualified employees from other companies in the investment banking industry as
well as from businesses outside the investment banking industry, such as
investment advisory firms, hedge funds, private equity funds, and venture
capital funds. From time to time, we have experienced losses of investment
banking, brokerage, research, and other professionals and losses of our key
personnel may occur in the future. The departure or other loss of Mr. Merriman,
other members of our Executive Committee or any other senior professional who
manages substantial client relationships and possesses substantial experience
and expertise, could impair our ability to secure or successfully complete
engagements, or protect our market share, each of which, in turn, could
materially adversely affect our business and results of operations. Please see
Risk Factor below entitled “If our CEO leaves the Company...“ for additional
information regarding the consequences of the loss of the services of Mr.
Merriman.


12





If any of
our professionals were to join an existing competitor or form a competing
company, some of our clients could choose to leave. The compensation plans and
other incentive plans we have entered into with certain of our professionals may
not prove effective in preventing them from resigning to join our competitors.
If we are unable to retain our professionals or recruit additional
professionals, our reputation, business, results of operations, and financial
condition may be materially adversely affected.




Our
compensation structure may negatively impact our financial condition if we are
not able to effectively manage our expenses and cash flows.




Historically,
the industry has been able to attract and retain investment banking, research,
and sales and trading professionals in part because the business models have
provided for lucrative compensation packages. Compensation and benefits is our
largest expenditure and the variable compensation component, or bonus, has
represented a significant proportion of this expense. The Company’s bonus
compensation is discretionary. For 2009, the potential pool was determined by a
number of components including revenue production, key operating milestones, and
profitability. There is a potential, in order to ensure retention of key
employees, that we could pay individuals for revenue production despite the
business having negative cash flows and/or net losses.




Pricing
and other competitive pressures may impair the revenue and profitability of our
brokerage business.




We derive
a significant portion of our revenue from our brokerage business. Along with
other brokerage firms, we have experienced intense price competition in this
business in recent years. Recent developments in the brokerage industry,
including decimalization and the growth of electronic communications networks,
or ECNs, have reduced commission rates and profitability in the brokerage
industry. We expect this trend toward alternative trading systems to continue.
We believe we may experience competitive pressures in these and other areas as
some of our competitors seek to obtain market share by competing on the basis of
price. In addition, we face pressure from larger competitors, which may be
better able to offer a broader range of complementary products and services to
brokerage clients in order to win their trading business. As we are committed to
maintaining our comprehensive research coverage in our target sectors to support
our brokerage business, we may be required to make substantial investments in
our research capabilities. If we are unable to compete effectively with our
competitors in these areas, brokerage revenue may decline and our business,
financial condition, and results of operations may be adversely
affected.




We
may experience significant losses if the value of our marketable security
positions deteriorates.




We
conduct active and aggressive securities trading, market making, and investment
activities for our own account, which subjects our capital to significant risks.
These risks include market, credit, counterparty, and liquidity risks, which
could result in losses. These activities often involve the purchase, sale, or
short sale of securities as principal in markets that may be characterized as
relatively illiquid or that may be particularly susceptible to rapid
fluctuations in liquidity and price. Trading losses resulting from such trading
could have a material adverse effect on our business and results of
operations.




Difficult
market conditions could adversely affect our business in many ways.




Difficult
market and economic conditions and geopolitical uncertainties have in the past
adversely affected and may in the future adversely affect our business and
profitability in many ways. Weakness in equity markets and diminished trading
volume of securities could adversely impact our brokerage business, from which
we have historically generated more than half of our revenue. Industry-wide
declines in the size and number of underwritings and mergers and acquisitions
also would likely have an adverse effect on our revenue. In addition, reductions
in the trading prices for equity securities also tend to reduce the deal value
of investment banking transactions, such as underwriting and mergers and
acquisitions transactions, which in turn may reduce the fees we earn from these
transactions. As we may be unable to reduce expenses correspondingly, our
profits and profit margins may decline.




We
may suffer losses through our investments in securities purchased in secondary
market transactions or private placements.




Occasionally,
our Company, its officers and/or employees may make principal investments in
securities through secondary market transactions or through direct investment in
companies through private placements. In many cases, employees and officers with
investment discretion on behalf of our Company decide whether to invest in our
account or their personal account. It is possible that gains from investing will
accrue to these individuals because investments were made in their personal
accounts, and our Company will not realize gains because it did not make an
investment. It is possible that gains from investing will accrue to these
individuals and /or to the Company, while the Company’s brokerage customers do
not accrue gains in the same securities due to differences in timing of
investment decisions. Conversely, it is possible that losses from investing will
accrue to our Company, while these individuals do not experience losses in their
personal accounts because the individuals did not make investments in their
personal accounts.


13





We
face strong competition from larger firms.




The
brokerage and investment banking industries are intensely competitive. We
compete on the basis of a number of factors, including client relationships,
reputation, the abilities and past performance of our professionals, market
focus and the relative quality and price of our services and products. We have
experienced intense price competition with respect to our brokerage business,
including large block trades, spreads, and trading commissions. Pricing and
other competitive pressures in investment banking, including the trends toward
multiple book runners, co-managers, and multiple financial advisors handling
transactions, have continued and could adversely affect our revenue, even during
periods where the volume and number of investment banking transactions are
increasing. We believe we may experience competitive pressures in these and
other areas in the future as some of our competitors seek to obtain market share
by competing on the basis of price.




We are a
relatively small investment bank with approximately 94 employees as of December
31, 2009 and revenue less than $50 million in 2009. Many of our competitors in
the investment banking and brokerage industries have a broader range of products
and services, greater financial and marketing resources, larger customer bases,
greater name recognition, more senior professionals to serve their clients’
needs, greater global reach, and more established relationships with clients
than we have. These larger and better capitalized competitors may be better able
to respond to changes in the brokerage, investment banking, and asset management
industries, to compete for skilled professionals, to finance acquisitions, to
fund internal growth, and to compete for market share generally.




The scale
of our competitors has increased in recent years as a result of substantial
consolidation among companies in the investment banking and brokerage
industries. In addition, a number of large commercial banks, insurance
companies, and other broad-based financial services firms have established or
acquired underwriting or financial advisory practices and broker-dealers or have
merged with other financial institutions. These firms have the ability to offer
a wider range of products than we do, which may enhance their competitive
position. They also have the ability to support investment banking with
commercial banking, insurance, and other financial services in an effort to gain
market share, which has resulted, and could further result, in pricing pressure
in our businesses. In particular, the ability to provide financing has become an
important advantage for some of our larger competitors and, because we do not
provide such financing, we may be unable to compete as effectively for clients
in a significant part of the brokerage and investment banking
market.




If we are
unable to compete effectively with our competitors, our business, financial
condition, and results of operations will be adversely affected.




We
have incurred losses for the period covered by this report and in the recent
past and may incur losses in the future.




The
Company recorded net losses of $5,462,000 for the year ended December 31, 2009
and $30,274,000 for the year ended December 31, 2008. We also recorded net
losses in certain quarters within other past fiscal years. We may incur losses
in future periods. If we are unable to finance future losses, those losses may
have a significant effect on our liquidity as well as our ability to
operate.




In
addition, the Company may incur significant expenses in connection with
initiating new business activities or in connection with any expansion of our
underwriting, brokerage, or other businesses. We may also engage in strategic
acquisitions and investments for which we may incur significant expenses.
Accordingly, we may need to increase our revenue at a rate greater than our
expenses to achieve and maintain profitability. If our revenue does not increase
sufficiently, or even if our revenue does increase but we are unable to manage
our expenses, we will not achieve and maintain profitability in future
periods.




Capital
markets and strategic advisory engagements are singular in nature and do not
generally provide for subsequent engagements.




Our
investment banking clients generally retain us on a short-term,
engagement-by-engagement basis in connection with specific capital markets or
mergers and acquisitions transactions, rather than on a recurring basis under
long-term contracts. As these transactions are typically singular in nature and
our engagements with these clients may not recur, we must seek out new
engagements when our current engagements are successfully completed or are
terminated. As a result, high activity levels in any period are not necessarily
indicative of continued high levels of activity in any subsequent period. If we
are unable to generate a substantial number of new engagements and generate fees
from those successful completion of transactions, our business and results of
operations would likely be adversely affected.


14





A
significant portion of our brokerage revenue is generated from a relatively
small number of institutional clients.




A
significant portion of our brokerage revenue is generated from a relatively
small number of institutional clients. For example, in 2009 we generated 14% of
our brokerage revenue, or approximately 12% of our total revenue, from our ten
largest brokerage clients. Similarly, in 2008 we generated 37% of our brokerage
revenue, or approximately 25% of our total revenue, from our ten largest
brokerage clients. If any of our key clients departs or reduces its business
with us and we fail to attract new clients that are capable of generating
significant trading volumes, our business and results of operations will be
adversely affected.




Our
risk management policies and procedures could expose us to unidentified or
unanticipated risk.




Our risk
management strategies and techniques may not be fully effective in mitigating
our risk exposure in all market environments or against all types of
risk.




We are
exposed to the risk that third parties that owe us money, securities, or other
assets will not perform their obligations. These parties may default on their
obligations to us due to bankruptcy, lack of liquidity, operational failure,
breach of contract, or other reasons. We are also subject to the risk that our
rights against third parties may not be enforceable in all circumstances. As a
clearing member firm, we finance our customer positions and could be held
responsible for the defaults or misconduct of our customers. Although we
regularly review credit exposures to specific clients and counterparties and to
specific industries and regions that we believe may present credit concerns,
default risk may arise from events or circumstances that are difficult to detect
or foresee. In addition, concerns about, or a default by, one institution could
lead to significant liquidity problems, losses, or defaults by other
institutions, which in turn could adversely affect us. Also, risk management
policies and procedures that we utilize with respect to investing our own funds
or committing our capital with respect to investment banking or trading
activities may not protect us or mitigate our risks from those activities. If
any of the variety of instruments, processes, and strategies we utilize to
manage our exposure to various types of risk are not effective, we may incur
losses.




Our
operations and infrastructure may malfunction or fail.




Our
businesses are highly dependent on our ability to process, on a daily basis, a
large number of increasingly complex transactions across diverse markets. Our
financial, accounting, or other data processing systems may fail to operate
properly or become disabled as a result of events that are wholly or partially
beyond our control, including a disruption of electrical or communications
services or our inability to occupy one or more of our buildings. The inability
of our systems to accommodate an increasing volume of transactions could also
constrain our ability to expand our businesses. If any of these systems do not
operate properly or are disabled or if there are other shortcomings or failures
in our internal processes, people, or systems, we could suffer an impairment to
our liquidity, financial loss, a disruption of our businesses, liability to
clients, regulatory intervention, or reputation damage.




We also
face the risk of operational failure of any of our clearing agents, the
exchanges, clearing houses, or other financial intermediaries we use to
facilitate our securities transactions. Any such failure or termination could
adversely affect our ability to effect transactions and to manage our exposure
to risk.




In
addition, our ability to conduct business may be adversely impacted by a
disruption in the infrastructure that supports our businesses and the
communities in which located. This may include a disruption involving
electrical, communications, transportation, or other services used by us or
third parties with which we conduct business, whether due to fire, other natural
disaster, power or communications failure, act of terrorism or war or otherwise.
Nearly all of our employees in our primary locations, including San Francisco
and New York, work in proximity to each other. If a disruption occurs in one
location and our employees in that location are unable to communicate with or
travel to other locations, our ability to service and interact with our clients
may suffer and we may not be able to implement successfully contingency plans
that depend on communication or travel. Insurance policies to mitigate these
risks may not be available or may be more expensive than the perceived benefit.
Further, any insurance that we may purchase to mitigate certain of these risks
may not cover our loss.


15





Our
operations also rely on the secure processing, storage, and transmission of
confidential and other information in our computer systems and networks. Our
computer systems, software, and networks may be vulnerable to unauthorized
access, computer viruses, or other malicious code and other events that could
have a security impact. If one or more of such events occur, this potentially
could jeopardize our or our clients’ or counterparties’ confidential and other
information processed by, stored in, and transmitted through our computer
systems and networks, or otherwise cause interruptions or malfunctions in our,
our clients’, our counterparties’, or third parties’ operations. We may be
required to expend significant additional resources to modify our protective
measures or to investigate and remediate vulnerabilities or other exposures, and
we may be subject to litigation and financial losses that are either not insured
against or not fully covered through any insurance maintained by
us.




Strategic
investments or acquisitions and joint ventures may result in additional risks
and uncertainties in our business.




We may
grow our business through both internal expansion and through strategic
investments, acquisitions or joint ventures. To the extent we make strategic
investments or acquisitions or enter into joint ventures, we face numerous risks
and uncertainties combining or integrating businesses, including integrating
relationships with customers, business partners, and internal data processing
systems. In the case of joint ventures, we are subject to additional risks and
uncertainties in that we may be dependent upon, and subject to liability, losses
or reputation damage relating to systems, controls, and personnel that are not
under our control. In addition, conflicts or disagreements between us and our
joint venture partners may negatively impact our businesses.




Future
acquisitions or joint ventures by us could entail a number of risks, including
problems with the effective integration of operations, the inability to maintain
key pre-acquisition business relationships and integrate new relationships, the
inability to retain key employees, increased operating costs, exposure to
unanticipated liabilities, risks of misconduct by employees not subject to our
control, difficulties in realizing projected efficiencies, synergies and cost
savings, and exposure to new or unknown liabilities.




Any
future growth of our business may require significant resources and/or result in
significant unanticipated losses, costs, or liabilities. In addition,
expansions, acquisitions or joint ventures may require significant managerial
attention, which may be diverted from our other operations.




Evaluation
of our prospects may be more difficult in light of our limited operating
history.




As a
result of the volatile economic conditions faced by the securities and financial
industries, and the restructuring of our business lines, there have been a
number of changes to our operations. Given these changes, we can no longer rely
upon prior operating history to evaluate our business and prospects.
Additionally, we are subject to the risks and uncertainties that face a Company
in the process of restructuring its business in the midst of uncertain economic
environment. Some of these risks and uncertainties relate to our ability to
attract and retain clients on a cost-effective basis, expand and enhance our
service offerings, raise additional capital, and respond to competitive market
conditions. We may not be able to address these risks adequately, and our
failure to do so may adversely affect our business and the value of an
investment in our Common Stock.




Risks
Related to Our Industry




Risks
associated with volatility and losses in the financial markets.




The U.S.
financial markets in 2008 and early 2009 suffered unprecedented volatility and
losses. Several mortgage-related financial institutions and large, reputable
investment banks were not able to continue operating their businesses. In the
event that the securities and financial industries face similar or greater
volatility, there can be no assurance that we will be able to continue our
operations.




Employee
misconduct could harm us and is difficult to detect and deter.




There
have been a number of highly publicized cases involving fraud or other
misconduct by employees in the financial services industry in recent years. Our
experience with our former employee Scott Cacchione hurt our business
significantly, and we run the risk that employee misconduct could occur at our
company. For example, misconduct by employees could involve the improper use or
disclosure of confidential information, which could result in regulatory
sanctions and serious reputation or financial harm to us. It is not always
possible to deter employee misconduct. The precautions we take to detect and
prevent this activity may not be effective in all cases and we may suffer
significant reputation harm for any misconduct by our
employees.


16





Risks
associated with regulatory impact on capital markets.




Highly
publicized financial scandals in recent years have led to investor concerns over
the integrity of the U.S. financial markets and have prompted Congress, the SEC,
the NYSE, and FINRA to significantly expand corporate governance and public
disclosure requirements. To the extent that private companies, in order to avoid
becoming subject to these new requirements, decide to forgo initial public
offerings, our equity underwriting business may be adversely affected. In
addition, provisions of the Sarbanes-Oxley Act of 2002 and the corporate
governance rules imposed by self-regulatory organizations have diverted many
companies’ attention away from capital market transactions, including securities
offerings and acquisition and disposition transactions. In particular, companies
that are or are planning to register their securities with the SEC or to become
subject to the reporting requirements of the Securities Exchange Act of 1934 are
incurring significant expenses in complying with the SEC and accounting
standards relating to internal control over financial reporting, and companies
that disclose material weaknesses in such controls under the new standards may
have greater difficulty accessing the capital markets. These factors, in
addition to adopted or proposed accounting and disclosure changes, may have an
adverse effect on the business.




Financial
services firms have been subject to increased scrutiny over the last several
years, increasing the risk of financial liability and reputation harm resulting
from adverse regulatory actions.




Firms in
the financial services industry have been operating in a difficult regulatory
environment. The industry has experienced increased scrutiny from a variety of
regulators, including the SEC, the NYSE, FINRA and state attorneys general.
Penalties and fines sought by regulatory authorities have increased
substantially over the last several years. This regulatory and enforcement
environment has created uncertainty with respect to a number of transactions
that had historically been entered into by financial services firms and that
were generally believed to be permissible and appropriate. We may be adversely
affected by changes in the interpretation or enforcement of existing laws and
rules by these governmental authorities and self-regulatory organizations. We
also may be adversely affected as a result of new or revised legislation or
regulations imposed by the SEC, other United States or foreign governmental
regulatory authorities or self-regulatory organizations that supervise the
financial markets. Among other things, we could be fined, prohibited from
engaging in some of our business activities or subject to limitations or
conditions on our business activities. Substantial legal liability or
significant regulatory action against us could have material adverse financial
effects or cause significant reputation harm to us, which could seriously harm
our business prospects.




In
addition, financial services firms are subject to numerous conflicts of
interests or perceived conflicts. The SEC and other federal and state regulators
have increased their scrutiny of potential conflicts of interest. We have
adopted various policies, controls and procedures to address or limit actual or
perceived conflicts and regularly seek to review and update our policies,
controls and procedures. However, appropriately dealing with conflicts of
interest is complex and difficult and our reputation could be damaged if we
fail, or appear to fail, to deal appropriately with conflicts of interest. Our
policies and procedures to address or limit actual or perceived conflicts may
also result in increased costs, additional operational personnel and increased
regulatory risk. Failure to adhere to these policies and procedures may result
in regulatory sanctions or client litigation. For example, the research areas of
investment banks have been and remain the subject of heightened regulatory
scrutiny which has led to increased restrictions on the interaction between
equity research analysts and investment banking personnel at securities firms.
Several securities firms in the United States reached a global settlement in
2003 and 2004 with certain federal and state securities regulators and
self-regulatory organizations to resolve investigations into equity research
analysts’ alleged conflicts of interest. Under this settlement, the firms have
been subject to certain restrictions and undertakings, which have imposed
additional costs and limitations on the conduct of our businesses.




Financial
service companies have experienced a number of highly publicized regulatory
inquiries concerning market timing, late trading and other activities that focus
on the mutual fund industry. These inquiries have resulted in increased scrutiny
within the industry and new rules and regulations for mutual funds, investment
advisers, and broker-dealers.


17




Our exposure to legal liability is
significant, and damages that we may be required to pay and the reputational
harm that could result from legal action against us could materially adversely
affect our businesses.




We face significant legal risks in our
businesses and, in recent years, the volume of claims and amount of damages
sought in litigation and regulatory proceedings against financial institutions
have been increasing. These risks include potential liability under securities
or other laws for materially false or misleading statements made in connection
with securities offerings and other transactions, potential liability for
“fairness opinions,” and other advice we provide to participants in strategic
transactions, and disputes over the terms and conditions of complex trading
arrangements. We are also subject to claims arising from disputes with employees
for alleged discrimination or harassment, among other things. These risks often
may be difficult to assess or quantify and their existence and magnitude often
remain unknown for substantial periods of time.




Our role as advisor to our clients on
important underwriting or mergers and acquisitions transactions involves complex
analysis and the exercise of professional judgment, including rendering
“fairness opinions” in connection with mergers, and other transactions.
Therefore, our activities may subject us to the risk of significant legal
liabilities to our clients and aggrieved third parties, including stockholders
of our clients who could bring securities class actions against us. Our
investment banking engagements typically include broad indemnities from our
clients and provisions to limit our exposure to legal claims relating to our
services, but these provisions may not protect us or may not be enforceable in
all cases.




For example, an indemnity from a client
that subsequently is placed into bankruptcy is likely to be of little value to
us in limiting our exposure to claims relating to that client. As a result, we
may incur significant legal and other expenses in defending against litigation
and may be required to pay substantial damages for settlements and adverse
judgments. Substantial legal liability or significant regulatory action against
us could have a material adverse effect on our results of operations or cause
significant reputational harm to us, which could seriously harm our business and
prospects.




In the past, following periods of
volatility in the market price of a company’s securities, securities class
action litigation often has been instituted against that company. Such
litigation is expensive and diverts management’s attention and resources. We
cannot assure you that we will not be subject to such litigation. If we are
subject to such litigation, even if we ultimately prevail, our business and
financial condition may be adversely affected.




Risks Related to Ownership of Our Common
Stock




We have issued Series D Convertible
Preferred Stock with rights preferences and privileges that are senior to those
of our Common Stock. The exercise of some or all of these Series D Convertible
Preferred Stock rights may have a detrimental effect on the rights of the
holders of the Common Stock.




On September 8, 2009, we closed a
private placement Preferred Stock strategic transaction. We sold 23,720,916
shares of our Series D Convertible Preferred Stock at $0.43 per share and
warrants to purchase 23,720,916 share of Common Stock at $0.65 per share to an
investor group that includes certain of our officers and directors in addition
to outside investors. In connection with this transaction, the Company converted
the principal and accrued interest of certain notes issued by the Company
between May 2009 and July 2009 into Series D Convertible Stock. The aggregate
principal amount from these cancelled notes was $1,425,000.




As the warrants originally contained a
full ratchet antidilution provision, we recorded a non-cash warrant liability of
approximately $26 million as of September 30, 2009 in accordance with generally
accepted accounting principles (“GAAP”), which resulted in a stockholders’
deficit (negative stockholders’ equity). This, in turn, caused us to fall
outside of the NASDAQ Listing Rules which require a minimum of $2,000,000 of
stockholders’ equity.


18





We have since remedied the noncompliance
with the NASDAQ listing rules by amending the warrants to remove the full
ratchet antidilution provision and thus remove the resulting stockholders’
deficit. At December 31, 2009, we no longer carried warrant liabilities on our
Statement of Financial Condition. In consideration for such amendment, the
Company has agreed to pay the holders of the warrants $0.005 per warrant share
in cash, which is anticipated to be paid around August 15, 2010. We believe we
are now in full compliance with the NASDAQ minimum shareholders’ equity
requirements.




The Series D Convertible Preferred Stock
has a number of rights, preferences, and privileges that are superior to those
of the Common Stock. Holders of the Series D Convertible Preferred Stock are
entitled to a 6% annual dividend payable monthly in arrears. As of December 31,
2009, the Company recorded cash dividends payable of $51,000. The Company cannot
pay any dividends on the Common Stock until all accrued dividends on the Series
D Convertible Preferred Stock are first paid.




The holders of Series D Convertible
Preferred Stock are entitled to a “liquidation preference payment” of $0.43 per
share of Series D Convertible Preferred Stock plus all accrued but unpaid
dividends on such shares prior and in preference to any payment to holders of
the Common Stock upon a merger, acquisition, sale of substantially all the
assets, or certain other liquidation events of the Company. Any proceeds after
payment of the “liquidation preference payment” shall be paid pro rata to the
holders of the Series D Convertible Preferred Stock and Common Stock on an as
converted to Common Stock basis. As such, holders of Common Stock might receive
nothing in liquidation, or receive much less than they would if there were no
Series D Convertible Preferred Stock outstanding.




The Series D Convertible Preferred Stock
has antidilution protection, including a full ratchet provision for certain new
issuances of Company Stock, as specified in the Certificate of Designation of
Series D Convertible Preferred Stock which is incorporated herein by reference.
If such antidilution protection is triggered, the holders of Common Stock may
have their ownership in the Company diluted.




The holders of the Series D Convertible
Preferred Stock also have substantial voting power over the Company. Such
holders are entitled to elect four of the nine members of our Board of
Directors. Additionally, they have certain “protective provisions,” as set forth
in the Certificate of Designation, requiring us to obtain their approval before
we can carry out certain actions. The holders of Series D Convertible Preferred
Stock may gain additional voting power if they exercise the warrants or they
acquire shares of our Common Stock in the market.




The interests of the holders of the
Series D Convertible Preferred Stock might not be aligned with those of the
holders of Common Stock, which could result in the Company being sold or
liquidated in a transaction in which the holders of Common Stock receive little
or nothing.


19


In connection with the private placement
transaction, we entered into an Investors’ Rights Agreement with the investors.
Under the terms of the Investors’ Rights Agreement, if a registration statement
relating to the Common Shares underlying the Series D Convertible Preferred
Stock and warrants is not declared effective or is not available within time
lines provided in the Investors’ Rights Agreement (with certain limited
exceptions), then we are required to pay the investors, pro rata, in proportion
to the number of shares of Series D Convertible Preferred Stock purchased by
such investor in the transaction, five year warrants to purchase 150,000 shares
of the Company’s Common Stock at $0.65 per share, on terms identical to those
issued to the investors under the financing transaction (the “Registration
Warrants”), as liquidated damages and not as penalty, subject to an overall
limit of liquidated damages in the aggregated of 900,000 Registration Warrants.
The liquidated damages pursuant to the terms hereof shall apply on a daily pro
rata basis for any portion of a month prior to securing an effective
registration statement. The foregoing shall in no way limit any equitable
remedies available to investors for failure to secure an effective registration
statement by the time specified in the Investors’ Rights Agreement. Investors
shall also be able to pursue monetary damages for failure to secure an effective
registration statement by the time specified in the Investors’ Rights Agreement.
Investors shall also be able to pursue monetary damages for failure to secure an
effective registration statement by the agreed upon time but only if such
failure is due to the willful or deliberate action or inaction of the Company in
breach of the covenants.




Your ownership percentage may be diluted
by warrants issued in connection with our convertible notes
financing.




The investors of the convertible notes
issued on May 29, 2009 and June 1, 2009 received warrants to purchase an
aggregate of 937,500 shares of the Common Stock of the Company at $0.50 per
share. The investor and guarantors of the Note issued on July 31, 2009 received
warrants to purchase an aggregate of 2,326,000 shares of the Common Stock of the
Company at $0.65 per share. While the convertible notes and the note are no
longer outstanding, the warrants issued in conjunction with them are, and
exercise of these warrants would dilute the ownership percentage of existing
stockholders in the Company.




A significant percentage of our
outstanding common stock is owned or controlled by our senior professionals and
other employees and their interests may differ from those of other
shareholders.




Our executive officers and directors,
and entities affiliated with them, currently control approximately 44% of our
outstanding common stock including exercise of their options and D Preferred
stock and associated warrants. These stockholders, if they act together, will be
able to exercise substantial influence over all matters requiring approval by
our stockholders, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in control of us and might
affect the market price of our common stock.




Provisions of the organizational
documents may discourage an acquisition of us.




Our Articles of Incorporation authorize
our Board of Directors to issue up to an additional 13,729,083 shares of
preferred stock, without approval from our stockholders. This preferred stock,
often called “blank check” preferred stock, could have conversion terms that
would allow one share of preferred stock to convert into multiple shares of
common stock. It could also have voting rights and other rights advantageous to
holders of that preferred stock, but disadvantageous to holders of the Company’s
common stock.




If you hold our common stock, this means
that our Board of Directors has the right, without your approval as a common
stockholder, to fix the relative rights and preferences of the preferred stock.
This would affect your rights as a common stockholder regarding, among other
things, dividends and liquidation. We could also use the preferred stock to
deter or delay a change in control of our company that may be opposed by our
management even if the transaction might be favorable to you as a common
stockholder.




In addition, the Delaware General
Corporation Law contains provisions that may enable our management to retain
control and resist our takeover. These provisions generally prevent us from
engaging in a broad range of business combinations with an owner of 15% or more
of our outstanding voting stock for a period of three years from the date that
such person acquires his or her stock. Accordingly, these provisions could
discourage or make more difficult a change in control or a merger or other type
of corporate reorganization even if it could be favorable to the interests of
our stockholders.


20




The market price of our common stock may
decline.





The market price of our common stock has
in the past been, and may in the future continue to be, volatile. A variety of
events may cause the market price of our common stock to fluctuate
significantly, including:





·
            variations in quarterly operating
      results;





·
            announcements of significant
      contracts, milestones, and
acquisitions;





·
            relationships with other
      companies;





·
            ability to obtain needed capital
      commitments;





·
            additions or departures of key
      personnel;





·
            sales of common and preferred
      stock, conversion of securities convertible into common stock, exercise of
      options and warrants to purchase common stock, or termination of stock
      transfer restrictions;





·
            general economic conditions,
      including conditions in the securities brokerage and investment banking
      markets;





·
            changes in financial estimates by
      securities analysts; and





·
            fluctuation in stock market price
      and trading volume.







Many of these factors are beyond our
control. Any one of the factors noted herein could have an adverse effect on the
value of our common stock. Declines in the price of our stock may adversely
affect our ability to recruit and retain key employees, including our senior
professionals.




In addition, the stock market in recent
years has experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of many companies
and that often have been unrelated to the operating performance of such
companies. These market fluctuations have adversely impacted the price of our
common stock in the past and may do so in the future.




Investor interest in our firm may be
diluted due to issuance of additional shares of common
stock.




Our Board of Directors has the authority
to issue up to 300,000,000 shares of common stock and to issue options and
warrants to purchase shares of our common stock without stockholder approval in
certain circumstances. Future issuance of additional shares of our common stock
could be at values substantially below the price at which you may purchase our
stock and, therefore, could represent substantial dilution. In addition, our
Board of Directors could issue large blocks of our common stock to fend off
unwanted tender offers or hostile takeovers without further stockholder
approval.




We have a significant number of
outstanding stock options and warrants. During 2009, shares issuable upon the
exercise of these options and warrants, at prices ranging currently from
approximately $0.50 to $49.00 per share, represent approximately 9% of our total
outstanding stock on a fully diluted basis using the treasury stock method.
Associated with the strategic transaction we closed in September 2009, we issued
a total of 23,720,916 shares of Series D Preferred Stock which may convert, at
the holders’ option, to an equal number of common stock. In addition, we issued
warrants to purchase 28,755,791 shares of common stock at per share exercisable
at the holders’ option. Unrelated to the Series D Preferred Stock transaction,
we issued warrants to purchase an additional 1,030,833 shares of common stock in
2009. The Company has a total of 29,023,649 warrants outstanding, with exercise
prices from $0.50 to $9.87.


21




The exercise of the outstanding options
and warrants would dilute the then-existing stockholders’ percentage ownership
of our common stock. Any sales resulting from the exercise of options and
warrants in the public market could adversely affect prevailing market prices
for our common stock. Moreover, our ability to obtain additional equity capital
could be adversely affected since the holders of outstanding options and
warrants may exercise them at a time when we would also wish to enter the market
to obtain capital on terms more favorable than those provided by such options
and warrants. We lack control over the timing of any exercise or the number of
shares issued or sold if exercises occur.




Your ability to sell your shares may be
restricted because there is a limited trading market for our common
stock.




Although our common stock is currently
traded on the Nasdaq Stock Market, we received a notice from Nasdaq that our
common stock is not currently in compliance with the requirements of Nasdaq for
continued listing which requires a minimum bid price of $1.00 per share. We have
180 days from the date of notification to regain compliance and may be eligible
at the end of that period for an additional 180 days to regain compliance. Even
if we regain compliance, an active trading market in our stock has been limited.
Accordingly, you may not be able to sell your shares when you want or at the
price you want.




We do not expect to pay any cash
dividends on our common stock in the foreseeable future.




We do not anticipate paying cash
dividends on our common stock in the foreseeable future. Accordingly, our common
stock shareholders must rely on sales of their shares of common stock after
price appreciation, which may never occur, as the only way to realize any future
gains on an investment in our common stock. Investors seeking cash dividends
should not purchase our common stock.




If our CEO leaves the Company,
additional warrants will be issued, which may further dilute the ownership
percentage of the holders of the Company's Common Stock




If D. Jonathan Merriman ceases to serve
as Chief Executive Officer of the Company prior to August 27, 2012, the Company
agreed in connection with the issuance of the Series D Convertible Preferred
Stock to issue additional warrants (the “Merriman Warrants”) to the holders of
the Series D Preferred Stock to purchase shares of the Company’s Common
Stock.  The Merriman Warrants would be exercisable for a total of
23,720,916 shares of Common Stock, with an exercise price of $0.65 per share and
a term of five years.  Exercise of the Merriman Warrants would dilute the
ownership percentage of existing holders of Common Stock.  If Mr. Merriman
dies, is terminated without “Cause” or resigns with “Good Reason,” these
warrants will not be issuable.  “Cause” and “Good Reason” are defined in
the Investors Rights Agreement entered into in connection with the issuance of
the Series D Preferred Stock, which was filed as Exhibit 10.48 to the Company’s
Amended Current Report on Form 8-K/A on September 2, 2009.




Item 1b. Unresolved Staff
Comments




None.




Item 2. Properties




As of December 31, 2009, all of our real
estate properties are leased. Our principal executive offices are located in San
Francisco, California. We lease additional offices to support our business
activities. These offices are located in New York, NY. We believe the facilities
we are now using are adequate and suitable for business
requirements.





In January 2009, we sold the assets
related to Panel Intelligence, the subsidiary which occupied the Cambridge, MA
facilities.  As part of the sale, we subleased the office space to the new
acquiring entity but we remain as the lessee on the rental
contract.


22




Item 3. Legal
Proceedings




Settlement with the Securities and
Exchange Commission




On November 10, 2009, the Securities and
Exchange Commission (“SEC”) issued anOrder Instituting
Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and
21(c) of the Securities and Exchange Act of 1934, Making Findings and Imposing
Remedial Sanctions and a Cease-and-Desist Order as to MCF, D. Jonathan Merriman,
and Christopher Aguilar(the “Order”). The Order was
issued in connection with the conduct of a former broker of the Company,
Cacchione, from approximately March 2006 to April 2008 for violation of the
anti-fraud provisions of the federal securities laws. Cacchione was fired in May
2008, shortly after the underlying facts became known.




The Order censures and imposes sanctions
for the failure of MCF to reasonably supervise Cacchione with a view toward
preventing future violations arising out of his disseminating confidential
customer information to third parties and executing unauthorized orders for
certain customers. Pursuant to the Order, MCF paid a penalty of $100,000 and
hired an Independent Consultant to review and make recommendations as needed to
MCF’s written policies and procedures relating to the supervision of registered
representatives.




The Order also imposes sanctions on D.
Jonathan Merriman, MCF’s former CEO and current CEO of Merriman Curhan Ford
Group, Inc., the Company’s parent; and Christopher Aguilar, MCF’s former Chief
Compliance Officer; for failure to adequately supervise Cacchione. Pursuant to
the Order, Mr. Merriman paid a penalty of $75,000 and Mr. Aguilar must pay a
penalty of $40,000. Both individuals are also suspended from acting in a
supervisory capacity for any broker or dealer for a period of twelve months from
the date of the Order.




The Order makes no finding or allegation
of any fraudulent activity involving anyone in MCF other than Cacchione. MCF,
Mr. Merriman, and Mr. Aguilar cooperated fully with the SEC’s investigation and
consented to the SEC’s Order without admitting or denying the
findings.




Del Biaggio/Cacchione
Matters




A number of lawsuits have been filed
against MCF in connection with the actions of William Del Biaggio III (“Del
Biaggio”), a former customer of MCF and Cacchione, a former retail broker of
MCF. Del Biaggio and Cacchione pleaded guilty to securities fraud and were
sentenced to prison terms of 97 and 60 months, respectively.




The claims filed against the Company by
DGB Investments, Inc., Craig Leipold, Heritage Bank of Commerce, Modern Bank,
Valley Community Bank, AEG Facilities and the Federal Deposit Insurance Company
(“FDIC”) as receiver for Security Pacific Bank in an aggregate amount of
$43,577,000 related to the fraud were settled as of September 8, 2009. The
amount for which the claims were settled was $4,300,000, the issuance of 5-year
warrants to buy 1,538,461 shares of the Company’s common stock at $0.65 each,
and the assignment of certain rights to collect potential insurance payments
from the Company’s insurers.




On February 12, 2010, the Company and
MCF settled with the insurers collecting an aggregate amount of $5,750,000. The
Company was allocated $325,000, less expenses, of the settlement. The balance of
the settlement amount was allocated to the litigants on a pro rata basis. As a
result of these proceeds, the Company was obligated to issue 373,563 warrants to
purchase shares of the Company’s common stock at a price of $0.87 per shares.
The warrant expense was accrued as of December 31, 2009. (See Note 21,
“Subsequent Events.”)




There are additional lawsuits related to
the fraud that the Company has elected not to settle. We intend to defend
vigorously each case, other than matters we describe as having been settled.
Although there can be no assurance as to the ultimate outcome, the Company
generally believes it has meritorious defenses and denies liability in all
litigation pending against it, including the matters described below. In
accordance with applicable accounting guidance, the Company establishes reserves
for litigation and regulatory matters when those matters present loss
contingencies which are both probable and estimable. When loss contingencies are
not both probable and estimable, we do not establish reserves. In the matters
described below, loss contingencies are not both probable and estimable in the
view of management, and accordingly, reserves have not been established for
those matters.


23


Don Arata, et al. v. Merriman Curhan
Ford & Co.




In July 2008, MCF and the Company were
served with a complaint filed in the San Francisco County, California Superior
Court by several plaintiffs who invested money with Del Biaggio and related
entities. In March 2009, MCF and the Company were served with an amended
consolidated complaint on behalf of 39 plaintiffs which consolidated several
similar pending actions filed by the same law firm. Plaintiffs allege, among
other things, fraud based on Cacchione’s alleged assistance to Del Biaggio in
connection with the allegedly fraudulent investments and MCF’s failure to
discover and stop the continuing fraud. Plaintiffs in this lawsuit seek damages
of over $9 million. MCF and the Company responded to the amended consolidated
complaint in June 2009 denying all liability. We believe that MCF and the
Company have meritorious defenses and intend to contest these claims vigorously.
(The previously disclosed Davis, Cook, and Bachelor cases now are part of the
consolidated cases.)




David Hengehold v. Merriman Curhan Ford
& Co.




In June 2008, the Company and MCF were
served with a complaint filed in San Mateo County, California Superior Court by
David Hengehold. Plaintiff alleges fraud based on Cacchione having induced
plaintiff into making loans to Del Biaggio. Plaintiff in this lawsuit seeks
damages of over $500,000. We believe that the Company has meritorious defenses
and intends to contest this claim vigorously.




United American Bank v. Merriman Curhan
Ford & Co.




In July 2008, MCF was served with a
complaint filed in the Santa Clara County Superior Court by United American
Bank, which loaned money to Del Biaggio, alleging that MCF entered into an
account control agreement for an account that Del Biaggio had previously pledged
to another lender. The account pledged was in the name of Del Biaggio. Plaintiff
brought claims for, among other things, fraud arising out of the failure to
disclose the alleged previous pledge. Plaintiff alleges damages in the amount of
$1.75 million. After ensuring that the proper clearance had been obtained from
the court in Del Biaggio's bankruptcy case, MCF turned over the pledged
collateral to Plaintiff United American Bank, performing its obligation under
the account control agreement. MCF then demanded that it be dismissed from the
action, and is continuing to follow up that demand. We believe that MCF has
little or no remaining exposure in this matter and intends to contest this claim
vigorously.




The Private Bank of the Peninsula v.
Merriman Curhan Ford & Co.




In July 2008, MCF was served with a
complaint filed in the Santa Clara County Superior Court by The Private Bank of
the Peninsula. Plaintiff alleges, among other things, fraud based on Cacchione
having induced plaintiff into making loans to Del Biaggio. Plaintiff in this
lawsuit alleges damages of $916,666.65. We believe that MCF has meritorious
defenses and intends to contest this claim vigorously.




Pacific Capital Bank v. Merriman Curhan
Ford & Co.




In October 2008, MCF was served with a
complaint filed in the San Francisco County Superior Court by Pacific Capital
Bank. Plaintiff alleges, among other things, fraud based on Cacchione having
induced plaintiff into making loans to Del Biaggio. Plaintiff in this lawsuit
alleges damages of $1.84 million. We believe that MCF has meritorious defenses
and intends to contest this claim vigorously.




Gary Thornhill, et al. v. Merriman
Curhan Ford & Co.




In May 2009, a complaint was filed in
the San Francisco County Superior Court by Gary Thornhill and several related
family members and entities, naming as defendants the Company and MCF. The
complaint alleges, , among other things, fraud based on Cacchione’s alleged
assistance to Del Biaggio in connection with the allegedly fraudulent
investments and MCF’s failure to discover and stop the continuing fraud.
Plaintiffs in this lawsuit seek damages of $230,000. We believe that MCF has
meritorious defenses and intend to contest these claims vigorously. (This case
was consolidated with the Arata case disclosed above on February 5, 2010. See
Note 21, “Subsequent Events.”)


24


Irving Bronstein et al. v. Merriman
Curhan Ford & Co.




In early 2009, MCF and D. Jonathan
Merriman were served with a FINRA arbitration claim filed by Irving Bronstein
and several related family members and entities. Claimants allege, among other
things, that MCF benefited from the sale of a particular security it held at the
expense of its customers, including the claimants, and fraud based on
Cacchione’s alleged assistance to Del Biaggio in connection with allegedly
fraudulent investments and MCF’s failure to discover and stop the fraud. This
case was settled on March 1, 2010. (See Note 21, “Subsequent
Events”).




John Zarich v. Merriman Curhan Ford
& Co.




In or around April 2009, John Zarich
filed an arbitration claim with FINRA naming MCF. The statement of claim alleges
that Zarich was convinced by Cacchione to purchase shares of a small, risky
stock in which MCF held a position. It further alleges that Cacchione convinced
Zarich not to sell the shares when the stock’s price fell. The statement seeks
$265,000 in compensatory damages plus punitive damages of $200,000 and 10%
interest beginning January 2, 2008. We believe that MCF has meritorious defenses
and intends to contest this claim vigorously.




Demand by Shelly Schaffer to Merriman
Curhan Ford & Co. for Payment of Attorneys’ Fees




On April 24, 2009, former Vice President
of Client Services, Shelly Schaffer, through her attorney, Robert Shartsis, made
a written demand for payment of attorneys’ fees for Ms. Schaffer’s defense in a
civil action by the Securities and Exchange Commission. Ms. Schaffer, who was
hired by MCF on May 25, 2006, retained Mr. Shartsis to respond to an SEC
Enforcement action in which it is alleged that Ms. Schaffer violated the
antifraud provisions of federal securities laws and applicable regulations. Ms.
Schaffer worked for Cacchione prior to their coming to MCF. MCF has denied Ms.
Schaffer’s requests for payment of her attorneys’ fees on the grounds that the
accusations against her concern activities that were outside the course and
scope of her employment. Ms. Schaffer’s attorneys are demanding payment of their
fees from MCF in a total amount of approximately $150,000. We believe that MCF
has meritorious defenses and intends to contest the claims
vigorously.




Other Litigation




There have been a number of legal cases
that are unrelated to the Del Biaggio/Cacchione matters. These are as
follows:




Spare Backup Inc. v. Merriman Curhan
Ford & Co.




In April 2008, MCF entered into an
engagement to provide investment banking services to Spare Backup, Inc. (“Spare
Backup”). MCF was able to close a round of bridge financing in June 2008. MCF
was successful in raising $1,300,000 in capital for Spare Backup. As a result of
closing the financing transaction, MCF was entitled to reimbursement of its
expenses, a convertible note with principal valued at $161,100 and 370,370
shares of Spare Backup common stock. As of November 2008, these transaction fees
had not been paid to MCF. We hired counsel to seek payment of the fees and to
proceed to arbitration, as is specified in the engagement letter. In January
2009, MCF filed a petition to compel arbitration in the San Francisco County
Superior Court. In response to the petition to compel arbitration, Spare Backup
filed a complaint in the Riverside County Superior Court, Indio Branch, for
fraud and declaratory relief alleging that MCF fraudulently induced it to
execute the investment banking engagement letter. The petition for arbitration
was granted in May of 2009 and the Indio action was stayed for all purposes
pending the outcome of arbitration. The arbitration date has been set for March
22, 2010.


25


Joy Ann Fell v. Merriman Curhan Ford
& Co.




In November 2008, MCF received a demand
letter from a former employee, Joy Ann Fell. In January 2009, MCF received a
claim filed by Ms. Fell in FINRA arbitration. Ms. Fell worked in our investment
banking department and was terminated in October of 2008, as part of a reduction
in force. Ms. Fell alleges claims of breach of an implied employment contract,
emotional distress and work-place discrimination. The demand for money damages
is approximately $350,000. We believe that MCF has meritorious defenses and
intends to contest this claim vigorously. MCF has responded to the claim and the
parties have propounded, but not responded to, written discovery. The parties
and FINRA have jointly selected an arbitration panel of three New York-based
arbitrators: Aaron Tyk, Caryl D. Feldman, and Beth Bird
Pocker.




Wesley Rusch v. Merriman Curhan Ford
& Co.




In October 2008, MCF was served with a
claim in FINRA Arbitration by Wesley Rusch. Mr. Rusch is a former at-will
employee of MCF and worked in the compliance department. Mr. Rusch was
terminated by MCF in July 2007. Mr. Rusch alleges theories of discrimination and
lack of cause for termination. Mr. Rusch filed a Statement of Claim seeking
damages of over $1 million. We contested this claim at the arbitration before a
FINRA arbitration panel in March 2009 which resulted in a decision in our favor
in July 2009. Mr. Rusch requested that the San Francisco Superior Court vacate
the decision, and we requested that it be confirmed.




Peter Marcil v. Merriman Curhan Ford
& Co.




In January 2009, our broker-dealer
subsidiary, MCF, was served with a claim in FINRA Arbitration by Peter Marcil.
Mr. Marcil is a former at-will employee of MCF and worked in the investment
banking department. Mr. Marcil resigned from MCF in March of 2007. Mr. Marcil
alleges breach of an implied employment contract, wrongful termination, and
intentional infliction of emotional distress. Damages are not specified in the
arbitration claim. MCF has not replied to the claim and an arbitration hearing
date has not been set. The parties participated in a mediation with San
Francisco Attorney/Mediator Mark Rudy on September 14, 2009 and have agreed to
continue settlement negotiations. We believe that MCF has meritorious defenses
and it intends to contest this claim vigorously. However, in the event that MCF
does not prevail, based upon the facts as we know them to date, we do not
believe that the outcome will have a material effect on our financial position,
financial results or cash flows.




Dow Corning Corporation vs. Merriman
Curhan Ford & Co.




In late July and early August 2009,
counsel for Dow Corning Corporation (DCC) indicated in correspondence and
communications that DCC may have some type of claim against MCF in connection
with its purchases of auction rate securities through MCF’s ICD Division.
Counsel would not furnish any specifics about the purported claim or any
purported damages, but requested an agreement tolling any applicable statute of
limitations to allow the parties to undertake “settlement discussions.” MCF,
Institutional Cash Distributors, LLC and certain representatives of MCF’s ICD
Division entered into such a tolling agreement with DCC for a period of 60 days,
which was extended for a further 60 days. MCF’s ICD Division has refused to
extend the tolling agreement further. No claim has been filed. Accordingly, MCF
is not aware of the basis of any purported claim.




Merriman Curhan Ford & Co. and
Merriman Curhan Ford Group, Inc. v. XL Specialty Insurance
Company




On January 14, 2009, MCF and the Company
(collectively “MCF”) filed a civil action in the Superior Court for Los Angeles
County (the “Coverage Lawsuit”) against its directors’ and officers’ liability
insurer, XL Specialty Insurance Company (XL Specialty). In the Coverage Lawsuit,
MCF had asserted claims for breach of contract, tortious breach of contract, and
declaratory relief, alleging that XL Specialty wrongfully denied coverage for
various ongoing third-party claims and government investigations. This case was
settled on February 12, 2010. (Please see Note 21, “Subsequent
Events.”)


26


Midsummer Investment, Ltd., v. Merriman
Curhan Ford Group, Inc.




On November 6, 2009, Midsummer
Investment, Ltd. (“Midsummer”) filed a complaint in federal court, Southern
District of New York, alleging that Midsummer was denied an anti-dilution
adjustment to a warrant issued by the Company to them, and that the Company
refused to honor an exercise of that warrant. The Company believes that
Midsummer is not entitled to any anti-dilution adjustment and its attempted
exercise was not accompanied by proper payment. We believe that the Company has
meritorious defenses and intends to contest this claim
vigorously.




The Company and MCF deny any liability
and are vigorously contesting these lawsuits and arbitrations. At this point,
the Company cannot estimate the amount of damages if they are resolved
unfavorably or does not believe that the cases will result in unfavorable
outcomes and accordingly, management has not provided an accrual for these
lawsuits and arbitrations.




Based on the facts presently known, the
Company does not believe the outcome of these proceedings will have a material
adverse effect on its financial condition.




Additionally, from time to time, we are
involved in ordinary routine litigation incidental to our
business.


27




PART II




Item 5. Market for Registrant’s Common
Stock and Related Stockholder Matters




Our common stock has been quoted on The
Nasdaq Stock Market, Inc. (“Nasdaq”) under the symbol “MERR” since February 12,
2008. Prior to this time, our common stock traded on the American Stock Exchange
under the symbol “MEM.” The following table sets forth the range of the high and
low sales prices per share of our common stock for the fiscal quarters
indicated.





High
                              
                              
                              Low2009Fourth
    Quarter
                              
                              $
                              1.63
                              
                              
                              $
                              0.67Third
    Quarter
                              
                              
                              1.80
                              
                              
                              
                              0.38Second
    Quarter
                              
                              
                              0.62
                              
                              
                              
                              0.30First
    Quarter
                              
                              
                              0.65
                              
                              
                              
                              0.242008Fourth
    Quarter
                              
                              $
                              1.02
                              
                              
                              $
                              0.40Third
    Quarter
                              
                              
                              1.57
                              
                              
                              
                              0.93Second
    Quarter
                              
                              
                              4.10
                              
                              
                              
                              1.19First
    Quarter
                              
                              
                              5.94
                              
                              
                              
                              3.91





The closing sale price for the common
stock on March 15, 2010 was $0.86 The market price of our common stock has
fluctuated significantly and may be subject to significant fluctuations in the
future. See Item 1A - “Risk Factors.”




According to the records of our transfer
agent, we had 638 stockholders of record as of December 31, 2009. Because many
shares are held by brokers and other institutions on behalf of stockholders, we
are unable to estimate the total number of beneficial stockholders represented
by these record holders.




Our policy is to reinvest earnings in
order to fund future growth. Therefore, we have not paid, and currently do not
plan to declare, dividends on our common stock.


28


Securities Authorized for Issuance Under
Equity Compensation Plans





The following table gives information
about the Company’s common stock that may be issued upon the exercise of options
and warrants under all of our existing equity compensation plans as of December
31, 2009.





Number ofNumber of
                        
                        
                        
                        
                        
                        SecuritiesSecurities to
                        
                        
                        Weighted-
                        
                        
                        Remainingbe Issued
                        
                        
                        Average
                        
                        
                        AvailableUpon
                        
                        
                        Exercise
                        
                        
                        For FutureExercise of
                        
                        
                        Price of
                        
                        
                        IssuanceOutstanding
                        
                        
                        Outstanding
                        
                        
                        Under EquityOptions and
                        
                        
                        Options and
                        
                        
                        CompensationPlan
    Category
                        
                        Warrants
                        
                        
                        Warrants
                        
                        
                        PlansEquity compensation plans approved
      by stockholders:1999 Stock Option Plan (expired
      12/30/08)
                        
                        
                        65,865
                        
                        
                        $
                        4.47
                        
                        
                        
                        -2000 Stock Option and Incentive
      Plan (expired 2/28/10)
                        
                        
                        365,797
                        
                        
                        $
                        1.29
                        
                        
                        
                        206,7532001 Stock Option and Incentive
      Plan
                        
                        
                        443,243
                        
                        
                        $
                        0.80
                        
                        
                        
                        50,0322003 Stock Option and Incentive
      Plan
                        
                        
                        3,644,879
                        
                        
                        $
                        1.03
                        
                        
                        
                        345,0252009 Stock Incentive
      Plan
                        
                        
                        4,945,000
                        
                        
                        $
                        1.16
                        
                        
                        
                        3,011,4622006 Directors’ Stock Option and
      Incentive Plan
                        
                        
                        98,838
                        
                        
                        $
                        0.43
                        
                        
                        
                        5,0692002 Employee Stock Purchase
      Plan
                        
                        
                        -
                        
                        
                        $
                        -
                        
                        
                        
                        -Equity compensation not approved
      by stockholders
                        
                        
                        25,001
                        
                        
                        $
                        49.00
                        
                        
                        
                        -





Equity compensation not approved by
stockholders includes shares in a Non-Qualified option plan approved by the
Board of Directors of NetAmerica.com Corporation (now known as Merriman Curhan
Ford Group, Inc.) in 1999 and a Non-Qualified option plan approved by the Board
of Directors in 2004 that is consistent with the exchange guidelines at the time
of listing.




Recent Sale of Unregistered
Securities




On September 8, 2009, the Company closed
on the sale and purchase of approximately 23,721,000 shares of Series D
Preferred Stock at $0.43 per share, together with warrants to purchase an
additional 23,721,000 shares of the Company’s common stock at $0.65 per share
pursuant to a Series D Preferred Stock Purchase Agreement (the “Series D
Financing”). The investor group included approximately fifty individuals and
entities, including certain officers, directors and employees of the Company, as
well as outside investors. The Series D Preferred Stock was issued in a private
placement exempt from registration requirements pursuant to Regulation D of the
Securities Act of 1933, as amended. Cash consideration was deposited into
escrow. Each share of Series D Preferred Stock is convertible into one share of
Common Stock of the Company. The Series D Preferred Stock carries a dividend
rate of 6% per annum, payable in cash monthly.


29


Item 6. Selected Consolidated Financial
Data




The following selected consolidated
financial data should be read in conjunction with Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
the consolidated financial statements and the notes thereto included in Part II,
Item 8 to this Annual Report on Form 10-K.




2009
                                  
                                  
                                  2008
                                  
                                  
                                  2007
                                  
                                  
                                  2006
                                  
                                  
                                  2005Statement of operations
      data:Revenue
                                  
                                  $
                                  49,263,042
                                  
                                  
                                  $
                                  36,567,836
                                  
                                  
                                  $
                                  83,748,265
                                  
                                  
                                  $
                                  51,818,638
                                  
                                  
                                  $
                                  43,184,315Operating
      expenses
                                  
                                  
                                  62,842,395
                                  
                                  
                                  
                                  62,979,424
                                  
                                  
                                  
                                  70,701,900
                                  
                                  
                                  
                                  58,315,930
                                  
                                  
                                  
                                  44,912,772Operating (loss)
      income
                                  
                                  
                                  (13,579,353
                                  )
                                  
                                  
                                  (26,411,588
                                  )
                                  
                                  
                                  13,046,365
                                  
                                  
                                  
                                  (6,497,292
                                  )
                                  
                                  
                                  (1,728,457
                                  )Loss on retirement of convertible
      notes payable (1)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,348,805
                                  )
                                  
                                  
                                  -Other
income
                                  
                                  
                                  2,000,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Change in warrant
      liability
                                  
                                  
                                  6,910,656
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Interest
    income
                                  
                                  
                                  15,658
                                  
                                  
                                  
                                  375,949
                                  
                                  
                                  
                                  461,491
                                  
                                  
                                  
                                  484,909
                                  
                                  
                                  
                                  446,273Interest
      expense
                                  
                                  
                                  (1,341,753
                                  )
                                  
                                  
                                  (72,304
                                  )
                                  
                                  
                                  (134,868
                                  )
                                  
                                  
                                  (535,014
                                  )
                                  
                                  
                                  (76,103
                                  )Income tax benefit
      (expense)
                                  
                                  
                                  627,923
                                  
                                  
                                  
                                  1,635,214
                                  
                                  
                                  
                                  (2,462,165
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (142,425
                                  )(Loss) income from continuing
      operations
                                  
                                  
                                  (5,366,869
                                  )
                                  
                                  
                                  (24,472,729
                                  )
                                  
                                  
                                  10,910,823
                                  
                                  
                                  
                                  (7,896,202
                                  )
                                  
                                  
                                  (1,500,712
                                  )Loss from discontinued
      operations
                                  
                                  
                                  (94,894
                                  )
                                  
                                  
                                  (5,801,076
                                  )
                                  
                                  
                                  (1,587,788
                                  )
                                  
                                  
                                  (324,213
                                  )
                                  
                                  
                                  (13,731
                                  )Net (loss)
      income
                                  
                                  $
                                  (5,461,763
                                  )
                                  
                                  $
                                  (30,273,805
                                  )
                                  
                                  $
                                  9,323,035
                                  
                                  
                                  $
                                  (8,220,415
                                  )
                                  
                                  $
                                  (1,514,443
                                  )Basic (loss) income from
      continuing operations
                                  
                                  $
                                  (0.42
                                  )
                                  
                                  $
                                  (1.95
                                  )
                                  
                                  $
                                  0.95
                                  
                                  
                                  $
                                  (0.79
                                  )
                                  
                                  $
                                  (0.16
                                  )Diluted (loss) income from
      continuing operations
                                  
                                  $
                                  (0.42
                                  )
                                  
                                  $
                                  (1.95
                                  )
                                  
                                  $
                                  0.86
                                  
                                  
                                  $
                                  (0.79
                                  )
                                  
                                  $
                                  (0.16
                                  )Statement of financial condition
      data:Cash and cash
      equivalents
                                  
                                  $
                                  5,656,750
                                  
                                  
                                  $
                                  6,358,128
                                  
                                  
                                  $
                                  31,653,657
                                  
                                  
                                  $
                                  13,746,590
                                  
                                  
                                  $
                                  11,138,923Marketable securities
      owned
                                  
                                  
                                  4,728,940
                                  
                                  
                                  
                                  4,622,577
                                  
                                  
                                  
                                  14,115,022
                                  
                                  
                                  
                                  7,492,914
                                  
                                  
                                  
                                  8,627,543Total
assets
                                  
                                  
                                  16,123,741
                                  
                                  
                                  
                                  18,865,590
                                  
                                  
                                  
                                  64,573,331
                                  
                                  
                                  
                                  30,498,213
                                  
                                  
                                  
                                  27,694,413Capital lease
      obligations
                                  
                                  
                                  397,958
                                  
                                  
                                  
                                  923,683
                                  
                                  
                                  
                                  721,380
                                  
                                  
                                  
                                  1,292,378
                                  
                                  
                                  
                                  883,993Notes payable,
      net
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  238,989
                                  
                                  
                                  
                                  325,650
                                  
                                  
                                  
                                  408,513Stockholders’
      equity
                                  
                                  
                                  8,016,828
                                  
                                  
                                  
                                  7,715,201
                                  
                                  
                                  
                                  34,806,048
                                  
                                  
                                  
                                  16,215,020
                                  
                                  
                                  
                                  18,403,001





(1)
            In December 2006, Merriman Curhan
      Ford Group, Inc. repaid the $7.5 million variable rate secured convertible
      note, issued to Midsummer Investment, Ltd., or Midsummer, in March 2006.
      Midsummer retained the stock warrant to purchase 267,858 shares of our
      common stock. The loss on repayment of the convertible note consists of
      the write-off of the unamortized discount related to the stock warrant, as
      well as the write-off of the unamortized debt issuance
      costs.


30


Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations




The following discussion and analysis
should be read in conjunction with our consolidated financial statements and the
notes thereto in Part II, Item 8 to this Annual Report on Form 10-K. This
discussion contains forward-looking statements reflecting our current
expectations. Actual results and the timing of events may differ significantly
from those projected in forward- looking statements due to a number of factors,
including those set forth in Item 1A “Risk Factors” of this Annual Report on
Form 10-K.




Overview




Merriman Curhan Ford Group, Inc.
(formerly MCF Corporation) is a financial services company that provides
investment banking, capital markets services, corporate and venture services,
and investment banking through its primary operating wholly-owned subsidiary,
MCF.




MCF is an investment bank and securities
broker-dealer focused on fast-growing companies and institutional investors. Our
mission is to become a leader in the researching, advising, financing, trading
and investing in fast-growing companies under $1 billion in market
capitalization. We provide equity research, brokerage and trading services
primarily to institutions, as well as investment banking and advisory services
to corporate clients. We are attempting to gain market share by originating
differentiated research for our institutional investor clients and providing
specialized and integrated services for our fast-growing corporate clients. MCF
is registered with the Securities and Exchange Commission (“SEC”) as a
broker-dealer and is a member of the Financial Industry Regulatory Authority
(“FINRA”), and the Securities Investor Protection Corporation
(“SIPC”).




We acquired Panel Intelligence, LLC
(formerly MedPanel, Inc.) (“Panel”) in April 2007. It offers custom and
published primary research to industry clients and investment professionals
through online panel discussions, quantitative surveys and an extensive research
library. Panel provides greater access, compliance, insights and productivity to
clients in the health care, CleanTech and financial industries. In January 2009,
the majority of the assets of Panel were sold to an investor group that included
certain members of its management team. We decided to sell the assets in order
to reduce our costs and to refocus on our core investment banking and
broker-dealer services. For financial reporting purposes, we have listed the
operations of the business as “discontinued operations.”




On January 16, 2009, the Company entered
into an agreement to sell the assets of ICD, a division of Merriman Curhan Ford
& Co., to a group of investors who are also its employees in order to raise
capital. The assets being sold include the Company’s rights in trademark,
copyright, and other intellectual property used in the business, customer lists,
marketing materials, and books and records. As of December 31, 2009, the Company
determined that the discontinued operations criteria in ASC Topic
205,Discontinued
Operations, had not been
met, as such the revenues and expenses of ICD are still presented as part of
continuing operations. In accordance with Securities and Exchange Commission
(SEC) Staff Accounting Bulletin (SAB) 104, “Revenue Recognition”, the Company
recognized $2,000,000 as Other Income for the year ended December 31,
2009.




To assist in the transition of
operations to the new owners, the Company is providing substantial services to
ICD, including collecting its revenues. Under guidance provided in ASC Subtopic
605-45, “Principal Agent Considerations,” the Company records ICD’s revenues and
expenses at gross levels. In 2010, the Company expects to no longer provide such
services and will no longer record ICD revenues.




MCF Asset Management, LLC manages
absolute return investment products for institutional and high-net worth
clients. We are the sub-advisor for the MCF Focus fund. In an effort to refocus
the holding company back to its core investment banking and broker-dealers
services and to reduce expenses, management decided to liquidate the funds under
management and returning investments to the investors. As of December 31, 2009,
we have liquidated all but an immaterial amount of illiquid assets which we are
distributing to investors in the Focus fund.




We were formerly known as Ratexchange
Corporation, NetAmerica.com Corporation and Venture World, Ltd., a Delaware
corporation organized on May 6, 1987. Our common stock was listed on the
American Stock Exchange in July 2000 and was listed on Nasdaq in February 2008,
where it currently trades under the symbol “MERR.” Our corporate office is
located in San Francisco, California.


31


Prior to 2002, we were engaged in the
creation of liquid marketplaces for bandwidth and other telecommunications
products, as well as providing trading strategies in the futures and derivatives
markets. This prior business experienced significant net losses that resulted in
an accumulated deficit of $87,731,000 as of December 31,
2001.




In December 2001, we acquired Instream
Securities, Inc. and later changed the name of the entity to RTX Securities
Corporation, then to MCF. We formed MCF Asset Management, LLC in January 2004,
MCF Wealth Management, LLC in January 2005, and acquired Panel Intelligence, LLC
in April 2007 as wholly owned subsidiaries. Panel Intelligence, LLC is accounted
for as discontinued operations in these consolidated financial statements for
the years ended December 31, 2009 and 2008.




In 2008 and 2009, we aggressively
reduced our cost structure by exiting businesses and eliminating positions which
were not essential to generate revenues. We also examined all our expenses and
eliminated those deemed to be unessential. We settled all the legal cases we
believed were the most threatening. Going into 2010, we believe our current
funds are sufficient to enable us to meet our planned expenditures through at
least January 1, 2011. If anticipated operating results are not achieved, we
intend and we believe we have the ability to delay or reduce expenditures, if
not to raise additional financing. Failure to generate sufficient cash flows
from operations, raise additional capital or reduce certain discretionary
spending could have a material adverse effect on our ability to achieve our
intended business objectives.




Executive Summary




In 2009, following the sale of ICD
assets, management determined that it would be useful to view the Company’s
financial results without ICD’s sizable revenues and expenses. Management’s
focus is on operating results, excluding ICD revenues and expenses (which
essentially net to zero after signing the asset purchase agreement in January
2009), unrealized gains and losses, and legal expenses related to the Del
Biaggio/Cacchione matters. In the Form 10-Q for the three months ended September
30, 2009, we began presenting our operating results excluding these items, which
are not according to generally accepted accounting principles (non-GAAP). We
also present a reconciliation of these non-GAAP results to our GAAP-based
financial results. Management uses the non-GAAP (“pro-forma”) results in
addition to GAAP results in its analyses of the business.




Our revenue increased 35% during 2009 to
$49,263,000, attributable to increased brokerage revenue related to ICD, a
business we sold in January 2009. On a pro-forma basis, our revenue declined by
35% during the same period. Including discontinued operations, net loss in 2009
was $5,462,000, or $0.43 per diluted share, compared to $30,274,000, or $2.41
per diluted share, during 2008.




We were able to remove significant costs
beginning the second half of 2008 and into 2009, particularly with regards to
our legal expenses as we reached settlements with a selected group of litigants
and with the SEC. We instituted aggressive plans to reduce our operating costs
and focus our business back to our core offerings. In addition, management took
steps to eliminate non-core businesses such as Panel and MCF Asset Management
LLC that had consumed a large portion of our operating cash flow. Our focus in
2009 was to build on our core businesses, aided by a recovery in the broad
financial markets beginning in the Spring of 2009.




Investment
Banking– The investment
banking team had an unfavorable year with a decrease in revenue of 37% in 2009.
In 2009, we closed 27 corporate financing and strategic advisory transactions
during the year with lower average transaction fees compared to 20 corporate
financing and strategic advisory transactions in 2008. As a percentage of total
revenue, on a pro-forma basis, Investment Banking’s contribution was 32% in 2009
compared to 33% in 2008. Throughout 2008 and the first half of 2009, the new
issue market was largely closed.


32


Principal
Transactions– Principal
transactions produced a loss of $22,000 in 2009 compared to a loss of $9,040,000
during 2008. The 2008 loss was largely driven by a decline in the fair value of
the Proprietary and Investment accounts. Principal transactions revenue consists
of four different activities: customer principal trades, market making, trading
for our proprietary account, and realized and unrealized gains and losses in our
investment portfolio. As a broker-dealer, we account for all of our marketable
security positions on a trading basis and as a result, all security positions
are marked to fair market value each day. Returns from market making and
proprietary trading activities tend to be more volatile than acting as agent or
principal for customers.




We will from time to time take
significant positions in fast-growing companies that we feel are undervalued in
the market place. We believe that our window into these opportunities, due to
the types of companies we research, offers us a significant competitive
advantage.




Commissions– Commissions revenue from brokering
equity securities to institutional investors increased by 19% to $40,180,000
from $33,679,000 in 2008 attributable to increased ICD business. On a pro-forma
basis, commissions revenue declined by 45% to $12,391,000 from $22,385,000 due
to adverse market conditions. This business continues to face increasing
challenges, including the proliferation of electronic communications networks
which have reduced commission rates and profitability in the brokerage industry.
Many large investment banks have responded to lower margins within their equity
brokerage divisions by reducing research coverage, particularly for smaller
companies, consolidating sales and trading services, and reducing headcount of
sales and trading professionals. We believe that we can grow our institutional
brokerage revenue by producing differentiated equity research on relatively
undiscovered, fast-growing companies within our selected growth sectors and
providing this research to small and mid-sized traditional and alternative
investment managers for whom these companies comprise an important part of their
investment portfolios.




Institutional Cash
Distributors (ICD) –ICD is
a broker of money market funds serving the short-term investing needs of
corporate finance departments at companies throughout the United States and
Europe. Companies using ICD’s services receive access to over 40 fund families
through ICD’s one-stop process that includes one application, one wire and one
statement that consolidates reporting regardless of the number of funds
utilized. ICD is a division of MCF. In January 2009, we sold our ICD assets to
three of our employees. We expect we will no longer benefit from these revenues
when ICD obtains its broker-dealer license in 2010. We will then cease to
provide services to them, including collection of their
revenues.




Primary Research
–We closed the acquisition
of MedPanel, Inc. in April 2007, renamed it Panel Intelligence, LLP (“Panel”)
and began offering custom and published primary research to biotechnology,
pharmaceutical and medical device industry clients, as well as institutional
investment companies for a subscription fee. In January 2009, we sold the assets
related to Panel in order to focus on our core investment banking and
broker-dealer businesses and to reduce expenses. The primary research revenues
and expenses were classified as discontinued operations in our consolidated
statements of operations for the year ending December 31, 2008 and certain Panel
assets and liabilities were reclassified to assets and liabilities held for sale
in the consolidated statements of financial condition at December 31,
2008.




OTCQX Advisory
–During 2007, MCF began
offering services to sponsor companies on the Domestic and International OTCQX
markets. This new service offering has been designed to enable domestic and
non-U.S. companies to obtain greater exposure to U.S. institutional investors
without the expense and regulatory burdens of listing on traditional U.S.
exchanges. The Domestic and International OTCQX market tiers do not require full
SEC registration or Sarbanes Oxley compliance. Listing on the market requires
the sponsorship of a qualified investment bank called a Designated Advisor for
Disclosure (DAD) for domestic companies or a Principal American Liaison (PAL)
for non-U.S. companies. MCF was the first U.S. investment bank to achieve DAD
and PAL designations.




Employees
–We began 2009 with 128
employees after reducing our headcount by 36% in 2008. After the sale of Panel
assets, we reduced our headcount further to 89 employees. We have since
strategically hired staff and increased our headcount to 94 employees at
December 31, 2009. Our headcount will be further reduced when ICD obtains its
broker-dealer license and we no longer provide services, including serve as an
employer to its staff, expected for 2010. We expect that we will maintain
headcount below 100 people during 2010, though as always, these hiring decisions
may be impacted by our actual financial results and the overall capital markets
environment.




Business Development
–We continued to invest in
areas of our business that we believe will increase the awareness of our
franchise and contribute to future revenue opportunities such as hosting
investor conferences, introducing management teams of fast-growing companies to
institutional investors, marketing, travel and other business development
activities. Our operating expenses in 2009 were slightly lower than in 2008
primarily due to cost cutting measures we implemented.


33


Business Environment




Equity indices rose sharply in 2009 for
the biggest annual gain since 2003, and some commodities, such as copper, headed
for their best rally in at least a decade after China pledged to maintain
policies that helped pull the world market from recession.




Stocks worldwide have risen the most
since 2003 this year on dramatically increased liquidity conditions, with
interest rates near zero and increased government spending which may sustain the
recovery from the first global recession since World War II. The MSCI World
Index plunged 42% in 2008, the most in its 40-year history, hurt by the collapse
of the subprime-mortgage market in the U.S. and the bankruptcy of Lehman
Brothers Holdings Inc.




The Dow bottomed in March 2009 at 6,547,
with the dollar at 1.2607 Euro and oil at $47. The biggest dynamics in the sharp
recovery were extremely aggressive easing by China, which drove a significant
commodity rally that carried over to the global equity markets. The U.S.
government also instituted extremely aggressive liquidity measures which had a
powerful impact on all U.S. indices.




At year end, the stimulus policies had
not carried over into the small business lending arena or employment. U.S.
unemployment remained near its highs, and banks were reluctant to lend,
dampening the “real” recovery. The financing markets were very muted despite the
impressive stock market rally, with only 49 IPO transactions being completed in
2009, the second lowest annual total volume on record. Small business creation
and sustainability remained the primary problem in the 2009 economy. Until small
business, which supplies the true engine of U.S. economic growth, comes back,
prospects for better employment performance remain low.


34


Results of
Operations




In evaluating our financial performance,
management reviews results from operations excluding non-operating revenues and
expenses. Such pro-forma results are non-GAAP (Generally Accepted Accounting
Principles) performance measures, but we believe it is useful to assist
investors in gaining an understanding of the trends and results of our core
business. Pro-forma results should be viewed in addition to, not instead of, our
reported results under U.S. GAAP.




The following is a reconciliation of
U.S. GAAP results to pro-forma results for the periods
presented.




Three Months Ended December 31,2009
                      
                      
                      2008As Reported
                      
                      
                      Less ICD
                      
                      
                      Less Other
                      
                      
                      Pro-Forma
                      
                      
                      As Reported
                      
                      
                      Less ICD
                      
                      
                      Less Other
                      
                      
                      Pro-FormaRevenue:Commissions
                      
                      $
                      11,287,720
                      
                      
                      $
                      7,714,682
                      
                      
                      $
                      -
                      
                      
                      $
                      3,573,038
                      
                      
                      $
                      9,325,010
                      
                      
                      $
                      4,132,373
                      
                      
                      $
                      -
                      
                      
                      $
                      5,192,637Principal
      transactions
                      
                      
                      109,318
                      
                      
                      
                      (685
                      )
                      
                      
                      (815,183
                      )
                      
                      
                      925,186
                      
                      
                      
                      (3,759,668
                      )
                      
                      
                      -
                      
                      
                      
                      (1,669,516
                      )
                      
                      
                      (2,090,152
                      )Investment
      banking
                      
                      
                      1,824,596
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,824,596
                      
                      
                      
                      2,008,788
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,008,788Advisory
      and other fees
                      
                      
                      250,116
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      250,116
                      
                      
                      
                      90,267
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      90,267Total
      revenue
                      
                      
                      13,471,750
                      
                      
                      
                      7,713,997
                      
                      
                      
                      (815,183
                      )
                      
                      
                      6,572,936
                      
                      
                      
                      7,664,397
                      
                      
                      
                      4,132,373
                      
                      
                      
                      (1,669,516
                      )
                      
                      
                      5,201,540Operating
      expenses:Compensation
      and benefits
                      
                      
                      12,045,620
                      
                      
                      
                      6,979,109
                      
                      
                      
                      -
                      
                      
                      
                      5,066,511
                      
                      
                      
                      5,465,311
                      
                      
                      
                      2,535,574
                      
                      
                      
                      -
                      
                      
                      
                      2,929,737Brokerage
      and clearing fees
                      
                      
                      202,905
                      
                      
                      
                      16,923
                      
                      
                      
                      -
                      
                      
                      
                      185,982
                      
                      
                      
                      999,305
                      
                      
                      
                      39,355
                      
                      
                      
                      -
                      
                      
                      
                      959,950Professional
      services
                      
                      
                      718,928
                      
                      
                      
                      210,286
                      
                      
                      
                      -
                      
                      
                      
                      508,642
                      
                      
                      
                      1,980,129
                      
                      
                      
                      35,420
                      
                      
                      
                      1,172,607
                      
                      
                      
                      772,102Occupancy
      and equipment
                      
                      
                      531,386
                      
                      
                      
                      12,672
                      
                      
                      
                      -
                      
                      
                      
                      518,714
                      
                      
                      
                      702,839
                      
                      
                      
                      21,702
                      
                      
                      
                      -
                      
                      
                      
                      681,137Communications and
      technology
                      
                      
                      921,192
                      
                      
                      
                      195,869
                      
                      
                      
                      -
                      
                      
                      
                      725,323
                      
                      
                      
                      1,206,302
                      
                      
                      
                      213,324
                      
                      
                      
                      -
                      
                      
                      
                      992,978Depreciation
      and amortization
                      
                      
                      104,816
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      104,816
                      
                      
                      
                      168,717
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      168,717Travel
      and entertainment
                      
                      
                      448,267
                      
                      
                      
                      147,744
                      
                      
                      
                      -
                      
                      
                      
                      300,523
                      
                      
                      
                      393,113
                      
                      
                      
                      174,152
                      
                      
                      
                      -
                      
                      
                      
                      218,961Legal
      and litigation settlement expense
                      
                      
                      1,140,860
                      
                      
                      
                      -
                      
                      
                      
                      717,089
                      
                      
                      
                      423,771
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Other
      expenses
                      
                      
                      694,661
                      
                      
                      
                      115,337
                      
                      
                      
                      -
                      
                      
                      
                      579,324
                      
                      
                      
                      1,114,028
                      
                      
                      
                      29,706
                      
                      
                      
                      -
                      
                      
                      
                      1,084,322Total
      operating expenses
                      
                      
                      16,808,635
                      
                      
                      
                      7,677,940
                      
                      
                      
                      717,089
                      
                      
                      
                      8,413,606
                      
                      
                      
                      12,029,744
                      
                      
                      
                      3,049,233
                      
                      
                      
                      1,172,607
                      
                      
                      
                      7,807,904Operating
      income/(loss)
                      
                      $
                      (3,336,885
                      )
                      
                      $
                      36,057
                      
                      
                      $
                      (1,532,272
                      )
                      
                      $
                      (1,840,670
                      )
                      
                      $
                      (4,365,347
                      )
                      
                      $
                      1,083,140
                      
                      
                      $
                      (2,842,123
                      )
                      
                      $
                      (2,606,364
                      )


35




Year Ended December 31,2009
                      
                      
                      2008As Reported
                      
                      
                      Less ICD
                      
                      
                      Less Other
                      
                      
                      Pro-Forma
                      
                      
                      As Reported
                      
                      
                      Less ICD
                      
                      
                      Less Other
                      
                      
                      Pro-FormaRevenue:Commissions
                      
                      $
                      40,180,288
                      
                      
                      $
                      27,789,003
                      
                      
                      $
                      -
                      
                      
                      $
                      12,391,285
                      
                      
                      $
                      33,678,706
                      
                      
                      $
                      11,293,429
                      
                      
                      $
                      -
                      
                      
                      $
                      22,385,277Principal
      transactions
                      
                      
                      (21,702
                      )
                      
                      
                      (2,973
                      )
                      
                      
                      (1,295,475
                      )
                      
                      
                      1,276,746
                      
                      
                      
                      (9,040,218
                      )
                      
                      
                      -
                      
                      
                      
                      (9,774,573
                      )
                      
                      
                      734,355Investment
      banking
                      
                      
                      7,236,059
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      7,236,059
                      
                      
                      
                      11,432,454
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      11,432,454Advisory
      and other  fees
                      
                      
                      1,868,397
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,868,397
                      
                      
                      
                      496,894
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      496,894Total
      revenue
                      
                      
                      49,263,042
                      
                      
                      
                      27,786,030
                      
                      
                      
                      (1,295,475
                      )
                      
                      
                      22,772,487
                      
                      
                      
                      36,567,836
                      
                      
                      
                      11,293,429
                      
                      
                      
                      (9,774,573
                      )
                      
                      
                      35,048,980Operating
      expenses:Compensation
      and benefits
                      
                      
                      41,733,106
                      
                      
                      
                      25,499,105
                      
                      
                      
                      -
                      
                      
                      
                      16,234,001
                      
                      
                      
                      36,670,457
                      
                      
                      
                      7,489,738
                      
                      
                      
                      -
                      
                      
                      
                      29,180,719Brokerage
      and clearing fees
                      
                      
                      994,312
                      
                      
                      
                      62,652
                      
                      
                      
                      -
                      
                      
                      
                      931,660
                      
                      
                      
                      3,042,133
                      
                      
                      
                      101,898
                      
                      
                      
                      -
                      
                      
                      
                      2,940,235Professional
      services
                      
                      
                      2,514,224
                      
                      
                      
                      307,283
                      
                      
                      
                      -
                      
                      
                      
                      2,206,941
                      
                      
                      
                      9,161,729
                      
                      
                      
                      108,900
                      
                      
                      
                      4,191,590
                      
                      
                      
                      4,861,239Occupancy
      and equipment
                      
                      
                      2,148,733
                      
                      
                      
                      54,278
                      
                      
                      
                      -
                      
                      
                      
                      2,094,455
                      
                      
                      
                      2,303,944
                      
                      
                      
                      28,742
                      
                      
                      
                      -
                      
                      
                      
                      2,275,202Communications and
      technology
                      
                      
                      3,364,171
                      
                      
                      
                      573,709
                      
                      
                      
                      -
                      
                      
                      
                      2,790,462
                      
                      
                      
                      3,762,954
                      
                      
                      
                      456,501
                      
                      
                      
                      -
                      
                      
                      
                      3,306,453Depreciation
      and amortization
                      
                      
                      477,729
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      477,729
                      
                      
                      
                      705,883
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      705,883Travel
      and entertainment
                      
                      
                      1,507,107
                      
                      
                      
                      674,471
                      
                      
                      
                      -
                      
                      
                      
                      832,636
                      
                      
                      
                      2,921,196
                      
                      
                      
                      620,016
                      
                      
                      
                      -
                      
                      
                      
                      2,301,180Legal
      and litigation settlement expense
                      
                      
                      7,776,918
                      
                      
                      
                      -
                      
                      
                      
                      7,707,548
                      
                      
                      
                      69,370
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Other
      expenses
                      
                      
                      2,326,095
                      
                      
                      
                      404,678
                      
                      
                      
                      -
                      
                      
                      
                      1,921,417
                      
                      
                      
                      4,411,128
                      
                      
                      
                      147,583
                      
                      
                      
                      -
                      
                      
                      
                      4,263,545Total
      operating expenses
                      
                      
                      62,842,395
                      
                      
                      
                      27,576,176
                      
                      
                      
                      7,707,548
                      
                      
                      
                      27,558,671
                      
                      
                      
                      62,979,424
                      
                      
                      
                      8,953,378
                      
                      
                      
                      4,191,590
                      
                      
                      
                      49,834,456Operating
      income/(loss)
                      
                      $
                      (13,579,353
                      )
                      
                      $
                      209,854
                      
                      
                      $
                      (9,003,023
                      )
                      
                      $
                      (4,786,184
                      )
                      
                      $
                      (26,411,588
                      )
                      
                      $
                      2,340,051
                      
                      
                      $
                      (13,966,163
                      )
                      
                      $
                      (14,785,476
                      )




Note – The column headed “Less Other”
includes unrealized gains/losses in “Principal transactions” revenues, and legal
and litigation settlement expense as related to the Del Biaggio/Cacchione
matters in “Litigation settlement”.





Other than the tables immediately above,
all other results in our Form 10-K and in the consolidated financial statements
are prepared and displayed in accordance with U.S. GAAP.


36


The following table sets forth a summary
of financial highlights for the two years ended December 31,
2009:




2009
                    
                    
                    2008Revenue:Commissions
                    
                    $
                    40,180,288
                    
                    
                    $
                    33,678,706Principal
      transactions
                    
                    
                    (21,702
                    )
                    
                    
                    (9,040,218
                    )Investment
      banking
                    
                    
                    7,236,059
                    
                    
                    
                    11,432,454Advisory
      and other fees
                    
                    
                    1,868,397
                    
                    
                    
                    496,894Total
      revenue
                    
                    
                    49,263,042
                    
                    
                    
                    36,567,836Operating
      expenses:Compensation
      and benefits
                    
                    
                    41,733,106
                    
                    
                    
                    36,670,457Brokerage
      and clearing fees
                    
                    
                    994,312
                    
                    
                    
                    3,042,133Professional
      services
                    
                    
                    2,514,225
                    
                    
                    
                    9,161,729Occupancy
      and equipment
                    
                    
                    2,148,733
                    
                    
                    
                    2,303,944Communications
      and technology
                    
                    
                    3,364,171
                    
                    
                    
                    3,762,954Depreciation
      and amortization
                    
                    
                    477,729
                    
                    
                    
                    705,883Travel
      and business development
                    
                    
                    1,507,107
                    
                    
                    
                    2,921,196Legal
      services and litigation settlement expense
                    
                    
                    7,776,917
                    
                    
                    
                    -Other
                    
                    
                    2,326,095
                    
                    
                    
                    4,411,128Total
      operating expenses
                    
                    
                    62,842,395
                    
                    
                    
                    62,979,424Operating
      loss
                    
                    
                    (13,579,353
                    )
                    
                    
                    (26,411,588
                    )Other
      income
                    
                    
                    2,000,000
                    
                    
                    
                    -Change
      in warrant liability
                    
                    
                    6,910,656
                    
                    
                    
                    -Interest
      income
                    
                    
                    15,658
                    
                    
                    
                    375,949Interest
      expense
                    
                    
                    (1,341,753
                    )
                    
                    
                    (72,304
                    )Loss
      from continuing operations before income taxes
                    
                    
                    (5,994,792
                    )
                    
                    
                    (26,107,943
                    )Income
      tax benefit
                    
                    
                    627,923
                    
                    
                    
                    1,635,214Loss
      from continuing operations
                    
                    
                    (5,366,869
                    )
                    
                    
                    (24,472,729
                    )Loss
      on discontinued operations
                    
                    
                    (94,894
                    )
                    
                    
                    (5,801,076
                    )Net
      loss
                    
                    $
                    (5,461,763
                    )
                    
                    $
                    (30,273,805
                    )Net
      loss attributable to common shareholders
                    
                    $
                    (10,720,565
                    )
                    
                    $
                    (30,273,805
                    )





Our revenue during 2009 increased by
$12,695,000 or 35%, from 2008 attributable to ICD, a line of business we
sold.  On a pro-forma basis, our revenues declined by $12,276,000,
reflecting accentuated weaknesses in our brokerage and investment banking
businesses, partially offset by greatly reduced losses in our principal
transactions. Net loss for 2009 was $5,462,000 as compared to net loss of
$30,274,000 during 2008.




37





Our net
loss during the two years ended December 31, 2009 included the following
selected non-cash items:




2009
                    
                    
                    2008Amortization
      of discounts on notes payable
                    
                    $
                    552,639
                    
                    
                    $
                    2,584Amortization
      of debt issuance costs
                    
                    
                    346,995
                    
                    
                    
                    -Amortization
      of beneficial conversion feature
                    
                    
                    180,639
                    
                    
                    
                    -Change
      in fair value of warrant liability
                    
                    
                    (6,820,567
                    )
                    
                    
                    -Non-cash
      legal settlement expense
                    
                    
                    1,230,953
                    
                    
                    
                    -Stock-based
      compensation
                    
                    
                    837,822
                    
                    
                    
                    2,353,383Reversal
      of FIN 48 liability
                    
                    
                    -
                    
                    
                    
                    (1,838,743
                    )Amortization
      of intangible assets
                    
                    
                    -
                    
                    
                    
                    466,142Depreciation
      and amortization
                    
                    
                    488,339
                    
                    
                    
                    828,598Provision
      for uncollectible note payable
                    
                    
                    128,073
                    
                    
                    
                    476,713Total
                    
                    $
                    (3,055,107
                    )
                    
                    $
                    2,288,677


Investment
Banking Revenue




Our
investment banking activity includes the following:




·
            Capital Raising -
      Capital raising includes private placements of equity and debt instruments
      and underwritten public offerings.





·
            Financial Advisory -
      Financial advisory includes advisory assignments with respect to mergers
      and acquisitions, divestures, restructurings and
  spin-offs.




The
following table sets forth our revenue and transaction volumes from our
investment banking activities during the two years ended December 31,
2009:





2009
                                  
                                  
                                  2008Revenue:Capital
      raising
                                  
                                  $
                                  4,921,976
                                  
                                  
                                  $
                                  9,031,592Financial
      advisory
                                  
                                  
                                  2,314,083
                                  
                                  
                                  
                                  2,400,862Total
      investment banking revenue
                                  
                                  $
                                  7,236,059
                                  
                                  
                                  $
                                  11,432,454Transaction
      Volumes:Public
      offerings:Capital
      underwritten participations
                                  
                                  $
                                  644,560,000
                                  
                                  
                                  $
                                  182,780,000Number
      of transactions
                                  
                                  
                                  7
                                  
                                  
                                  
                                  3Private
      placements:Capital
      raised
                                  
                                  $
                                  98,588,481
                                  
                                  
                                  $
                                  290,380,000Number
      of transactions
                                  
                                  
                                  12
                                  
                                  
                                  
                                  13Financial
      advisory:Transaction
      amounts
                                  
                                  $
                                  78,900,000
                                  
                                  
                                  $
                                  82,600,000Number
      of transactions
                                  
                                  
                                  8
                                  
                                  
                                  
                                  4





38





Our
investment banking revenue amounted to $7,236,000, or 15% of our revenue, or 32%
of our pro forma revenue, during 2009, representing a 37% decrease compared to
$11,432,000 recognized in 2008. The decrease in revenue was driven by a
reduction in capital raising transactions due to the unfavorable market
conditions. Average fees per investment banking transaction decreased slightly
to $268,000 in 2009 from $273,000 in 2008.





During
the years ended December 31, 2009 and 2008, no single investment banking client
accounted for more than 10% of our total revenue.




Commissions
and Principal Transactions Revenue




Our
broker-dealer activity includes the following:




·
            Commissions -
      Commissions include revenue resulting from executing stock trades for
      exchange-listed securities, over-the-counter securities and other
      transactions as agent, as well as revenue from brokering money market
      mutual funds by our Institutional Cash Distributors
  group.





·
            Principal Transactions
      -Principal
      transactions consist of a portion of dealer spreads attributed to our
      securities trading activities as principal in Nasdaq-listed and other
      securities, and include transactions derived from our activities as a
      market-maker. Additionally, principal transactions include gains and
      losses resulting from market price fluctuations that occur while holding
      positions in our trading security
inventory.





The
following table sets forth our revenue and several operating metrics which we
utilize in measuring and evaluating performance and the results of our trading
activity operations:




2009
                        
                        
                        2008Revenue:Commissions:Institutional
      equities
                        
                        $
                        12,391,285
                        
                        
                        $
                        22,385,277Institutional
      Cash Distributors
                        
                        
                        27,789,003
                        
                        
                        
                        11,293,429Total
      commissions revenue
                        
                        $
                        40,180,288
                        
                        
                        $
                        33,678,706Principal
      transactions:Customer
      principal transactions, proprietary trading and market
      making
                        
                        $
                        316,105
                        
                        
                        $
                        (7,693,703
                        )Investment
      portfolio
                        
                        
                        (337,807
                        )
                        
                        
                        (1,346,515
                        )Total
      principal transactions revenue
                        
                        $
                        (21,702
                        )
                        
                        $
                        (9,040,218
                        )Equity
      research:Publishing
      analysts
                        
                        
                        8
                        
                        
                        
                        7Companies
      covered
                        
                        
                        114
                        
                        
                        
                        100Transaction
      Volumes:Number
      of shares traded
                        
                        
                        868,751,782
                        
                        
                        
                        1,281,568,000Number
      of active clients
                        
                        
                        324
                        
                        
                        
                        491





39





Commissions
amounted to $40,180,000, or 82%, of our revenue during 2009, representing a 19%
increase over $33,679,000 recognized during 2008.  The growth in
commissions revenue was attributed to higher assets brokered by our
Institutional Cash Distributors group during 2009.  On a pro-forma
basis, commissions revenue was $12,391,000, or 54%, of revenue during 2009,
representing a 45% decrease from 2008 due to a decrease in average commissions
per share and lower average daily trading volume.




Principal
transaction revenue consists of four different activities - customer principal
trades, market making, trading for our proprietary account, and realized and
unrealized gains and losses in our investment portfolio. As a broker-dealer, we
account for all of our marketable security positions on a trading basis and as a
result, all security positions are marked to fair market value each day. Returns
from market making and proprietary trading activities tend to be more volatile
than acting as agent or principal for customers.




On a
pro-forma basis, principal transactions revenue was $1,277,000 in 2009 compared
to $734,000 during 2008. Other components of principal transactions revenue
during 2009 included principal trades for customers, realized and unrealized
gains from our investment portfolio and trading gains from making markets in
equity securities.




During
the year ended December 31, 2009, no single brokerage customer accounted for
more than 10% of our revenues.  During the year ended December 31,
2008, one brokerage customer accounted for more than 10% of our
revenue.




Compensation
and Benefits Expenses




Compensation
and benefits expense represents the majority of our operating expenses and
includes commissions, base salaries, discretionary bonuses and stock-based
compensation. Commissions are typically paid to sales representatives based on
their production.  Historically, these employees have not been
eligible for discretionary bonuses. Investment banking, research, support and
executives are salaried and may participate in the discretionary bonus plan. The
bonus pool is funded based on a number of criteria including revenue production,
profitability and other key metrics. However, the total bonuses pool is
considered by management and the Board of Directors and can be adjusted at their
discretion. Salaries, payroll taxes and employee benefits tend to vary based on
title and overall headcount.




The
following table sets forth the major components of our compensation and benefits
for the three years ended December 31, 2009:





2009
                        
                        
                        2008Incentive
      compensation and discretionary bonuses
                        
                        $
                        31,273,090
                        
                        
                        $
                        17,824,388Salaries
      and wages
                        
                        
                        7,280,251
                        
                        
                        
                        13,009,535Stock-based
      compensation
                        
                        
                        837,822
                        
                        
                        
                        2,353,383Payroll
      taxes, benefits and other
                        
                        
                        2,341,943
                        
                        
                        
                        3,483,151Total
      compensation and benefits
                        
                        $
                        41,733,106
                        
                        
                        $
                        36,670,457Total
      compensation and benefits as a percentage of revenue
                        
                        
                        85
                        %
                        
                        
                        100
                        %Cash
      compensation and benefits as a percentage of revenue
                        
                        
                        83
                        %
                        
                        
                        94
                        %





The
increase in compensation and benefits expense of $5,063,000, or 14%, from 2008
to 2009 was due primarily to higher commissions paid to the ICD partners,
reflecting higher ICD revenues.  On a pro-forma basis, compensation
declined by about 44% due to lower headcount and lower incentive compensation
which is directly correlated to revenue production. On a pro-forma basis, total
compensation declined to 71% of total revenue in 2009 compared to 83% in
2008.  Cash compensation is equal to total compensation and benefits
expense excluding stock-based compensation, which is a non-cash
expense.




Our
headcount decreased from 198 as of January 1, 2008 to 128 at December 31, 2008,
and decreased further to 94 at December 31, 2009, including about 12 employees
of ICD who will be transitioned out of the Company when we cease to provide
support services to ICD in 2010. No single sales professional accounted for more
than 10% of our revenue in 2009.  Two single sales professionals each
accounted for more than 10% of our revenue in 2008.





40





Other
Operating Expenses




Brokerage
and clearing fees include trade processing expenses that we pay to our clearing
broker and execution fees that we pay to floor brokers and electronic
communication networks. MCF is a fully-disclosed broker-dealer, which has
engaged a third-party clearing broker to perform all of the clearance functions.
The clearing broker-dealer processes and settles the customer transactions for
MCF and maintains the detailed customer records. Security trades are executed by
third-party broker-dealers and electronic trading systems. These expenses are
almost entirely variable with commissions revenue and the volume of brokerage
transactions. The decrease in brokerage and clearing fees of $2,048,000, or 67%,
from 2008 to 2009 is a result of lower brokerage business and
revenues.




Professional
services expense includes accounting fees, expenses related to investment
banking transactions and various consulting fees. The decrease of $6,648,000, or
73%, from 2008 to 2009 reflected lower legal fees in this expense
category.




Occupancy
and equipment includes rental costs for our office facilities and equipment, as
well as equipment, software and leasehold improvement expenses. Occupancy
expense is largely fixed in nature while equipment expense tends to increase or
decrease in direct relation to the number of employees we have. The decrease of
$155,000, or 7%, from 2008 to 2009 on a pro-forma basis is due to a decline in
purchase of equipment and the subletting of excess office space.




Communications
and technology expense includes market data and quote services, voice, data and
Internet service fees, and data processing costs.  The decrease of
$399,000, or 11%, from 2008 to 2009 is a result of our efforts to reduce non
revenue-generating costs.




Depreciation
and amortization expense primarily relate to the depreciation of our computer
equipment and leasehold improvements. Depreciation and amortization are mostly
fixed in nature.  The decrease of $228,000 or 32% is a result of fewer
purchases of equipment and leasehold improvements, reducing the depreciable base
of assets.





Travel
and business development expenses are incurred by each of our lines of business
and include business development costs by our investment bankers, travel costs
for our research analysts to visit the companies that they cover and non-deal
road show expenses. Non-deal road shows represent meetings in which management
teams of our corporate clients present directly to our institutional
investors.  The decrease of $1,414,000, or 48%, from 2008 to 2009 is a
result of our cost savings efforts, partially offset by increased sales efforts.
Syndicate expenses related to securities offerings in which we act as
underwriter or agent are deferred until either the related revenue is recognized
or we determine that the security offerings are unlikely to be
completed.





Legal
services and litigation settlement expenses were incurred in connection with our
activities in 2009.  We concluded a number of legal cases by
settlement.  We incurred expenses in the settlement and related to
other outstanding legal cases.




The
following expenses are included in other operating expenses for the two years
ended December 31, 2009:





2009
                  
                  
                  2008Investor
      conferences
                  
                  $
                  93,245
                  
                  
                  $
                  817,177Recruiting
                  
                  
                  31,352
                  
                  
                  
                  288,500Public
      and investor relations
                  
                  
                  138,837
                  
                  
                  
                  508,692Provision
      for uncollectible accounts receivable
                  
                  
                  160,073
                  
                  
                  
                  347,410Insurance
                  
                  
                  466,329
                  
                  
                  
                  450,872Supplies
                  
                  
                  168,057
                  
                  
                  
                  335,778Dues
      and subscriptions
                  
                  
                  149,847
                  
                  
                  
                  359,606Other
                  
                  
                  1,118,355
                  
                  
                  
                  1,303,093Total
      other operating expenses
                  
                  $
                  2,326,095
                  
                  
                  $
                  4,411,128





Reduced
expenses in other operating expenses is a result of our cost savings efforts,
partially offset by higher insurance expenses related to the Del
Biaggio/Cacchione fraud we experienced.





41





The
Company contests liability and/or the amount of damages as appropriate in each
pending matter. In view of the inherent difficulty of predicting the outcome of
such matters, particularly in cases where claimants seek substantial or
indeterminate damages or where investigations and proceedings are in the early
stages, we cannot predict with certainty the loss or range of loss, if any,
related to such matters; how or if such matters will be resolved; when they will
ultimately be resolved; or what the eventual settlement, fine, penalty or other
relief, if any, might be. Subject to the foregoing, we believe, based on current
knowledge and after consultation with counsel, that the outcome of such pending
matters will not have a material adverse effect on our Consolidated Statements
of Financial Condition, although the outcome of such matters could be material
to our operating results and cash flows for a particular future period,
depending on, among other things, the level our revenues, income or cash flows
for such period. We established appropriate legal reserves as of
December 31, 2009.




Interest
Income




Interest
income represents interest earned on our cash balances maintained at financial
institutions. The decrease of $360,000, or 96%, from 2008 to 2009 was due to
changes in average interest earning assets and average interest rates during
these periods.




Interest
Expense




Interest
expense for 2009 included $455,000 for interest expense and $886,000 for
amortization of discounts while 2008 included $70,000 for interest expense and
$2,500 for amortization of discounts.




Income
Tax Expense




We
recorded an income tax benefit of $628,000 and $1,635,000 in 2009 and 2008,
respectively, resulting in an effective tax rate of 10% and 5% in 2009 and 2008,
respectively. The effective tax rate differs from the statutory rate primarily
due to the existence and utilization of net operating loss carryforwards which
have been offset by a valuation allowance resulting in a tax provision equal to
our expected current expense for the year. We historically have had current tax
expense primarily related to alternative minimum, state and minimum tax
liabilities.




Historically
and currently, we have recorded a valuation allowance on our deferred tax
assets, the significant component of which relates to net operating loss tax
carryforwards. Management continually evaluates the realizability of its
deferred tax assets based upon negative and positive evidence available. Based
on the evidence available at this time, we continue to conclude that it is not
"more likely than not" that we will be able to realize the benefit of our
deferred tax assets in the near future.




The
Company adopted ASC Topic 740,Income Taxes on January 1, 2007. As a result of the implementation of ASC
740, the Company recognized no adjustment in the liability for unrecognized
income tax benefits and no corresponding change in retained earnings. During
2008, the Company recognized $1,839,000 of unrecognized tax benefits previously
established in 2007. Accordingly, there were no unrecognized tax benefits as of
December 31, 2008. The Company has no unrecognized tax benefit liabilities for
the year ended December 31, 2009. The Company does not have any material accrued
interest or penalties associated with any unrecognized tax benefits. The Company
does not believe it is reasonably possible that the unrecognized tax benefits
will significantly change within the next twelve months.




Discontinued
Operations




On April
17, 2007, we acquired 100% of the outstanding common shares of MedPanel Corp.
which we subsequently renamed Panel Intelligence, LLC and made into a subsidiary
of the Merriman Curhan Ford Group, Inc. The results of Panel’s operations have
been included in our consolidated financial statements since that date. As a
result of the acquisition, we began providing independent market data and
information to clients in the biotechnology, pharmaceutical, medical device, and
financial industries by leveraging Panel’s proprietary methodology and vast
network of medical experts.




We paid
$6.1 million in common stock for Panel. The value of the 1,547,743 shares of
common shares issued was determined based on the average market price of the our
common stock over the period including three days before and after the terms of
the acquisition were agreed to and announced. The selling stockholders were also
entitled to additional consideration on the third anniversary from the closing
which is based upon Panel achieving specific revenue and profitability
milestones.





42





In
December 2008, we determined that the sale of Panel would reduce investments
required to develop Panel’s business. Its sale would also generate capital
necessary for our core business. We determined that the plan of sale criteria in
ASC Topic 350,Intangibles – Goodwill
and Other , and ASC Topic 360,Property, Plant, and
Equipment , had been met. Accordingly, the carrying value of the Panel
assets was adjusted to their fair value less costs to sell. As a result, an
impairment loss in the amount of $1,937,000 was recorded for the period ended
December 31, 2009 and is included in “Other expenses” in the table in Note 9,
“Discontinued Operations.” In January 2009, we sold Panel to Panel Intelligence,
LLC (Newco) for $1,000,000 and shares of our common stock in the amount of
$100,000.




Critical
Accounting Policies and Estimates




The
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which require us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to the valuation of securities owned and deferred tax assets. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
could differ from those estimates. We believe the following critical accounting
policies affect our more significant judgments and estimates used in the
preparation of our consolidated financial statements.




Revenue
Recognition




Investment
banking revenue includes underwriting and private placement agency fees earned
through our participation in public offerings and private placements of equity
and convertible debt securities and fees earned as financial advisor in mergers
and acquisitions and similar transactions. Underwriting revenue is earned in
securities offerings in which we act as an underwriter and includes management
fees, selling concessions and underwriting fees. Fee revenue relating to
underwriting commitments is recorded when all significant items relating to the
underwriting cycle have been completed and the amount of the underwriting
revenue has been determined. This generally is the point at which all of the
following have occurred: (i) the issuer’s registration statement has become
effective with the SEC, or other offering documents are finalized, (ii) we have
made a firm commitment for the purchase of the shares or debt from the issuer,
and (iii) we have been informed of the exact number of shares or the principal
amount of debt that it has been allotted.




Syndicate
expenses related to securities offerings in which we act as underwriter or agent
are deferred until the related revenue is recognized or we determine that it is
more likely than not that the securities offerings will not ultimately be
completed. Underwriting revenue is presented net of related expenses. As
co-manager for registered equity underwriting transactions, management must
estimate our share of transaction-related expenses incurred by the lead manager
in order to recognize revenue. Transaction-related expenses are deducted from
the underwriting fee and therefore reduce the revenue that is recognized as
co-manager. Such amounts are adjusted to reflect actual expenses in the period
in which we receive the final settlement, typically 90 days following the
closing of the transaction.




Merger
and acquisition fees, and other advisory service revenue are generally earned
and recognized only upon successful completion of the engagement. Unreimbursed
expenses associated with private placement and advisory transactions are
recorded as expenses as incurred.




Commissions
revenue and related clearing expenses are recorded on a trade-date basis as
security transactions occur. Principal transactions in regular-way trades are
recorded on the trade date, as if they had settled. Profit and loss arising from
all securities and commodities transactions entered into for the account and
risk of our company are recorded on a trade-date basis.




Primary
research revenue is recognized on a proportional performance basis as services
are provided. It is reported in our financial statements under captions labeled
“Discontinued Operations.”




OTCQX
revenue is recognized in two parts – Due Diligence and Listing Fees. Due
Diligence Fees are recognized at its completion. The Listing Fees are pro-rated
monthly from the time the end of the Due Diligence period until the end of the
engagement term.





43





Fair
Value of Financial Instruments





The
Company adopted the provisions of the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 820,Fair Value Measurements
and Disclosures  (“ASC 820”), effective January 1, 2008.
Under this guidance, fair value is defined as the price that would be received
to sell an asset or paid to transfer a liability (i.e. , the “exit price”) in
an orderly transaction between market participants at the measurement
date.





Fair
Value Measurement—Definition and Hierarchy





Where
available, fair value is based on observable market prices or parameters, or
derived from such prices or parameters. Where observable prices or inputs are
not available, valuation models are applied. These valuation techniques involve
some level of management estimation and judgment, the degree of which is
dependent on the price transparency for the instruments or market and the
instruments’ complexity. Assets and liabilities recorded at fair value in the
consolidated statement of financial condition are categorized based upon the
level of judgment associated with the inputs used to measure their fair value.
Hierarchical levels, defined by ASC 820 and directly related to the amount of
subjectivity associated with the inputs to fair valuation of these assets and
liabilities, are as follows:





Level 1 —
Inputs are unadjusted, quoted prices in active markets for identical assets or
liabilities at the measurement date. The types of assets and liabilities carried
at Level 1 fair value generally are G-7 government and agency securities,
equities listed in active markets, investments in publicly traded mutual funds
with quoted market prices and listed derivatives.





Level 2 —
Inputs (other than quoted prices included in Level 1) are either directly or
indirectly observable for the asset or liability through correlation with market
data at the measurement date and for the duration of the instrument’s
anticipated life. Fair valued assets that are generally included in this
category are stock warrants for which there are market-based implied
volatilities, unregistered common stock and thinly traded common
stock.





Level 3 —
Inputs reflect management’s best estimate of what market participants would use
in pricing the asset or liability at the measurement date. Consideration is
given to the risk inherent in the valuation technique and the risk inherent in
the inputs to the model. Generally, assets carried at fair value and included in
this category include stock warrants for which market-based implied volatilities
are not available.  The valuation of these securities may require
management estimates of some or all the inputs, including
volatilities.





In
certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for
disclosure purposes, the level in the fair value hierarchy within which the fair
value measurement falls in its entirety is determined based on the lowest level
input that is significant to the fair value measurement in its
entirety.





For
further information on financial assets and liabilities that are measured at
fair value on a recurring and nonrecurring basis, and a description of valuation
techniques, see Note 6.




Stock-Based
Compensation




We
measure and recognize compensation expense based on estimated fair values for
all share-based awards made to employees and directors, including stock options,
restricted stock, and participation in our employee stock purchase plan.
Share-based compensation expense recognized in our consolidated statement of
operations for the two years ended December 31, 2009 includes compensation
expense for share-based awards granted (i) prior to, but not yet vested as of
December 31, 2005, based on the grant date fair value, and (ii) subsequent to
December 31, 2005.  Compensation expense for all share-based awards
subsequent to December 31, 2005 is recognized using the straight-line
single-option method.




We
estimate the fair value of stock options granted using the Black-Scholes option
pricing model. This model requires the input of highly subjective assumptions,
including the option’s expected life and the price volatility of the underlying
stock. The expected life of employee stock options represents the
weighted-average period the stock options are expected to remain outstanding. We
calculated the expected term using the Black-Scholes model with specific
assumptions about the suboptimal exercise behavior, post-vesting termination
rates and other relevant factors. The expected stock price volatility was
determined using the historical volatility of our common stock. The fair value
is then amortized on a straight-line basis over the requisite service periods of
the awards, which is generally the vesting period.





44





Because
share-based compensation expense is based on awards that are ultimately expected
to vest, it has been reduced to account for estimated forfeitures. Forfeitures
are estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. Changes in inputs and
assumptions used in our model, including forfeiture rates, can materially affect
the measure of estimated fair value of our share-based
compensation.




Change
in Warrant Liabilities





Stock
warrants to purchase the Company’s common stock issued to our investors and
creditors are rights to purchase our common stock.  Such positions are
considered illiquid and do not have readily determinable fair values, and
therefore require significant management judgment or estimation. For the warrant
derivative liabilities, we use the Black-Scholes valuation methodology or
similar techniques.





On
December 28, 2009, we received binding agreements from 100% of the holders of
our warrants agreeing to amend the warrants to remove the ratchet provision
which had triggered the derivative accounting giving rise to the warrant
liability.  As of the date of amendment, the Company marked the
warrant liability on its Consolidated Statements of Financial Condition to
market value and reclassified the market value of $10,073,000 to additional
paid-in capital. The change in warrant liability market value of $16,551,000 was
recorded to change in fair value of warrant liability on the Consolidated
Statements of Operations. We no longer account for the warrants as derivatives
and no longer carry a warrant liability as of December 31, 2009 and all other
future periods.  At December 31, 2009, the Company included $139,000
due to the warrant holders in accrued liabilities in consideration for the
amendment.




Income
Taxes





The
Company uses the asset and liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation allowance is
recorded to reduce deferred tax assets to an amount whose realization is more
likely than not. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the consolidated statements of operations in the
period that includes the enactment date.





Use
of Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates, judgments and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses. Actual results could differ from those
estimates.





Segment
Reporting





The
Company has determined that it has only one operating and reportable segment,
MCF, for the purpose of making operating decisions and assessing performance,
which comprised most of the Company’s consolidated total assets as of December
31, 2009 and consolidated total revenues for the year ended December 31,
2009.  In the fourth quarter of 2008, Merriman Curhan Ford Group, Inc.
decided to liquidate the funds under management by MCF Asset Management, LLC,
which was no longer considered by management as an operating and reportable
segment.   In January 2009, the Company sold its primary research
business, Panel Intelligence, LLC, and has presented its results of operations
as discontinued operations.





45





Goodwill
and Intangible Assets





In
accordance with ASC Topic 350,Intangibles – Goodwill and Others (“ASC 350”), indefinite-life intangible
assets and goodwill are not amortized. Rather, they are subject to impairment
testing on an annual basis or more often if events or circumstances indicate
there may be impairment. This test involves assigning tangible assets and
liabilities, identified intangible assets and goodwill to reporting units and
comparing the fair value of each reporting unit to its carrying amount. If the
fair value is less than the carrying amount, a further test is required to
measure the amount of the impairment.  When available, we use recent,
comparable transactions to estimate the fair value of the respective reporting
unit. We calculate an estimated fair value based on multiples of revenue,
earnings, and book value of comparable transactions. However, when such
comparable transactions are not available or have become outdated, we use
discounted cash flow scenarios to estimate the fair value of the reporting
units.





The
goodwill and intangible assets recorded were related to Panel assets and were
classified as held for sale in our financial statements for the year ended
December 31, 2008.  During 2008, we recorded impairments to goodwill
and intangible assets in the amounts of $3,338,000 and $1,301,000,
respectively.  At December 31, 2008, the assets held for sale included
no remaining goodwill and $283,000 of intangible assets after impairment and
depreciation.  During the year ended December 31, 2009, the Company
sold Panel, hence, as of December 31, 2009, the Company did not have assets held
for sale, goodwill or intangible assets reported on its balance
sheets.





Liquidity
and Capital Resources




As of
December 31, 2009, liquid assets consisted primarily of cash and cash
equivalents of $5,657,000 and marketable securities of $4,729,000, for a total
of $10,386,000, which is $595,000 lower than $10,981,000 in liquid assets
as of December 31, 2008.




Cash and
cash equivalents decreased by $924,000 during 2009. Cash used in our operating
activities for 2009 was $12,648,000 which primarily consists of our net loss of
$5,462,000 adjusted for non-cash expenses, including unrealized loss on
securities owned of $1,295,000 and noncash legal expenses of 1,231,000, offset
by a change in warrant liability of $6,821,000, gain on sale of ICD of
$2,000,000, increase in Securities owned and sold, but not purchased, the
decrease in commissions and bonus payable of $946,000, the decrease of accrued
liabilities of $1,629,000, net stock-based compensation of $838,000,
depreciation and amortization of $488,000, and provision for doubtful accounts
of $128,000. Cash provided by investing activities amounted to $2,694,000 during
2009 which reflects our sale of ICD for $2,000,000 and our sale of Panel for
$703,000. Cash provided by our financing activities was $9,030,000. Our
financing activities included strategic transactions which raised net proceeds
of $8,808,000 on September 8, 2009 through the sale of Series D Convertible
preferred stock, proceeds from convertible debt financing of $625,000 and
proceeds from issuance of a bridge note of $500,000, partially offset by debt
service payments of $637,000.




MCF, as a
broker-dealer, is subject to Rule 15c3-1 of the Securities Exchange Act of 1934,
which specifies uniform minimum net capital requirements, as defined, for their
registrants. As of December 31, 2009, MCF had regulatory net capital of
$2,685,000, which exceeded the amount required by $2,369,000.





During
the year ended December 31, 2009, the Company incurred a net loss of $5,462,000
and used $12,648,000 in net cash from operating activities.  At
December 31, 2009, the Company had cash and cash equivalents of $5,657,000,
marketable securities of $4,729,000 and receivables from clearing broker of
$2,547,000.  The Company had liabilities of $8,107,000.  The
Company’s ability to generate profits is highly dependent on stock market
trading volumes and the general economic environment.





In 2008
and 2009, we aggressively reduced our cost structure by exiting businesses and
eliminating positions which were not essential to generate
revenues.  We also examined all our expenses and eliminated those
deemed to be unessential.  We settled all the legal cases we believed
were the most threatening.  Going into 2010, we believe our current
funds are sufficient to enable us to meet our planned expenditures through at
least January 1, 2011.  If anticipated operating results are not
achieved, we intend and we believe we have the ability to delay or reduce
expenditures, if not to raise additional financing.  Failure to
generate sufficient cash flows from operations, raise additional capital or
reduce certain discretionary spending could have a material adverse effect on
our ability to achieve our intended business objectives.





46





Commitments




The
following is a table summarizing our significant commitments as of December 31,
2009, consisting of non-cancellable payments under operating agreements and
leases and capital leases with initial or remaining terms in excess of one
year.




Operating
                  
                  
                  Operating
                  
                  
                  CapitalCommitments
                  
                  
                  Leases
                  
                  
                  Leases2010
                  
                  $
                  632,424
                  
                  
                  $
                  1,696,102
                  
                  
                  $
                  268,8532011
                  
                  
                  312,846
                  
                  
                  
                  1,616,545
                  
                  
                  
                  146,6472012
                  
                  
                  100,080
                  
                  
                  
                  1,096,230
                  
                  
                  
                  -2013
                  
                  
                  -
                  
                  
                  
                  616,000
                  
                  
                  
                  -2014
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Thereafter
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      commitments
                  
                  
                  1,045,350
                  
                  
                  
                  5,024,877
                  
                  
                  
                  415,500Interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (17,542
                  )Net
      commitments
                  
                  $
                  1,045,350
                  
                  
                  $
                  5,024,877
                  
                  
                  $
                  397,958





Off-Balance
Sheet Arrangements




We were
not a party to any off-balance sheet arrangements during the two years ended
December 31, 2009. In particular, we do not have any interest in so-called
limited purpose entities, which include special purpose entities and structured
finance entities.





Newly
Issued Accounting Standards




On July
1, 2009, we adopted the Financial Accounting Standards Board (“FASB”),
Accounting Standards Codification (“ASC”). The ASC does not alter current
generally accepted accounting principles in the United States of America (“U.S.
GAAP”), but rather integrated existing accounting standards with other
authoritative guidance. The ASC provides a single source of authoritative U.S.
GAAP for nongovernmental entities and supersedes all other previously issued
non-SEC accounting and reporting guidance. The adoption of the ASC did not have
any effect on our results of operations or financial position. All prior
references to U.S. GAAP have been revised to conform to the ASC. Updates to the
ASC are issued in the form of Accounting Standards Updates (“ASU”).





In
January 1, 2009, we adopted the revisions to U.S. GAAP accounting standards
included in ASC Topic 815,Derivatives and Hedging (“ASC 815”). ASC 815 applies to any
freestanding financial instruments or embedded features that have the
characteristics of a derivative and to any freestanding financial instruments
that are potentially settled in an entity’s own common stock. As a result of
adopting ASC 815, warrants to purchase shares of our common stock previously
treated as equity pursuant to the derivative treatment exemption were no longer
afforded equity treatment.The adoption of the revised guidance related to derivatives and
hedging resulted in classification of certain warrants issued during the quarter
in connection with financing activities as derivative liabilities with mark to
market accounting. See Note 5 for additional information regarding the
accounting for the warrant liabilities.





47





In April
2009, we adopted the revisions to U.S. GAAP accounting standards included in ASC
Topic 825,Financial
Instruments (“ASC 825”), which requires public companies to include
disclosures required for all financial instruments within the scope of
ASC 825 in their interim financial statements. In addition, this guidance
requires disclosure about the method and significant assumptions to estimate
fair value of financial instruments and disclosure of changes in the methods or
significant assumptions, if any, during the period. The adoption of the revised
guidance related to financial statement disclosure only and did not have any
effect on our results of operations or financial position.





Also in
April 2009, we adopted the revisions to U.S. GAAP accounting standards included
in ASC Topic 820, which provides additional guidance in determining whether
a market for a financial asset is not active and a transaction is not distressed
for fair value measurement purposes. This guidance does not have a
significant impact on our financial position, results of operations, or cash
flows.





We
adopted the revisions to U.S. GAAP accounting standards included in ASC
Topic 855 (“ASC 855”),Subsequent Events , and the FASB amendment ASU 2010-09, which establish
the accounting and disclosure of events that occur after the balance sheet date
but before financial statements are issued. This guidance did not have any
impact on the Company’s financial position, results of operations, or cash
flows.





ASC Topic
810,Consolidation(“ASC 810”), as amended in June 2009, is a revision to
pre-existing guidance pertaining to the consolidation and disclosures of
variable interest entities. Specifically, it changes how a reporting entity
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to consolidate another
entity is based on, among other things, the other entity’s purpose and design
and the reporting entity’s ability to direct the activities of the other entity
that most significantly impact the other entity’s economic
performance. This guidance will require a reporting entity to provide
additional disclosures about its involvement with variable interest entities and
any significant changes in risk exposure due to that involvement. A reporting
entity will be required to disclose how its involvement with a variable interest
entity affects the reporting entity’s financial statements. This guidance will
be effective at the start of a reporting entity’s first fiscal year beginning
after November 15, 2009. Early application is not permitted. We are
currently evaluating the impact on our financial statements, if any, upon
adoption.





In
January 2010, the FASB amended ASC 820 to require new disclosures for fair value
measurements and provides clarification for existing disclosures requirements.
More specifically, this update will require (a) an entity to disclose
separately the amounts of significant transfers in and out of Levels 1 and
2 fair value measurements and to describe the reasons for the transfers; and
(b) information about purchases, sales, issuances and settlements to be
presented separately (i.e., present the activity on a gross basis rather than
net) in the reconciliation for fair value measurements using significant
unobservable inputs (Level 3 inputs). This update clarifies existing
disclosure requirements for the level of disaggregation used for classes of
assets and liabilities measured at fair value and requires disclosures about the
valuation techniques and inputs used to measure fair value for both recurring
and nonrecurring fair value measurements using Level 2 and Level 3
inputs. ASU 2010-6 is effective for interim and annual fiscal years beginning
after December 15, 2009. The Company does not anticipate that the adoption
of this statement will materially expand its consolidated financial statement
footnote disclosures.





Related
Party Transactions





Unsecured
Promissory Notes





On June
30, 2009, we issued $300,000 in unsecured promissory notes to three of its
employees at an interest rate of 3.25%.  The maturity date of the
notes was October 31, 2009, although they were repayable earlier on the
occurrence of certain events. These notes were paid in full in
cash.





48





Unsecured
Debt





On July
29, 2009, Mr. D. Jonathan Merriman, the Company’s CEO, and Mr. Brock Ganeles,
MCF’s Head of Brokerage, made short-term loans to the Company in the amounts of
$200,000 and $300,000, respectively.  Mr. Merriman’s loan was repaid
on August 5, 2009.  Mr. Merriman forgave the interest on his
loan.  Mr. Ganeles’ loan was repaid on August 20, 2009.  The
Company paid Mr. Ganeles interest in the amount of $9,403.





Bridge
Note





On July
31, 2009, the Company issued Mr. Ronald L. Chez, the lead investor in the Series
D Transaction, a Secured Promissory Note in the amount of $500,000 at an annual
interest rate of 9.00%.  The term of the Note was three years,
redeemable by Mr. Chez upon presentation of written demand.  The Note
was guaranteed personally by Messrs. Jonathan Merriman (CEO) and Peter Coleman
(CFO).  The Company issued 10-year warrants to purchase 1,162,791
shares of the Company’s common stock at $0.65 per share to Mr. Chez in
connection with this transaction.  Identical warrants were issued to
purchase 581,395 shares of the Company’s common stock each to Messrs. Merriman
and Coleman for the guarantee.





The
Bridge Note was converted into the Series D Convertible Preferred Stock on
September 8, 2009.  Subsequent to the Series D Transaction, Mr. Chez
has joined the Company’s Board of Directors.





Series
D Convertible Preferred Stock





On
September 8, 2009, the Company issued 23,720,916 shares of Series D Convertible
Preferred Stock along with 5-year warrants to purchase 23,720,916 shares of the
Company’s common stock at $0.65 per share.  The investor group
constituted of 56 individuals and entities, including certain officers,
directors and employees of the Company, as well as outside
investors.





The
Series D Convertible Preferred Stock was issued in a private placement exempt
from registration requirements pursuant to Regulation D of the Securities Act of
1933, as amended.  Cash consideration was deposited into escrow on or
around August 27, 2009.  Each share of Series D Convertible Preferred
Stock is convertible into one share of Common Stock of the
Company.  The Series D Convertible Preferred Stock carries a dividend
rate of 6% per annum, payable in cash monthly.





Three
of the investors in the Series D Convertible Preferred Stock transaction,
Messrs. Andrew Arno, Douglas Bergeron, and Ronald Chez, have since joined the
Company’s Board of Directors.  In addition, the Company’s CEO and CFO,
along with 11 other executives and senior managers of MCF were also investors in
the Series D Convertible Preferred Stock transaction.  Finally, all 5
members of the Company’s Board of Directors prior to the transaction were
investors in the Series D Convertible Preferred Stock transaction.





Secured
Demand Note





On August
12, 2009, the Company obtained a Temporary Secured Demand Note (“Demand Note”)
in the amount of $1,329,000 from the D. Jonathan Merriman Living Trust as a
subordinated loan.  The trustee of the Trust, D. Jonathan Merriman, is
also the Chief Executive Officer of the Company.  The Demand Note was
collateralized by securities held in a brokerage account held at a third party
by the Trust.  The Demand Note was repaid on September 23, 2009 and
the securities were transferred back to the Trust.  The Company
compensated the Trust with total interest and fees in the amount of $179,000,
the majority of which was reinvested in the Series D Convertible Preferred Stock
transaction.





Temporary
Subordinated Loan





On
January 22, 2010, the Company obtained subordinated loans amounting to an
aggregate of $11,000,000 from DGB Investment, Inc. and the Bergeron Family
Trust, both entities controlled by Douglas G. Bergeron. Mr. Bergeron is a member
of the Parent’s Board of Directors. (For further information, please refer to
Note 21, “Subsequent Events.”)





From time
to time, officers and employees of the Company may invest in private placements,
which the Company arranges and for which the Company charges investment banking
fees.





The
Company’s employees may, at times, provide certain services and supporting
functions to its affiliate entities. The Company is not reimbursed for any costs
related to providing those services.





49





Item
7a. Quantitative and Qualitative Disclosures about Market Risk




The
following discussion about market risk disclosures involves forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements. We may be exposed to market risks related to changes
in equity prices, interest rates and foreign currency exchange rates. We do not
use derivative financial instruments for speculative trading or any other
purpose.




Equity
Price Risk




The
potential for changes in the market value of our trading positions is referred
to as “market risk.” Our trading positions result from proprietary trading
activities. These trading positions in individual equities and equity indices
may be either long or short at any given time. Equity price risks result from
exposures to changes in prices and volatilities of individual equities and
equity indices. We seek to manage this risk exposure through diversification and
limiting the size of individual positions within the portfolio. The effect on
earnings and cash flows of an immediate 10% increase or decrease in equity
prices generally is not ascertainable and could be positive or negative,
depending on the positions we hold at the time. We do not establish hedges in
related securities or derivatives. From time to time, we also hold equity
securities received as compensation for our services in investment banking
transactions. These equity positions are always long; however, as the prices of
individual equity securities do not necessarily move in tandem with the
direction of the general equity market, the effect on earnings and cash flows of
an immediate 10% increase or decrease in equity prices generally is not
ascertainable.




Interest
Rate Risk




Our
exposure to market risk resulting from changes in interest rates relates
primarily to our investment portfolio and long term debt obligations. Our
interest income and cash flows may be impacted by changes in the general level
of U.S. interest rates. We do not hedge this exposure because we believe that we
are not subject to any material market risk exposure due to the short-term
nature of our investments. We would not expect an immediate 10% increase or
decrease in current interest rates to have a material effect on the fair market
value of our investment portfolio.




Foreign
Currency Risk




We do not
have any foreign currency denominated assets or liabilities or purchase
commitments and have not entered into any foreign currency contracts.
Accordingly, we are not exposed to fluctuations in foreign currency exchange
rates.





50





Item
8. Financial Statements and Supplementary Data





The
following financial statements are included in this report:





·
              Report
      of Independent Registered Public Accounting
Firm




·
              Consolidated
      Statements of Operations




·
              Consolidated
      Statements of Financial
Condition




·
              Consolidated
      Statements of Stockholders’
Equity




·
              Consolidated
      Statements of Cash Flows




·
              Notes
      to Consolidated Financial
Statements





Schedules
other than those listed above are omitted because of the absence of conditions
under which they are required or because the required information is presented
in the financial statements or notes thereto.





51





Report
of Independent Registered Public Accounting Firm





To the
Board of Directors and Stockholders of


Merriman
Curhan Ford Group, Inc.




We have
audited the accompanying consolidated statement of financial condition of
Merriman Curhan Ford Group, Inc. (the Company) as of December 31, 2009, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year ended December 31, 2009.  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.  The consolidated financial statements of the Company as
of  December 31, 2008 were audited by other auditors whose report
dated March 30, 2009 expressed an unqualified opinion on those statements and
included an explanatory paragraph that referred to substantial doubt about the
Company’s ability to continue as a going concern.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated 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 provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company as of
December 31, 2009, and the consolidated results of its operations and its cash
flows for the year ended December 31, 2009 in conformity with accounting
principles generally accepted in the United States of America.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2009, based on criteria established inInternal
Control-Integrated Framework  issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
March 18, 2010 expressed an unqualified opinion.




/s/
      Burr Pilger Mayer, Inc.San
      Francisco, California
                March
      18, 2010





52





Report
of Independent Registered Public Accounting Firm





The Board
of Directors and Stockholders of


Merriman
Curhan Ford Group, Inc.





We have
audited the accompanying consolidated statements of financial condition of
Merriman Curhan Ford Group, Inc. (the Company) as of December 31, 2008, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year ended December 31, 2008.  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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Merriman Curhan Ford
Group, Inc. at December 31, 2008, and the consolidated results of its operations
and its cash flows for the year then ended, in conformity with U.S.
generally accepted accounting principles.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has incurred recurring operating
losses and is facing significant litigation as more fully described in the
footnotes to the 2008 consolidated financial statements. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters also are described in the
footnotes to the 2008 consolidated financial statements. The 2008 financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.




/s/
      Ernst & Young LLPSan
      Francisco, California
                March
      30, 2009





53





MERRIMAN
CURHAN FORD GROUP, INC.




CONSOLIDATED
STATEMENTS OF OPERATIONS




2009
                
                
                2008Revenue:Commissions
                
                $
                40,180,288
                
                
                $
                33,678,706Principal
      transactions
                
                
                (21,702
                )
                
                
                (9,040,218
                )Investment
      banking
                
                
                7,236,059
                
                
                
                11,432,454Advisory
      and other
                
                
                1,868,397
                
                
                
                496,894Total
      revenue
                
                
                49,263,042
                
                
                
                36,567,836Operating
      expenses:Compensation
      and benefits
                
                
                41,733,106
                
                
                
                36,670,457Brokerage
      and clearing fees
                
                
                994,312
                
                
                
                3,042,133Professional
      services
                
                
                2,514,225
                
                
                
                9,161,729Occupancy
      and equipment
                
                
                2,148,733
                
                
                
                2,303,944Communications
      and technology
                
                
                3,364,171
                
                
                
                3,762,954Depreciation
      and amortization
                
                
                477,729
                
                
                
                705,883Travel
      and entertainment
                
                
                1,507,107
                
                
                
                2,921,196Legal
      services and litigation settlement expense
                
                
                7,776,917
                
                
                
                -Other
                
                
                2,326,095
                
                
                
                4,411,128Total
      operating expenses
                
                
                62,842,395
                
                
                
                62,979,424Operating
      loss
                
                
                (13,579,353
                )
                
                
                (26,411,588
                )Other
      income
                
                
                2,000,000
                
                
                
                -Change
      in warrant liability
                
                
                6,910,656
                
                
                
                -Interest
      income
                
                
                15,658
                
                
                
                375,949Interest
      expense
                
                
                (1,341,753
                )
                
                
                (72,304
                )Loss
      from continuing operations before income taxes
                
                
                (5,994,792
                )
                
                
                (26,107,943
                )Income
      tax benefit
                
                
                627,923
                
                
                
                1,635,214Loss
      from continuing operations
                
                
                (5,366,869
                )
                
                
                (24,472,729
                )Loss
      from discontinued operations
                
                
                (94,894
                )
                
                
                (5,801,076
                )Net
      loss
                
                
                (5,461,763
                )
                
                
                (30,273,805
                )Preferred
      stock deemed dividend
                
                $
                (5,066,702
                )
                
                $
                -Preferred
      stock cash dividend
                
                $
                (192,100
                )
                
                $
                -Net
      loss attributable to common shareholders
                
                $
                (10,720,565
                )
                
                $
                (30,273,805
                )Basic
      and diluted net loss per share:Loss
      from continuing operations
                
                $
                (0.42
                )
                
                $
                (1.95
                )Loss
      from discontinued operations
                
                
                (0.01
                )
                
                
                (0.46
                )Net
      loss
                
                $
                (0.43
                )
                
                $
                (2.41
                )Net
      loss attributable to common shareholders
                
                $
                (0.84
                )
                
                $
                (2.41
                )Weighted
      average number of common shares:Basic
      and diluted
                
                
                12,693,648
                
                
                
                12,550,872





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





54




MERRIMAN
CURHAN FORD GROUP, INC.




CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION




2009
                    
                    
                    2008ASSETSCash
      and cash equivalents
                    
                    $
                    5,656,750
                    
                    
                    $
                    6,358,128Securities
      owned:Marketable,
      at fair value
                    
                    
                    4,728,940
                    
                    
                    
                    4,622,577Not
      readily marketable, at estimated fair value
                    
                    
                    272,463
                    
                    
                    
                    366,061Other
                    
                    
                    67,448
                    
                    
                    
                    185,065Restricted
      cash
                    
                    
                    1,072,086
                    
                    
                    
                    1,131,182Due
      from clearing broker
                    
                    
                    2,546,581
                    
                    
                    
                    1,752,535Accounts
      receivable, net
                    
                    
                    470,992
                    
                    
                    
                    612,234Prepaid
      expenses and other assets
                    
                    
                    801,946
                    
                    
                    
                    619,759Equipment
      and fixtures, net
                    
                    
                    506,535
                    
                    
                    
                    1,260,011Assets
      held for sale
                    
                    
                    -
                    
                    
                    
                    1,958,038Total
      assets
                    
                    $
                    16,123,741
                    
                    
                    $
                    18,865,590LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilities:Accounts
      payable
                    
                    $
                    346,220
                    
                    
                    $
                    712,591Commissions
      and bonus payable
                    
                    
                    4,133,924
                    
                    
                    
                    3,182,941Accrued
      expenses
                    
                    
                    2,755,831
                    
                    
                    
                    3,637,345Due
      to clearing and other brokers
                    
                    
                    7,185
                    
                    
                    
                    28,022Securities
      sold, not yet purchased
                    
                    
                    161,461
                    
                    
                    
                    903,217Deferred
      revenue
                    
                    
                    304,334
                    
                    
                    
                    709,691Capital
      lease obligation
                    
                    
                    397,958
                    
                    
                    
                    923,683Liabilities
      held for sale
                    
                    
                    -
                    
                    
                    
                    1,052,899Total
      liabilities
                    
                    
                    8,106,913
                    
                    
                    
                    11,150,389Stockholders’
      equity:Convertible
      Preferred stock, Series A–$0.0001 par value; 2,000,000
      shares authorized; 2,000,000 shares issued and 0 shares
      outstanding as of December 31, 2009 and 2008; aggregate liquidation
      preference of $0
                    
                    
                    -
                    
                    
                    
                    -Convertible
      Preferred stock, Series B–$0.0001 par value; 12,500,000
      shares authorized; 8,750,000 shares issued and 0 shares outstanding
      as of December 31, 2009 and 2008; aggregate liquidation preference of
      $0
                    
                    
                    -
                    
                    
                    
                    -Convertible
      Preferred stock, Series C–$0.0001 par value; 14,200,000
      shares authorized; 11,800,000 shares issued and 0 shares outstanding
      as of December 31, 2009 and 2008; aggregate liquidation preference of
      $0
                    
                    
                    -
                    
                    
                    
                    -Convertible
      Preferred stock, Series D–$0.0001 par value; 24,000,000 shares authorized,
      23,720,916 shares issued and 23,720,916 shares outstanding as of December
      31, 2009; and 0 shares authorized, issued and outstanding as of
      December 31, 2008; aggregate liquidation preference of $10,199,994 prior
      to conversion, and pari passu with common stock on
    conversion
                    
                    
                    2,372
                    
                    
                    
                    -Common
      stock, $0.0001 par value; 300,000,000 shares authorized; 12,988,073 and
      12,756,656 shares issued and 12,786,496 and 12,730,218 shares outstanding
      as of December 31, 2009 and 2008, respectively
                    
                    
                    1,299
                    
                    
                    
                    1,278Additional
      paid-in capital
                    
                    
                    133,054,192
                    
                    
                    
                    127,193,195Treasury
      stock
                    
                    
                    (225,613
                    )
                    
                    
                    (125,613
                    )Accumulated
      deficit
                    
                    
                    (124,815,422
                    )
                    
                    
                    (119,353,659
                    )Total
      stockholders’ equity
                    
                    
                    8,016,828
                    
                    
                    
                    7,715,201Total
      liabilities and stockholders’ equity
                    
                    $
                    16,123,741
                    
                    
                    $
                    18,865,590





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





55


MERRIMAN CURHAN FORD GROUP,
INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY




AdditionalPreferred
      Stock
                                    
                                    
                                    Common
      Stock
                                    
                                    
                                    Treasury
      Stock
                                    
                                    
                                    Paid-in
                                    
                                    
                                    AccumulatedShares
                                    
                                    
                                    Amount
                                    
                                    
                                    Shares
                                    
                                    
                                    Amount
                                    
                                    
                                    Shares
                                    
                                    
                                    Amount
                                    
                                    
                                    Capital
                                    
                                    
                                    Deficit
                                    
                                    
                                    TotalBalance
      at January 1, 2008
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    12,310,886
                                    
                                    
                                    $
                                    1,232
                                    
                                    
                                    
                                    (26,438
                                    )
                                    
                                    $
                                    (125,613
                                    )
                                    
                                    $
                                    124,010,283
                                    
                                    
                                    $
                                    (89,079,854
                                    )
                                    
                                    $
                                    34,806,048Net
      loss
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (30,273,805
                                    )
                                    
                                    
                                    (30,273,805
                                    )Conversion
      of debt to common stock
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    142,858
                                    
                                    
                                    
                                    14
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    199,986
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    200,000Issuance
      of common stock for MedPanel acquisition
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    47,623
                                    
                                    
                                    
                                    5
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    193,345
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    193,350Issuance
      of common stock
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    52,938
                                    
                                    
                                    
                                    5
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    95,298
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    95,303Issuance
      of restricted common stock
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    79,265
                                    
                                    
                                    
                                    8
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (8
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Exercise
      of stock warrants
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    188,582
                                    
                                    
                                    
                                    20
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    374,980
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    375,000Common
      stock returned from restricted stock
    Shareholder
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (65,496
                                    )
                                    
                                    
                                    (6
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    6
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Tax
      benefits from employee stock option plans
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (34,078
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (34,078
                                    )Stock-based
      compensation
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,353,383
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,353,383Balance
      at December 31, 2008
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    12,756,656
                                    
                                    
                                    
                                    1,278
                                    
                                    
                                    
                                    (26,438
                                    )
                                    
                                    
                                    (125,613
                                    )
                                    
                                    
                                    127,193,195
                                    
                                    
                                    
                                    (119,353,659
                                    )
                                    
                                    
                                    7,715,201Net
      loss
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (5,461,763
                                    )
                                    
                                    
                                    (5,461,763
                                    )Issuance
      of Series D Convertible Preferred Stock
                                    
                                    
                                    23,720,916
                                    
                                    
                                    
                                    2,372
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,372Issuance
      of common stock for MedPanel acquisition
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    154,786
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Preferred
      stock dividend
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (5,258,802
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (5,258,802
                                    )Issuance
      of restricted common stock
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    76,631
                                    
                                    
                                    
                                    21
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    83,359
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    83,380Reclass
      of warrant liability
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    10,072,684
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    10,072,684Issuance
      of warrant to board member
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    83,671
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    83,671Issuance
      of warrant in connection with issuance of
    debt
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    386,278
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    386,278Common
      stock returned from Panel Shareholder
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (175,139
                                    )
                                    
                                    
                                    (100,000
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (100,000
                                    )Tax
      benefits from employee stock option plans
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (176,964
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (176,964
                                    )Stock-based
      compensation
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    670,771
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    670,771Balance
      at December 31, 2009
                                    
                                    
                                    23,720,916
                                    
                                    
                                    $
                                    2,372
                                    
                                    
                                    
                                    12,988,073
                                    
                                    
                                    $
                                    1,299
                                    
                                    
                                    
                                    (201,577
                                    )
                                    
                                    $
                                    (225,613
                                    )
                                    
                                    $
                                    133,054,192
                                    
                                    
                                    $
                                    (124,815,422
                                    )
                                    
                                    $
                                    8,016,828




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


56




MERRIMAN
CURHAN FORD GROUP, INC.





CONSOLIDATED
STATEMENTS OF CASH FLOWS





2009
                                  
                                  
                                  2008Cash
      flows from operating activities:Net
      loss
                                  
                                  $
                                  (5,461,763
                                  )
                                  
                                  $
                                  (30,273,805
                                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Reversal
      of ASC Topic 740 (formerly FIN 48) liability
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,838,743
                                  )Gain
      on sale of Institutional Cash Distributors
                                  
                                  
                                  (2,000,000
                                  )
                                  
                                  
                                  -Depreciation
      and amortization
                                  
                                  
                                  488,339
                                  
                                  
                                  
                                  828,598Stock-based
      compensation
                                  
                                  
                                  837,822
                                  
                                  
                                  
                                  2,353,383Amortization
      of beneficial conversion feature
                                  
                                  
                                  180,639
                                  
                                  
                                  
                                  -Tax
      benefits (expense) from employee stock option plans
                                  
                                  
                                  (176,964
                                  )
                                  
                                  
                                  (34,078
                                  )Amortization
      of discounts on convertible notes payable
                                  
                                  
                                  552,639
                                  
                                  
                                  
                                  2,584Amortization
      of debt issuance costs
                                  
                                  
                                  346,995
                                  
                                  
                                  
                                  -Impairment
      of goodwill
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,338,016Impairment
      of intangible assets
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,200,929Impairment
      of securities
                                  
                                  
                                  -
                                  
                                  
                                  
                                  230,556Change
      in value of warrant derivative liability
                                  
                                  
                                  (6,910,656
                                  )
                                  
                                  
                                  -Amortization
      of intangible asset
                                  
                                  
                                  -
                                  
                                  
                                  
                                  466,142Noncash
      legal settlement and fees
                                  
                                  
                                  1,230,953
                                  
                                  
                                  
                                  -Noncash
      professional services
                                  
                                  
                                  125,089
                                  
                                  
                                  
                                  -Loss
      on disposal of equipment and fixtures
                                  
                                  
                                  285,069
                                  
                                  
                                  
                                  2,921Provision
      for uncollectible accounts receivable
                                  
                                  
                                  128,073
                                  
                                  
                                  
                                  820,417Common
      stock received for services
                                  
                                  
                                  (369,200
                                  )
                                  
                                  
                                  (1,752,625
                                  )Unrealized
      loss (gain) on securities owned
                                  
                                  
                                  1,295,475
                                  
                                  
                                  
                                  9,774,573Changes
      in operating assets and liabilities:Securities
      owned and sold, but not purchased
                                  
                                  
                                  (1,563,179
                                  )
                                  
                                  
                                  2,292,261Restricted
      cash
                                  
                                  
                                  59,096
                                  
                                  
                                  
                                  (442,025
                                  )Due
      from clearing broker
                                  
                                  
                                  (794,046
                                  )
                                  
                                  
                                  (501,089
                                  )Accounts
      receivable
                                  
                                  
                                  242,284
                                  
                                  
                                  
                                  1,458,397Prepaid
      expenses and other assets
                                  
                                  
                                  119,067
                                  
                                  
                                  
                                  910,840Accounts
      payable
                                  
                                  
                                  (559,727
                                  )
                                  
                                  
                                  (18,166
                                  )Commissions
      and bonus payable
                                  
                                  
                                  945,770
                                  
                                  
                                  
                                  (14,223,458
                                  )Accrued
      liabilities
                                  
                                  
                                  (1,629,010
                                  )
                                  
                                  
                                  437,960Due
      to clearing and other brokers
                                  
                                  
                                  (20,837
                                  )
                                  
                                  
                                  21,157Net
      cash used in operating activities
                                  
                                  
                                  (12,648,072
                                  )
                                  
                                  
                                  (24,945,255
                                  )Cash
      flows from investing activities:Purchase
      of equipment and fixtures
                                  
                                  
                                  (18,632
                                  )
                                  
                                  
                                  (203,566
                                  )Proceeds
      from sale of equipment and fixtures
                                  
                                  
                                  9,311
                                  
                                  
                                  
                                  -Sale
      of Panel Intelligence
                                  
                                  
                                  925,858
                                  
                                  
                                  
                                  -Sale
      of Institutional Cash Distributors
                                  
                                  
                                  2,000,000
                                  
                                  
                                  
                                  -Net
      cash provided by (used in) investing activities
                                  
                                  
                                  2,916,537
                                  
                                  
                                  
                                  (203,566
                                  )Cash
      flows from financing activities:Proceeds
      from the exercise of stock options and warrants
                                  
                                  
                                  -
                                  
                                  
                                  
                                  470,303Convertible
      debt fundraising (related party)
                                  
                                  
                                  625,000
                                  
                                  
                                  
                                  -Payment
      of convertible debt (related party)
                                  
                                  
                                  (125,000
                                  )
                                  
                                  
                                  -Bridge
      note (related party)
                                  
                                  
                                  500,000
                                  
                                  
                                  
                                  -Note
      payable (related party)
                                  
                                  
                                  800,000
                                  
                                  
                                  
                                  -Payment
      of note payable (related party)
                                  
                                  
                                  (800,000
                                  )
                                  
                                  
                                  -Proceeds
      from subordinated borrowings (related party)
                                  
                                  
                                  1,328,614
                                  
                                  
                                  
                                  -Payment
      on subordinated borrowings (related party)
                                  
                                  
                                  (1,328,614
                                  )
                                  
                                  
                                  -Issuance
      of preferred stock
                                  
                                  
                                  8,808,256
                                  
                                  
                                  
                                  -Preferred
      stock dividend
                                  
                                  
                                  (141,100
                                  )
                                  
                                  
                                  -Debt
      service principal payments
                                  
                                  
                                  (636,999
                                  )
                                  
                                  
                                  (702,663
                                  )Net
      cash provided by (used in) financing activities
                                  
                                  
                                  9,030,157
                                  
                                  
                                  
                                  (232,360
                                  )Decreases
      in cash and cash equivalents
                                  
                                  
                                  (701,378
                                  )
                                  
                                  
                                  (25,381,181
                                  )Cash
      and cash equivalents at beginning of year
                                  
                                  
                                  6,358,128
                                  
                                  
                                  
                                  31,962,201Cash
      and cash equivalents, assets held for sale
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (222,892
                                  )Cash
      and cash equivalents at end of year
                                  
                                  $
                                  5,656,750
                                  
                                  
                                  $
                                  6,358,128





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


57


MERRIMAN
CURHAN FORD GROUP, INC.





CONSOLIDATED
STATEMENTS OF CASH FLOWS — (Continued)





2009
                    
                    
                    2008Supplementary
      disclosure of cash flow information:Cash
      paid during the year:Interest
                    
                    $
                    261,481
                    
                    
                    $
                    79,941Income
      taxes
                    
                    $
                    5,200
                    
                    
                    $
                    565,959Noncash
      investing and financing activities:Reclass
      of warrant derivative upon amendment
                    
                    $
                    10,072,684
                    
                    
                    $
                    -Deemed
      dividend on Series D Convertible Preferred Stock
                    
                    $
                    5,066,702
                    
                    
                    $
                    -Stock
      received as part of Panel sale
                    
                    $
                    100,000
                    
                    
                    $
                    -Conversion
      of Note into Series D Convertible Preferred Stock
                    
                    $
                    1,060,717
                    
                    
                    $
                    -Conversion
      of legal settlement into Series D Convertible Preferred
    Stock
                    
                    $
                    296,027
                    
                    
                    $
                    -Conversion
      of legal services into Series D Convertible Preferred
Stock
                    
                    $
                    35,000
                    
                    
                    $
                    -Conversion
      of note payable into common stock
                    
                    $
                    -
                    
                    
                    $
                    200,000Purchase
      of equipment and fixtures through capital lease
                    
                    $
                    -
                    
                    
                    $
                    805,776Issuance
      of common stock for MedPanel
                    
                    $
                    -
                    
                    
                    $
                    193,350





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


58


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





1.
Description of Business





Merriman
Curhan Ford Group, Inc. (formerly MCF Corporation) is a financial services
holding company that provides investment banking, capital markets services,
corporate and venture services, and investment banking through its primary
operating subsidiary, Merriman Curhan Ford & Co. (“MCF”).  MCF is an
investment bank and securities broker-dealer focused on fast-growing companies
and institutional investors. MCF is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the Financial Industry
Regulatory Authority and Securities Investor Protection
Corporation.





Institutional
Cash Distributors (“ICD”) is a division of MCF which brokers money market funds
serving the short-term investing needs of corporate finance departments at
companies throughout the United States and Europe.  In January 2009, we
sold the primary assets related to ICD operations to a group of investors which
included some of our employees.  To assist in the transition of operations
to the new owners, we are providing substantial services to ICD, including
collecting its revenues.  When ICD receives its broker-dealer license, we
will no longer provide such services and record ICD revenues.





In
January 2009, Merriman Curhan Ford Group, Inc. sold its primary research
business, Panel Intelligence, LLC (“Panel”), and has presented its results of
operations as discontinued operations in its consolidated financial statements
for the years ended December 31, 2009 and 2008.  Panel offered primary
research services to biotechnology, pharmaceutical, medical device, clean
technology and financial services companies.





In the
fourth quarter of 2008, Merriman Curhan Ford Group, Inc. decided to begin the
process of liquidating the funds under management by MCF Asset Management, LLC
which is still consolidated in the accompanying financial statements as of and
for the years ended December 31, 2009 and 2008.  MCF Asset Management, LLC
managed absolute return investment products for institutional and high-net worth
clients.





Merriman
Curhan Ford Group, Inc., also referred to as the “Company”, formerly Ratexchange
Corporation, NetAmerica.com Corporation and Venture World, Ltd., is a Delaware
corporation incorporated on May 6, 1987. The Company’s common stock was listed
on the American Stock Exchange in July 2000 and was listed on Nasdaq in February
2008, where it currently trades under the symbol “MERR.” The Company’s corporate
office is located in San Francisco, California.





The
Company incurred substantial losses and negative cash flows from operations in
2009 and 2008.  The Company had net losses of $5,462,000 and $30,274,000 in
2009 and 2008, respectively, and negative operating cash flows of $12,648,000
and $24,945,000 for the same respective years.  As of December 31, 2009,
the Company had a retained deficit of $124,815,000.  While the Company
believes its current funds will be sufficient to enable it to meet its planned
expenditures through at least January 1, 2011, if anticipated operating results
are not achieved, management has the intent and believes it has the ability to
delay or reduce expenditures, if not to raise additional financing. 
Failure to generate sufficient cash flows from operations, raise additional
capital or reduce certain discretionary spending could have a material adverse
effect on the Company’s ability to achieve its intended business
objectives.


59


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2.
Summary of Significant Accounting Policies





Basis
and Presentation





The
accompanying financial statements are presented in accordance with accounting
principles generally accepted in the United States (“U.S. GAAP”).  The
preparation of U.S. GAAP financial statements requires management to make
certain estimates, judgments, and assumptions that affect the reported amounts
and disclosures in the financial statements.  Actual results could differ
from these estimates.





Under
Accounting Standards Codification Topic 855,Subsequent Events, the
Company has evaluated all subsequent events the date these consolidated
financial statements were filed with the SEC.





For the
purposes of presentation, dollar amounts displayed in these Notes to Financial
Statements will be rounded to the nearest thousand.





Principles
of Consolidation





As of
December 31, 2009, Merriman Curhan Ford Group, Inc. wholly owned two active U.S.
subsidiaries.  The subsidiaries MCF and MCF Asset Management, LLC have been
consolidated in the accompanying consolidated financial statements.  All
significant intercompany accounts and transactions have been
eliminated.





Segment
Reporting





The
Company has determined that it has only one operating and reportable segment,
MCF, for the purpose of making operating decisions and assessing performance,
which comprised most of the Company’s consolidated total assets as of December
31, 2009 and consolidated total revenues for the year ended December 31,
2009.  In the fourth quarter of 2008, Merriman Curhan Ford Group, Inc.
decided to liquidate the funds under management by MCF Asset Management, LLC,
which was no longer considered by management as an operating and reportable
segment.   In January 2009, the Company sold its primary research
business, Panel Intelligence, LLC and has presented its results of operations as
discontinued operations.





Advertising
Costs





Advertising
costs are expensed as incurred.  We recorded $139,000 and $465,000 for the
years ended December 31, 2009 and 2008, respectively, for advertising
costs.


60


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2.
Summary of Significant Accounting Policies - (continued)





Commissions
and Principal Transactions Revenue





Commissions
revenue includes revenue resulting from executing stock exchange-listed
securities, over-the-counter securities and other transactions as agent for the
Company’s clients. Principal transactions consist of a portion of dealer spreads
attributed to the Company’s securities trading activities as principal in
Nasdaq-listed and other securities, and include transactions derived from
activities as a market-maker. Additionally, principal transactions include gains
and losses resulting from market price fluctuations that occur while holding
positions in trading security inventory. Commissions revenue and related
clearing expenses are recorded on a trade-date basis as security transactions
occur. Principal transactions in regular-way trades are recorded on the trade
date, as if they had settled. Profit and loss arising from all securities and
commodities transactions entered into for the account and risk of the Company
are recorded on a trade-date basis.





Investment
Banking Revenue





Investment
banking revenue includes underwriting and private placement agency fees earned
through the Company’s participation in public offerings and private placements
of equity and convertible debt securities and fees earned as financial advisor
in mergers and acquisitions and similar transactions. Underwriting revenue is
earned in securities offerings in which the Company acts as an underwriter and
includes management fees, selling concessions and underwriting fees. Fee revenue
relating to underwriting commitments is recorded when all significant items
relating to the underwriting cycle have been completed and the amount of the
underwriting revenue has been determined. This generally is the point at which
all of the following have occurred: (i) the issuer’s registration statement has
become effective with the SEC, or other offering documents are finalized, (ii)
the Company has made a firm commitment for the purchase of the shares or debt
from the issuer, and (iii) the Company has been informed of the exact number of
shares or the principal amount of debt that it has been allotted.





Syndicate
expenses related to securities offerings in which the Company acts as
underwriter or agent are deferred until the related revenue is recognized or we
determine that it is more likely than not that the securities offerings will not
ultimately be completed. Underwriting revenue is presented net of related
expenses. As co-manager for registered equity underwriting transactions,
management must estimate the Company’s share of transaction related expenses
incurred by the lead manager in order to recognize revenue. Transaction-related
expenses are deducted from the underwriting fee and therefore reduce the revenue
that is recognized as co-manager. Such amounts are adjusted to reflect actual
expenses in the period in which the Company receives the final settlement,
typically 90 days following the closing of the transaction.





Merger
and acquisition fees and other advisory service revenue are generally earned and
recognized only upon successful completion of the engagement. Unreimbursed
expenses associated with private placement and advisory transactions are
recorded as expenses as incurred.





Advisory
and Other Revenue




Advisory
and Other Revenues consist primarily of revenues generated by the OTCQX Advisory
Services. In addition, immaterial amounts of revenue that do not conform to the
types described above are also recorded as Other Revenues.


61


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2.
Summary of Significant Accounting Policies - (continued)





Stock-Based
Compensation Expense





The
Company measures and recognizes compensation expense based on estimated fair
values for all stock-based awards made to employees and directors, including
stock options, restricted stock, and participation in the Company’s employee
stock purchase plan. The Company estimates fair value of stock-based awards on
the date of grant using the Black-Scholes option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense in the Company’s Consolidated Statements of Operations over the
requisite service periods. Stock-based compensation expense recognized in the
Company’s Consolidated Statements of Operations includes compensation expense
for stock-based awards granted (i) prior to, but not yet vested as of
December 31, 2005, based on the grant date fair value, and
(ii) subsequent to December 31, 2005. Compensation expense for all
stock-based awards subsequent to December 31, 2005 is recognized using the
straight-line single-option method. Because stock-based compensation expense is
based on awards that are ultimately expected to vest, stock-based compensation
expense has been reduced to account for estimated forfeitures. Forfeitures are
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates.





To
calculate stock-based compensation resulting from the issuance of options,
restricted common stock, and warrants, the Company uses the Black-Scholes option
pricing model, which is affected by the Company’s stock price as well as
assumptions regarding a number of subjective variables. These variables include,
but are not limited to, the Company’s expected stock price volatility over the
term of the awards, and actual and projected employee stock option exercise
behaviors. No tax benefits were attributed to the share-based compensation
expense because a valuation allowance was maintained for all net deferred tax
assets.





Income
Taxes





The
Company uses the asset and liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are determined based on temporary
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities using enacted tax rates in effect in the years in
which temporary differences are expected to reverse. A valuation allowance is
recorded to reduce deferred tax assets to an amount whose realization is more
likely than not. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the consolidated statements of operations in the
period that includes the enactment date.





(Loss)
Earnings Per Share





Basic
(loss) earnings per share is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding. Diluted earnings per share
is calculated by dividing net income by the weighted-average number of common
shares used in the basic earnings per share calculation plus the number of
common shares that would be issued assuming exercise or conversion of all
potentially dilutive common shares outstanding. Diluted loss per share is
unchanged from basic loss per share for the years ended December 31, 2009 and
2008, because the addition of common shares and share equivalents that would be
issued assuming exercise or conversion would be anti-dilutive.





Cash
and Cash Equivalents





The
Company considers all highly liquid investments purchased with original
maturities of ninety days or less to be cash equivalents.


62


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2.
Summary of Significant Accounting Policies - (continued)





Restricted
Cash and Letters of Credit





Restricted
cash includes cash deposited with our clearing broker and cash collateral for a
stand-by letter of credit with a commercial bank.  The letters of credit
satisfy deposit requirements of the Company’s operating leases.





Due
From/To Clearing Broker





The
Company clears all of its brokerage transactions through other broker-dealers on
a fully disclosed basis. Due from clearing broker amount relates to the
aforementioned transactions. The Company monitors the credit standing of the
clearing organizations as deemed necessary.





Securities
Owned





“Securities
owned” and “Securities sold, but not yet purchased” in the consolidated
statements of financial condition consist of financial instruments carried at
fair value with related unrealized gains or losses recognized in the
consolidated statement of operations.   The securities owned are
classified into “Marketable,” “Non-marketable,” and “Other.”  Marketable
securities are those that can readily be sold, either through a stock exchange
or through a direct sales arrangement.  Non-marketable securities are
typically securities restricted under Rule 144A or have some restriction on
their sale whether or not a buyer is identified.  Other securities consist
of investments accounted for under the equity method.





Fair
Value of Financial Instruments





Substantially
all of the Company’s financial instruments are recorded at fair value or
contract amounts that approximate fair value. Securities owned and securities
sold, not yet purchased are stated at fair value, with any related changes in
unrealized appreciation or depreciation reflected in Principal Transactions in
the consolidated statements of operations.  The carrying amounts of the
Company’s financial instruments, which include cash and cash equivalents,
securities owned, restricted cash, due from clearing broker, accounts
receivable, assets held for sale, accounts payable, commissions and bonus
payable, accrued expenses, due to clearing and other brokers, securities sold,
not yet purchased, and liabilities held for sale, approximate their fair
values.





Fair
Value Measurement—Definition and Hierarchy





The
Company adopted the provisions of the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 820,Fair Value Measurements and
Disclosures  (“ASC 820”), effective January 1, 2008. Under this
guidance, fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability (i.e. , the “exit price”) in
an orderly transaction between market participants at the measurement
date.





Where
available, fair value is based on observable market prices or parameters, or
derived from such prices or parameters. Where observable prices or inputs are
not available, valuation models are applied. These valuation techniques involve
some level of management estimation and judgment, the degree of which is
dependent on the price transparency for the instruments or market and the
instruments’ complexity. Assets and liabilities recorded at fair value in the
consolidated statement of financial condition are categorized based upon the
level of judgment associated with the inputs used to measure their fair value.
Hierarchical levels, defined by ASC 820 and directly related to the amount of
subjectivity associated with the inputs to fair valuation of these assets and
liabilities, are as follows:





Level 1 —
Inputs are unadjusted, quoted prices in active markets for identical assets or
liabilities at the measurement date. The types of assets and liabilities carried
at Level 1 fair value generally are G-7 government and agency securities,
equities listed in active markets, investments in publicly traded mutual funds
with quoted market prices and listed derivatives.


63


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2.
Summary of Significant Accounting Policies - (continued)





Level 2 —
Inputs (other than quoted prices included in Level 1) are either directly or
indirectly observable for the asset or liability through correlation with market
data at the measurement date and for the duration of the instrument’s
anticipated life. Fair valued assets that are generally included in this
category are stock warrants for which there are market-based implied
volatilities, unregistered common stock and thinly traded common
stock.





Level 3 —
Inputs reflect management’s best estimate of what market participants would use
in pricing the asset or liability at the measurement date. Consideration is
given to the risk inherent in the valuation technique and the risk inherent in
the inputs to the model. Generally, assets carried at fair value and included in
this category include stock warrants for which market-based implied volatilities
are not available.  The valuation of these securities may require
management estimates of some or all the inputs, including
volatilities.





In
certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for
disclosure purposes, the level in the fair value hierarchy within which the fair
value measurement falls in its entirety is determined based on the lowest level
input that is significant to the fair value measurement in its
entirety.





For
further information on financial assets and liabilities that are measured at
fair value on a recurring and nonrecurring basis, and a description of valuation
techniques, see Note 6.





Accounts
Receivable





Accounts
receivable are recorded at the invoiced amount and do not bear interest. To the
extent deemed necessary, the Company maintains an allowance for estimated losses
from the inability of clients to make required payments. The collectability of
outstanding invoices is continually assessed. In estimating the allowance, the
Company considers factors such as historical collections, a client’s current
creditworthiness, age of the receivable balance and general economic conditions
that may affect a client’s ability to pay.





We
recorded $244,000 and $733,000 as of December 31, 2009 and 2008, respectively,
as allowance for uncollectible accounts.





Equipment
and Fixtures





Equipment
and fixtures are reported at historical cost, net of accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method over useful lives of three to five years. Leasehold
improvements are amortized using the straight-line method over the lesser of the
life of the lease or the service lives of the improvements.





Long-Lived
Assets





The
Company evaluates its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. When assets are considered to be
impaired, the impairment to be recognized is measured as the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.


64


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2.
Summary of Significant Accounting Policies - (continued)





Discontinued Operations and Assets
Held For Sale





For those
businesses where management has committed to a plan to divest, each business is
valued at the lower of its carrying amount or estimated fair value less
estimated cost to sell. If the carrying amount of the business exceeds its
estimated fair value, a loss is recognized. For businesses classified as
discontinued operations, statement of operations results are reclassified from
their historical presentation to discontinued operations in the consolidated
statements of operations for all periods presented. The gains or losses
associated with these divested businesses are recorded in loss from discontinued
operations in the consolidated statements of operations.  The cash flow of
discontinued operations and assets held for sale is aggregated with that of
continuing operations in the Consolidated Statements of Cash
Flows.





Goodwill
and Intangible Assets





In
accordance with ASC Topic 350,Intangible Assets – Goodwill and Other, indefinite-life intangible assets
and goodwill are not amortized. Rather, they are subject to impairment testing
on an annual basis or more often if events or circumstances indicate there may
be impairment. This test involves assigning tangible assets and liabilities,
identified intangible assets and goodwill to reporting units and comparing the
fair value of each reporting unit to its carrying amount. If the fair value is
less than the carrying amount, a further test is required to measure the amount
of the impairment.  When available, recent, comparable transactions are
used to estimate the fair value of the respective reporting unit. The Company
calculates an estimated fair value based on multiples of revenue, earnings, and
book value of comparable transactions. However, when such comparable
transactions are not available or have become outdated, discounted cash flow
scenarios are used to estimate the fair value of the reporting
units.





The
goodwill and intangible assets recorded by the Company during the fiscal year
ended December 31, 2008 are related to its acquisition of Panel.  Panel was
sold in January 2009 and the goodwill and intangible assets previously recorded
were removed from the Company’s consolidated financial statements upon the sale.
Accordingly, the Company does not have goodwill or intangible assets as of
December 31, 2009, see Note 9.





Deferred
Revenue





The
Company provides OTCQX Advisory Services, in the form of assistance to its
clients in listing on OTCQX, a tier of Pink Sheets, along with other services
that facilitate their access to institutional capital markets.





Deferred
revenue mainly represents customer billings made in advance to certain clients
for due diligence services, and annual support contract for providing services
as their Principal American Liaison (PAL) if a non-U.S. company or a Designated
Advisor for Disclosure (DAD), if a U.S. company. The revenue for due diligence
work is recognized at its completion, typically a three-month period. The
revenue for advisory services is recognized on a monthly basis in the period
after due diligence is completed and before the end of the engagement
term.


65


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2.
Summary of Significant Accounting Policies - (continued)





Change
in Warrant Liabilities





Stock
warrants to purchase the Company’s common stock issued to our investors and
creditors are rights to purchase our common stock.  Such positions are
considered illiquid and do not have readily determinable fair values, and
therefore require significant management judgment or estimation. For the warrant
derivative liabilities, we use the Black-Scholes valuation methodology or
similar techniques.





On
December 28, 2009, we received binding agreements from 100% of the holders of
our warrants agreeing to amend the warrants to remove the ratchet provision
which had triggered the derivative accounting giving rise to the warrant
liability.  As of the date of amendment, the Company marked the warrant
liability on its Consolidated Statements of Financial Condition to market value
and reclassified the market value of $10,073,000 to additional paid-in capital.
The change in warrant liability market value of $6,911,000 was recorded to
change in fair value of warrant liability on the Consolidated Statements of
Operations. We no longer account for the warrants as derivatives and no longer
carry a warrant liability as of December 31, 2009 and all other future
periods.  At December 31, 2009, the Company included $139,000 due to the
warrant holders in accrued liabilities in consideration for the
amendment.





Concentrations





Substantially
all of the Company’s cash and cash equivalents are held at three major U.S.
financial institutions. The majority of the Company’s cash equivalents consist
of short-term marketable securities. Deposits held with banks may exceed the
amount of insurance provided on such deposits. Generally, these deposits may be
redeemed upon demand.





As of
December 31, 2009 and 2008, the Company held concentrated positions in two
securities with a total value in the amount of $2,368,000 and $2,749,000,
respectively. The stock prices of these equity securities are highly
volatile.





As of
December 31, 2009 and 2008, the Company held concentrated positions in accounts
receivable with four clients, each of which exceeded 10% of total accounts
receivable in each year.  The clients referred to as of 2008 were not the
same ones as the clients as of 2009.





During
2009, no single sales professional accounted for more than 10% of total
revenue.  During 2008, two sales professionals accounted for 21% and 20%
of revenue, respectively.  During the year ended December 31, 2009, no
single customer accounted for more than 10% of revenue.  During the year
ended December 31, 2008, one customer accounted for 18% of total
revenue.


66


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2.
Summary of Significant Accounting Policies - (continued)





Newly
Issued Accounting Standards





On July
1, 2009, the Company adopted FASB Statement of Financial Accounting Standards
(SFAS) No. 168,Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles , which was primarily codified into ASC 105,
“Generally Accepted Accounting Principles.” The ASC does not alter current U.S.
GAAP, but rather integrated existing accounting standards with other
authoritative guidance. The ASC provides a single source of authoritative U.S.
GAAP for nongovernmental entities and supersedes all other previously issued
non-SEC accounting and reporting guidance. The adoption of the ASC did not have
any effect on the Company’s results of operations or financial position. All
prior references to U.S. GAAP have been revised to conform to the ASC. Updates
to the ASC are issued in the form of Accounting Standards Updates
(ASU).





In
January 1, 2009, the Company adopted the revisions to U.S. GAAP accounting
standards included in ASC Topic 815,Derivatives and
Hedging (“ASC 815”) . ASC 815 applies to
any freestanding financial instruments or embedded features that have the
characteristics of a derivative and to any freestanding financial instruments
that are potentially settled in an entity’s own common stock. As a result of
adopting ASC 815, warrants to purchase shares of the Company’s common stock
previously treated as equity pursuant to the derivative treatment exemption were
no longer afforded equity treatment.  The adoption of the revised guidance
related to derivatives and hedging resulted in classification of certain
warrants issued during the quarter in connection with financing activities as
derivative liabilities with mark to market accounting. See Note 5 for additional
information regarding the accounting for the warrant liabilities.





In April
2009, the Company adopted the revisions to U.S. GAAP accounting standards
included in ASC Topic 825,Financial Instruments
(“ASC 825”), which requires public companies to include disclosures required for
all financial instruments within the scope of ASC 825 in their interim
financial statements. In addition, this guidance requires disclosure about the
method and significant assumptions to estimate fair value of financial
instruments and disclosure of changes in the methods or significant assumptions,
if any, during the period. The adoption of the revised guidance related to
financial statement disclosure only and did not have any effect on the Company’s
results of operations or financial position.





Also in
April 2009, the Company adopted the revisions to U.S. GAAP accounting standards
included in ASC 820, which provides additional guidance in determining
whether a market for a financial asset is not active and a transaction is not
distressed for fair value measurement purposes. This guidance does not have
a significant impact on the Company’s financial position, results of operations,
or cash flows.





The
Company adopted the revisions to U.S. GAAP accounting standards included in ASC
Topic 855 (“ASC 855”),Subsequent Events ,
and the FASB amendment ASU 2010-09, which establish the accounting and
disclosure of events that occur after the balance sheet date but before
financial statements are issued. This guidance did not have any impact on the
Company’s financial position, results of operations, or cash flows.





ASC Topic
810,Consolidation(“ASC 810”), as amended in June 2009, is a revision to
pre-existing guidance pertaining to the consolidation and disclosures of
variable interest entities. Specifically, it changes how a reporting entity
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to consolidate another
entity is based on, among other things, the other entity’s purpose and design
and the reporting entity’s ability to direct the activities of the other entity
that most significantly impact the other entity’s economic
performance. This guidance will require a reporting entity to provide
additional disclosures about its involvement with variable interest entities and
any significant changes in risk exposure due to that involvement. A reporting
entity will be required to disclose how its involvement with a variable interest
entity affects the reporting entity’s financial statements. This guidance will
be effective at the start of a reporting entity’s first fiscal year beginning
after November 15, 2009. Early application is not permitted. The Company is
currently evaluating the impact on its financial statements, if any, upon
adoption.


67


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2.
Summary of Significant Accounting Policies - (continued)





In
January 2010, the FASB amended ASC 820 to require new disclosures for fair value
measurements and provides clarification for existing disclosures requirements.
More specifically, this update will require (a) an entity to disclose
separately the amounts of significant transfers in and out of Levels 1 and
2 fair value measurements and to describe the reasons for the transfers; and
(b) information about purchases, sales, issuances and settlements to be
presented separately (i.e., present the activity on a gross basis rather than
net) in the reconciliation for fair value measurements using significant
unobservable inputs (Level 3 inputs). This update clarifies existing
disclosure requirements for the level of disaggregation used for classes of
assets and liabilities measured at fair value and requires disclosures about the
valuation techniques and inputs used to measure fair value for both recurring
and nonrecurring fair value measurements using Level 2 and Level 3
inputs. The amendment to ASC 820 is effective for interim and annual fiscal
years beginning after December 15, 2009. The Company does not anticipate
that the adoption of this statement will materially expand its consolidated
financial statement footnote disclosures.





3.
Issuance of Debt





Convertible
Notes





On May
29, 2009, the Company sold and issued $525,000 in principal amount of Secured
Convertible Promissory Notes (each a “Note,” and collectively, the
“Notes”).  On June 1, 2009, the Company issued an additional $100,000 of
Notes. The investor group included eight individuals, comprised of certain
officers and employees of the Company as well as an outside investor.  The
Notes were issued in a private placement exempt from registration
requirements.  There were no underwriters, underwriting discounts or
commissions involved in the transactions.  The Notes carried an interest
rate of 11% per annum, payable in cash quarterly, and were due upon the earlier
of two years from issuance or a change in control of the Company.  As part
of this transaction, the Company entered into a security agreement with the
investors in the Notes by which the Company pledged all assets of the Company as
collateral for the Notes.  If the Company were to liquidate, the note
holders would receive payment before any other obligations of the Company, which
would reduce the amount of assets available for distribution to the Company’s
Stockholders.





The Notes
were convertible into common stock of the Company at a price of $0.50 per share
and came with warrants (the “Warrants”) to purchase additional shares of common
stock of the Company at $0.50 per share for a number of shares of common stock
equal to 75% of the principal amount of the Notes purchased, divided by
$0.50.  The Notes would have been convertible beginning six months after
issuance while the Warrants are exercisable at any time.





Both the
Notes and the Warrants have anti-dilution features so that if the Company pays
dividends, splits (forward or reverse) its common shares, or adjusts its shares
outstanding due to a combination, the conversion and exercises prices,
respectively, would also adjust proportionally.  The Notes had a two-year
maturity and the warrants will expire 10 years from the date of the
transaction.





The total
proceeds of $625,000 raised in the transaction described above were accounted
for under generally accepted accounting principles, ASC Topic 470,Debt . The Company has
accounted for this transaction as the issuance of convertible debt and a
detachable stock warrant.  The total proceeds of $625,000 have been
allocated to these individual instruments based on their relative fair value as
determined by management.





The
Company estimated the fair value of its convertible debt and warrants at the
time of issuance.  As a result, the Notes and the Warrants were carried at
fair values of $419,000 and $206,000, respectively, at inception.  The
Notes had an embedded beneficial conversion option and the $419,000 value was
bifurcated into a host valued at $239,000 and a beneficial conversion option
valued at $180,000.  The value of the Warrant was recorded as a debt
discount and an increase to additional paid-in capital.


68


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





3.
Issuance of Debt - continued





In
September 2009, $500,000 of the Notes was converted into Series D Convertible
Preferred Stock (see Note 4) and the remaining notes, $150,000 were repaid in
cash. The remaining balance of the debt discount and the beneficial conversion
feature were expensed at the time that the Notes were converted or repaid. 
No Notes remain outstanding.





Unsecured
Promissory Notes





On June
30, 2009, the Company issued $300,000 in unsecured promissory notes to three of
its employees at an interest rate of 3.25%.  The maturity date of the notes
was October 31, 2009. These notes were paid in full in cash in September
2009.  No unsecured promissory notes remain outstanding.





Unsecured
Debt





On July
29, 2009, Messrs. Jonathan Merriman and Brock Ganeles made short-term loans to
the Company in the amounts of $200,000 and $300,000, respectively.  Mr.
Merriman’s loan was repaid on August 5, 2009.  Mr. Merriman forgave the
interest on his loan.  Mr. Ganeles’ loan was repaid on August 20,
2009.  The Company paid Mr. Ganeles interest in the amount of $9,403. 
No unsecured debt remains outstanding.





Bridge
Note





On July
31, 2009, the Company issued Mr. Ronald L. Chez, the lead investor in the Series
D Transaction, a Secured Promissory Note (the “Bridge Note”) in the amount of
$500,000 at an annual interest rate of 9.00%.  The term of the Bridge Note
was three years, redeemable by Mr. Chez upon presentation of written
demand.  The Bridge Note was guaranteed personally by Messrs. Jonathan
Merriman (CEO) and Peter Coleman (CFO).  The Company issued 10-year
warrants to purchase 1,162,791 shares of the Company’s common stock at an
exercise price of $0.65 per share to Mr. Chez in connection with this
transaction. (See Note 5 regarding the accounting for the warrants.)  Each
of the two members of management was compensated for the guarantee with
identical warrants to purchase 581,395 shares of the Company’s common
stock.





The grant
date fair value of the warrants issued in connection with the Bridge Note to the
note holder and the members of management was $347,000 and $347,000,
respectively. The Company allocated all of the proceeds to the warrant liability
and recorded a full debt discount to be applied against the note using the
residual method. The fair value of the warrants issued to members of management
in compensation for the note guarantee was recorded as a debt issuance cost.
Both the debt discount and the debt issuance costs were to be amortized to
interest expense over the term of the note. (See Note 5 regarding accounting for
the warrants issued.)





In
September 2009, the Bridge Note was converted into Series D Convertible
Preferred Stock. At the date of conversion, there was $503,000 of principal and
interest outstanding on the Bridge Note which was converted into 1,171,000
shares of Series D Convertible Preferred Stock. Additionally, as of the
conversion date, the entire debt discount and debt issuance costs related to the
Bridge Note were expensed and no outstanding balance remains.





Secured
Demand Note





On August
12, 2009, the Company obtained a Temporary Secured Demand Note (“Demand Note”)
in the amount of $1,329,000 from the D. Jonathan Merriman Living Trust as a
subordinated loan.  The trustee of the Trust, D. Jonathan Merriman, is also
the Chief Executive Officer of the Company.  The Demand Note was
collateralized by securities held in a brokerage account held at a third party
by the Trust.  The Demand Note was repaid on September 23, 2009 and the
securities were transferred back to the Trust.  The Company compensated the
Trust with total interest and fees in the amount of $179,000, the majority of
which was reinvested in the Series D Convertible Preferred Stock
transaction.


69


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





4. 
Series D Convertible Preferred Stock





On
September 8, 2009, the Company issued 23,720,916 shares of Series D Convertible
Preferred Stock along with 5-year warrants to purchase 23,720,916 shares of the
Company’s common stock with an exercise price of $0.65 per share.  The
investor group constituted of 56 individuals and entities, including certain
officers, directors and employees of the Company, as well as outside
investors.  A portion of the principal and accrued interest of the May 29,
2009 Convertible Notes and all of the July 31 Bridge Note were converted into
the Series D Convertible Preferred Stock shares.  None of these debt
instruments remain outstanding after September 8, 2009.  The warrants
issued in conjunction with the May 29 Convertible Notes and with the July 31
Bridge Note remain outstanding. (See Note 5 regarding the accounting for the
warrants issued.)





The
Series D Convertible Preferred Stock was issued in a private placement exempt
from registration requirements pursuant to Regulation D of the Securities Act of
1933.  Each share of Series D Convertible Preferred Stock is convertible
into one share of Common Stock of the Company.  The Series D Convertible
Preferred Stock carries a dividend rate of 6% per annum, payable in cash
monthly.  As of December 31, 2009, the Company recorded a cash dividends
payable of $51,000 which was included in accounts payable as of December 31,
2009.





Both the
Series D Convertible Preferred Stock and the warrants issued in connection with
the Series D Convertible Preferred Stock had, when issued, anti-dilution
features including a full ratchet provision so that if the Company pays
dividends, splits its common shares forward or reverse, issues additional shares
at a lower price than the Series D Convertible Preferred Stock price, or adjusts
its shares outstanding due to a combination, the conversion and exercises prices
would also adjust proportionally.  The full ratchet provision resulted in
the warrants being accounted for as derivative instruments, since the exercise
price was not fixed and could be lowered if the Company had issued securities at
prices lower than the original exercise price of the warrant. On December 28,
2009, 100% of the holders of the warrants issued in connection with the Series D
convertible Preferred Stock agreed to amend their warrants to remove the full
ratchet provision (see Note 5 for warrant accounting).





The
warrants will expire five years from the date of the transaction.  Holders
of the Series D Convertible Preferred Stock may convert them into shares of the
Company’s common stock at any time in amounts no less than $100,000 unless all
of the shares held by the holder are for a lesser amount.  The Series D
Convertible Preferred Stock will automatically convert at the discretion of the
Company upon 10-day notice given when the average closing price of the Company’s
common stock over a 30-day period is at or above $3.00 per share and when the
average trading volume for the immediately prior four-week period is 30,000
shares or more, provided that the shares have been effectively registered with
the Securities and Exchange Commission or all of the Series D Convertible
Preferred Stock may be sold under Rule 144 of the 1933 Exchange
Act.





The
Company has accounted for this transaction as the issuance of convertible
preferred stock and a detachable stock warrant.  The total value of the
Series D Preferred Stock strategic transaction was $10,200,000, which
consists of $8,808,000 of cash proceeds and $1,392,000 of noncash proceeds from
conversions of prior notes (see Note 3) and legal services, have been
allocated to these individual instruments based on the residual
method.





As
discussed above, the Company issued warrants to purchase 23,720,916 shares of
common stock in conjunction with the sale of the Series D Convertible Preferred
Stock. The proceeds of the transaction were allocated between the Series D
Convertible Preferred Stock and the warrants using the residual method in which
proceeds are first allocated to the warrant liability and any remaining value is
then allocated to the preferred stock.  The warrants were valued using the
Black-Scholes fair value model. The grant date fair value of the warrants issued
with the Series D Convertible Preferred Stock was $15,264,000. As the fair value
of the warrants exceeds the proceeds received, the Company allocated all of the
proceeds, with the exception of the par value of the Series D Convertible
Preferred Stock, to the warrant liability. The additional value needed to record
the warrants at fair value was recorded as a charge to additional paid-in
capital (APIC) and shown as deemed dividend on the Consolidated Statements of
Operations. (See Note 5 below for more information regarding the accounting for
the warrant liability.)


70


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





5. 
Accounting for Warrant Liabilities





The
accounting for the liabilities arising out the issuance of the Company’s
warrants is discussed below under the following sections:





•
            Overview
      of warrant liability accounting;





•
            Series
      D Convertible Preferred Stock warrant
  liabilities;





•
            July
      31, 2009 Bridge Note warrant
liabilities;





•
            Settlement
      warrant liabilities;





•
            Warrant
      amendment;





•
            Summary
      of effects of warrants on the Consolidated Statements of
      Operations.





Overview
of Warrant Liability Accounting





Under ASC
Topic 815,Derivatives and
Hedging, instruments which do not have fixed settlement provisions are
deemed to be derivative instruments. The exercise price of the detachable
warrants issued with the Company’s Series D Convertible Preferred Stock were not
fixed because the exercise prices could have been lowered if the Company issues
securities at prices lower than the price on which the exercise price for the
warrant was based. This was also the case with the warrants issued in connection
with the $500,000 Bridge Note issued on July 31, 2009 and the warrants issued to
the litigants in the settlement (see Note 15 for additional information on the
legal settlement).  The Company had included the reset provisions in order
to protect the warrant holders from potential dilution associated with future
financings. In accordance with ASC 815, the warrants were recognized as a
derivative instrument and had been characterized as warrant liabilities carried
at their fair value. ASC 815 requires that the fair value of these liabilities
be re-measured at the end of every reporting period, with the change in value
reported in the Consolidated Statements of Operations.





On
December 28, 2009, the Company successfully amended the warrants that triggered
liability accounting by removing the anti-dilution ratchet provision. On that
date, the Company received binding agreements from all the warrant holders
agreeing to amend their warrants as requested by the Company.  In
consideration for their agreements, the Company agreed to pay each warrant
holder $0.005 per warrant share, payable when the Company generates non-GAAP
quarterly operating profit which excludes unrealized gains and losses and other
items not directly related to operations, but no earlier than the filing of the
Form 10-Q for the period ended June 30, 2010. As of the date of amendment, the
Company marked the warrant liability to market value and reclassified the market
value of $10,073,000 to additional paid-in capital. The decrease in warrant
liability market value of $6,911,000 was recorded to change in fair value of
warrant liability on the Consolidated Statements of Operations. The Company no
longer accounts for the warrants as derivatives and no longer has a warrant
liability as of December 31, 2009.  At December 31, 2009, the Company
included $139,000 due to the warrant holders in accrued liabilities in
consideration for the amendment.


71


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





5. 
Accounting for Warrant Liabilities — continued





Series
D Convertible Preferred Stock Warrant Liabilities





The
warrant liabilities related to outstanding warrants issued in connection with
the Series D Convertible Preferred Stock were valued using the Black-Scholes
option valuation model.





Septmeber 8,
                      
                      
                      December 28,Grant
      Date/Measurement Date
                      
                      2009
                      
                      
                      2009Number
      of warrants
                      
                      
                      23,720,916
                      
                      
                      
                      23,720,916Fair
      value–warrant liability
                      
                      $
                      15,264,330
                      
                      
                      $
                      8,674,699Change
      in value since inception
                      
                      
                      
                      
                      
                      $
                      6,589,631





As of
December 28, 2009, the Series D Convertible Preferred Stock warrant liability
had a fair value of $8,675,000 which was reclassified to additional paid-in
capital as of that date. The decrease in market value of $6,590,000 is included
in the Consolidated Statements of Operations, in accordance with ASC 815,Derivatives and
Hedging . Other warrants to purchase 140,000 shares of common stock were
issued in connection with the Series D Convertible Preferred Stock. These other
warrants had the same ratchet provision which was also removed upon warrant
amendment on December 28, 2009. These warrants had a fair value of $51,000 as of
December 28, 2009.  The total decrease in market value related to these
other warrants was $39,000 and is included in the Consolidated Statements of
Operations in accordance with ASC 815,Derivatives and
Hedging.





Bridge
Note Warrant Liabilities





The
warrant liabilities related to outstanding warrants issued in connection with
the July 31, 2009 Bridge Note were valued using the Black-Scholes option
valuation model.





July 31,
                      
                      
                      December 28,Grant
      Date/Measurement Date
                      
                      2009
                      
                      
                      2009Number
      of warrants
                      
                      
                      2,325,581
                      
                      
                      
                      2,325,581Fair
      value–warrant liability
                      
                      $
                      693,994
                      
                      
                      $
                      851,032Change
      in value since inception
                      
                      
                      
                      
                      
                      $
                      157,038





As of
December 28, 2009, the Bridge Note warrant liability had a fair value of
$851,000 which was reclassified to additional paid-in capital as of that date.
The increase in market value of $157,000 is included in the Consolidated
Statements of Operations, in accordance with ASC 815,Derivatives and
Hedging .


72


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





5. 
Accounting for Warrant Liabilities — continued





Settlement
Warrant Liabilities





As
discussed in Note 15, concurrent with the Series D Convertible Preferred Stock
strategic transaction, the Company issued five-year warrants to purchase
1,538,461 shares of common stock at $0.65 in connection with a legal settlement.
The warrants contained the same anti-dilution provision as the Series D
Convertible Preferred Stock warrants and the Bridge Note warrants.  In
accordance with ASC topic 815,Derivatives and
Hedging  the Company recorded the fair value of the settlement
warrants as a warrant liability on the date of grant and marked the warrants to
market on each reporting date with the change in value recorded in the
Consolidated Statements of Operations.





The
warrant liabilities related to outstanding warrants issued in connection with
the settlement of litigation were valued using the Black-Scholes option
valuation model.





September 8,
                        
                        
                        December 28,Grant
      Date/Measurement Date
                        
                        2009
                        
                        
                        2009Number
      of warrants
                        
                        
                        1,538,461
                        
                        
                        
                        1,538,461Fair
      value–warrant liability
                        
                        $
                        934,926
                        
                        
                        $
                        495,757Change
      in value since inception
                        
                        
                        
                        
                        
                        $
                        439,169





As of
December 28, 2009, the total settlement warrant liability had a fair market
value of $496,000 which was reclassified to additional paid-in capital as of
that date. The decrease in value of $439,000 is included in the Consolidated
Statements of Operations in accordance with ASC Topic 815,Derivatives and
Hedging .





Summary
of Effects of Warrants on the Consolidated Statements of Operations





Operating
                                      
                                      
                                      Non-OperatingExpense
                                      
                                      
                                      (Income) ExpenseSettlement
      warrant liability
                                      
                                      $
                                      934,926
                                      
                                      
                                      $
                                      -Change
      in value - Series D Convertible PreferredStock warrant
      liability
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (6,628,525
                                      )Change
      in value - Bridge note warrant liability
                                      
                                      
                                      -
                                      
                                      
                                      
                                      157,038Change
      in value - Settlement warrant liability
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (439,169
                                      )Net
      effect of warrant liabilities
                                      
                                      $
                                      934,926
                                      
                                      
                                      $
                                      (6,910,656
                                      )


73


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





6. Fair Value of Assets and
Liabilities





Fair
value is defined as the price at which an asset would sell for or an amount paid
to transfer a liability in an orderly transaction between market participants at
the measurement date (the exit price). Where available, fair value is based on
observable market prices or parameters, or derived from such prices or
parameters. Where observable prices or inputs are not available, valuation
models are applied. These valuation techniques involve some level of management
estimation and judgment, the degree of which is dependent on the price
transparency for the instruments or market, and the instruments’ complexity.
Assets and liabilities recorded at fair value in the Consolidated Statement of
Financial Condition are categorized based upon the level of judgment associated
with the inputs used to measure their fair value.  A description of the
valuation techniques applied to the Company’s major categories of assets and
liabilities measured at fair value on a recurring basis follows.





Securities
Owned





Corporate
Equities





Corporate
equities are comprised primarily of exchange-traded equity securities that the
Company takes selective proprietary positions based on expectations of future
market movements and conditions. They are generally valued based on quoted
prices from the exchange. To the extent these securities are actively traded,
valuation adjustments are not applied and they are categorized in Level 1 of the
fair value hierarchy.





Stock
Warrants





Stock
warrants represent warrants to purchase equity in a publicly-traded
company.  Frequently, the underlying shares are unregistered restricted
stock and are considered “not readily marketable”.  Such positions are
considered illiquid.  When the underlying shares have been registered or
can be sold under the Rule 144 exemption, the position is then considered to be
“marketable.”  In either event, the positions do not have readily
determinable fair values, and therefore require significant management judgment
or estimation. For these securities, the Company uses the Black-Scholes
valuation methodology or similar techniques. They are classified within Level 3
of the fair value hierarchy.





Underwriters’
Purchase Options





Underwriters’
purchase options represent the overallotment of units for a publicly-traded
company for which the Company acted as an underwriter.  Such positions are
considered illiquid and do not have readily determinable fair values, and
therefore require significant management judgment or estimation. For these
securities, the Company uses the Black-Scholes valuation methodology. They are
classified within Level 3 of the fair value hierarchy.


74


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





6.
Fair Value of Assets and Liabilities - (continued)





Preferred
Stock





Preferred
stock represents preferred equity in a publicly-traded company.  The
preferred stock owned by the Company is convertible at the Company’s discretion.
For these securities, the Company uses the exchange-quoted price to value the
security. They are classified within Level 1 of the fair value
hierarchy.





Securities
Sold, Not Yet Purchased





Securities
sold, not yet purchased are comprised primarily of exchange-traded equity
securities that the Company sold short based on expectations of future market
movements and conditions. They are generally valued based on quoted prices from
the exchange. To the extent these securities are actively traded, valuation
adjustments are not applied and they are categorized in Level 1 of the fair
value hierarchy.





Summary





In
accordance with ASC 820, assets measured at fair value on a recurring basis are
categorized in the tables below based upon the lowest level of significant input
to the valuations.





Assets at Fair Value at December 31, 2009Level 1
                                  
                                  
                                  Level 2
                                  
                                  
                                  Level 3
                                  
                                  
                                  TotalAssets:Corporate
      equities
                                  
                                  $
                                  3,403,757
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  21,731
                                  
                                  
                                  $
                                  3,425,488Stock
      warrants
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,575,481
                                  
                                  
                                  
                                  1,575,481Underwriters’
      purchase option
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Preferred
      stock
                                  
                                  
                                  434
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  434Total
      securities owned
                                  
                                  $
                                  3,404,191
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  1,597,212
                                  
                                  
                                  $
                                  5,001,403Liabilities:Securities
      sold, not yet purchased
                                  
                                  
                                  161,461
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  161,461Total
      fair value liabilities
                                  
                                  $
                                  161,461
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  161,461




75







MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





6.
Fair Value of Assets and Liabilities - (continued)





Assets at Fair Value at December 31, 2008Level 1
                    
                    
                    Level 2
                    
                    
                    Level 3
                    
                    
                    TotalAssets:Corporate
      equities
                    
                    $
                    3,353,784
                    
                    
                    $
                    650
                    
                    
                    $
                    695
                    
                    
                    $
                    3,355,129Stock
      warrants
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,605,451
                    
                    
                    
                    1,605,451Underwriters’
      purchase option
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    27,995
                    
                    
                    
                    27,995Preferred
      stock
                    
                    
                    63
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    63Total
      securities owned
                    
                    $
                    3,353,847
                    
                    
                    $
                    650
                    
                    
                    $
                    1,634,141
                    
                    
                    $
                    4,988,638Liabilities:Securities
      sold, not yet purchased
                    
                    
                    903,217
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    903,217Total
      fair value liabilities
                    
                    $
                    903,217
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    903,217





The
following table presents additional information about Level 3 assets measured at
fair value on a recurring basis for fiscal year
2009.  The unrealized gains or losses during the period for
assets within the Level 3 category presented in the table
below may include changes in fair value during the period that were attributable
to both observable and unobservable inputs.


76





MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




6.
Fair Value of Assets and Liabilities - (continued)





Underwriters’Corporate
                    
                    
                    Stock
                    
                    
                    PurchaseEquities
                    
                    
                    Warrants
                    
                    
                    Option
                    
                    
                    TotalBalance
      at January 1, 2008
                    
                    $
                    489,453
                    
                    
                    $
                    1,756,580
                    
                    
                    $
                    194,957
                    
                    
                    $
                    2,440,990Purchases,
      issuances, settlements and sales
                    
                    
                    920,412
                    
                    
                    
                    807,449
                    
                    
                    
                    -
                    
                    
                    
                    1,727,861Net
      transfers in (out)
                    
                    
                    (1,299,696
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,299,696
                    )Gains
      (losses):Realized
                    
                    
                    -
                    
                    
                    
                    107,310
                    
                    
                    
                    -
                    
                    
                    
                    107,310Unrealized
                    
                    
                    (109,474
                    )
                    
                    
                    (1,065,888
                    )
                    
                    
                    (166,962
                    )
                    
                    
                    (1,342,324
                    )Balance
      at December 31, 2008
                    
                    $
                    695
                    
                    
                    $
                    1,605,451
                    
                    
                    $
                    27,995
                    
                    
                    $
                    1,634,141Purchases,
      issuances, settlements and sales
                    
                    
                    71,464
                    
                    
                    
                    311,515
                    
                    
                    
                    -
                    
                    
                    
                    382,979Net
      transfers in (out)
                    
                    
                    (51,694
                    )
                    
                    
                    (155,331
                    )
                    
                    
                    -
                    
                    
                    
                    (207,025
                    )Gains
      (losses):Realized
                    
                    
                    -
                    
                    
                    
                    (79,093
                    )
                    
                    
                    (91,058
                    )
                    
                    
                    (170,151
                    )Unrealized
                    
                    
                    1,266
                    
                    
                    
                    (107,061
                    )
                    
                    
                    63,063
                    
                    
                    
                    (42,732
                    )Balance
      at December 31, 2009
                    
                    $
                    21,731
                    
                    
                    $
                    1,575,481
                    
                    
                    $
                    -
                    
                    
                    $
                    1,597,212Change
      in unrealized gains (losses) relating to instruments still
      held at December 31, 2009
                    
                    $
                    1,266
                    
                    
                    $
                    (33,657
                    )
                    
                    $
                    -
                    
                    
                    $
                    (32,391
                    )





The
amounts of unrealized losses for the years ended December 31, 2009 and 2008
included in the table above are all attributable to those assets held as of
December 31, 2009 and 2008, respectively. Net gains and losses (both realized
and unrealized) for Level 3 financial assets (securities owned by the
Company) are a component of “Principal transactions” in the Consolidated
Statements of Operations.





Changes
in value of the warrant liabilities (warrants issued by the Company) constitute
“Change in fair value of warrant liability” in the Consolidated Statements of
Operations.


77





MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





7.
Equipment and Fixtures





Equipment
and fixtures consisted of the following:





December 31,2009
                  
                  
                  2008Computer
      equipment
                  
                  $
                  532,195
                  
                  
                  $
                  568,116Furniture
      and equipment
                  
                  
                  930,151
                  
                  
                  
                  1,223,050Software
                  
                  
                  190,522
                  
                  
                  
                  183,098Leasehold
      improvements
                  
                  
                  1,113,769
                  
                  
                  
                  1,641,4972,766,637
                  
                  
                  
                  3,615,761Less
      accumulated depreciation
                  
                  
                  (2,260,102
                  )
                  
                  
                  (2,355,750
                  )$
                  506,535
                  
                  
                  $
                  1,260,011





There
were no equipment or fixtures purchased with capital lease financing during
2009. Equipment and fixtures purchased with capital lease financing during 2008
was $806,000. At December 31, 2009, the Company had $1,121,000 of computer
equipment, furniture and equipment, and leashold improvements purchased under
capital lease equipment with accumulated depreciation of $810,000 which are
included in the table above. See Note 15 for additional information on
capital leases.





8.
Notes Payable and Convertible Notes Payable





Convertible
Notes Payable Issued in 2003





In April
2003, the Company completed a private placement financing that included
convertible notes payable with aggregate principal of $1,000,000, due April
2008. The notes had an interest rate of 3% per annum payable quarterly on
January 1, April 1, July 1 and October 1 beginning July 1, 2003. The notes were
convertible to common stock at a rate of $1.40 per share. In connection with the
private placement, the Company issued warrants to purchase 178,300 shares of
common stock with an exercise price of $2.10 per share and a five-year term. The
convertible notes were recorded in the Consolidated Statements of Financial
Condition net of discounts resulting from the relative fair value of the stock
warrants and beneficial conversion feature totaling $258,000. The discount was
being amortized over the five-year term. In October 2003, notes payable with a
face amount of $500,000 were converted under their original terms into 51,021
shares of common stock resulting in the accelerated amortization of discounts in
the amount of $118,000. In December 2004, notes payable with a face amount of
$300,000 were converted under their original terms into 30,613 shares of common
stock resulting in the accelerated amortization of discounts in the amount of
$50,000. Amortization of discounts during 2007 and 2006 was approximately
$10,000 and $10,000, respectively.





In April
2008, the remaining balance of $200,000 was converted in the Company’s common
stock in the amount of 142,858 shares.  As of April 2008, the
remaining unamortized discount was expensed and the warrants exercisable reached
the end of their contractual life and expired.


78





MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





8.
Notes Payable and Convertible Notes Payable - (continued)





Note
Payable Held By Donald Sledge





During
2001, the Company renegotiated the severance terms included in its employment
agreement with Donald Sledge, the former Chairman and CEO of the Company. Upon
his leaving the Company in May 2001, the Company issued to Mr. Sledge a 7%
convertible note, in an aggregate principal amount of $400,000, due May 2003.
Interest was payable at the maturity of the two-year term. In May 2003, the
Company and Mr. Sledge agreed to convert the principal and interest due at
maturity into a fully amortizing note payable over five years using an effective
interest rate of 4.0%. Mr. Sledge was a member of the Company’s Board of
Directors until March 2007.





In
May 2008, the remaining balance of the convertible note was paid
off.  As of December 31, 2008, there is no balance on the
note.





Midsummer
Convertible Note





In
December 2006, the Company repaid the $7.5 million variable rate secured
convertible note. The proceeds to repay the $7.5 million convertible note were
provided by redemption from the MCF Navigator fund. Midsummer Investment, Ltd.
(“Midsummer”) retained the stock warrant to purchase 267,858 shares of common
stock. The Company recorded a loss on the repayment of the convertible note in
the amount of $1,349,000 which consisted of $1,154,000 for the write-off of the
unamortized discount related to the stock warrant and $195,000 for the write-off
of the unamortized debt issuance costs in 2006.  All of the 267,858
warrants issued are still outstanding as of December 31, 2009 and
2008.





9. Discontinued
Operations





Panel
Intelligence, LLC





On April
17, 2007, Merriman Curhan Ford Group, Inc. acquired 100% of the outstanding
common shares of MedPanel Corp. which was subsequently renamed Panel
Intelligence, LLC (“Panel”) and made into a subsidiary of the Company. The
results of Panel’s operations have been included in the consolidated financial
statements since that date through the Company’s Form 10-Q for the three months
ended September 30, 2009. As a result of the acquisition, the Company began
providing independent market data and information to clients in the
biotechnology, pharmaceutical, medical device, and financial industries by
leveraging Panel’s proprietary methodology and vast network of medical
experts.





The
Company paid $6.1 million in common stock for Panel. The value of the 1,547,743
shares of common shares issued was determined based on the average market price
of the Company’s common stock over the period including three days before and
after the terms of the acquisition were agreed to and announced. The selling
stockholders were also entitled to additional consideration on the third
anniversary from the closing which is based upon Panel Intelligence achieving
specific revenue and profitability milestones.





In
December 2008, the Company determined that the sale of Panel would reduce
investments required to develop Panel’s business.  Its sale would also
generate capital necessary for its core business.   The Company
determined that the plan of sale criteria in ASC Topic 360,Property, Plant and
Equipment  had been met. Accordingly, the carrying value of the
Panel assets was adjusted to their fair value less costs to sell.  As
a result, an impairment loss in the amount of $1,937,000 was recorded and is
included in “Other expenses” in 2008.  In January 2009, the Company
sold Panel to Panel Intelligence, LLC (Newco) for $1,000,000 and shares of the
Company’s common stock in the amount of $100,000.





The
revenue and expenses of Panel were reclassified and included in discontinued
operations in the Consolidated Statements of Operations for the year ending
December 31, 2008.  Certain assets and liabilities of Panel have been
reclassified and included in assets and liabilities held for sale in the
Consolidated Statements of Financial Condition as of December 31,
2008.


79





MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





9. Discontinued Operations -
(continued)





The
following revenue and expenses have been reclassified as discontinued operations
for the years ended December 31, 2009 and 2008:





December 31,2009
                      
                      
                      2008Revenue
                      
                      $
                      217,141
                      
                      
                      $
                      6,304,420Operating
      expenses:Compensation
      and benefits
                      
                      
                      193,723
                      
                      
                      
                      3,533,175Cost
      of primary research services
                      
                      
                      64,179
                      
                      
                      
                      2,295,510Professional
      services
                      
                      
                      42,180
                      
                      
                      
                      188,157Occupancy
      and equipment
                      
                      
                      27,775
                      
                      
                      
                      354,388Communications
      and technology
                      
                      
                      1,179
                      
                      
                      
                      132,384Depreciation
      and amortization
                      
                      
                      10,610
                      
                      
                      
                      588,858Travel
      and entertainment
                      
                      
                      8,123
                      
                      
                      
                      140,399Impairment
      of goodwill and intangible assets
                      
                      
                      -
                      
                      
                      
                      4,538,945Other
      expenses
                      
                      
                      (36,436
                      )
                      
                      
                      323,458311,333
                      
                      
                      
                      12,095,274Operating
      loss
                      
                      
                      (94,192
                      )
                      
                      
                      (5,790,854
                      )Interest
      expense, net
                      
                      
                      (702
                      )
                      
                      
                      (10,222
                      )Net
      loss
                      
                      $
                      (94,894
                      )
                      
                      $
                      (5,801,076
                      )





At
December 31, 2009, there were no assets or liabilities of operations held for
sale included on the Consolidated Statements of Financial Condition. The assets
and liabilities of operations held for sale as of December 31, 2008 are as
follows:





Assets:Cash
      and cash equivalents
                    
                    $
                    222,892Accounts
      receivable
                    
                    
                    1,102,681Furniture
      and equipment
                    
                    
                    163,505Intangible
      assets, net of accumulated amortization and impairment
                    
                    
                    282,744Prepaid
      expenses and other assets
                    
                    
                    186,216$
                    1,958,038Liabilities:Accounts
      payable
                    
                    $
                    227,213Commissions
      and bonus payable
                    
                    
                    110,632Accrued
      liabilities
                    
                    
                    603,780Capital
      leases
                    
                    
                    111,274$
                    1,052,899




80





MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





9.
Discontinued Operations - (continued)





Goodwill





During
the year ended December 31, 2007, the Company recorded $3,130,000 of
goodwill on the Consolidated Statements of Financial Condition that related to
the Company’s acquisition of Panel in April 2007. In March 2008, shares were
released from escrow pursuant to the acquisition agreement and the value of the
goodwill increased to $3,338,000.  In conjunction with the annual
impairment testing in April 2008, the Company recorded a total impairment of
$2,209,000.  In December 2008, goodwill was further impaired by
$1,129,000 which reduced the goodwill to zero.  No goodwill impairment
charge was recognized in 2009.





Intangible
Assets





The
components of intangible assets, all of which are related to the April 2007
Panel acquisition, consist of the following:





As of
                      December 31,2008Depreciable
      intangible assets:Customer
      relationships
                    
                    $
                    990,000Database
      of panelists
                    
                    
                    220,000Technology
      platform
                    
                    
                    360,000Customer
      backlog
                    
                    
                    420,0001,990,000Less:
      accumulated amortization
                    
                    
                    (1,216,327
                    )Less:
      impairment
                    
                    
                    (490,929
                    )282,744Non-depreciable
      intangible asset–Tradenames
                    
                    
                    710,000Less:
      impairment
                    
                    
                    (710,000
                    )Total
      intangible assets, net of amortization and impairment
                    
                    $
                    282,744





As noted
above, all of the Company’s intangible assets included on the Consolidated
Statements of Financial Condition as of December 31, 2008 were related to Panel.
Also noted above, Panel was sold during the year ended December 31, 2009, and as
a result of the sale, the Company does not have any intangible assets recorded
in the Consolidated Statements of Financial Condition as of December 31, 2009.
Total amortization expense for the above intangibles in 2008 was
$466,000.  Total impairment loss related to intangible assets in 2008
amounted to $1,201,000.  For the year ended December 31, 2009, there was no
material amortization expense or impairment loss.


81





MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





10. Sale of a Component of an
Entity





On
January 16, 2009, the Company entered into an agreement to sell the assets of
ICD, a division of MCF, to a group of investors who are also its employees in
order to raise capital. The assets being sold include MCF’s rights in trademark,
copyright, and other intellectual property used in the business, customer lists,
marketing materials, and books and records. As of December 31, 2009, the Company
determined that the discontinued operations criteria in ASC Topic 205,Discontinued
Operations , had not been met, as such the revenues and expenses of ICD
are still presented as part of continuing operations.  In accordance with
Securities and Exchange Commission (SEC) Staff Accounting Bulletin
(SAB) 104,
“Revenue Recognition”, the Company recognized $2,000,000 as Other Income for the
year ended December 31, 2009.





To assist
in the transition of operations to the new owners, the Company is providing
substantial services to ICD, including collecting its revenues. Under guidance
provided in ASC Subtopic 605-45, “Principal Agent Considerations,” the Company
records ICD’s revenues and expenses at gross levels. In 2010, the Company
expects to no longer provide such services and will no longer record ICD
revenues.





For the
year ended December 31, 2009, $27,789,000 of the Company’s brokerage revenue of
$40,180,000  and $27,579,000 of the Company’s operating expenses of
$62,842,000 can be attributed to ICD and would not have been recorded as the
Company’s revenue had the sale of ICD met the discontinued operations criteria.
ICD represented 56% of the Company’s total revenue and 44% of its total expense
for the period. As of December 31, 2009, $2,492,000 and $2,268,000 of Due from
Clearing Broker and Commissions and Bonus Payable balances are attributed to
ICD, respectively.





11.
Stock-Based Compensation Expense





Stock
Options





In 2009,
the Company, with shareholder approval, adopted the 2009 Stock Incentive Plan
(the “2009 Plan”).  Up to 8,000,000 new shares of its common stock may
be issued pursuant to awards granted under the 2009 Plan.  The Company
will no longer grant options under any of its existing option
plans.  Any shares of the Company’s common stock which become
available for new grant, upon the termination of employees holding unvested
option grants under existing plans, will be added to the 2009 Plan.





The 2009
Plan, 1999 Stock Option Plan, 2000 Stock Option and Incentive Plan, 2001 Stock
Option and Incentive Plan, 2003 Stock Option and Incentive Plan, 2004
Non-Qualified Stock Option and Inducement Plan and 2006 Directors’ Stock Option
and Incentive Plan, collectively the Option Plans, permit the Company to grant
employees, outside directors, and consultants incentive stock options,
nonqualified stock options or stock purchase rights to purchase shares of the
Company’s common stock. The Option Plans do not permit the exercise of
restricted stock options, and therefore as of December 31, 2009 and 2008, there
were no shares subject to repurchase.





As of
December 31, 2009, there were 15,091,430 shares authorized for issuance under
the Option Plans, and 612,858 shares authorized for issuance outside of the
Option Plans. As of December 31, 2009, 3,832,628 shares were available for
future grants under the Option Plans. There were no shares available for future
grants outside of the Options Plans.





As of
December 31, 2008, there were 7,091,430 shares authorized for issuance under the
Option Plans, and 612,858 shares authorized for issuance outside of the Option
Plans. As of December 31, 2008, 4,576,509 shares were available for future
grants under the Option Plans. There were no shares available for future grants
outside of the Options Plans. Compensation expense for stock options during the
years ended December 31, 2009 and 2008 was $573,000 and $2,139,000,
respectively.


82





MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





11.
Stock-Based Compensation Expense - (continued)





The
following table is a summary of the Company’s stock option activity for the two
years ended December 31, 2009:





2009
                  
                  
                  2008Weighted-
                  
                  
                  
                  
                  
                  Weighted-Average
                  
                  
                  
                  
                  
                  AverageExercise
                  
                  
                  
                  
                  
                  ExerciseShares
                  
                  
                  Price
                  
                  
                  Shares
                  
                  
                  PriceOutstanding
      at beginning of year
                  
                  
                  1,167,117
                  
                  
                  $
                  5.85
                  
                  
                  
                  4,066,259
                  
                  
                  $
                  6.00Granted
                  
                  
                  9,445,209
                  
                  
                  
                  0.83
                  
                  
                  
                  717,780
                  
                  
                  
                  3.41Exercised
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (64,628
                  )
                  
                  
                  (2.36
                  )Canceled
                  
                  
                  (1,062,209
                  )
                  
                  
                  (2.64
                  )
                  
                  
                  (3,552,294
                  )
                  
                  
                  (5.59
                  )Outstanding
      at end of year
                  
                  
                  9,550,117
                  
                  
                  
                  1.25
                  
                  
                  
                  1,167,117
                  
                  
                  
                  5.85Exercisable
      at end of year
                  
                  
                  556,102
                  
                  
                  $
                  5.96
                  
                  
                  
                  646,907
                  
                  
                  $
                  7.39





The
following table summarizes information with respect to stock options outstanding
at December 31, 2009, based on the Company’s closing stock price on December 31,
2009 of $0.87 per share:





Options Outstanding at December 31, 2009
                                                      
                                                      Vested Options at December 31, 2009Weighted-Average
                                                      
                                                      Weighted-
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      Weighted-Remaining
                                                      
                                                      Average
                                                      
                                                      Aggregate
                                                      
                                                      
                                                      
                                                      Average
                                                      
                                                      AggregateRange
      of
                                                      
                                                      
                                                      
                                                      Contractual
                                                      
                                                      Exercise
                                                      
                                                      Intrinsic
                                                      
                                                      
                                                      
                                                      Exercise
                                                      
                                                      IntrinsicExercise
      Price
                                                      
                                                      Number
                                                      
                                                      Life
      (Years)
                                                      
                                                      Price
                                                      
                                                      Value
                                                      
                                                      Number
                                                      
                                                      Price
                                                      
                                                      Value$0 –
      $1.00
                                                      
                                                      
                                                      4,361,172
                                                      
                                                      9.44
                                                      
                                                      $
                                                      0.49
                                                      
                                                      $
                                                      1,641,981
                                                      
                                                      102,212
                                                      
                                                      $
                                                      0.44
                                                      
                                                      $
                                                      44,012$1.01
      – $3.50
                                                      
                                                      
                                                      4,720,940
                                                      
                                                      9.50
                                                      
                                                      
                                                      1.28
                                                      
                                                      
                                                      -
                                                      
                                                      224,754
                                                      
                                                      
                                                      2.57
                                                      
                                                      
                                                      -$3.51
      – $7.00
                                                      
                                                      
                                                      345,192
                                                      
                                                      7.62
                                                      
                                                      
                                                      4.29
                                                      
                                                      
                                                      -
                                                      
                                                      109,598
                                                      
                                                      
                                                      4.86
                                                      
                                                      
                                                      -$7.01
      – $14.00
                                                      
                                                      
                                                      96,665
                                                      
                                                      4.36
                                                      
                                                      
                                                      9.77
                                                      
                                                      
                                                      -
                                                      
                                                      93,390
                                                      
                                                      
                                                      9.84
                                                      
                                                      
                                                      -$14.01
      – $28.00
                                                      
                                                      
                                                      1,147
                                                      
                                                      0.99
                                                      
                                                      
                                                      15.34
                                                      
                                                      
                                                      -
                                                      
                                                      1,147
                                                      
                                                      
                                                      15.34
                                                      
                                                      
                                                      -$28.01
      – $49.00
                                                      
                                                      
                                                      25,001
                                                      
                                                      0.15
                                                      
                                                      
                                                      49.00
                                                      
                                                      
                                                      -
                                                      
                                                      25,001
                                                      
                                                      
                                                      49.00
                                                      
                                                      
                                                      -9,550,117
                                                      
                                                      9.33
                                                      
                                                      $
                                                      1.25
                                                      
                                                      $
                                                      1,641,981
                                                      
                                                      556,102
                                                      
                                                      $
                                                      5.96
                                                      
                                                      $
                                                      44,012





As of
December 31, 2009, total unrecognized compensation expense related to unvested
stock options was $4,929,000. This amount is expected to be recognized as
expense over a weighted-average period of 3.62 years.


83





MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





11.
Stock-Based Compensation Expense - (continued)





Restricted
Stock





At the
date of grant, the recipients of restricted stock have most of the rights of a
stockholder other than voting rights, subject to certain restrictions on
transferability and a risk of forfeiture. Restricted shares typically vest over
a two to four year period beginning on the date of grant. The fair value of
restricted stock is equal to the market value of the shares on the date of
grant. The Company recognizes the compensation expense for restricted stock on a
straight-line basis over the requisite service period. Compensation expense for
restricted stock during the years ended December 31, 2009 and 2008 was $181,000
and $215,000, respectively.





The
following table is a summary of the Company’s restricted stock activity, based
on the Company’s closing stock price on December 31, 2009 of $0.87 per
share:





Weighted-Non-Vested
                  
                  
                  Average
                  
                  
                  AggregateStock
                  
                  
                  Grant Date
                  
                  
                  IntrinsicOutstanding
                  
                  
                  Fair Value
                  
                  
                  ValueBalance
      as of January 1, 2008
                  
                  
                  180,620
                  
                  
                  
                  7.51
                  
                  
                  $
                  960,898Granted
                  
                  
                  79,265
                  
                  
                  
                  2.34Vested
                  
                  
                  (145,610
                  )
                  
                  
                  (5.05
                  )Canceled
                  
                  
                  (65,496
                  )
                  
                  
                  (5.00
                  )Balance
      as of December 31, 2008
                  
                  
                  48,779
                  
                  
                  
                  9.84
                  
                  
                  $
                  29,267Granted
                  
                  
                  76,631
                  
                  
                  
                  1.09Vested
                  
                  
                  (87,044
                  )
                  
                  
                  (1.68
                  )Canceled
                  
                  
                  -
                  
                  
                  
                  -Balance
      as of December 31, 2009
                  
                  
                  38,366
                  
                  
                  $
                  9.84
                  
                  
                  $
                  33,378





The total
fair value of restricted stock that vested during the years ended December 31,
2009 and 2008 was $90,000 and $465,000, respectively.





As of
December 31, 2009, total unrecognized compensation expense related to restricted
stock was $66,000. This expense is expected to be recognized over a
weighted-average period of 0.43 year.


84





MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





11.
Stock-Based Compensation Expense - (continued)





Warrants
issued to Board member





The
Company formed a Strategic Advisory Committee of the Board of Directors chaired
by Mr. Ronald Chez, the lead investor in the Series D Convertible Preferred
Stock strategic transaction.  During the first year, the Chair of the
Committee will be compensated with warrants to purchase 300,000 shares the
Company’s common stock at $0.65, to be issued pro rata on a monthly
basis.  To date, Mr. Chez is the sole member of the
Committee.  No other compensation arrangement for service on the
Committee has been made. During the year, the Company issued warrants to
purchase 93,333 shares of common stock to Mr. Chez. The Company calculated the
fair value of the warrants to be $84,000 using Black-Scholes options valuation
model.





Employee
Stock Option Give-Back Program





In
October 2008, the Company implemented a Stock Option Give-Back Program which
allowed all employees to give back stock options he or she was granted, whether
vested or unvested.  Employees were notified that there would be
noquid-pro-quo
 and that any employee who elected to give back any shares of stock options
would not receive a grant for the period of six months and one day following the
end of the program on October 31, 2008.





Sixteen
employees elected to participate in the program collectively giving back
3,011,511 shares of stock options granted under the Company’s various plans in
2008.  The Company recorded a compensation expense of $993,000 related
to the give-back program.





Fair
Value and Assumptions Used to Calculate Fair Value under ASC Topic
820





The
weighted-average grant date fair value of stock options granted during 2009 and
2008 was $0.58 and $2.16, respectively.





The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 2009 and 2008:





2009
                  
                  
                  2008Volatility
                  
                  
                  128.48
                  %
                  
                  
                  70
                  %Average
      expected term (years)
                  
                  
                  2.4
                  
                  
                  
                  6.3Risk-free
      interest rate
                  
                  
                  1.23
                  %
                  
                  
                  3.10
                  %Dividend
      yield
                  
                  
                  -
                  
                  
                  
                  -




85


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





11.
Stock-Based Compensation Expense - (continued)





Assumptions
for Option-Based Awards under ASC Topic 718





Consistent
with ASC Topic 718,Stock
Compensation, the Company considered the historical volatility of its
stock price in determining its expected volatility, and, finding this to be
reliable, determined that the historical volatility would result in the best
estimate of expected volatility. Because the Company does not have any traded
options or other traded financial instruments such as convertible debt, implied
volatilities are not available.





The
expected life of employee stock options represents the weighted-average period
the stock options are expected to remain outstanding. The Company calculated the
expected term using the Black-Scholes model with specific assumptions about the
suboptimal exercise behavior, post-vesting termination rates and other relevant
factors.





The
risk-free interest rate assumption is based upon observed interest rates
appropriate for the term of the Company’s employee stock options.





The
dividend yield assumption is based on the Company’s history and expectation of
dividend payouts. The Company has not paid and currently does not plan to
declare dividends on its common stock.





As
share-based compensation expense recognized in the Consolidated Statements of
Operations for the years ended December 31, 2009 and 2008, is based on awards
ultimately expected to vest, it has been reduced for estimated forfeitures.
Forfeitures were estimated based on the Company’s historical
experience.





Assumptions
for Restricted Stock Awards under ASC Topic 718





The fair
value of each restricted stock award is based on the market value of the
Company’s stock on the date of grant.





12.
Employee Benefit Plans





The
Company has a 401(k) defined contribution plan. The 401(k) plan allows eligible
employees to contribute up to 15% of their compensation, subject to a statutory
prescribed annual limit. Employee contributions and earnings thereon vest
immediately. Although the Company may make discretionary contributions to the
401(k) plan, none were made during the two years ended December 31,
2009.


86


MERRIMAN
CURHAN FORD GROUP, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





13.
Income Taxes





Income
tax benefit consisted of the following for the two years ended December 31,
2009:





2009
                  
                  
                  2008Current:Federal
                  
                  $
                  (397,395
                  )
                  
                  $
                  (1,627,734
                  )State
                  
                  
                  (230,528
                  )
                  
                  
                  (7,480
                  )Total
                  
                  $
                  (627,923
                  )
                  
                  $
                  (1,635,214
                  )





The
following table reconciles the federal statutory rate to the effective tax rate
of the benefit from income taxes for the two years ended December 31,
2009:




2009
                  
                  
                  2008Federal
      statutory income tax rate (benefit)
                  
                  
                  (34
                  )%
                  
                  
                  (34
                  )%State
      income taxes
                  
                  
                  (6
                  )
                  
                  
                  (7
                  )Permanent
      differences
                  
                  
                  (42
                  )
                  
                  
                  3Valuation
      allowance
                  
                  
                  72
                  
                  
                  
                  33Effective
      tax rate
                  
                  
                  (10
                  )%
                  
                  
                  (5
                  )%





The
effective tax rate is influenced by the Company’s performance and tax planning
opportunities available in the various jurisdictions in which the Company
operates.




The tax
effect of temporary differences that give rise to significant portions of the
deferred tax assets as of December 31, 2009 and 2008, are presented as
follows:





December 31,2009
                  
                  
                  2008Deferred
      tax assets:Net
      operating loss carryforwards
                  
                  $
                  6,334,284
                  
                  
                  $
                  23,149,680Other
                  
                  
                  5,476,865
                  
                  
                  
                  3,148,077Total
      deferred tax assets
                  
                  
                  11,811,149
                  
                  
                  
                  26,297,757Valuation
      allowance
                  
                  
                  (11,811,149
                  )
                  
                  
                  (26,297,757
                  )Net
      deferred tax asset
                  
                  $
                  -
                  
                  
                  $
                  -




87


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




13.
Income Taxes - (continued)





The net
change in the valuation allowance for the year ended December 31, 2009 was a
decrease of $14,487,000. This reduction was primarily the result Sec 382
limitations on net operating loss carryovers. The Company has established a
valuation allowance against that portion of deferred tax assets where management
was not able to determine that it is more likely than not that the asset will be
realized.




As of
December 31, 2009, the Company had federal and state operating loss
carryforwards of approximately $14,847,000 and $22,647,000, respectively. If not
earlier utilized, the federal net operating loss carryforwards will expire
between 2021 and 2029 and the state loss carryforward will expire between 2011
and 2029. The Tax Reform Act of 1986 and similar state legislation impose
substantial restrictions on the utilization of net operating losses and tax
credits in the events of an "ownership change" of a
corporation.  Accordingly, the Company has analyzed the impact of
"ownership change" limitations on its ability to utilize net operating losses
and credit carryforwards.  As a result, the Company has reduced the
net operating losses.





The
Company adopted ASC Topic 740,Income Taxes on January 1,
2007.  As a result of the implementation of ASC 740, the Company
recognized no adjustment in the liability for unrecognized income tax benefits
and no corresponding change in retained earnings. During 2008, the Company
recognized $1,839,000 of unrecognized tax benefits previously established in
2007.  Accordingly, there were no unrecognized tax benefits as of December
31, 2008. The Company has no unrecognized tax benefit liabilities for the year
ended December 31, 2009.  The Company does not have any material
accrued interest or penalties associated with any unrecognized tax benefits. The
Company does not believe it is reasonably possible that the unrecognized tax
benefits will significantly change within the next twelve months.





The
Company is subject to taxation in the U.S. and various state and foreign
jurisdictions.  The Company’s tax years 2001-2009 will remain open for
three years for examination by the Internal Revenue Service from the date the
federal corporation tax returns were filed. The Company’s tax years 2000-2009
will remain open for all tax years with loss carryovers for examination by state
tax authorities. Net operating losses deducted are subject to review and
adjustment for three to four years after the net operating losses are deducted
on the U.S. and state returns filed.





14.
Loss per Share




The
following is a reconciliation of net loss to net loss attributable to common
stockholders:





2009
                  
                  
                  2008Net
      loss - basic and diluted
                  
                  $
                  (5,461,763
                  )
                  
                  $
                  (30,273,805
                  )Preferred
      stock deemed dividend
                  
                  
                  (5,066,702
                  )
                  
                  
                  -Preferred
      stock dividend
                  
                  
                  (192,100
                  )
                  
                  
                  -Net
      loss attributable to common stockholders - basic
                  
                  $
                  (10,720,565
                  )
                  
                  $
                  (30,273,805
                  )Weighted-average
      number of common shares - basic and diluted
                  
                  
                  12,693,648
                  
                  
                  
                  12,550,872Net
      loss per share attributable to common stockholders - basic and
      diluted
                  
                  $
                  (0.84
                  )
                  
                  $
                  (2.41
                  )




88


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




14.
Loss per Share - (continued)





Basic
loss per share is computed by dividing net loss by the weighted-average number
of common shares outstanding, excluding unvested restricted stock. Diluted
earnings per share is calculated by dividing net income by the weighted-average
number of common shares used in the basic earnings per share calculation plus
the number of common shares that would be issued assuming exercise or conversion
of all potentially dilutive common shares outstanding. Diluted loss per share is
unchanged from basic loss per share for 2009 and 2008 because the addition of
common shares that would be issued, assuming exercise or conversion, would be
anti-dilutive.




The
Company excludes all potentially dilutive securities from its diluted net loss
per share computation when their effect would be anti-dilutive. The following
common stock equivalents were excluded from the earnings per share computation,
as their inclusion would have been anti-dilutive:





2009
                  
                  2008Stock
      options and warrants excluded due to the exercise price exceeding the
      average fair value of the Company's common stock during the
      period
                  
                  
                  3,706,613
                  
                  1,354,525Weighted-average
      restricted stock, stock options and stock warrants, calculated using
      the treasury stock method, that were excluded due to the Company
      reporting a net loss during the period
                  
                  
                  1,223,722
                  
                  170,665Weighted-average
      shares issuable upon conversion of the Convertible Preferred
      stock, Series D
                  
                  
                  7,429,078
                  
                  -Weighted-average
      shares issuable upon conversion of the convertible notes
      payable
                  
                  
                  348,627
                  
                  46,576Total
      common stock equivalents excluded from diluted net income (loss) per
      share
                  
                  
                  12,708,040
                  
                  1,571,766




89


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





15.
Commitments and Contingencies




The
following is a table summarizing significant commitments as of December 31,
2009, consisting of operating commitments, future minimum lease payments under
all non-cancelable operating leases and capital leases with initial or remaining
terms in excess of one year.





Operating
                  
                  
                  Operating
                  
                  
                  CapitalCommitments
                  
                  
                  Leases
                  
                  
                  Leases2010
                  
                  $
                  632,424
                  
                  
                  $
                  1,696,102
                  
                  
                  $
                  268,8532011
                  
                  
                  312,846
                  
                  
                  
                  1,616,545
                  
                  
                  
                  146,6472012
                  
                  
                  100,080
                  
                  
                  
                  1,096,230
                  
                  
                  
                  -2013
                  
                  
                  -
                  
                  
                  
                  616,000
                  
                  
                  
                  -2014
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Thereafter
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      commitments
                  
                  
                  1,045,350
                  
                  
                  
                  5,024,877
                  
                  
                  
                  415,500Interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (17,542
                  )Net
      commitments
                  
                  $
                  1,045,350
                  
                  
                  $
                  5,024,877
                  
                  
                  $
                  397,958




The
Company leases its San Francisco corporate office under a non-cancelable
operating lease which expires in August 2011. Future annual minimum lease
payments related to its various operating leases are included in the table
above. Rent expense was approximately $1,478,000 in 2009, net of $323,000 in
sublease rent received, and $1,587,000 in 2008, net of $81,000 in sublease rent
received.





During
2009, the Company exited businesses and closed two of its broker-dealer
offices.  The Company exited its primary research business when it
sold the assets of its subsidiary Panel, and discontinued MCF Asset
Management.  The Company subleased its Cambridge office to the buyers
of Panel Intelligence and subleased the office space in San Francisco,
previously occupied by MCF Asset Management, to a third party.  The
Cambridge lease and sublease expire in July 2012 while the San Francisco lease
and sublease expire in December 2011.





The
Company closed its offices in Portland, Oregon and Newport Beach, California
during 2008 and 2009 and subleased the spaces to third parties.  The
sublease agreements were structured to terminate concurrently with the leases,
for Portland in July 2009 and for Newport Beach in October 2009.





In
connection with its underwriting activities, the Company enters into firm
commitments for the purchase of securities in return for a fee.  These
commitments require it to purchase securities at a specified price. Securities
underwriting exposes the Company to market and credit risk, primarily in the
event that, for any reason, securities purchased by the Company cannot be
distributed at anticipated price levels.  As December 31, 2009 and
2008, the Company had no open underwriting commitments.





The
marketable securities owned and the restricted cash as well as the cash held by
the clearing broker may be used to maintain margin requirements.  At
December 31, 2009 and 2008, the Company had $250,000 of cash on deposit with its
clearing broker.  Furthermore, the marketable securities owned may be
hypothecated or borrowed by the clearing broker.





From
time to time, the Company may obtain funds through capital leases to purchase
furniture and equipment, to replace current ones or for
expansion.  The Company did not enter into any new capital lease
agreements in 2009 or 2008.


90


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




15.
Commitments and Contingencies - (continued)




Legal
Proceedings





Settlement
with the Securities and Exchange Commission





On
November 10, 2009, the Securities and Exchange Commission (“SEC”) issued anOrder Instituting Administrative
and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21(c) of the
Securities and Exchange Act of 1934, Making Findings and Imposing Remedial
Sanctions and a Cease-and-Desist Order as to MCF, D. Jonathan Merriman, and
Christopher Aguilar  (the “Order”).  The Order was
issued in connection with the conduct of a former broker of the Company, David
Scott Cacchione (“Cacchione”), from approximately March 2006 to April 2008 for
violation of the anti-fraud provisions of the federal securities
laws.  Cacchione was fired in May 2008, shortly after the underlying
facts became known.





The Order
censures and imposes sanctions for the failure of MCF to reasonably supervise
Cacchione with a view toward preventing future violations arising out of his
disseminating confidential customer information to third parties and executing
unauthorized orders for certain customers.  Pursuant to the Order, MCF
paid a penalty of $100,000 and will hire an Independent Consultant to review and
make recommendations as needed to MCF’s written policies and procedures relating
to the supervision of registered representatives.





The Order
also imposes sanctions on Jon Merriman, MCF’s former CEO and current CEO of
Merriman Curhan Ford Group, Inc., the Company’s parent, and Christopher Aguilar,
MCF’s former Chief Compliance Officer, for failure to adequately supervise
Cacchione.  Pursuant to the Order, Jon Merriman paid a penalty of
$75,000 and Chris Aguilar must pay a penalty of $40,000.  Both
individuals are also suspended from acting in a supervisory capacity for any
broker or dealer for a period of twelve months from the date of the
Order.





The Order
makes no finding or allegation of any fraudulent activity involving anyone in
MCF other than Cacchione.  MCF, Mr. Merriman, and Mr. Aguilar
cooperated fully with the SEC’s investigation and consented to the SEC’s Order
without admitting or denying the findings.





Del
Biaggio/Cacchione Matters





A number
of lawsuits has been filed against MCF in connection with the actions of William
Del Biaggio III (“Del Biaggio”), a former customer of MCF and Cacchione, a
former retail broker of MCF.  Del Biaggio and Cacchione pleaded guilty
to securities fraud and were sentenced to prison terms of 97 and 60 months,
respectively.





The
claims filed against the Company by DGB Investments, Inc., Craig Leipold,
Heritage Bank of Commerce, Modern Bank, Valley Community Bank, AEG Facilities
and the Federal Deposit Insurance Company (“FDIC”) as receiver for Security
Pacific Bank in an aggregate amount of $43,577,000 related to the fraud were
settled as of September 8, 2009.  The amount for which the claims were
settled was $4,300,000, the issuance of five-year warrants to buy 1,538,461
shares of the Company’s common stock at $0.65 per share, and the assignment of
certain rights to collect potential insurance payments from the Company’s
insurers.





There are
additional lawsuits related to the fraud that the Company has elected not to
settle.  It intends to defend vigorously each case, other than matters
described as having been settled.  Although there can be no
assurance as to the ultimate outcome, the Company generally believes it has
meritorious defenses and denies liability in all litigation pending against it,
including the matters described below.  In accordance with applicable
accounting guidance, the Company establishes reserves for litigation and
regulatory matters when those matters present loss contingencies which are both
probable and estimable. When loss contingencies are not both probable and
estimable, the Company does not establish reserves. In the matters described
below, loss contingencies are not both probable and estimable in the view of
management, and accordingly, reserves have not been established for those
matters.


91


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




15.
Commitments and Contingencies - (continued)





Don
Arata, et al. v. Merriman Curhan Ford & Co.





In July
2008, MCF and the Company were served with a complaint filed in the San
Francisco County, California Superior Court by several plaintiffs who invested
money with Del Biaggio and related entities.  In March 2009, MCF and the
Company were served with an amended consolidated complaint on behalf of 39
plaintiffs which consolidated several similar pending actions filed by the same
law firm.  Plaintiffs allege, among other things, fraud based on
Cacchione’s alleged assistance to Del Biaggio in connection with the allegedly
fraudulent investments and MCF’s failure to discover and stop the continuing
fraud.   Plaintiffs in this lawsuit seek damages of over $9
million.  MCF and the Company responded to the amended consolidated
complaint in June 2009 denying all liability.  MCF and the Company
believe that they have meritorious defenses and intend to contest these claims
vigorously.  (The previously disclosed Davis, Cook, and Bachelor cases
now are part of the consolidated cases.)





David
Hengehold v. Merriman Curhan Ford & Co.





In June
2008, the Company and MCF were served with a complaint filed in San Mateo
County, California Superior Court by David Hengehold. Plaintiff alleges fraud
based on Cacchione having induced plaintiff into making loans to Del Biaggio.
Plaintiff in this lawsuit seeks damages of over $500,000. The Company
believes it has meritorious defenses and intends to contest this claim
vigorously.





United
American Bank v. Merriman Curhan Ford & Co.





In July
2008, MCF was served with a complaint filed in the Santa Clara County Superior
Court by United American Bank, which loaned money to Del Biaggio, alleging that
MCF entered into an account control agreement for an account that Del
Biaggio had previously pledged to another lender.  The account pledged
was in the name of Del Biaggio.  Plaintiff brought claims for, among other
things, fraud arising out of the failure to disclose the alleged previous
pledge.  Plaintiff alleges damages in the amount of $1.75 million. 
After ensuring that the proper clearance had been obtained from the
court in Del Biaggio's bankruptcy case, MCF turned over the pledged collateral
to Plaintiff, United American Bank, performing its obligation under the account
control agreement.  MCF then demanded that it be dismissed from the action,
and is continuing to follow up that demand.  The Company believes that
MCF has little or no remaining exposure in this matter, and intends to
contest this claim vigorously.





The
Private Bank of the Peninsula v. Merriman Curhan Ford & Co.





In July
2008, MCF was served with a complaint filed in the Santa Clara County Superior
Court by The Private Bank of the Peninsula.  Plaintiff alleges, among other
things, fraud based on Cacchione having induced plaintiff into making loans to
Del Biaggio.  Plaintiff in this lawsuit alleges damages of
$916,666.65.  The Company believe that MCF has meritorious defenses and
intends to contest this claim vigorously.





Pacific
Capital Bank v. Merriman Curhan Ford & Co.





In
October 2008, MCF was served with a complaint filed in the San Francisco County
Superior Court by Pacific Capital Bank.  Plaintiff alleges, among other
things, fraud based on Cacchione having induced plaintiff into making loans to
Del Biaggio.  Plaintiff in this lawsuit alleges damages of $1.84
million.  The Company believes that MCF has meritorious defenses and
intends to contest this claim vigorously.


92


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




15.
Commitments and Contingencies - (continued)





Gary
Thornhill, et al. v. Merriman Curhan Ford & Co.




In May
2009, a complaint was filed in the San Francisco County Superior Court by Gary
Thornhill and several related family members and entities, naming as defendants
the Company and MCF.  The complaint alleges, , among other things,
fraud based on Cacchione’s alleged assistance to Del Biaggio in connection with
the allegedly fraudulent investments and MCF’s failure to discover and stop the
continuing fraud.  Plaintiffs in this lawsuit seek damages of
$230,000.  The Company believes that it and MCF have meritorious defenses
and intends to contest these claims vigorously. (This case was consolidated
with the Arata case disclosed above on February 5, 2010. See Note 21,
“Subsequent Events.”)





Irving
Bronstein et. al. v. Merriman Curhan Ford & Co.





In early
2009, MCF and D. Jonathan Merriman were served with a FINRA arbitration claim
filed by Irving Bronstein and several related family members and entities. 
Claimants allege, among other things, that MCF benefited from the sale of a
particular security it held at the expense of its customers, including the
claimants, and fraud based on Cacchione’s alleged assistance to Del Biaggio in
connection with allegedly fraudulent investments and MCF’s failure to discover
and stop the fraud.  This case was settled on March 1, 2010. (See Note 21,
“Subsequent Events”).





John
Zarich v. Merriman Curhan Ford & Co.





In or
around April 2009, John Zarich filed an arbitration claim with FINRA naming
MCF.   The statement of claim alleges that Zarich was convinced
by Cacchione to purchase shares of a small, risky stock in which MCF held a
position.  It further alleges that Cacchione convinced Zarich not to
sell the shares when the stock’s price fell.  The statement seeks
$265,000 in compensatory damages plus punitive damages of $200,000 and 10%
interest beginning January 2, 2008.   The Company believes that
MCF has meritorious defenses and intends to contest this claim
vigorously.





Demand
by Shelly Schaffer to Merriman Curhan Ford & Co. for Payment of Attorneys’
Fees





On April
24, 2009, former Vice President of Client Services, Shelly Schaffer, through her
attorney, Robert Shartsis, made a written demand for payment of attorneys’ fees
for Ms. Schaffer’s defense in a civil action by the Securities and Exchange
Commission.  Ms. Schaffer, who was hired by MCF on May 25, 2006,
retained Mr. Shartsis to respond to an SEC Enforcement action in which it is
alleged that Ms. Schaffer violated the antifraud provisions of federal
securities laws and applicable regulations.  Ms. Schaffer worked for
Cacchione prior to their coming to MCF.  MCF has denied Ms. Schaffer’s
requests for payment of her attorneys’ fees on the grounds that the accusations
against her concern activities outside the course and scope of her employment at
MCF.  Ms. Schaffer’s attorneys are claiming payment of their fees from
MCF in a total amount of approximately $150,000.  The Company believes
that MCF has meritorious defenses and intends to contest the claims
vigorously.


93


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




15.
Commitments and Contingencies - (continued)





Other
Litigation





There
have been a number of legal cases that are unrelated to the Del
Biaggio/Cacchione matters. These are as follows:





Spare
Backup Inc. v. Merriman Curhan Ford & Co.





In April
2008, MCF entered into an engagement to provide investment banking services to
Spare Backup, Inc. (“Spare Backup”) MCF was able to close a round of bridge
financing in June 2008. MCF was successful in raising $1,300,000 in capital for
Spare Backup. As a result of closing the financing transaction, MCF was entitled
to reimbursement of its expenses, a convertible note with principal valued at
$161,100 and 370,370 shares of Spare Backup common stock. As of November 2008,
these transaction fees had not been paid to MCF. MCF hired counsel to seek
payment of the fees and to proceed to arbitration, as is specified in the
engagement letter. In January 2009, MCF filed a petition to compel arbitration
in the San Francisco County Superior Court. In response to the petition to
compel arbitration, Spare Backup filed a complaint in the Riverside County
Superior Court, Indio Branch, for fraud and declaratory relief alleging that MCF
fraudulently induced it to execute the investment banking engagement letter. The
petition for arbitration was granted and in May of 2009 and the Indio action was
stayed for all purposes pending the outcome of arbitration. The arbitration date
has been set for March 22, 2010.





Joy
Ann Fell v. Merriman Curhan Ford & Co.





In
November 2008, MCF received a demand letter from a former employee, Joy Ann
Fell. In January 2009, MCF received a claim filed by Ms. Fell in FINRA
arbitration. Ms. Fell worked in MCF’s investment banking department and was
terminated in October of 2008, as part of a reduction in force. Ms. Fell alleges
claims of breach of an implied employment contract, emotional distress and
work-place discrimination. The demand for money damages is approximately
$350,000. The Company believes that MCF has meritorious defenses and intends to
contest this claim vigorously. MCF has responded to the claim and the parties
have propounded, but not responded to, written discovery. The parties and FINRA
have jointly selected an arbitration panel of three New York-based
arbitrators:  Aaron Tyk, Caryl D. Feldman, and Beth Bird
Pocker.





Wesley
Rusch v. Merriman Curhan Ford & Co.





In
October 2008, MCF was served with a claim in FINRA Arbitration by Wesley Rusch.
Mr. Rusch is a former at-will employee of MCF and worked in the compliance
department. Mr. Rusch was terminated by MCF in July 2007. Mr. Rusch
alleges theories of discrimination and lack of cause for
termination.  Mr. Rusch filed a Statement of Claim seeking damages of
over $1 million.  The Company contested this claim at the arbitration
before a FINRA arbitration panel in March 2009 which resulted in a decision
in its favor in July 2009.  Mr. Rusch requested that the San
Francisco Superior Court vacate the decision, and the Company requested that it
be confirmed.





Peter
Marcil v. Merriman Curhan Ford & Co.





In
January 2009, MCF was served with a claim in FINRA Arbitration by Peter Marcil.
Mr. Marcil is a former at-will employee of MCF and worked in the investment
banking department. Mr. Marcil resigned from MCF in March of 2007.
Mr. Marcil alleges breach of an implied employment contract, wrongful
termination, and intentional infliction of emotional distress. Damages are not
specified in the arbitration claim. MCF has not replied to the claim and an
arbitration hearing date has not been set. The parties participated in mediation
with San Francisco Attorney/Mediator Mark Rudy on September 14, 2009 and agreed
to continue settlement negotiations. The Company believes that MCF has
meritorious defenses and intends to contest this claim vigorously. However, in
the event that MCF does not prevail, based upon the facts known to date, it does
not believe that the outcome will have a material effect on its financial
position, financial results or cash flows.


94


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




15.
Commitments and Contingencies - (continued)





Dow
Corning Corporation vs. Merriman Curhan Ford & Co.





In late
July and early August 2009, counsel for Dow Corning Corporation (DCC) indicated
in correspondence and communications that DCC may have some type of claim
against MCF in connection with its purchases of auction rate securities through
MCF’s ICD Division. Counsel would not furnish any specifics about the purported
claim or any purported damages, but requested an agreement tolling any
applicable statute of limitations to allow the parties to undertake “settlement
discussions.” MCF, Institutional Cash Distributors, LLC and certain
representatives of MCF’s ICD Division entered into such a tolling agreement with
DCC for a period of 60 days, which was extended for a further 60
days.  MCF’s ICD Division has refused to extend the tolling agreement
further. No claim has been filed.  Accordingly, MCF is not aware
of the basis of any purported claim.





Merriman
Curhan Ford & Co. and Merriman Curhan Ford Group, Inc. v. XL Specialty
Insurance Company





On
January 14, 2009, MCF and the Company (collectively “MCF”) filed a civil action
in the Superior Court for Los Angeles County (the “Coverage Lawsuit”) against
its directors’ and officers’ liability insurer, XL Specialty Insurance Company
(XL Specialty). In the Coverage Lawsuit, MCF had asserted claims for breach of
contract, tortious breach of contract, and declaratory relief, alleging that XL
Specialty wrongfully denied coverage for various ongoing third-party claims and
government investigations. This case was settled on February 12,
2010.  (Please see Subsequent Events.)





Midsummer
Investment, Ltd., v. Merriman Curhan Ford Group, Inc.





On
November 6, 2009, Midsummer Investment, Ltd. (“Midsummer”) filed a complaint in
federal court, Southern District of New York, alleging that Midsummer
was denied an anti-dilution adjustment to a warrant issued by the Company
to them, and that the Company refused to honor an exercise of that
warrant.  The Company believes that Midsummer is not entitled to any
anti-dilution adjustment and its attempted exercise was not accompanied by
proper payment.  The Company believes that it has meritorious defenses and
intends to contest this claim vigorously.





The
Company and MCF deny any liability and are vigorously contesting these lawsuits
and arbitrations. At this point, the Company cannot estimate the amount of
damages if they are resolved unfavorably or does not believe that the cases will
result in unfavorable outcomes and accordingly, management has not provided an
accrual for these lawsuits and arbitrations.





Based on
the facts presently known, the Company does not believe the outcome of these
proceedings will have a material adverse effect on its financial
condition.








Additionally,
from time to time, we are involved in ordinary routine litigation incidental to
our business.





The
expenses incurred by the Company in 2009 for legal services and litigation
settlements amounted to $7,777,000.


95


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




16.
Financial Instruments, Off-Balance Sheet Arrangements and Credit
Risk




Financial
Instruments




The
Company’s broker-dealer entity trades securities that are primarily traded in
United States markets. As of December 31, 2009 and 2008, the Company had not
entered into any transactions involving financial instruments, such as financial
futures, forward contracts, options, swaps or derivatives that would expose the
Company to significant related off-balance-sheet risk.




In
addition, the Company, from time to time, has sold securities it does not
currently own in anticipation of a decline in the fair value of that security
(securities sold, not yet purchased). When the Company sells a security short
and borrows the security to make a delivery, a gain, limited to the price at
which the Company sold the security short, or a loss, unlimited in size, is
realized as the fair value of the underlying security decreases or increases,
respectively.




Market
risk is primarily caused by movements in market prices of the Company’s trading
and investment account securities. The Company’s trading securities and
investments are also subject to interest rate volatility and possible
illiquidity in markets in which the Company trades or invests. The Company seeks
to control market risk through monitoring procedures. The Company’s principal
transactions are primarily long and short equity transactions.




Off-Balance Sheet
Arrangements





The
Company was not a party to any off-balance sheet arrangements during the two
years ended December 31, 2009. In particular, the Company does not have any
interest in so-called limited purpose entities, which include special purpose
entities and structured finance entities.





Credit
Risk





The
Company’s broker-dealer subsidiary functions as an introducing broker that
places and executes customer orders. The orders are then settled by an unrelated
clearing organization that maintains custody of customers’ securities and
provides financing to customers. Through indemnification provisions in
agreements with clearing organizations, customer activities may expose the
Company to off-balance-sheet credit risk. Financial instruments may have to be
purchased or sold at prevailing market prices in the event a customer fails to
settle a trade on its original terms or in the event cash and securities in
customer margin accounts are not sufficient to fully cover customer obligations.
The Company seeks to control the risks associated with customer activities
through customer screening and selection procedures, as well as through
requirements on customers to maintain margin collateral in compliance with
various regulations and clearing organization policies.





The
Company is also exposed to credit risk as it relates to the collection of
receivables from third parties, including lead managers in underwriting
transactions and the Company’s corporate clients related to private placements
of securities and financial advisory services.


96


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




17. Reductions in
Force





On
January 23, 2009, the Company performed a reduction in force (“RIF”) affecting
10 employees.  There were one-time termination benefits of $41,000. 
There was no disposal of assets or contract terminations associated with the
RIF.





The
Company performed two RIFs in 2008 – one on August 6, 2008 and one on October
15, 2008.  The August RIF affected 25 employees and the October RIF
affected 16 employees.  The one-time termination benefits expensed by the
Company for the RIFs were $216,000 and $170,000 for August and October,
respectively, which have been reported under compensation and benefits in the
consolidated statements of operations.  In addition, the October RIF had
associated contract termination costs related to the lease of office
space.  That cost was an additional $56,000 in expense which has been
reported under occupancy and equipment in the Consolidated Statements of
Operations.  There were no assets disposed of or any other expenses
incurred.  These expenses were recorded in the third and fourth quarters of
2008.





18.
Regulatory Requirements




MCF is a
broker-dealer subject to Rule 15c3-1 of the Securities Exchange Act of 1934,
which specifies uniform minimum net capital requirements, as defined, for their
registrants. As of December 31, 2009, MCF had regulatory net capital, as
defined, of $2,685,000, which exceeded the amount required by $2,369,000. MCF is
exempt from Rules 15c3-3 and 17a-13 under the Securities Exchange Act of 1934
because it does not carry customer accounts, nor does it hold customer
securities or cash.





19.
Related Party Transactions




Unsecured
Promissory Notes





On June
30, 2009, the Company issued $300,000 in unsecured promissory notes to three of
its employees at an interest rate of 3.25%.  The maturity date of the notes
was October 31, 2009, although they were repayable earlier on the occurrence of
certain events. These notes were paid in full in cash during September
2009.





Unsecured
Debt





On July
29, 2009, Mr. Jonathan Merriman, the Company’s CEO, and Mr. Brock Ganeles, MCF’s
Head of Brokerage, made short-term loans to the Company in the amounts of
$200,000 and $300,000, respectively.  Mr. Merriman’s loan was repaid on
August 5, 2009.  Mr. Merriman forgave the interest on his loan.  Mr.
Ganeles’ loan was repaid on August 20, 2009.  The Company paid Mr. Ganeles
interest in the amount of $9,403.





Bridge
Note





On July
31, 2009, the Company issued Mr. Ronald L. Chez, the lead investor in the Series
D Transaction, a Secured Promissory Note in the amount of $500,000 at an annual
interest rate of 9.00%.  The term of the Note was three years, redeemable
by Mr. Chez upon presentation of written demand.  The Note was guaranteed
personally by Messrs. Jonathan Merriman (CEO) and Peter Coleman (CFO).  The
Company issued 10-year warrants to purchase 1,162,791 shares of the Company’s
common stock at $0.65 per share to Mr. Chez in connection with this
transaction.  Identical warrants were issued to purchase 581,395 shares of
the Company’s common stock each to Messrs. Merriman and Coleman for the
guarantee. The Bridge Note was converted into the Series D Convertible Preferred
Stock on September 8, 2009.  Subsequent to the Series D Transaction, Mr.
Chez has joined the Company’s Board of Directors.


97


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





19.
Related Party Transactions - (continued)





Series
D Convertible Preferred Stock





Three of
investors in the Series D Convertible Preferred Stock transaction, Messrs.
Andrew Arno, Douglas Bergeron, and Ronald Chez, have since joined the Company’s
Board of Directors.  In addition, the Company’s CEO and CFO, along with 11
other executives and senior managers of MCF, were also investors in the Series D
Convertible Preferred Stock transaction.  Finally, all five members of the
Company’s Board of Directors prior to the transaction were investors in the
Series D Convertible Preferred Stock transaction.





Secured
Demand Note





On August
12, 2009, the Company obtained a Temporary Secured Demand Note (“Demand Note”)
in the amount of $1,329,000 from the D. Jonathan Merriman Living Trust as a
subordinated loan.  The trustee of the Trust, D. Jonathan Merriman, is also
the Chief Executive Officer of the Company.  The Demand Note was
collateralized by securities held in a brokerage account held at a third party
by the Trust.  The Demand Note was repaid on September 23, 2009 and the
securities were transferred back to the Trust.  The Company compensated the
Trust with total interest and fees in the amount of $179,000, the majority of
which was reinvested in the Series D Convertible Preferred Stock
transaction.





Strategic
Advisory Committee





The
Company formed a Strategic Advisory Committee of the Board of Directors chaired
by Mr. Ronald Chez, the lead investor in the Series D Convertible Preferred
Stock strategic transaction. During the first year, the Chair of the Committee
will be compensated with warrants to purchase 300,000 shares the Company’s
common stock at $0.65, to be issued pro rata on a monthly basis. As of December
31, 2009, 93,333 warrants were issued to Mr. Chez in connection with his service
on the Committee. To date, Mr. Chez is the sole member of the Committee. No
other compensation arrangement for service on the Committee has been made. Mr.
Chez receives no additional compensation for his service on the Board of
Directors.





From time
to time, officers, directors, employees and/or certain large stockholders of the
Company may invest in private placements which the Company arranges and for
which the Company charges investment banking fees.




20.
Quarterly Financial Data (Unaudited)




The table
below sets forth the operating results represented by certain items in the
Company’s Consolidated Statements of Operations for each of the eight quarters
in the two years ended December 31, 2009. This information is unaudited, but in
the Company’s opinion, reflects all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of such information in accordance with generally accepted
accounting principles. The results for any quarter are not necessarily
indicative of results for any future period.


98


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




20. Quarterly
Financial Data (Unaudited) - (continued)





20091st
                                        
                                        
                                        2nd
                                        
                                        
                                        3rd
                                        
                                        
                                        4thRevenue
                                        
                                        $
                                        10,050,622
                                        
                                        
                                        $
                                        12,432,278
                                        
                                        
                                        $
                                        13,308,394
                                        
                                        
                                        $
                                        13,471,748Operating
      expenses
                                        
                                        
                                        13,067,520
                                        
                                        
                                        
                                        13,767,255
                                        
                                        
                                        
                                        19,199,330
                                        
                                        
                                        
                                        16,808,290Operating
      loss from continuing operations
                                        
                                        
                                        (3,016,899
                                        )
                                        
                                        
                                        (1,334,977
                                        )
                                        
                                        
                                        (5,890,936
                                        )
                                        
                                        
                                        (3,336,541
                                        )(Loss)
      income from continuing operations
                                        
                                        
                                        (1,828,992
                                        )
                                        
                                        
                                        (562,740
                                        )
                                        
                                        
                                        (16,568,645
                                        )
                                        
                                        
                                        13,593,508Loss
      from discontinued operations
                                        
                                        
                                        (94,894
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Net
      (loss) income
                                        
                                        $
                                        (1,923,886
                                        )
                                        
                                        $
                                        (562,740
                                        )
                                        
                                        $
                                        (16,568,645
                                        )
                                        
                                        $
                                        13,593,508Net
      (loss) income attributable to common shareholders
                                        
                                        $
                                        (1,923,886
                                        )
                                        
                                        $
                                        (562,740
                                        )
                                        
                                        $
                                        (21,674,447
                                        )
                                        
                                        $
                                        13,440,508Basic
      net (loss) income per share:(Loss)
      income from continuing operations
                                        
                                        $
                                        (0.14
                                        )
                                        
                                        $
                                        (0.04
                                        )
                                        
                                        $
                                        (1.31
                                        )
                                        
                                        $
                                        1.07Loss
      from discontinued operations
                                        
                                        
                                        (0.01
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Net
      (loss) income per share
                                        
                                        $
                                        (0.15
                                        )
                                        
                                        $
                                        (0.04
                                        )
                                        
                                        $
                                        (1.31
                                        )
                                        
                                        $
                                        1.07Diluted
      net (loss) income per share:(Loss)
      income from continuing operations
                                        
                                        $
                                        (0.14
                                        )
                                        
                                        $
                                        (0.04
                                        )
                                        
                                        $
                                        (1.31
                                        )
                                        
                                        $
                                        0.27Loss
      from discontinued operations
                                        
                                        
                                        (0.01
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Net
      (loss) income per share
                                        
                                        $
                                        (0.15
                                        )
                                        
                                        $
                                        (0.04
                                        )
                                        
                                        $
                                        (1.31
                                        )
                                        
                                        $
                                        0.27Net
      income (loss) attributable to common shareholders
                                        
                                        $
                                        (0.15
                                        )
                                        
                                        $
                                        (0.04
                                        )
                                        
                                        $
                                        (1.71
                                        )
                                        
                                        $
                                        1.06


99





MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





20. Quarterly
Financial Data (Unaudited) - (continued)




20081st
                  
                  
                  2nd
                  
                  
                  3rd
                  
                  
                  4thRevenue
                  
                  $
                  10,211,455
                  
                  
                  $
                  14,197,041
                  
                  
                  $
                  4,494,943
                  
                  
                  $
                  7,664,397Operating
      expenses
                  
                  
                  16,983,595
                  
                  
                  
                  18,180,284
                  
                  
                  
                  15,785,800
                  
                  
                  
                  12,029,745Operating
      loss from continuing operations
                  
                  
                  (6,772,140
                  )
                  
                  
                  (3,983,243
                  )
                  
                  
                  (11,290,857
                  )
                  
                  
                  (4,365,348
                  )Loss
      from continuing operations
                  
                  
                  (6,693,504
                  )
                  
                  
                  (2,126,098
                  )
                  
                  
                  (11,313,824
                  )
                  
                  
                  (4,339,302
                  )Loss
      from discontinued operations
                  
                  
                  (356,469
                  )
                  
                  
                  (2,987,748
                  )
                  
                  
                  (409,513
                  )
                  
                  
                  (2,047,347
                  )Net
      loss
                  
                  $
                  (7,049,973
                  )
                  
                  $
                  (5,113,846
                  )
                  
                  $
                  (11,723,337
                  )
                  
                  $
                  (6,386,649
                  )Basic
      net loss per share:Loss
      from continuing operations
                  
                  $
                  (0.54
                  )
                  
                  $
                  (0.17
                  )
                  
                  $
                  (0.90
                  )
                  
                  $
                  (0.34
                  )Loss
      from discontinued operations
                  
                  
                  (0.03
                  )
                  
                  
                  (0.24
                  )
                  
                  
                  (0.03
                  )
                  
                  
                  (0.16
                  )Net
      loss
                  
                  $
                  (0.57
                  )
                  
                  $
                  (0.41
                  )
                  
                  $
                  (0.93
                  )
                  
                  $
                  (0.50
                  )Diluted
      net loss per share:Loss
      from continuing operations
                  
                  $
                  (0.54
                  )
                  
                  $
                  (0.17
                  )
                  
                  $
                  (0.90
                  )
                  
                  $
                  (0.34
                  )Loss
      from discontinued operations
                  
                  
                  (0.03
                  )
                  
                  
                  (0.24
                  )
                  
                  
                  (0.03
                  )
                  
                  
                  (0.16
                  )Net
      loss
                  
                  $
                  (0.57
                  )
                  
                  $
                  (0.41
                  )
                  
                  $
                  (0.93
                  )
                  
                  $
                  (0.50
                  )




21.
Subsequent Events





Under ASC
Topic 855,Subsequent
Events, the Company has evaluated all subsequent events through the date
these consolidated financial statements were filed with the SEC. The Company
determined the following to be material subsequent events that require
disclosure.





Temporary
Subordinated Loan





On
January 20, 2010, the Company borrowed $11,000,000 from DGB Investment, Inc. and
the Bergeron Family Trust, both controlled by Douglas G. Bergeron, a member of
the Company’s Board of Directors. The loan was in the form of a temporary
subordinated loan to supplement the Company’s net capital and enabled it to
underwrite an initial public offering, in accordance with Rule 15c3-1 of the
Securities Exchange Act of 1934.  The Company compensated Mr. Bergeron
$731,000 in fees for the loan.


100


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




21.
Subsequent Events - (continued)





Merriman
Curhan Ford & Co. & Merriman Curhan Ford Group, Inc. v. XL Specialty
Insurance Co.





On
February 12, 2010, the Company settled its lawsuit with XL Specialty Insurance
Company. As part of its settlement agreement dated September 8, 2009 with DGB
Investment, Inc., Craig Leipold, Heritage Bank of Commerce, Modern Bank, Valley
Community Bank, AEG Facilities and the Federal Deposit Insurance Company
(“FDIC”) as receiver for Security Pacific Bank (the “Litigants”), the Company
assigned certain rights of recovery to the Litigants. The settlement was for
$5,750,000, of which the Company’ portion, pursuant to the settlement agreement,
was $325,000 less expenses. As a result of the receipt of these proceeds, the
Company was obligated to issue 373,563 warrants to purchase shares of the
Company’s common stock at a price per share of $0.87. As of December 31, 2009,
the Company has accrued for the $325,000 liability that was paid out as warrants
subsequent to year end.





Henry
Khachaturian v. Merriman Curhan Ford & Co.





In
January 2010, the Company was served with a complaint filed in the San Francisco
County Superior Court by Henry Khachaturian. The complaint also names as
defendants officers and former officers D. Jonathan Merriman, Gregory
Curhan, and Robert Ford. The statement of claim alleges that Mr. Khachaturian
was convinced by the Company to purchase shares of a small, risky stock in which
the Company held a position. It further alleges that the Company did not permit
Mr. Khachaturian to sell the shares when the stock’s price fell. The complaint
seeks unspecified compensatory and punitive damages.





Chuck
Peterson v. Merriman Curhan Ford & Co.





On
February 23, 2010, Chuck Peterson filed a complaint with the San Francisco
Superior Court, California, for fraud, breach of fiduciary duty, and
misrepresentation. The complaint was served on MCF on March 5,
2010.





The
Company believes it has meritorious defenses and intends to contest these claims
vigorously.





Irving
Bronstein et. al v. Merriman Curhan Ford & Co.





On March
1, 2010, Irving Bronstein, other plaintiffs and MCF settled all legal
claims.  The Company has reserved appropriately, as of December 31, 2009,
for this matter.





Gary
Thornhill, et al. v. Merriman Curhan Ford & Co.





On
February 5, 2010, the Thornhill case was consolidated with the Arata case,
disclosed in Note 15.


101





Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure




The
financial statements included in this report have been audited by Burr Pilger
Mayer, Inc. (“BPM”), an independent registered public accounting firm, as stated
in its audit report appearing herein.





On August
25, 2009, the Company’s Audit Committee and Board of Directors appointed BPM and
dismissed Ernst & Young LLP (“E&Y”) as its independent registered public
accounting firm.




During
the year ended December 31, 2009 and through the date of this Annual Report on
Form 10-K, there were no disagreements with BPM or E&Y on any matter of
accounting principle or practice, financial statement disclosure, or auditing
scope or procedure which, if not resolved to BPM or E&Y’s satisfaction,
would have caused them to make reference to the subject matter in connection
with their report on the Company’s consolidated financial statements; and there
were no reportable events as set forth in applicable SEC
regulations.




Item
9a. Controls and Procedures




Evaluation of Disclosure Controls
and Procedures - We have established disclosure controls and procedures
to ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to the officers who certify the
Company’s financial reports and to other members of senior management and the
Board of Directors.




Based on
their evaluation as of December 31, 2009, the principal executive officer and
principal financial officer of the Company have concluded that the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) are effective.




Management’s Report on Internal
Control Over Financial Reporting - Our management is responsible for
establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision
and with the participation of our management, including our principal executive
officer and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework inInternal
Control—Integrated Framework  issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation under the
framework inInternal
Control—Integrated Framework , our management concluded that our internal
control over financial reporting was effective as of December 31,
2009.




Changes in Internal Controls
- No change in the Company’s internal control over financial reporting (as
defined in Rules 13a-15(d) and 15d-15(d) of the Exchange Act) occurred during
the quarter ended December 31, 2009, that materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.


102


Item
9b. Other Information




The
annual meeting of our stockholders was held on November 24, 2009. At the annual
meeting, our stockholders voted on the matters shown in the table below. Only
the Series D Preferred stock was entitled to vote with respect to the elections
of Messrs. Arno, Bergeron and Chez.  Only the common stock was entitled to
vote with respect to the other director elections.  Both classes voted
together as a single class with respect to proposals 2 and 3.  Each
director was elected, and each proposal adopted, by the votes
shown.





Votes
                          
                          
                          Votes
                          
                          
                          Votes
                          
                          BrokerFor
                          
                          
                          Against
                          
                          
                          Abstained
                          
                          Non-Votes1.
                          Election
      of Directors:John
      M. Thompson
                          
                          
                          7,099,545
                          
                          
                          
                          -
                          
                          
                          
                          474,094
                          
                          Not applicableD.
      Jonathan Merriman
                          
                          
                          7,028,547
                          
                          
                          
                          -
                          
                          
                          
                          545,092
                          
                          Not
      applicableDennis
      G. Schmal
                          
                          
                          7,091,336
                          
                          
                          
                          -
                          
                          
                          
                          482,303
                          
                          Not
      applicableWilliam
      J. Febbo
                          
                          
                          7,080,421
                          
                          
                          
                          -
                          
                          
                          
                          493,218
                          
                          Not
      applicableJeffrey
      M. Soinski
                          
                          
                          7,109,411
                          
                          
                          
                          -
                          
                          
                          
                          464,228
                          
                          Not
      applicableAndrew
      Arno
                          
                          
                          16,162,993
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          Not
      applicableDouglas
      G. Bergeron
                          
                          
                          16,162,993
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          Not
      applicableRonald
      L. Chez
                          
                          
                          16,162,993
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          Not
      applicable2.
                          Adoption
      of the 2009 Stock Incentive Plan
                          
                          
                          18,915,215
                          
                          
                          
                          370,511
                          
                          
                          
                          3,431
                          
                          4,447,4753.
                          Ratification
      of the selection of independent registered public accounting firm for
      fiscal year 2009
                          
                          
                          23,370,219
                          
                          
                          
                          347,093
                          
                          
                          
                          19,320
                          
                          Not
      applicable


103





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors and


Stockholders
of Merriman Curhan Ford Group, Inc.




We have
audited Merriman Curhan Ford Group, Inc.’s internal control over financial
reporting as of December 31, 2009, based on criteria established inInternal Control—Integrated
Framework  issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Merriman Curhan Ford Group, Inc.’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Annual Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on
the company’s internal control over financial reporting based on our
audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.




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




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




In our
opinion, Merriman Curhan Ford Group, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009,
based on criteria established inInternal Control—Integrated
Framework  issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).




We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated statement of financial
position and the related consolidated statements of operations, stockholders’
equity, and cash flows of Merriman Curhan Ford Group, Inc., and our report dated
March 18, 2010 expressed an unqualified opinion.





/s/ Burr
      Pilger Mayer, Inc.




San
Francisco, California


March 18,
2010


104


PART
III




Item
10. Directors and Executive Officers of the Registrant





Directors





John M.
Thompson, 71, has served as Chairman of our Board of Directors since
November 2007. An experienced business advisor, Mr. Thompson has chaired several
boards of directors, including Arthur D. Little and MedPanel, Inc., and served
on others. Mr. Thompson resigned as Chairman of Arthur D. Little in February
2003, upon completion of the sale of the company. Mr. Thompson was Chairman of
MedPanel, Inc. from 1999 through April 2007, when MedPanel, Inc. was acquired by
Merriman Curhan Ford Group, Inc. In his last executive position, he served as
chairman and Chief Executive Officer of CSC Europe, overseeing all European
operations for the Computer Sciences Corporation (NYSE: CSC). Mr. Thompson left
Computer Sciences Corporation in April 1993. Prior to that, he was Vice Chairman
of Index Group, the company that pioneered the concepts of process redesign and
business reengineering. Mr. Thompson is well known on both sides of the Atlantic
as a management consultant, helping better position firms for stronger growth.
In the 1960's he was a co-founder of Interactive Data Corporation (NYSE:IDC).
Mr. Thompson has been a guest faculty member at several universities including
Harvard, MIT and Wharton, and he holds an M.A. from Cambridge
University.





D. Jonathan
Merriman, 49, has served as our Chief Executive Officer from October 2000
to the present and served as Chairman of the Board of Directors from February
2001 to November 2007. Prior to that period, Mr. Merriman was President and CEO
of Ratexchange Corporation, the predecessor company to Merriman Curhan Ford
Group, Inc. Mr. Merriman and his team engineered the transition from
Ratexchange, a software trading platform company, into a full-service
institutional investment bank, Merriman Curhan Ford. From June 1998 to October
2000, Mr. Merriman was Managing Director and Head of the Equity Capital Markets
Group and member of the Board of Directors at First Security Van Kasper. In this
capacity, he oversaw the Research, Institutional Sales, Equity Trading,
Syndicate and Derivatives Trading departments. From June 1997 to June 1998, Mr.
Merriman served as Managing Director and Head of Capital Markets at The Seidler
Companies in Los Angeles, where he also served on the firm’s Board of Directors.
Before Seidler, Mr. Merriman was Director of Equities for
Dabney/Resnick/Imperial, LLC. In 1989, Mr. Merriman co-founded the hedge fund
company Curhan, Merriman Capital Management, Inc., which managed money for high
net worth individuals and corporations. Before Curhan, Merriman Capital
Management, Inc., he worked in the Risk Arbitrage Department at Bear Stearns
& Co. as a trader. Prior to Bear Stearns, Mr. Merriman worked at Merrill
Lynch as a financial analyst and as an institutional equity salesman. Mr.
Merriman received his Bachelor of Arts in Psychology from Dartmouth College and
completed coursework at New York University’s Graduate School of Business. Mr.
Merriman has served on the Boards of several organizations and currently holds a
seat on the Board of Directors of Leading Brands, Inc.




Andrew
Arno, 50, has served as a member of our Board of Directors and as
Merriman Curhan Ford & Co.’s Vice Chairman of the Investment Bank and Head
of Capital Markets Advisory since September 2009.  He was most recently the
Chief Executive Officer of Unterberg Capital LLC. Arno was a Managing Director
at Collins Stewart LLC. In July 2007, Collins Stewart acquired C.E. Unterberg,
Towbin. Arno joined C.E. Unterberg, Towbin in 1990 as a Managing Director
responsible for Capital Markets and was appointed Chief Executive Officer in
2006. From 1987-1989, Arno was a Vice President at Lehman Brothers. From
1981-1987 he served as Vice President at L.F. Rothschild Unterberg, Towbin
Holdings, Inc. where he was involved in portfolio management for high-net-worth
individuals. Arno is a graduate of George Washington University.




Douglas G.
Bergeron, 49, has served as a member of our Board of Directors since
September 2009.  He has been CEO of VeriFone since July 2001, when he
spearheaded the acquisition of the company from Hewlett Packard in a transaction
valued at $50 million. Since that time, VeriFone’s sales have tripled and the
value of the company has grown to more than one billion dollars. Bergeron
remains one of the largest individual shareholders of the company.  In June
2002, Bergeron partnered as an investor with GTCR Golder Rauner, a leading
private equity firm, to recapitalize VeriFone, and position the company for a
new era of market growth. In April 2005, VeriFone became a public company and is
listed on the New York Stock Exchange under the symbol "PAY."  Bergeron
previously served in a variety of executive management positions at SunGard Data
Systems Inc., including President of SunGard Futures Systems and Group CEO of
SunGard Brokerage Systems Group. He was also President of Gores Technology
Group. Bergeron is on the Listed Company Advisory Committee of NYSE Euronext.
Bergeron holds a Bachelor of Arts degree (with Honors) in Computer Science from
York University in Toronto, Canada, and a Masters of Science degree from the
University of Southern California.


105


Ronald L.
Chez, 69, has served as a member of our Board of Directors and as the
chairman of the Board’s Strategic Advisory Committee since September 2009. 
He also serves as president and sole owner of Ronald L. Chez, Inc., a
corporation that deals with financial management consulting, public and private
investment, turnaround strategies, structuring of new ventures, and mergers and
acquisitions. He is currently chairman of the board of EpiWorks, Inc., and
serves on the advisory boards of JP Morgan, Chase and Hambrecht & Quist
Access Technology Fund. Chez’s past experience includes: advisor to Motorola’s
New Ventures Program; board membership and investment committee member for
Abbott Capital; consultant and board member for Motorola Process Control and
Motorola Teleprograms; and board member and investor in
Travelocity.





William J.
Febbo, 41, has served as a member of our Board of Director since April
2007. Mr. Febbo was Chief Executive Officer and founder of MedPanel, Inc., an
online medical market intelligence firm, from January 1999 to April 2007. At
MedPanel, Mr. Febbo oversaw the company's sales, marketing, technology, finance
and content development organizations. We acquired MedPanel, Inc. in April 2007
(now Panel Intelligence, LLC), where Mr. Febbo continued his
responsibilities.  Mr. Febbo and other investors formed Panel Intelligence,
LLC (a Massachusetts corporation) which acquired the assets of Panel
Intelligence, LLC (a Delaware corporation) from us on January 30, 2009. 
Mr. Febbo continues to serve on our Board of Directors but ceased to be an
employee of the Company.  Mr. Febbo has been Treasurer on the Board of the
United Nations of Greater Boston since November 2004. Prior to founding
MedPanel, Inc., Mr. Febbo was Chairman of the Board of Directors of Pollone, a
Brazilian manufacturing venture in the automotive industry, from January 1998 to
January 1999. From January 1996 to January 1999, Mr. Febbo was with Dura
Automotive working in business development and mergers and acquisition overseas.
Mr. Febbo received his B.S. degree in international studies, with a focus on
economics and Spanish, from Dickinson College.




Dennis G.
Schmal, 63, has served as a member of our Board of Directors and as a
member of our Audit Committee since August 2003. Mr. Schmal has also served as a
member of our Compensation Committee since March 2007 and has served on the
Nominations and Corporate Governance Committee since September 2005. From
February 1972 to April 1999, Mr. Schmal served as a partner in the audit
practice at Arthur Andersen LLP. As a senior business advisor with special focus
in finance, he has extensive knowledge of financial reporting and holds the CPA
designation. Besides serving on the boards of two private companies, Mr. Schmal
also serves on the Board of Directors for Varian Semiconductor Equipment
Associates, Inc. (VSEA), a public company and on the boards of the thirteen
mutual funds comprising the AssetMark family of mutual funds. Mr. Schmal also
served on the board of NorthBay Bancorp (NBAN), a public bank holding company,
until it was sold in 2007. Mr. Schmal attended California State University,
Fresno where he received a Bachelor of Science in Business Administration-
Finance and Accounting Option.




Jeffrey M.
Soinski, 48, has served as a member of our Board of Directors since
August 2008.  Mr. Soinski is a Special Venture Partner with Galen Partners,
a leading private equity firm focused solely on the healthcare industry. 
Since September 2009, Mr. Soinski has served as Chief Executive Officer of
Medical Imaging Holdings, Inc., a Galen Partners portfolio company, as well as
Medical Imaging Holdings’ primary operating company Unisyn Medical Technologies,
Inc., a national provider of
technology-enabled service solutions to the medical imaging
industry.  Prior to Galen Partners, Mr. Soinski was President and
CEO of Specialized Health Products International, Inc., a publicly-traded
manufacturer and marketer of proprietary safety medical products that was
acquired by C. R. Bard, Inc. in June 2008.  In 2008, Mr. Soinski was named
“Utah CEO of the Year” for small public companies by Utah Business
magazine.  Prior to Specialized Health Products, Mr. Soinski had been
President and CEO of ViroTex Corporation, a ventured-backed pharmaceutical
company he sold to Atrix Laboratories, Inc. in 1998.  Earlier in his
career, Mr. Soinski worked as an executive at leading national advertising
agencies and was a new products marketing executive at Nabisco Brands.  In
2000 and 2001, he led the full-service advertising agency Mad Dogs &
Englishmen as Managing Director and CEO.  Mr. Soinski holds a B.A. degree
from Dartmouth College.


106


Executive
Officers




D. Jonathan
Merriman, 49, has served as our Chief Executive Officer from October 2000
to the present and served as Chairman of the Board of Directors from February
2001 to November 2007. Prior to that period, Mr. Merriman was President and CEO
of Ratexchange Corporation, the predecessor company to Merriman Curhan Ford
Group, Inc. Mr. Merriman and his team engineered the transition from
Ratexchange, a software trading platform company, into a full-service
institutional investment bank, Merriman Curhan Ford. From June 1998 to October
2000, Mr. Merriman was Managing Director and Head of the Equity Capital Markets
Group and member of the Board of Directors at First Security Van Kasper. In this
capacity, he oversaw the Research, Institutional Sales, Equity Trading,
Syndicate and Derivatives Trading departments. From June 1997 to June 1998, Mr.
Merriman served as Managing Director and Head of Capital Markets at The Seidler
Companies in Los Angeles, where he also served on the firm’s Board of Directors.
Before Seidler, Mr. Merriman was Director of Equities for
Dabney/Resnick/Imperial, LLC. In 1989, Mr. Merriman co-founded the hedge fund
company Curhan, Merriman Capital Management, Inc., which managed money for high
net worth individuals and corporations. Before Curhan, Merriman Capital
Management, Inc., he worked in the Risk Arbitrage Department at Bear Stearns
& Co. as a trader. Prior to Bear Stearns, Mr. Merriman worked at Merrill
Lynch as a financial analyst and as an institutional equity salesman. Mr.
Merriman received his Bachelor of Arts in Psychology from Dartmouth College and
completed coursework at New York University’s Graduate School of Business. Mr.
Merriman has served on the Boards of several organizations and currently holds a
seat on the Board of Directors of Leading Brands, Inc.





Peter V.
Coleman, 41, has served as Chief Executive Officer of Merriman Curhan
Ford & Co. since June 2009, Chief Financial Officer for Merriman Curhan Ford
Group, Inc. since May 2008, and Chief Operating Officer since January
2009.  Mr. Coleman was most recently with ThinkPanmure, an investment bank,
where he served as CFO since March 2007, COO since November 2006, Director of
Research from September 2005 until November 2006, the Head of Brokerage from
June 2006 until June 2007, and was a member of the Board of Directors since
April 2007.  Prior to that, he was a principal and senior research analyst
at Schwab SoundView, an investment bank, focusing on technology from May 2002 to
November 2004.





Christopher L.
Aguilar, 47, served as General Counsel of Merriman Curhan Ford Group,
Inc. from March 2000 to April 2009. From August 1995 to March 2000, Mr. Aguilar
was a partner at Bradley, Curley & Asiano, a San Francisco law firm, where
he represented the interests of public and private corporations, small
businesses and individuals in commercial litigation. Mr. Aguilar has also worked
for the San Francisco City Attorney and Alameda County District Attorney’s
offices. Mr. Aguilar received his juris doctorate degree from the University of
California, Hastings College of the Law. He also attended Oxford University as
an undergraduate and received his Bachelor of Arts degree from the Integral
Program at St. Mary’s College of California where he was included in Who’s Who
among American Colleges and Universities. Mr. Aguilar has served as an adjunct
professor at University of California, Hastings College of the Law.





Robert E.
Ford, 49, served as President of Merriman Curhan Ford Group, Inc. from
February 2001 to June 30, 2009, served as President of the Services Group of
Merriman Curhan Ford & Co. from January 2009 to February 2010, and also
served as Chief Operating Officer of Merriman Curhan Ford Group, Inc. from
February 2001 to January 2009. Prior to joining Merriman Curhan Ford Group,
Inc., from February 2000 to February 2001, Mr. Ford was a co-Founder and CEO of
Metacat, Inc., a content management ASP that specialized in enabling supplier
catalogs for Global 2000 private exchanges and eMarketplaces. From June 1996 to
December 1999, he was President/COO and on the founding team of JobDirect.com, a
leading resume and job matching service for university students, which was
acquired by Korn Ferry International. Previously, Mr. Ford co-founded and
managed an education content company from September 1994 to 1996. Prior to that,
from May 1992 to August 1994, he headed up a turnaround and merger as General
Manager of a 65 year-old manufacturing and distribution company. Mr. Ford
started his career as VP of Business Development at Lazar Enterprises, a
technology-consulting firm he helped operate from June 1989 to February 1992. He
earned his Masters in International Business and Law from the Fletcher School of
Law and Diplomacy in 1989 at Tufts University and a BA with high distinction
from Dartmouth College in 1982.





There is
no family relationship among any of the foregoing officers or between any of the
foregoing executive officers and any Director of the Company.


107




Involvement
in Certain Legal Proceedings





On
November 10, 2009, the Securities and Exchange Commission (“SEC”) issued anOrder Instituting Administrative
and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21(c) of the
Securities and Exchange Act of 1934, Making Findings and Imposing Remedial
Sanctions and a Cease-and-Desist Order as to Merriman Curhan Ford & Co., D.
Jonathan Merriman, and Christopher Aguilar  (the “Order”).  The
Order was issued in connection with the conduct of David Scott Cacchione
(“Cacchione”), a former broker of Merriman Curhan Ford & Co. (“MCF”), the
operating subsidiary of the Company, from approximately March 2006 to April 2008
for violation of the anti-fraud provisions of the federal securities laws. 
Cacchione was fired in May 2008, shortly after the underlying facts became
known.





The Order
censures and imposes sanctions for the failure of MCF to reasonably supervise
Cacchione with a view toward preventing future violations arising out of his
disseminating confidential customer information to third parties and executing
unauthorized orders for certain customers.  Pursuant to the Order, MCF paid
a penalty of $100,000 and will hire an Independent Consultant to review and make
recommendations as needed to MCF’s written policies and procedures relating to
the supervision of registered representatives.





The Order
also imposes sanctions on Jon Merriman, MCF’s former CEO and current CEO of
Merriman Curhan Ford Group, Inc., the Company’s parent, and Christopher Aguilar,
MCF’s former Chief Compliance Officer, for failure to adequately supervise
Cacchione.  Pursuant to the Order, Jon Merriman paid a penalty of $75,000
and Chris Aguilar must pay a penalty of $40,000.  Both individuals are also
suspended from acting in a supervisory capacity for any broker or dealer for a
period of twelve months from the date of the Order.





The Order
makes no finding or allegation of any fraudulent activity involving anyone in
MCF other than Cacchione.  MCF, Mr. Merriman, and Mr. Aguilar cooperated
fully with the SEC’s investigation and consented to the SEC’s Order without
admitting or denying the findings.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s directors
and executive officers to file reports with the SEC on Forms 3, 4 and 5 for the
purpose of reporting their ownership of and transactions in the Company’s equity
securities.  During 2009, Ronald L. Chez filed three reports on Form 4 late
and D. Jonathan Merriman filed one report on Form 4 late.





Financial
Code of Ethics





The
Company has adopted and annually reviews its “Code of Ethics for Senior
Financial Officers,” a code of ethics that applies to our Chief Executive
Officer and Chief Financial Officer. The finance code of ethics is publicly
available on our website at www.merrimanco.com. If we make any substantive
amendments to the finance code of ethics or grant any waiver, including any
implicit waiver, from a provision of the code to our Chief Executive Officer or
Chief Financial Officer, we will disclose the nature of such amendment or waiver
on that website or in a report on Form 8-K.





Audit
Committee





The
Company has a standing audit committee whose members are Dennis G. Schmal, John
M. Thompson, and Jeffrey M. Soinski.





Audit
Committee Financial Expert




The Board
of Directors has determined that Dennis G. Schmal is an “audit committee
financial expert” and “independent” as defined under applicable SEC and NASDAQ
rules. The Board’s affirmative determination for Dennis G. Schmal was based,
among other things, upon his 27 years at Arthur Andersen LLP, most of those
years as a partner in the audit practice.


108


Item
11. Executive Compensation




SUMMARY
2009 COMPENSATION TABLE




The
following table sets forth the compensation earned by our Chief Executive
Officer, our two other most highly compensated executive officers, and one
individual for whom disclosure would have been provided but for the fact that he
was not serving as an executive officer during the years ended December 31,
2009, whom we refer to as our named executive officers.





Name and Principal Position (a)
                                        
                                        Year
                                          (b)
                                        
                                        Salary
                                          ($)
                                          (c)
                                        
                                        
                                        Bonus
                                          ($)
                                          (d) (1)
                                        
                                        
                                        Stock Awards
                                          ($)
                                          (e)
                                        
                                        
                                        Option Awards
                                          ($)
                                          (f)
                                        
                                        
                                        Total
                                          ($)
                                          (g)D.
      Jonathan Merriman
                                        
                                        2009
                                        
                                        
                                        273,376
                                        
                                        
                                        
                                        25,000
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        2,391,865
                                        
                                        
                                        
                                        2,690,241Chief
      Executive Officer
                                        
                                        2008
                                        
                                        
                                        222,917
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        222,9172007
                                        
                                        
                                        250,000
                                        
                                        
                                        
                                        1,315,000
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        23,970
                                        
                                        
                                        
                                        1,588,970Peter
      V. Coleman
                                        
                                        2009
                                        
                                        
                                        210,635
                                        
                                        
                                        
                                        25,000
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        1,019,515
                                        
                                        
                                        
                                        1,255,150Chief
      Financial Officer
                                        
                                        2008
                                        
                                        
                                        120,914
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        50,925
                                        
                                        
                                        
                                        171,839Chief
      Operating Officer
                                        
                                        2007
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —Robert
      E. Ford (1)
                                        
                                        2009
                                        
                                        
                                        175,270
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        283,280
                                        
                                        
                                        
                                        458,550Chief
      Operating Officer
                                        
                                        2008
                                        
                                        
                                        222,917
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        222,9172007
                                        
                                        
                                        250,000
                                        
                                        
                                        
                                        830,000
                                        
                                        
                                        
                                        61,875
                                        
                                        
                                        
                                        22,992
                                        
                                        
                                        
                                        1,164,867Christopher
      L. Aguilar
                                        
                                        2009
                                        
                                        
                                        59,825
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        59,825General
      Counsel
                                        
                                        2008
                                        
                                        
                                        208,693
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        75,730
                                        
                                        
                                        
                                        284,4232007
                                        
                                        
                                        225,000
                                        
                                        
                                        
                                        290,000
                                        
                                        
                                        
                                        8,875
                                        
                                        
                                        
                                        9,042
                                        
                                        
                                        
                                        532,917





(1)
            The
      amounts included in column (d) are bonuses awarded under Executive and
      Management Bonus Plan (“EMB”), designed to reward our named executive
      officers and other employees to the extent that the Company achieves or
      exceeds its business plan for a particular year. The EMB provides for a
      bonus pool to be established based on achieving the Company’s annual
      business plan, with the Committee retaining discretion to allocate the
      bonus pool. If the Company’s business plan with respect to a calendar year
      is not met, only small amounts will be paid under the EMB for that year.
      While the amount of the total bonus pool that is available for awards
      under the EMB is based on the Company achieving certain performance
      targets, the actual amount to be paid to each of our named executive
      officers is determined by the Compensation Committee of our Board and our
      Board, based on their discretion. In 2008, by agreement between the
      executive management and the Compensation Committee, the named executive
      officers received no bonus, regardless of the
  EMB.




The Black
Scholes model assumptions (averaged over each year) are as follows:




2009
                  
                  
                  2008
                  
                  
                  2007Volatility
                  
                  
                  128
                  %
                  
                  
                  70
                  %
                  
                  
                  63
                  %Average
      expected term (years)
                  
                  
                  2.4
                  
                  
                  
                  6.3
                  
                  
                  
                  4.2Risk-free
      interest rate
                  
                  
                  1.23
                  %
                  
                  
                  3.10
                  %
                  
                  
                  4.55
                  %Dividend
      yield
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —


109





Each of
Messrs. Merriman and Ford were parties to employment agreements with the Company
which expired in 2007 and have not yet been renewed. Compensation awarded to our
named executive officers was determined by the compensation committee of our
Board.




Pursuant
to its practice, the Company provides Messrs. Merriman and Coleman with parking
at the Company’s principal offices.





OUTSTANDING
EQUITY AWARDS AT 2009 FISCAL YEAR-END


Option Awards
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                Stock AwardsNumber of
                                                                
                                                                
                                                                Number of
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                Number of
                                                                
                                                                
                                                                Market Value ofSecurities
                                                                
                                                                
                                                                Securities
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                Shares
                                                                
                                                                
                                                                SharesUnderlying
                                                                
                                                                
                                                                Underlying
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                or Units
                                                                
                                                                
                                                                or UnitsUnexercised
                                                                
                                                                
                                                                Unexercised
                                                                
                                                                
                                                                Option
                                                                
                                                                Option
                                                                
                                                                of Stock That
                                                                
                                                                
                                                                of Stock ThatOptions (#)
                                                                
                                                                
                                                                Options (#)
                                                                
                                                                
                                                                Exercise
                                                                
                                                                Expiration
                                                                
                                                                Have Not
                                                                
                                                                
                                                                Have NotExercisable
                                                                
                                                                
                                                                Unexercisable
                                                                
                                                                
                                                                Price
                                                                
                                                                Date
                                                                
                                                                Vested
                                                                
                                                                
                                                                Vested(b)
                                                                
                                                                
                                                                (c)
                                                                
                                                                
                                                                ($/Sh) (e)
                                                                
                                                                (f)
                                                                
                                                                (#)(g)
                                                                
                                                                
                                                                ($) (h)(1)D.
      Jonathan Merriman
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                850,000
                                                                
                                                                
                                                                
                                                                0.43
                                                                
                                                                5/8/2019
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                —2,500,000
                                                                
                                                                
                                                                
                                                                1.20
                                                                
                                                                11/11/2019Peter
      V. Coleman
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                400,000
                                                                
                                                                
                                                                
                                                                0.43
                                                                
                                                                5/8/2019
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                —150,000
                                                                
                                                                
                                                                
                                                                0.46
                                                                
                                                                7/1/20191,000,000
                                                                
                                                                
                                                                
                                                                1.20
                                                                
                                                                11/11/2019Rob
      Ford
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                400,000
                                                                
                                                                
                                                                
                                                                0.43
                                                                
                                                                5/8/2019
                                                                
                                                                
                                                                32,143
                                                                
                                                                
                                                                
                                                                27,964200,000
                                                                
                                                                
                                                                
                                                                1.20
                                                                
                                                                11/11/2019Christopher
      L. Aguilar (2)
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                —
                                                                
                                                                —
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                —





(1)
              Amounts
      in this column for Mr. Ford have been calculated by multiplying the
      closing price of a share of our common stock on December 31, 2009 ($0.87)
      by the number of restricted shares that were unvested on such date.
      Restricted shares vest in full on July 16,
2010.





(2)
              Mr.
      Aguilar served as General Counsel of the Company until April
      2009.





DIRECTOR
COMPENSATION IN 2009




The
following table sets forth information about the compensation earned by members
of our Board of Directors during the fiscal year ended December 31, 2009. Mr. D.
Jonathan Merriman, who served as Chief Executive Officer and as a Board member,
and Mr. Andrew Arno, who served as a Board member and as Merriman Curhan Ford
& Co.’s Vice Chairman of the Investment Bank, did not receive any
compensation for their service as directors.  Mr. William J. Febbo, who
served until January 2009 as the Chief Executive Officer of Panel Intelligence,
LLC, a subsidiary of the Company, and as a Board member also did not receive any
compensation for his service as a director while an employee.  Upon the
sale of Panel Intelligence, LLC, Mr. Febbo began receiving compensation for his
service as Director.




For the
year ended December 31, 2009, directors did not receive any compensation in the
form of participation in non-equity incentive or pension plans, or any other
form of compensation other than awards of cash, stock, and stock options. The
Company’s director compensation program for 2009 took into consideration service
on committees of the Board. For service on the Board and attendance at the four
scheduled quarterly meetings, each of our independent directors was awarded, on
an annual basis, a cash award, a number of fully vested shares, and shares of
stock options immediately exercisable. The number of shares and of stock options
awarded was determined by a value established by the Board prior to the
beginning of the year and the price of the Company’s share of common stock on
the grant date.  As the Board and each committee have four scheduled
meetings each year, one-fourth of each Director’s award was granted on each of
the scheduled meeting dates, provided the Director attended. Additional meetings
(whether by phone or in person) were scheduled as necessary for which no
additional compensation was awarded. Directors who served on any of the Board’s
committees were awarded an additional number of shares for each
committee.


110


As
Chairman, Mr. Thompson’s compensation was also in the form of cash, shares of
fully vested stock, and of stock options.  The number of stock and stock
options was higher relative to other directors.




Accordingly,
the compensation earned by our Directors in 2009 was as follows:





Name
                    (a)
                  
                  Fees Earned
                    or Paid in
                    Cash
                    ($) (b)
                  
                  
                  Stock
                    Awards
                    ($) (c) (1)
                  
                  
                  Option
                    Awards
                    ($) (d) (2)
                  
                  
                  All Other
                    Compensation
                    ($) (e)
                  
                  
                  Total
                    ($) (f)John
      M. Thompson, Chair
                  
                  
                  50,000
                  
                  
                  
                  25,000
                  
                  
                  
                  7,983
                  
                  
                  
                  —
                  
                  
                  
                  82,983Andrew
      Arno (3)
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Douglas
      G. Bergeron (4)
                  
                  
                  —
                  
                  
                  
                  4,375
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  4,375Ronald
      L. Chez (5)
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  83,670
                  
                  
                  
                  83,670William
      J. Febbo (6)
                  
                  
                  20,000
                  
                  
                  
                  10,000
                  
                  
                  
                  3,193
                  
                  
                  
                  —
                  
                  
                  
                  33,193D.
      Jonathan Merriman (7)
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Dennis
      G. Schmal
                  
                  
                  20,000
                  
                  
                  
                  10,000
                  
                  
                  
                  3,193
                  
                  
                  
                  —
                  
                  
                  
                  33,193Jeffrey
      M. Soinski
                  
                  
                  20,000
                  
                  
                  
                  10,000
                  
                  
                  
                  3,193
                  
                  
                  
                  —
                  
                  
                  
                  33,193





(1)
              The
      amounts in this column reflect the value of the shares of stock awarded,
      calculated by multiplying the closing price of a share of our common stock
      on the applicable grant date by the number of shares awarded on such date.
      All grants were made on the day of the Board meeting, were immediately
      vested and any restrictions were
removed.





(2)
            The
      directors received stock options for one quarter of service in 2009 at a
      grant date fair value of $0.2746 per share. The values of the stock
      options are calculated through the use of the Black-Scholes model as of
      the grant date, in accordance with FASB ASC Topic
    718.





(3)
            Mr.
      Andrew Arno is the Vice Chairman of the Company’s operating subsidiary,
      Merriman Curhan Ford & Co., for which compensation is not included in
      this table. In accordance with Company practice, employees of the Company
      and its subsidiaries do not receive additional compensation for service on
      the Board.





(4)
            Mr.
      Bergeron joined the board of directors in 2009. His compensation reflects
      his service for the period of the year during which he
      served.





(5)
            Mr.
      Chez chairs the Strategic Advisory Committee of the board of directors.
      His monthly compensation for such service is the grant of ten-year
      warrants to purchase 25,000 shares of the Company’s common stock at an
      exercise price of $0.65 per share. Mr. Chez has declined to receive
      additional compensation for service on the
  Board.





(6)
            In
      2008, Mr. Febbo was also the Chief Executive Officer of Panel Intelligence
      LLC, a subsidiary of the Company, which was sold in January of 2009. As
      Mr. Febbo was no longer an employee of the Company or its subsidiaries, he
      began receiving compensation for service on the
    Board.





(7)
            Mr.
      Merriman is also the Chief Executive Officer of the Company for which
      compensation is not included in this table. In accordance to Company
      practice, employees of the Company and its subsidiaries do not receive
      additional compensation for service on the
  Board.





The Board
of Directors annually reviews the Company’s director compensation
program.


111


Item
12. Security Ownership of Certain Beneficial Owners and Management




EQUITY
COMPENSATION PLAN INFORMATION




The
following table gives information about the Company’s common stock that may be
issued upon the exercise of options and warrants under all of our existing
equity compensation plans as of December 31, 2009 including the 1999 Stock
Option Plan, the 2000 Stock Option and Incentive Plan, the 2001 Stock Option and
Incentive Plan, the 2003 Stock Option and Incentive Plan, the 2009 Stock
Incentive Plan, the 2006 Directors’ Stock Option and Incentive Plan, and the
2002 Employee Stock Purchase Plan.




Number ofNumber of
                  
                  
                  
                  
                  
                  SecuritiesSecurities to
                  
                  
                  Weighted-
                  
                  
                  Remainingbe Issued
                  
                  
                  Average
                  
                  
                  AvailableUpon
                  
                  
                  Exercise
                  
                  
                  For FutureExercise of
                  
                  
                  Price of
                  
                  
                  IssuanceOutstanding
                  
                  
                  Outstanding
                  
                  
                  Under EquityOptions and
                  
                  
                  Options and
                  
                  
                  CompensationPlan Category
                  
                  Warrants
                  
                  
                  Warrants
                  
                  
                  PlansEquity
      compensation plans approved by stockholders:1999
      Stock Option Plan (expired 12/30/08)
                  
                  
                  65,865
                  
                  
                  $
                  4.47
                  
                  
                  
                  -2000
      Stock Option and Incentive Plan (expired 2/28/10)
                  
                  
                  365,797
                  
                  
                  $
                  1.29
                  
                  
                  
                  206,7532001
      Stock Option and Incentive Plan
                  
                  
                  443,243
                  
                  
                  $
                  0.80
                  
                  
                  
                  50,0322003
      Stock Option and Incentive Plan
                  
                  
                  3,644,879
                  
                  
                  $
                  1.03
                  
                  
                  
                  345,0252009
      Stock Incentive Plan
                  
                  
                  4,945,000
                  
                  
                  $
                  1.16
                  
                  
                  
                  3,011,4622006
      Directors’ Stock Option and Incentive Plan
                  
                  
                  98,838
                  
                  
                  $
                  0.43
                  
                  
                  
                  5,0692002
      Employee Stock Purchase Plan
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -Equity
      compensation not approved by stockholders
                  
                  
                  25,001
                  
                  
                  $
                  49.00
                  
                  
                  
                  -





Equity
compensation not approved by stockholders includes shares in a Non-Qualified
option plan approved by the Board of Directors of Ratexchange Corporation (now
known as Merriman Curhan Ford Group, Inc.) in 1999 and a Non-Qualified option
plan that is consistent with the American Stock Exchange Member Guidelines, Rule
711, approved by the Board of Directors in 2004. The American Stock Exchange
guidelines require that grants from the option plan be made only as an
inducement to a new employee, that the grant be approved by a majority of the
independent members of the Compensation Committee and that a press release is
issued promptly disclosing the terms of the option grant. The Non-Qualified
option plan that was established in accordance with the American Stock Exchange
guidelines is considered a pre-existing plan, and is thus considered acceptable
under the NASDAQ Stock Market guidelines.  The Company’s shares of common
stock are listed on NASDAQ under the symbol MERR.


112


SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





The
following table sets forth information regarding beneficial ownership of each
class of our voting securities as of March 31, 2009, by (a) each person who is
known by us to own beneficially more than five percent of each of our
outstanding classes of voting securities, (b) each of our directors, (c) each of
the named executive officers and (d) all directors and executive officers as a
group.





Common
      Stock
                      
                      
                      Series D Convertible Preferred
      Stock(1)Name of Beneficial Owner
                      
                      Beneficially Owned
                      
                      
                      Percent(2)
                      
                      
                      Beneficially Owned
                      
                      
                      Percent(2)D.
      Jonathan Merriman
                      
                      
                      1,347,377
                      
                      
                      
                      9
                      %
                      
                      
                      232,558
                      
                      
                      
                      1
                      %Peter
      V. Coleman
                      
                      
                      623,256
                      
                      
                      
                      4
                      %
                      
                      
                      232,558
                      
                      
                      
                      1
                      %Robert
      E. Ford
                      
                      
                      458,139
                      
                      
                      
                      3
                      %
                      
                      
                      58,139
                      
                      
                      
                      *Christopher
      L. Aguilar
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —John
      M. Thompson (3)
                      
                      
                      214,620
                      
                      
                      
                      2
                      %
                      
                      
                      116,279
                      
                      
                      
                      *Ronald
      L. Chez
                      
                      
                      10,192,375
                      
                      
                      
                      43
                      %
                      
                      
                      7,906,976
                      
                      
                      
                      34
                      %Andrew
      Arno (4)
                      
                      
                      1,895,346
                      
                      
                      
                      13
                      %
                      
                      
                      1,895,346
                      
                      
                      
                      8
                      %Douglas
      G. Bergeron
                      
                      
                      1,871,488
                      
                      
                      
                      12
                      %
                      
                      
                      1,860,465
                      
                      
                      
                      8
                      %Dennis
      G. Schmal
                      
                      
                      192,194
                      
                      
                      
                      1
                      %
                      
                      
                      116,279
                      
                      
                      
                      *Jeffrey
      M. Soinski
                      
                      
                      147,307
                      
                      
                      
                      1
                      %
                      
                      
                      116,279
                      
                      
                      
                      *William
      J. Febbo
                      
                      
                      419,195
                      
                      
                      
                      3
                      %
                      
                      
                      116,279
                      
                      
                      
                      *All
      directors and executive officers as a group [11 persons]
    (5)
                      
                      
                      17,361,297
                      
                      
                      
                      56
                      %
                      
                      
                      12,651,158
                      
                      
                      
                      55
                      %Highfields
      Capital Management LP (6)John
      Hancock Tower200
      Clarendon StreetBoston,
      MA  02116
                      
                      
                      1,146,461
                      
                      
                      
                      8
                      %
                      
                      
                      —
                      
                      
                      
                      —Grand
      Slam Capital Master Fund Ltd
                        2200
      Fletcher Ave
                        Fort
      Lee, NJ 07024
                      
                      
                      1,163,000
                      
                      
                      
                      8
                      %
                      
                      
                      1,163,000
                      
                      
                      
                      5
                      %Almond
      Ventures LLC
                        P.O.
      Box 2100
                        Mill
      Valley, CA 94942
                      
                      
                      1,000,000
                      
                      
                      
                      7
                      %
                      
                      
                      1,000,000
                      
                      
                      
                      4
                      %Michael
      E. Marrus
                      
                      
                      930,232
                      
                      
                      
                      6
                      %
                      
                      
                      930,232
                      
                      
                      
                      4
                      %Thomas
      Unterberg
                      
                      
                      813,953
                      
                      
                      
                      6
                      %
                      
                      
                      813,953
                      
                      
                      
                      4
                      %





*
              Less
      than one percent.





(1)
            Ownership
      of all Series D Convertible Preferred Stock shares was a result of
      investment in the Company’s strategic transaction of September 8,
      2009.





(2)
            Applicable
      percentage ownership is based on 13,593,131 shares of common stock
      outstanding as of March 31, 2010. Pursuant to the rules of the Securities
      and Exchange Commission, shares shown as “beneficially” owned include all
      shares of which the persons listed have the right to acquire beneficial
      ownership within 60 days of March 31, 2010, including (a) shares subject
      to options, warrants or any other rights exercisable within 60 days March
      31, 2010, even if these shares are not currently outstanding, (b) shares
      attainable through conversion of other securities, even if these shares
      are not currently outstanding, (c) shares that may be obtained under the
      power to revoke a trust, discretionary account or similar arrangement and
      (d) shares that may be obtained pursuant to the automatic termination of a
      trust, discretionary account or similar arrangement. This information is
      not necessarily indicative of beneficial ownership for any other purpose.
      Our directors and executive officers have sole voting and investment power
      over the shares of common stock held in their names, except as noted in
      the following footnotes.


113





(3)
              This
      amount shown as owned by Mr. Thompson includes 72,953 shares of common
      stock which was transferred to family members. Mr. Thompson disclaims
      beneficial ownership of these
shares.





(4)
            This
      aggregate amount shown as owned by Mr. Arno includes (i) 145,348 shares of
      Series D Convertible Preferred Stock and warrants to purchase 145,348
      shares of Common Stock held by each of MJA Investments LLC and JBA
      Investments LLC and (ii) 209,302 shares of Series D Convertible Preferred
      Stock and exercise of warrants to purchase 209,302 shares of Common Stock
      held by an individual retirement account for the benefit of Mr. Arno. Mr.
      Arno serves as investment advisor to each of MJA Investments LLC and LBA
      Investments LLC and disclaims all beneficial ownership of the securities
      held by each of those
entities.





(5)
            All
      directors and executive officers have the business address of 600
      California Street, 9th Floor, San Francisco, CA
94108.





(6)
            According
      to Schedule 13G/A filed February 16, 2009, Highfields Capital Management,
      LP is the investment manager to each of three funds: Highfields Capital I
      LP, Highfields Capital II LP, and Highfields Capital III LP (collectively
      the “Funds”). The Funds directly own 1,146,461 shares of common stock.
      Highfields Capital Management, LP; Highfields GP, LLC, the general partner
      of Highfields Capital Management, LP; Highfields Associates, LLC, the
      general partner of the Funds; Jonathon S. Jacobson, a Managing Member of
      Highfields GP and a Senior Managing Member of Highfields Associates;
      Richard L. Grubman, a Managing Member of Highfields GP and a Senior
      Managing Member of Highfields Associates are each members of a voting
      group that have voting power over the shares. Highfields Capital I LP has
      sole voting power over 117,912 of the shares. Highfields Capital II LP has
      sole voting power over 225,448 of the shares. Highfields Capital III LP, a
      Cayman Islands, B.W.I., has sole voting power over 803,101 of the shares.
      The securities were acquired from the Company as part of a private
      placement closed on April 3,
2003.


114


Item
13. Certain Relationships and Related Transactions




CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS




William
J. Febbo has been a Director of the Company since April 2007. Mr. Febbo was
Chief Executive Officer and founder of MedPanel, Inc., or MedPanel, an online
medical market intelligence firm, from January 1999 to April 2007. At MedPanel,
Mr. Febbo oversaw the company's sales, marketing, technology, finance and
content development organizations. Mr. Febbo also owned approximately 18% of the
common stock of MedPanel on a fully diluted basis. In April 2007, MedPanel, was
acquired by the Company pursuant to an Agreement and Plan of Merger, a binding
agreement which was signed in November 2006, and became Panel Intelligence, LLC,
a subsidiary of the Company. One of the terms of the Agreement and Plan of
Merger was that the Company would use its best efforts to cause Mr. Febbo to be
elected to the Company’s Board of Directors on which he remains. Under the terms
of this Agreement and Plan of Merger, the Company paid $6.5 million in common
stock for MedPanel. The selling stockholders of MedPanel would have been
entitled to additional consideration on the third anniversary from the closing
based upon Panel Intelligence, LLC (a Delaware corporation) achieving specific
revenue and profitability milestones. The payment of the incentive consideration
would have been 50% in cash and 50% in the Company’s common stock and may not
exceed $11,455,000.  The payment of the incentive consideration did not
occur as the milestones for additional consideration were deemed unachievable
and therefore no longer of value to previous MedPanel Shareholders. (seeRecent Events ,
below).




Mr. Febbo
and other investors formed Panel Intelligence, LLC (a Massachusetts
corporation), which acquired the assets of Panel Intelligence, LLC (a Delaware
corporation) from the Company on January 30, 2009.  The acquisition
consideration was $1.1 million, consisting of $1 million in cash and the return
of a number of shares of the Company’s common stock received in the acquisition
MedPanel with a value of $100,000.  Mr. Febbo continues to serve on the
Company’s Board of Directors but ceased to be an employee of the
Company.





The
Company formed a Strategic Advisory Committee of the Board of Directors chaired
by Mr. Ronald L. Chez, the lead investor in the Series D Convertible Preferred
Stock strategic transaction. During the first year, the Chair of the Committee
will be compensated with warrants to purchase 300,000 shares the Company’s
common stock at $0.65, to be issued pro rata on a monthly basis. As of December
31, 2009, 93,333 warrants were issued to Mr. Chez in connection with his service
on the Committee. To date, Mr. Chez is the sole member of the Committee. No
other compensation arrangement for service on the Committee has been made. Mr.
Chez receives no additional compensation for his service on the Board of
Directors.





On May
29, 2009, the Company issued and sold $625,000 in principal amount of Secured
Convertible Promissory Notes to a group of accredited investors, including Mr.
D. Jonathan Merriman, the Company’s Chief Executive Officer, and Mr. Ronald L.
Chez, who later joined the Company’s Board of Directors in September 2009. 
Mr. Merriman purchased $50,000 and Mr. Chez, $100,000 of the note.  The
note carried an interest of 11% per annum, payable on maturity.  Both the
interest and accrued interest were convertible in shares of the Company’s common
stock at $0.50 per share.  The principal and interest accrued under the
Note was converted into investment in the Company’s Series D Convertible
Preferred Stock transaction of September 2009.  In connection with the
transaction, Mr. Merriman received ten-year warrants to purchase 75,000 shares
of the Company’s common stock at $0.50 per share.  Mr. Chez received
ten-year warrants to purchase 150,000 shares of the Company’s stock at $0.50 per
share. Both Mr. Merriman’s and Mr. Chez’s warrants remain
outstanding.





Prior to
Mr. Chez joining the Board, the Company issued and sold a secured promissory
note (“Note”) to Mr. Chez in the principal amount of $500,000 from the Company
in July 2009.  The Note was issued in a private placement to Mr. Chez as an
accredited investor exempt from registration requirements.  The Note
carried an interest rate of 9% per annum, payable on maturity.  The
principal and interest accrued under the Note was converted into investment in
the Company’s Series D Convertible Preferred Stock strategic transaction of
September 2009.  The Note was issued with ten-year warrants to purchase
1,162,791 shares of the Company’s common stock at $0.65 per share, which remain
outstanding.  The Note was personally guaranteed by Messrs. Merriman and
Coleman.





Messrs.
Merriman and Coleman each originally received ten-year warrants to purchase
581,395 shares of the Company’s common stock at $0.65 per share as compensation
for their personal guarantees.  Subsequent to issuance, Messrs. Merriman
and Coleman each transferred ownership of 228,327 warrants to Mr. Chez and
retained ownership of 290,698 warrants each.  The balance of 62,370
warrants were transferred by each of Messrs. Merriman and Coleman to third
parties in connection with investments in the Company’s Series D Preferred
Convertible Stock strategic transaction of September 2009.


115




On
September 8, 2009, the Company closed its strategic transaction of $10.2
million.  The Company issued approximately 23,721,000 shares of Series
D Convertible Preferred Stock valued at $0.43 to approximately 50 accredited
investors including certain executive officers of the Company, including Messrs.
Merriman, Coleman, and Ford; and directors, including Messrs. Chez, Thompson,
Arno, Bergeron, Febbo, Schmal and Soinski.  Each share of the Series D
Convertible Preferred Stock is convertible to one share of the Company’s common
stock.  For each share of the Series D Convertible Preferred Stock,
the Company also issued to the same investor a five-year warrant to purchase one
share of the Company’s common stock at the exercise price of
$0.65.  The stock and warrants were issued in a private placement
exempt from registration requirements pursuant to Regulation D of the Securities
Act of 1933, as amended.  Mr. Chez acquired $3,400,000 of the Series D
Convertible Preferred Stock and associated warrants.  Mr. Arno
acquired $690,000, and Mr. Bergeron, $800,000.





On
September 8, 2009, the Company settled with seven litigants, including DGB
Investment, Inc. (“DGB”), a private investment company.  Mr. Douglas
G. Bergeron is the Chief Executive Officer and sole board member of
DGB.  Subsequent to the settlement, Mr. Bergeron joined the Company’s
Board of Directors.  Under the terms of the settlement, the Company
issued five-year warrants to purchase the Company’s common stock at an exercise
price of $0.65 per share to the litigants.  The Company issued such
warrants to purchase 105,846 shares to DBG.  In addition, the Company
assigned to the litigants, including DGB, certain rights to collect potential
judgment awards in the litigation against the Company’s insurance company, XCEL
Insurance.





On August
12, 2009, the Company obtained a Temporary Secured Demand Note (“Demand Note”)
in the amount of $1,329,000 from the D. Jonathan Merriman Living Trust (“Trust”)
as a subordinated loan.  The trustee of the Trust, D. Jonathan
Merriman, is also the Chief Executive Officer of the Company.  The
Demand Note was collateralized by securities held in a brokerage account at a
third party by the Trust.  The Demand Note was repaid on September 23,
2009 and the securities were transferred back to the Trust.  The
Company compensated the Trust with total interest and fees in the amount of
$179,000, the majority of which was reinvested in the Series D Convertible
Preferred Stock transaction.





On July
29, 2009, Mr. D. Jonathan Merriman, the Company’s CEO, made a short-term loan to
the Company in the amount of $200,000.  Mr. Merriman’s loan was repaid
on August 5, 2009.  Mr. Merriman forgave the interest on his
loan.





It is the
policy for the Board to review all related party transactions and to secure
approval by a majority of disinterested directors. Applying such policy is the
responsibility of each disinterested director for each transaction. Such policy
regarding related party transactions is not in writing; as such, the General
Counsel and the Corporate Secretary are responsible for advising on the
application of such policies.




Director
Independence




The
listing standards of The NASDAQ Stock Market, as well as the American Stock
Exchange, which the Company voluntarily withdrew its listings from in February
2008, require that a majority of our Board of Directors be comprised of
independent directors. The Board has determined that the following Board members
are independent, consistent with the guidelines of The NASDAQ Stock Market, as
well as the American Stock Exchange: John M. Thompson, Dennis G. Schmal, Jeffrey
M. Soinski, Ronald L. Chez, and Douglas G. Bergeron. The board based this
determination primarily on a review of the responses of our directors and
executive officers to questions regarding employment and compensation history,
affiliations, and family and other relationships, as well as on discussions with
the directors.  Accordingly, only independent members of the Board
constitute its Audit Committee, Nominating and Corporate Governance Committee
and its Compensation Committee.


116


Item
14. Principal Accounting Fees and Service





INDEPENDENT
REGISTERED PUBLIC ACCOUNTANTS’ FEES





Burr
Pilger Mayer, Inc. (“BPM”) served as the Company’s independent registered public
accounting firm for the fiscal year ended December 31, 2009 and is serving
in such capacity for the current fiscal year.  BPM was engaged in
August 2009.  Representatives of BPM were available at the Annual
Stockholders’ Meeting in 2009 and are expected to be available in future Annual
Stockholders’ Meetings. Such representatives will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions.





The
aggregate fees billed by BPM for professional services to the Company were
$505,500 in 2009.  Ernst & Young served as the Company’s
independent registered public accounting firm for the fiscal year ended
2008.





Audit
Fees.  The aggregate fees billed by BPM for professional
services rendered for the audit of the Company’s annual financial statements,
the review of the Company’s quarterly financial statements, the audit of
management’s report on the effectiveness of our company’ s internal controls
over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act
of 2002, and services that are normally provided in connection with statutory
and regulatory filings or engagements were approximately $440,700 in
2009.  Ernst & Young’s aggregated fees billed for professional
services rendered for the audit in 2009 were $185,500 and in 2008 were
$885,800.





Audit Related
Fees.  There were no aggregate fees billed by BPM or Ernst
& Young for 2009 and 2008, respectively, for professional assurance and
related services reasonably related to the performance of the audit of the
Company’s financial statements, but not included under Audit Fees.





Tax
Fees.  The aggregate fees billed by BPM for professional
services for tax compliance, tax advice and tax planning were $0 in
2009.  Ernst & Young’s aggregated fees billed for professional
services for tax compliance in 2008 was $25,500.These fees primarily related to
consultation for the preparation of the Company’s Federal, state and local tax
returns. These fees also related to assisting the Company with analyzing shifts
in the ownership of the Company’s stock for purposes of determining the
application of Section 382 of the Internal Revenue Code to the
Company.





All Other
Fees.  The aggregate fees for all other services rendered by
BPM were $64,800 in 2009, which primarily related to non-audit services
performed prior to BPM being appointed as the independent registered public
accounting firm for the Company. Ernst & Young’s aggregated fees billed for
all other services rendered in 2008 were $0.





The Audit
Committee has formal policies and procedures in place with regard to the
approval in advance of all professional services provided to the Company by its
independent registered public accountants. With regard to audit fees, the Audit
Committee reviews the annual audit plan and approves the estimated annual audit
budget in advance. With regard to tax services, the Audit Committee reviews the
description and estimated annual budget for tax services to be provided by the
Company’s tax consultants in advance. During 2009, the Audit Committee approved
all of the independent registered public accountants’ fees in
advance.


117




PART
IV




Item
15. Exhibits and Financial Statement Schedules





(a)
            1.
            The
      information required by this item is included in Item 8 of Part II of this
      Annual Report on Form 10-K.





2.
            Financial
      Statement Schedules




The
required schedules are omitted because of the absence of conditions under which
they are required or because the required information is presented in the
financial statements or notes thereto.




3.
            Exhibits





The
exhibits listed in the accompanying Exhibit Index are filed or incorporated by
reference as part of this Annual Report on Form 10-K.


118




SIGNATURES




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





Merriman
      Curhan Ford Group, Inc.April
      30, 2010
                  By:
                  /s/ D. Jonathan MerrimanD.
      Jonathan Merriman,Chief
      Executive Officer




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




Signature
                                        
                                        Title
                                        
                                        Date/s/ D. Jonathan Merriman
                                        
                                        Chief
      Executive Officer and
                                        
                                        April
      30, 2010D.
      Jonathan Merriman
                                        
                                        Director/s/ Peter V. Coleman
                                        
                                        Chief
      Financial Officer and
                                        
                                        April
      30, 2010Peter
      V. Coleman
                                        
                                        Principal
      Accounting Officer/s/ John M. Thompson
                                        
                                        Chairman
      of the Board of Directors
                                        
                                        April
      30, 2010John
      M. Thompson/s/ Andrew Arno
                                        
                                        Director
                                        
                                        April
      30, 2010Andrew
      Arno/s/ Douglas G. Bergeron
                                        
                                        Director
                                        
                                        April
      30, 2010Douglas
      G. Bergeron/s/ Ronald L. Chez
                                        
                                        Director
                                        
                                        April
      30, 2010Ronald
      L. Chez/s/ William J. Febbo
                                        
                                        Director
                                        
                                        April
      30, 2010William
      J. Febbo/s/ Dennis G. Schmal
                                        
                                        Director
                                        
                                        April
      30, 2010Dennis
      G. Schmal/s/ Jeffrey M. Soinski
                                        
                                        Director
                                        
                                        April
      30, 2010Jeffrey
      M. Soinski


119




EXHIBIT
INDEX




Exhibit No.
                  
                  Description3.1
                  
                  Certificate
      of Incorporation, as amended (incorporated herein by reference to Exhibit
      3.1 to the Company’s Registration Statement on Form S-1 (Reg. No.
      333-37004)).3.3
                  
                  Amended
      and Restated Bylaws, as amended. (incorporated by reference to Exhibit
      10.3 to the Company’s Registration Statement on Form S-1 (Reg. No.
      333-53316)).3.4
                  
                  Certificate
      of Amendment to the Certificate of Incorporation changing name from MCF
      Corporation to Merriman Curhan Ford Group, Inc. (incorporated herein by
      reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K
      filed on May 14, 2008 (Reg. No. 001-15831).4.1
                  
                  Form
      of Convertible Subordinated Note related to the Company’s private
      financing, dated November 26, 2001 (incorporated by reference to Exhibit
      4.1 to the Company’s Form 10-K for the year ended December 31, 2001) (Reg.
      No. 001-15831).4.2
                  
                  Form
      of Class A Redeemable Warrant to Purchase Common Stock of the Company
      related to Merriman Curhan Ford Group, Inc. private financing, dated
      November 26, 2001 (incorporated by reference to Exhibit 4.2 to the
      Company’s Form 10-K for the year ended December 31, 2001) (Reg. No.
      001-15831).10.13+
                  
                  Employment
      Agreement between the Company and D. Jonathan Merriman dated October 5,
      2000 (incorporated herein by reference to Exhibit 10.15 to the Company’s
      Registration Statement on Form S-1 (Reg. No.
  333-53316)).10.15+
                  
                  1999
      Stock Option Plan (incorporated herein by reference to Exhibit 4.1 to the
      Company’s Registration Statement on Form S-8 (Reg.
      No.333-43776)).10.16+
                  
                  Form
      of Non-Qualified, Non-Plan Stock Option Agreement dated February 24, 2000
      between the Company and Phillip Rice, Nick Cioll, Paul Wescott, Ross
      Mayfield, Russ Matulich, Terry Ginn, Donald Sledge, Christopher Vizas,
      Douglas Cole, Ronald Spears and Jonathan Merriman (incorporated by
      reference to Exhibit 4.2 to the Company’s Registration Statement on Forms
      S-8 (Reg. No. 333-43776)).10.17+
                  
                  Schedule
      of non-plan option grants made under Non-Qualified, Non-Plan Stock Option
      Agreements to directors and executive officers (incorporated herein by
      reference to Exhibit 10.19 to the Company’s Registration Statement on Form
      S-1 (Reg. No. 333-53316)).10.18+
                  
                  2000
      Stock Option and Incentive Plan, as amended (incorporated herein by
      reference to Exhibit 10.20 to the Company’s Registration Statement on Form
      S-1 (Reg. No. 333-53316)).10.23
                  
                  Master
      Equipment Lease Agreement dated March 16, 2000 (incorporated by reference
      to Exhibit 10.6 to the Company’s Registration Statement on Form S-1 (Reg.
      No. 333-37004)).10.29
                  
                  Agreement
      between the Company and BL Partners related to RMG Partners Corporation,
      dated April 8, 2001 (incorporated by reference to Exhibit 10.1 to the
      Company’s Form 10-Q for the quarter ended June 30, 2001) (Reg. No.
      001-15831).


120





Exhibit No.
                  
                  Description10.30+
                  
                  Offer
      of Employment Agreement between the Company and Robert E. Ford, dated
      February 19, 2001, is Exhibit 10.2 to Form 10-Q for the quarter ended June
      30, 2001, and is hereby incorporated by reference (Reg. No.
      001-15831).10.31
                  
                  Ratexchange
      Placement Agreement with Murphy & Durieu, dated November 28, 2001, for
      private financing transaction (incorporated by reference to Exhibit 10.31
      to the Company’s Form 10-K for the year ended December 31, 2001) (Reg. No.
      001-15831).10.32
                  
                  Form
      of Placement Agent Warrant to Murphy & Durieu, dated November 28, 2001
      (incorporated by reference to Exhibit 10.32 to the Company’s Form 10-K for
      the year ended December 31, 2001) (Reg. No. 001-15831).10.33
                  
                  Convertible
      Promissory Note held by Forsythe/McArthur Associates, Inc., dated
      September 1, 2001, related to restructure of Master Equipment Lease
      Agreement that is Exhibit 10.23 to Form 10K for the year ended December
      31, 2000 (incorporated by reference to Exhibit 10.33 to the Company’s Form
      10-K for the year ended December 31, 2001) (Reg. No.
      001-15831).10.34+
                  
                  Employment
      Agreement between the Company and Gregory S. Curhan, dated January 9, 2002
      (incorporated by reference to Exhibit 10.34 to the Company’s Form 10-K for
      the year ended December 31, 2001) (Reg. No. 001-15831).10.35+
                  
                  Employment
      Agreement between the Company and Robert E. Ford, dated January 1, 2002
      (incorporated by reference to Exhibit 10.35 to the Company’s Form 10-K for
      the year ended December 31, 2001) (Reg. No. 001-15831).10.37
                  
                  Stock
      Purchase Agreement by and among the Company and InstreamSecurities, Inc,
      (formerly known as Spider Securities, Inc.) and Independent Advantage
      Financial & Insurance Services, Inc., dated December 7, 2001
      (incorporated by reference to Exhibit 10.37 to the Company’s Form 10-K for
      the year ended December 31, 2001) (Reg. No. 001-15831).10.38
                  
                  Agreement
      to Restructure Convertible Promissory Note held by Forsythe McArthur
      Associates, dated November 20, 2002 (incorporated by reference to Exhibit
      10.38 to the Company’s Form 10-K for the year ended December 31, 2001)
      (Reg. No. 001-15831).10.39
                  
                  Securities
      Exchange Agreement in connection with Merriman Curhan Ford Group, Inc.
      dated June 22, 2003 (incorporated by reference to Exhibit 99.1 to the
      Company’s Form 8-K filed on July 3, 2003) (Reg. No.
      001-15831).


121





Exhibit No.
                  
                  Description10.43
                  
                  Stock
      Purchase Agreement by and between the Company and Ascend Services Ltd.,
      dated April 29, 2005; together with the following documents which form
      exhibits thereto: Escrow Agreement and Registration Rights Agreement
      (incorporated by reference to the registrant’s Report on Form 10-Q for the
      quarter ended March 31, 2005) (Reg. No. 001-15831).10.44
                  
                  Promissory
      Note issued by Ascend Services Ltd dated April 29, 2005 (incorporated by
      reference to the registrant’s Report on Form 10-Q for the quarter ended
      March 31, 2005) (Reg. No. 001-15831).10.45
                  
                  Employment
      Agreement between the Company and Gregory S. Curhan, dated January 1, 2005
      (incorporated by reference to the registrant’s Report on Form 10-Q for the
      quarter ended June 30, 2005).10.46
                  
                  Employment
      Agreement between the Company and Robert E. Ford, dated January 1, 2005.
      (incorporated by reference to the registrant’s Report on Form 10-Q for the
      quarter ended June 30, 2005) (Reg. No. 001-15831).21.1
                  
                  List
      of Subsidiaries of the Company.23.1
                  
                  Consent
      of Independent Registered Public Accounting Firm.23.2
                  
                  Consent
      of Independent Registered Public Accounting Firm.31.1
                  
                  Certification
      of Principal Executive Officer Pursuant To Section 302 of The
      Sarbanes-Oxley Act of 2002.31.2
                  
                  Certification
      of Principal Financial Officer Pursuant To Section 302 of The
      Sarbanes-Oxley Act of 2002.32.1
                  
                  Certification
      of Principal Executive Officer and Principal Financial Officer Pursuant to
      18 U.S.C. Section
1350.


+               Represents
management contract or compensatory plan or arrangement.


122